New Mexico Mercury

Editor’s Note: This is the first in an ongoing series examining private contractors doing business in New Mexico.

As the necessity for brutal austerity has been theoretically stymied by a typo, the pains of sequestration are being felt across the country in both the public and private sectors.  And although research from the economic study, Growth in a Time of Debt, may have been flawed and biased, the title could very appropriately be applied to the unabated trend of funneling public dollars to private contractors during the country’s economic downturn. 

The U.S. government currently directs 14 percent – more than $500 billion – of its budget to private contractors.  That’s double what it spent in 2000 according to Dan Gordon, former head of procurement for the White House.  So while the current budget cuts have a definite effect for both sectors, what’s not often discussed is the spigot for private outsourcing that has been wide open for more than a decade. 

Topping the list of public dollar beneficiaries are private war contractors and IT companies.  With more private contractors in Iraq and Afghanistan than U.S. soldiers, the top-ten receivers of U.S. tax dollars all have “defense” in their company description.  And while the invisible hand crowd laud the practicality and efficiency of outsourcing public sector jobs, a recent study by the Project on Government Oversight estimates that, “the government pays billions more annually in taxpayer dollars to hire contractors than it would to hire federal employees to perform comparable services.”  Which leads us to Science Applications International Corporation (SAIC).

SAIC was recently awarded a $228 million IT contract from Sandia National Laboratories.  As is typical with most activity at one of the largest nuclear weapons research facilities in the country, it was given scant, press release coverage in the local news.  Besides Sandia’s “beyond reproach” status as a job creator in the state, another reason for the light coverage may be SAIC’s self-described status as a “stealth company.”  According to Keith Nightingale, former high-level SAIC employee and Army Colonel, “We’re everywhere, but almost never seen.”

Indeed, SAIC is one of the least recognized, yet most pervasive forces in the government’s shadow intelligence and security state.  With current annual revenue of $11.2 billion and an $18 billion backlog of government business, it boasts 42 government contracts worth more than $100 million each. 

SAIC specializes in information services for the government intelligence and defense apparatus.  According to an exhaustive 2007 Vanity Fair exposé:

… SAIC is a body shop in the brain business.  It sells human beings who have a particular expertise – expertise about weapons, about homeland security, about surveillance, about computer systems, about ‘information dominance’ and ‘information warfare’… Indeed, SAIC is willing to provide expertise about almost anything at all, if there happens to be a government contract out there to pay for it – as there almost always is.  Whether SAIC actually possesses all the expertise that it sells is another story.

For a company that has reportedly turned a profit every year for nearly 40 years straight, one would imagine SAIC being studied in MBA programs across the country as a beacon of efficiency and well-honed corporate culture.  Instead, what we find is the embodiment of government outsourcing gone wrong.  SAIC’s history reads like a laundry list of cost overages, lawsuits, conflict of interests and ongoing contract awards in spite of amazingly poor business behavior and results. 

Below is a brief overview of some of SAIC’s misconduct according to the Project on Government Oversight’s Federal Contractor Misconduct Database:

• Iraq Contracts Investigation: The Pentagon’s inspector general found, “irregularities in both the award and administration of the contracts, including instances of improper or unsupported billing and weak oversight.

• Aircraft Components Fraud: SAIC was contracted to produce a flat-panel display for fighter jets.  The government claimed, “SAIC received millions of dollars but never produced a fully operational model and misled the government about the status of their progress. According to media reports, in December 1995, SAIC settled with the government and paid a fine of $2.5 million.”

• CityTime Contract Fraud: As the primary contractor to modernize the payroll system for New York City employees, SAIC’s contract was originally slotted to cost $63 million but ended up costing more than $600 million to date.  A former employee pleaded guilty to multiple fraud-related charges.  According the New York District Attorney, the illegal misconduct “extended across virtually every level of CityTime project; contractors and subcontractors systematically inflated costs, overbilled for consultant’s time, and artificially extended completion date.”

• Cost/Labor Mischarge: In 2,000 SAIC paid over $1 million to settle a case where the company fraudulently mischarged on a contract. 

• False Claims and Defective Pricing (United States ex rel. Woodlee v. SAIC): According to the DOJ, SAIC “has agreed to pay the United States $2.5 million to settle allegations that it made false claims and engaged in defective pricing on delivery orders with the Air Force for environmental clean-up at Kelly Air Force Base in San Antonio, Texas.”

• Sexual Discrimination Lawsuit: A former female employee sued the company for sex discrimination and breach of contract.  “She prevailed at trial in 1992 and won a $3.1 million jury award, which was later overturned on appeal. At a 1997 retrial on her breach of contract claim, she was awarded $1,250,000 in compensatory damages.”

• False Claims on DOEHRS Contract: In 2004 SAIC paid $484,500 to settle a False Claim Act violations lawsuit.  “The government claimed that SAIC repeatedly misrepresented its progress on the project and caused the government to overpay for its services.”

• Bid-Rigging on NAVO MSRC Contract: In 2009 the DOJ joined a whistleblower lawsuit involving SAIC and other companies.  The lawsuit alleges that “the defendants knowingly violated the False Claims Act when they submitted (or caused to be submitted) false claims and conspired to commit false claims under a $3.2 billion contract with General Services Administration (GSA)…”  In 2011 SAIC settled the lawsuit for $20.4 million and $4.5 million in attorney fees for the whistleblower. 

• False and/or Fraudulent Representations (U.S. v SAIC): The Nuclear Regulatory Commission claimed in a 2004 lawsuit that while SAIC was supposed to be providing unbiased services in creating guidelines on recycling radioactive waste it was also contracting and consulting with other companies that created a conflict of interest.  This conflict “led to SAIC submitting false and/or fraudulent bills and other statements to the government in violation of the False Claims Act.”  In 2008 SAIC was found guilty of submitting 60 false claims for payment as well as knowingly made 17 false statements to get claims paid.  The jury charged SAIC $1.97 million in damages, tripled to $5.91 million under the False Claims Act.  It also enacted penalties between $5,000 to $10,000 for each of the 77 false claims.

• Conflict of Interest Violations: Former Deputy Assistant Attorney General Mark A. Boster paid $30,000 to settle a suit that alleged a violation of the conflict of interest laws for federal employees.  In 1999, Boster left the Department of Justice and within one year contacted his former employer in regards to contract work for his then current employer SAIC.  “Boster's phone call was an apparent violation a law prohibiting certain senior officials from contacting the government on behalf of an employer within one year of leaving the government.”

The last example is probably the most indicative of the dysfunction in government outsourcing, in particular with defense contracts.  SAIC was founded by scientist  J. Robert Beyster and according to the Vanity Fair piece:

Beyster aggressively packed his company with former generals, admirals, diplomats, spies, and Cabinet officers of every kind to fill the company's board of directors and the upper echelons of its staff. These were the kinds of people who would always have easy access to the agencies they had left behind—and who someday might even go back into government.

Beyster also thought of an ingenious way to keep money floating in from this cast of government and military elite, he would grant them company stock.  In doing so, he created an inherent conflict of interest for government officials who work for SAIC and then return to work for Washington. 

SAIC's relative anonymity has allowed large numbers of its executives to circulate freely between the company and the dozen or so government agencies it cares about. William B. Black Jr., who retired from the N.S.A. in 1997 after a 38-year career to become a vice president at SAIC, returned to the N.S.A. in 2000. Two years later the agency awarded the Trailblazer contract to SAIC. Black managed the program. Donald Foley, a current SAIC director, came out of a top position at the Defense Advanced Research Projects Agency, the Pentagon group responsible for developing new military technology. SAIC might as well operate an executive shuttle service between its McLean, Virginia, offices and the C.I.A., the F.B.I., the Pentagon, and the Department of Energy.

While the American discourse becomes more divisive in regards to the gushing wound that is our national debt, media outlets, politicians and pundits continue to miss the inherent inefficiency and corruption involved in the ever increasing private outsourcing of public functions.  SAIC is but one example in a system where tax payer dollars are heisted or mismanaged with complicity of government officials.