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Report questions conflict of interest in Defense contracts

By Walter Pincus
Washington Post Staff Writer
Monday, February 1, 2010; A15

A Defense Department inspector general's report has stirred debate at the Pentagon over what constitutes a conflict of interest after the report determined that Pentagon test agencies gave $91 million in contracts for advice and assistance to corporations that helped develop the system.

The corporations had been awarded $8.7 billion to develop the Army's Future Combat Systems.

The report, which was released last week, says that McLean-based Science Applications International Corp. received $2.3 billion to help develop FCS and $25.8 million "for advisory and assistance services" to the FCS program office and the Defense and Army offices that tested elements of the system.

The inspector general says that the advisory service contracts won by SAIC conflicted with Defense regulations, but the department's office of operational test and evaluation and the Army's test command disagreed, based on their interpretations of the regulations.

Arnold L. Punaro, SAIC's executive vice president and a senior fellow on Defense Secretary Robert M. Gates's Defense Business Board, said the contracting agencies knew SAIC was a major contractor. The company reviewed whether it was in violation and decided it was "comfortable" that it was not.

As for the inspector general's report, Punaro said that it opened up questions about gray areas that have emerged as the Pentagon contracts out activities once performed by the military or government employees.

"Companies are looking for brighter lines" defining what contractors can do and what can be done only by government employees, he said.

Although Gates canceled the FCS last year, he kept elements of a family of high-tech ground and aerial vehicles, weapons and communication networks to continue modernizing the Army.

A hotline complaint triggered the inspector general's investigation. The complainant said that SAIC was bidding on a contract to provide advice on an FCS element and that SAIC had not acknowledged the importance of its role in FCS.

The inspector general's report, which was signed by Mary L. Ugone, deputy inspector general for auditing, supports the allegations. According to the report, in the case of an Army test and evaluation command contract, SAIC helped develop the threat representation used to test FCS, which the company also helped develop.

When an Army contracting officer raised that objection, SAIC disagreed, saying that its work did not present "a perceived or actual conflict of interest" because the company "does not test or evaluate any system" and only supports the "activities that support test and evaluation."

The inspector general commended the Army contracting officer who raised the issue. The inspector general also challenged SAIC's claims that it reviewed all contract offerings on its own and does not bid where it sees a conflict.

In one case, the inspector general's report said that SAIC "understated the company's involvement in FCS development" and that the government agency did not investigate whether there was a conflict.

The reason given was that SAIC had such advisory contracts earlier for the FCS, but the inspector general's report says that was before SAIC had become key in the system's development.

The Defense Department's director of operational test and evaluation disagreed with the inspector general's conclusion, saying that the SAIC advisory tasks did not directly relate to a single system or directly involve developing test requirements, test planning or evaluation.

The inspector general said that although there was no direct conflict, there was questionable judgment, noting that the contract solicitation said it excluded as bidders those "who have significant involvement in the development of the [Defense Department] systems that are under, or will be under [director of operational test and evaluation] oversight."

As a result of the report, the inspector general said, the office managing what was the FCS system agreed to not hire SAIC or any other system developer for advisory and assistance services when it can be avoided. The Army test command said it would avoid conflicts and had no plans to hire SAIC in the current fiscal year.

The director of operational test and evaluation was less responsive, saying only that he would determine whether it is appropriate to hire for advisory services a contractor with significant involvement in a system he would test or evaluate.

Punaro described what was going on as a "food fight between government contracting agencies" and the inspector general.

He also said that Ash B. Carter, the Defense undersecretary for acquisition, technology and logistics, has been dealing with new conflict rules required under the weapons systems acquisition reform act passed by Congress last year.

The first drafts were to be due late this month but have been postponed until late spring.

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