Potential for Conflict Grows With Government's Use of Contractors
Monday, August 18, 2008
For years, Science Applications International Corp. served as an adviser to the Nuclear Regulatory Commission on the development of rules for when radioactive materials could be released from nuclear facilities for recycling.
At the same time, SAIC worked as a contractor on just such a recycling project at a Department of Energy facility, but it did not disclose the conflict as required by federal regulations, according to evidence gathered by the Justice Department. A company executive also helped run an association that advocated for favorable recycling standards, and the firm was planning a business that could have been affected by rules it was helping to write, Justice documents show.
After hearing testimony about SAIC's apparent conflicts of interest, a federal jury recently found the firm guilty of making dozens of false and fraudulent claims for payment relating to the NRC work.
"We are deeply disappointed by the verdict, and we believe there are substantial grounds for an appeal, which we intend to pursue vigorously," the company said in a statement. Based in San Diego, SAIC has much of its operations in the Washington region and works for agencies across the federal government.
The case offers a rare glimpse at one of the consequences of the government's unprecedented reliance on contractors to help federal agencies: Consultants sometimes gain insider knowledge and help draft rules that could benefit their own bottom lines, procurement specialists said.
Because the acquisition workforce has not kept pace with the massive expansion of outsourcing in recent years, such conflicts rarely come to light. When they do, the government often is not able to address the problems, specialists said.
"This is the top of the iceberg," said Daniel Guttman, a procurement specialist at Johns Hopkins University who brought the case to the government's attention. "The government has basically never publicly reviewed whether the conflict of interests rules work. They don't."
Although the amount of money involved in the case was not large compared with other Justice probes, the department pursued the case for years because conflict of interest issues loomed large, a Justice official said.
"It's one of these cases that does go right to the heart of the procurement process," said the official, who spoke on condition of anonymity because he was not authorized to speak publicly about the case.
SAIC provides scientific, engineering and systems integration services to the Pentagon, Department of Homeland Security, intelligence community and other government agencies. More than a third of its 44,000 employees work in the Washington region.
In the July 31 decision, a federal jury concluded that the firm's executives knowingly concealed business interests that stood to benefit from its consulting role at the NRC. It found that SAIC had made 17 false statements and 60 false claims under the Federal False Claims Act. A U.S. District judge will determine the total amount of fines that SAIC must pay.
In a statement, SAIC disputed the findings, saying it had recommended that the NRC adopt more protective standards.
"We maintain that our work for the NRC was free of even the potential for a conflict of interest," the company said. "Our work for other customers was entirely independent of the possible NRC standards at issue in the case, as it was performed in support of the Department of Energy, a federal department that is autonomous, self-regulating, and separate from the NRC."
The case relates to work SAIC was doing in the 1990s. From 1992 to 1998, the company worked on an NRC report called "Radiological Assessments of Clearance of Equipment and Materials from Nuclear Facilities." The firm also provided "detailed and broad based technical assistance on the subject matter of the release and reuse/recycle of material and equipment from nuclear facilities," court records show. In 1999, SAIC received a follow-on contract from the NRC.
In 1996, while working under the NRC contracts, SAIC teamed up with British Nuclear Fuels to win an unrelated contract to decontaminate and decommission a radioactive Department of Energy facility in Oak Ridge, Tenn. That project involved the recycling of metals. In 1997, SAIC became a subcontractor on the Oak Ridge project.
SAIC claimed in court papers that it had no role in the recycling. But the Justice Department investigators found the firm provided "substantial advice" to British Nuclear about recycling for four years. Investigators also turned up an internal SAIC memo about what executives described as "major opportunities" for the firm "involving radioactive scrap recycling," documents show.
In another memo cited by Justice, an SAIC executive said the firm's work with the Energy Department and NRC would help it stand out in a growing business that the firm projected to be worth hundreds of millions of dollars in potential revenue.
"SAIC was looking at ways of taking advantage of these opportunities," say Justice Department records submitted in the case. "SAIC was interested in pursuing the billions of dollars worth of business that would result from DOE and other commercial nuclear facilities performing decontamination and decommissioning of their facilities."
During this time, an SAIC executive played a leadership role at the Association of Radioactive Metal Recyclers, a group that advocated for federal standards for the business. SAIC paid the executive's expenses while he participated in the association. Some members, including British Nuclear and SAIC, stood to benefit from such standards, both through the resale of metals and the avoidance of costs associated with putting radioactive waste in landfills, according to the Justice Department records.
The SAIC executive -- who was a company vice president and business developer -- served as a director of the board of the association and was directly involved in seeking favorable rules for the industry from the NRC, according to Justice. The executive, who is no longer with the company, also served on SAIC's contract with the NRC as the supervisor in charge of the firm's cost-benefit analysis.
SAIC said the executive's conflict was disclosed because his role in the association was cited in a biography included in contracting papers. But Justice said the mention was made in passing and did not constitute disclosure under federal regulations. "SAIC did not disclose this as an [organizational conflict of interest] relationship," Justice asserted in court papers. "If SAIC has an OCI Relationship to disclose it is not enough to simply bury it in the text of a Technical Proposal. If there is an OCI Relationship, it is not NRC's obligation to find it."
In 1999, the NRC discovered the conflict. It canceled the contract with SAIC the next year. Justice later began its investigation.
"Organizational conflicts of interest are a disease that a decade ago were rare and now in Washington are an epidemic," said Charles Tiefer, a contracting law professor at the University of Baltimore School of Law.