SAIC Case Sheds Needed Light on World of Government Contracting

By Steven Pearlstein
Friday, July 10, 2009

Science Applications International Corp. is not only one of the federal government's largest contractors -- with more 17,000 Washington area employees, it is the region's fourth-largest private employer. So it is of more than passing interest that after a lengthy investigation, the Justice Department has now accused company executives of conspiring with corrupt Navy officials to rig a 2004 computer contract potentially worth billions of dollars.

Last week the Justice Department asked a federal judge in Jackson, Miss., to order the company to pay damages that could top $350 million -- a lot of money for a company that earned $450 million last year. A judgment might also lead the government to temporarily suspend SAIC from competing for new contracts.

In its suit, the government alleges that Stephen Adamec and Robert Knesel, the director and deputy director of the Navy computer center at the Stennis Space Center in Mississippi, began meeting with another former Navy computer manager, Dale Galloway, in 2002 to devise a plan for expanding computer operations at Stennis.

The next year, according to the government, Galloway formed a shell company and approached SAIC executives with the idea of bidding together on contracts that might become available under the new program, to which they gave the catchy title of the National Center for Critical Information Processing and Storage, or NCCIPS. During that time, top SAIC officials met frequently with Knesel and Adamec to design the program. According to the complaint, they met with the top computer official at the new Department of Homeland Security to win his participation in the program, and hired a lobbyist who began meeting with members and the staff of the Senate Appropriations Committee to win earmarked funding for the project. Lockheed Martin, another big contractor that was already doing extensive work at Stennis, was recruited as a member of the SAIC team.

In and of itself, there is nothing illegal or even unusual with any of that. Empire building is a common affliction among federal agencies, which often team with government contractors to lobby Congress for funding. It's also not improper for agencies to seek out the advice of experienced contractors about projects they might be contemplating that could be the basis of future contracts.

What was illegal, according to the Justice Department, was that in the course of these conversations, Adamec and Knesel gave SAIC, Galloway and Lockheed crucial information that gave them an advantage over other bidders when the request for proposals was finally sent out in February 2004. The government also charges that Knesel and Adamec carefully structured the request for proposals so that only SAIC and a handful of other companies would be qualified to bid for the work, and that the specifications were drawn in such a way that SAIC would be the winner.

Indeed, in the spring of 2004, SAIC was awarded the "task order," beating out the only other bidder, Anteon. Although Anteon had offered to do the work at a lower price, the selection committee criticized Anteon for lacking "a complete understanding of the full scope of the requirement." Maybe that had something to do with the fact that Anteon hadn't spent the previous six months huddled with the contracting officers designing the project.

By July, however, David Magee, a GS-13 computer scientist at Stennis, had dropped a dime on his bosses. An inquiry began and Knesel was put on administrative leave, only to be reinstated in February 2005 with instructions that he "not provide direction to current . . . contractors or future operations with any prospective contractor." The Navy figured that would settle the matter, but it didn't. Magee filed a whistleblower suit under the False Claims Act, and the Justice Department and Naval Criminal Investigative Service got involved. And that's when the real fun began.

According to the government, in October 2006, after being notified of Justice's investigation, Adamec put all of his office documents relating to the NCCIPS in burn bags and gave instructions to his staff to do the same. The government claims he also instructed Knesel to have the hard drive and all backup disks to his computer destroyed -- a task that was eventually carried out by one of Galloway's employees.

SAIC denies that it knew of, or participated in, any bid rigging or destruction of documents, and that the work it performed under the contract was first rate. Arnold Punaro, an executive vice president at SAIC, told me that the company has already done two investigations into the matter -- one by its own attorneys, another by the law firm Jenner & Block -- neither of which found any evidence of wrongdoing. It has now hired another firm, WilmerHale, to do a third.

For its part, Lockheed Martin says it has nothing to answer for now that the Justice Department decided to drop it as a named defendant in the False Claims Act suit. Maybe at trial somebody from Lockheed Martin will explain why nobody from the company found it in any way strange that it had just won part of a multibillion-dollar contract by teaming up with a shell company (Galloway's) that had no employees, no contracts and no contracting history.

The government's case, at least as laid out so far, has its own glaring weakness: the lack of a motive for Adamec and Knesel to participate in such a risky venture. So far, the government has cited no evidence of money changing hands.

On the other hand, the government's recitation of events has the kind of sleazy authenticity that would be familiar to anyone who has spent time in the contracting world, where gaming the rules is hard-wired into the culture and personal relationships are no less important than overhead rates in determining who gets the business.

By the way, SAIC's disputed contract finally ran out last year, and after revising it the government once again put the work out for bid. The winner? You guessed it: SAIC.

Steven Pearlstein can be reached at

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