Category: Contractor Misconduct

When the Pentagon admitted yesterday that high-tech electrical fuses for Minuteman nuclear warheads were mistakenly shipped to Taiwan from Hill Air Force Base in Utah in 2005 2006, military officials gave the impression that the Defense Logistics Agency was responsible for the snafu. What the Pentagon did not bother to mention is that three four years earlier, management of distribution activities at Hill was placed in the hands of a private contractor—EG&G Technical Services. The contract was awarded after the company was deemed to have won an A-76 public-private competition for the work. Shortly after the contract award, EG&G was acquired by URS Corporation, which later consolidated EG&G’s operations with its Lear Siegler Services operation.

In June 2002 the Defense Logistics Agency put out a press release that reads in part:

DLA Affirms Distribution Depot A-76 Competition Result

Fort Belvoir, Va. — The Defense Logistics Agency announced today the final decision on the public-private competition for performance of distribution operations at Defense Distribution Depot Hill, Utah (DDHU).

On April 5, 2002 a tentative decision was announced selecting EG&G Technical Services Inc., headquartered in Manassas, Va. to perform the distribution operations at the depot.

The DLA Administrative Appeal Authority received and considered appeals of the tentative cost comparison decision from the DDHU employees, AFGE Local 1592, and EG&G Technical Services, Inc.

A few weeks earlier, after a tentative decision to award the contract to EG&G had been made, the company issued its own release, which specifically referred to Minuteman missiles:

EG&G Technical Services, Inc. Selected To Perform Distribution Operations Contract At Utah’s Hill Defense Distribution Depot

MANASSAS, VA — April 16, 2002 — EG&G Technical Services, Inc., Installations and Logistics Division, is pleased to announce it has been tentatively selected by the U.S. Defense Logistics Agency (DLA) to provide storage and distribution services at Defense Distribution Depot Hill, Utah (DDHU).

Under the proposed contract, EG&G will provide parts and materials storage and distribution services to support the U.S. Air Force, Hill Air Force Base, Ogden Air Logistics Center and other military customers. Specifically, EG&G will store and distribute parts and materials for F-16 “Fighting Falcon” and C-130 Hercules aircraft; Minuteman and Peacekeeper missiles; the Emergency Rocket Communication System and other general maintenance functions.

EG&G previously has won three similar contracts at DLA Depots at San Antonio, Texas; Warner Robins, Georgia; and Barstow, California. As at the other locations, EG&G anticipates that virtually all employees at the Utah depot would come from the existing Department of Defense workforce and the local community.

Lex Allen, Vice President and General Manager of EG&G Installations and Logistics Division, said, “We are very excited about being selected for the Hill Depot award. It represents another key step in fulfilling our strategic vision to be the premier provider of logistics support to the Defense Logistics Agency. We are eager to work with the current Government employees at Hill and our plans include offering them jobs first – the workforce at Hill Depot is known for its work ethic and commitment to customer satisfaction. We have demonstrated success at other depot operations in offering employment to all existing employees who were interested in joining EG&G.”

Following a routine contract process, expectations are that the DLA will finalize the contract award sometime in June.

Like the passport scandal of last week, this may turn out to be another case of contractor mismanagement.

It’s bad enough that employees of a military contractor, Stanley Inc., were taking unauthorized looks at the passport records of presidential candidates. Now it turns out that the other company involved, The Analysis Corp. (TAC), is a contractor for intelligence agencies and is a subsidiary of a larger foreign-based security company that has been involved in Iraq.

Many of today’s news stories depict TAC as just another contractor, though the Wall Street Journal notes that its CEO John Brennan is the former head of the National Counterterrorism Center. TAC, the Journal adds, has done work on the State Department’s terrorist watch list.

What the Journal does not mention is that TAC, based in McLean, VA, was acquired in 2003 by SFA Inc., whose website says: “We support national security initiatives across the world by leveraging our deep domain and analytical expertise in security and defense to rapidly develop and transition technologies and systems into operational solutions.” Among its specialties is “counter-terrorism and intelligence.”

Last year, SFA was acquired by Global Strategies Group (known as GLOBAL), a British-owned “international provider of security and risk mitigation strategies.” Among other things, GLOBAL is one of the controversial private security contractors operating in Iraq. Its main activity there has been to provide security for Baghdad International Airport. In 2005 it showed its commitment to that mission by shutting down the airport for a period of time to pressure the Iraqi government in a billing dispute. Last year, the U.S. branch of Global Strategies named as its president John Hillen, who had just left his post as Assistant Secretary of State for Political-Military Affairs–the same State Department involved in the passport affair.

What’s next—will it turn out that Blackwater is also involved?

My hunch from last night was correct: Stanley Inc. (also known by the name of its subsidiary Stanley Associates) is one of the employers of contract workers who improperly viewed the passport file of Sen. Barack Obama. It now seems that the files of Senators McCain and Clinton were violated as well, so perhaps the speculation about political skulduggery is unfounded.

Yet that still leaves a host of questions related to the growing reliance of the State Department and other federal agencies on contractors such as Stanley, which until today was far from a household name. Yet it’s been around for more than three decades, making its money—like the scores of other Beltway Bandits that populate the office buildings of the Washington, DC area—from the federal spigot.

Stanley started as a maritime consultant and now provides “information technology services and solutions.” In its most recent 10-K filing, Stanley reported getting 65% of its revenue from the Pentagon and 35% from more than three dozen civilian agencies, most notably the State Department.

Stanley used to be a pretty small operator, but over the past decade it has grown at the remarkable rate of 33% a year, reaching more than $400 million. Although the company is publicly traded, it is majority-owned by officers, directors and employees (the latter through an employee stock ownership plan).

While the passport contract is the one in the news, Stanley is largely a military contractor. It brags that some 53% of its 2,700 employees have Secret or Top Secret security clearances. CEO Philip Nolan is ex-Navy, and his board includes retired generals from the Army and the Marine Corps. Stanley doesn’t produce weapons—it provides the systems engineering, operational logistics and other services that keep the high-tech war machine running.

In the 10-K filing, where it is addressing investors rather than the public, the company is blunt about why it expects continuing growth: “increased spending on national defense, intelligence and homeland security” and “increased federal government reliance on outsourcing.” In other words, its business strategy is fundamentally based on the continuation of the “War on Terror” and the steady hollowing out of the federal workforce.

The company goes on to list the specific risk factors that might affect the value of its shares. Here’s one of particular interest (see pp.20-21):

Security breaches in sensitive government systems could result in the loss of customers and negative publicity.

Many of the systems we develop, integrate and maintain involve managing and protecting information involved in intelligence, national security and other sensitive or classified government functions. A security breach in one of these systems could cause serious harm to our business, damage our reputation and prevent us from being eligible for further work on sensitive or classified systems for federal government customers. We could incur losses from such a security breach that could exceed the policy limits under our professional liability insurance program. Damage to our reputation or limitations on our eligibility for additional work resulting from a security breach in one of the systems we develop, install and maintain could materially reduce our revenues.

It will be interesting to see if the passport scandal has this negative effect, or if the federal government protects Stanley from its operational shortcomings.

Note: It’s just been reported that another company–Analysis Corporation–is also involved in the passport scandal. More on them later.

As this is being written late in the evening of March 20, the State Department has not yet revealed the name of the contractor(s) whose employees improperly peeked at the passport files of Sen. Barack Obama.

My money is on Stanley Inc., a Virginia company that has done extensive work for the Department’s Passport Services Directorate and only a few days ago was awarded a new $570 million contract to do more of the same. The company’s announcement of its good fortune began as follows:

ARLINGTON, Va., March 17 /PRNewswire-FirstCall/ — Stanley, Inc. (NYSE: SXE), a leading provider of systems integration and professional services to the U.S. federal government, today announced that it was awarded a five-year, $570 million contract to continue support of the U.S. Department of State, Bureau of Consular Affairs/Passport Services Directorate. Services include production, operational and business process support training, procurement, administration and evaluation of critical supplies, and facilities management support at the four Centers and 14 Passport Agencies nationwide along with the Headquarters’ support offices.

The release also says:

“Stanley is honored to continue its support services to the Department of State,” said Phil Nolan, Stanley chairman, president and CEO. “We will dedicate all resources necessary to assist Passport Services during this time of unprecedented growth and increasing demand…”

Even if it turns out that the workers involved in the electronic trespassing into Obama’s records were indeed Stanley employees, it is too early to say whether the company was in any way culpable in the matter.

But one thing that would add to the appearance of impropriety is that CEO Nolan has, according to the Open Secrets database, been a campaign contributor to Sen. Joe Lieberman, a leading supporter of Obama’s Republican adversary John McCain. In March 2005 Nolan gave $1,000 to Lieberman’s reelection campaign.

Since 2005, Nolan has also contributed a total of $5,350 to the election campaigns of Republican Rep. Tom Davis of Northern Virginia, where Stanley is headquartered and where Nolan apparently lives. He also gave $1,000 to Republican Senator Susan Collins of Maine last December. Nolan’s only other federal contributions were to the political action committee of his trade association, the Professional Services Council. According to Open Secrets, during the 2006 election cycle (which is when Nolan made his contributions), the Council gave 70 percent of its money to Republicans.

Whether or not Stanley Inc. is named in the Obama matter, the company may find itself answering questions about its passport operations. And members of Congress will hopefully also be asking whether the whole affair is, among other things, yet another reminder of the perils of outsourcing.

UPDATE (March 22): After this post was written, additional information appeared on the Open Secrets site indicating that Nolan recently contributed $1,000 to the presidential campaign of Sen. Hillary Clinton. And, as has been widely reported, it turns out that the passport files of Senators Clinton and McCain were also accessed improperly.