Boeing Co. received at least $49 million in excessive profits on a $1.2 billion contract to supply explosives-detection systems to hundreds of the nation's airports, the Department of Homeland Security's inspector general reported yesterday.
The Chicago-based company won the bidding for the Transportation Security Administration contract in June 2002 to install X-ray machines and trace detection devices at more than 400 airports by Dec. 1, 2003. The contract was expected to be worth $508 million, but it was extended and increased to $1.2 billion.
"It was a TSA problem, this was the contract they agreed to," said Clark Kent Ervin, the department's inspector general. "Boeing was not the lowest bidder; it was the highest bidder in terms of total cost and in terms of the fees."
The TSA said it awarded the contract to Boeing because the company could provide the most efficient and quickest solution at a time when the agency was rushing to meet deadlines set by Congress after the Sept. 11, 2001, terrorist attacks.
"As a new agency, TSA needed to rely heavily on private industry to meet those congressional mandates," said Amy von Walter, a TSA spokeswoman. "Boeing was selected based on the merit of its proposal, which included detailed contingency plans to ensure all deadlines were met."
Boeing has billed the TSA $889 million so far, including $106 million in profit. About $49 million of the profit is excessive compared with acceptable levels at other agencies, according to the inspector general's report. For example, Boeing received $44 million in award fees, which are usually a reward for good performance, during the first 18 months of the contract, but the TSA had not evaluated the company's accomplishments during the period.
The deal failed to conform to standard contract regulations, the report said. Boeing was reimbursed for the cost of its services, which includes a small profit margin. Boeing was also awarded additional profit automatically based on a percentage of its costs, the report said.
Through August 2003, Boeing incurred costs of $39 million and a profit of $82 million, for a return of 210 percent, the report said.
The contract will expire at the end of the year, and a competition will be held to determine who will continue to maintain the machines, the TSA said.
"We did a job that everybody said could not be done in the time frame that was allotted it," said Fernando Vivanco, a Boeing spokesman. "We are pleased to have helped the TSA restore the confidence of the traveling public."
The inspector general's report comes as Boeing, the Pentagon's second-largest contractor, is seeking to emerge from controversy surrounding its defense-related work. This month, a former Air Force procurement officer admitted favoring the company in contract awards, sparking a Pentagon inspector general review of many of the company's recent competitions.
Boeing acted as a general manager on the TSA contract, with 92 percent of the work performed by subcontractors. Two other contractors provided the machines, and Boeing's job was to decide how many of the machines each airport needed and where they should be located and to oversee their installation and maintenance.