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Boeing Scandal Part of Deeper Problems at Pentagon

by David PhinneySpecial to CorpWatch
January 5th, 2005

Darleen Druyun, former weapons buyer for the U.S. Air Force, checked into a special women’s prison about 50 miles from the Gulf of Mexico in the heart of Florida’s Panhandle region this week, for a nine month stay, after pleading guilty to giving Boeing special treatment on an $23.5 billion government contract.

Her crime? Violating conflict of interest laws. Druyun had been talking about possible job opportunities with Boeing at the same time she was negotiating a contract that would let Boeing pump up the price tag by $6 billion on a lease agreement for one hundred 767s tankers.

Soon after the deal was inked, a Boeing executive at the mammoth Chicago-headquartered aviation and aeronautics firm ushered Druyun into the company as a vice president with an annual salary of $250,000 after she retired in late 2002.

Once a Pentagon star, Druyun, 57, spent most of her adult life climbing the rungs of the male-dominated Pentagon where she publicly cultivated an image as a hard-knuckled bargainer on billions of dollars in defense contracts with the nation’s largest defense companies. She was called the "Dragon Lady," but behind closed doors Druyun exercised a much cozier relationship when spending $30 billion a year, she admitted at her sentencing last fall. Since 2000, she gave special consideration on other billion-dollar contracts awarded to Boeing, a company where her daughter and future-son-in-law were given jobs, Druyun told the court.

Touted by the news media as the biggest Pentagon scandal in decades, the Druyun story of a military company receiving preferential treatment over its competitors is not an isolated one. Motives of the individuals involved may differ, but one outcome remains a constant: military contractors with one foot in the Pentagon door are becoming increasingly embedded with the bureaucrats who give them lucrative work

Problems Old and New

Part of the pattern is age old. For decades there has been a constant revolving door where career government officials routinely retire from government into highly paid jobs with military contractors. Meanwhile, corporate executives take sabbaticals from their industry jobs to punch time cards in positions of authority at the Pentagon before returning to their old haunts.

Take Lockheed, the largest military contractor in the United States, for example. Men who have worked, directly or indirectly for the company, hold the posts of secretary of the Navy, secretary of transportation, director of the national nuclear weapons complex and director of the national spy satellite agency, according to a recent profile of the company in the New York Times. The list also includes Stephen Hadley, who has been named the next national security adviser to the president, succeeding Condoleezza Rice.

Politicians who have lobbied for Lockheed at one point or another include Haley Barbour, the governor of Mississippi and a former Republican national chairman; Otto Reich, who persuaded Congress to sell F-16's to Chile before becoming President Bush's main Latin America policy aide in 2002; and Norman Mineta, the transportation secretary and former member of Congress.

Today, a new trend has become more glaring. They are seen in the stark numbers of contracts – large and small – that are made without meaningful competition in the private sector to land the best deal for the war fighter and taxpayer. And after some contracts are signed, program managers are being found to use the agreements for services outside the scope of the original agreement – sometimes worth billions of dollars.

For some critics, such abuse is the consequence of a drastic reduction in staffing to manage contracts. Since 1989, the Pentagon’s acquisition work force has been cut by more than 50 percent — the most dramatic downsizing in the entire federal government, which reduced overall employment by 20 percent during the same time.

Contract supervisors in the field who regret the downsizing of this workforce believe less staffing simply results in more abuse.

“If you’re on a highway and there aren’t any police around, what does the public generally do?” asks one quality assurance specialist with the Defense Contract Management Agency (DCMA) in southern California whose job it is to monitor contractor performance. “They speed.”

“War on Terrorism” Spending Spree

Some of these contract abuses have coincided with the recent spending spree for the “war on terrorism” which has increased Pentagon spending on contracts from $267 billion in 2000 to an estimated $310 billion in 2004.

In June of this year, a report titled “Rebuilding Iraq,” prepared by the Government Accountability Office (GAO), found that $715 million out of $3.7 billion obligated for reconstruction before September 20, 2003 had been spent outside the purview of what the Pentagon and other agencies had originally hired the contractors to do.

“Of the 11 task orders we reviewed,” said GAO comptroller David Walker during testimony before the House Committee on Government Reform, “seven were, in whole or part, not within scope.”

Halliburton, the Defense Department’s 800-pound gorilla in Iraq, with its sweeping $10-billion contract for military logistics, was just one of the major defense contractors that benefitted from the practice. A quick $1.9 million deal to plan for fighting oil fires that Walker found "clearly out of scope" quickly morphed into another secret multi-billion-dollar order for rebuilding Iraq’s oil industry.

“All parties -- including GAO and DoD (Department of Defense) -- agree that repairing Iraq's oil infrastructure would not have been within the scope” of the contract, Walker said. He added that the original $1.9 million order for dousing oil well fires positioned Halliburton to clinch the multibillion-dollar contract for oil reconstruction in March 2003.

Pentagon officials claimed they were operating under emergency circumstances, but a barrage of public outrage forced the Army to put the deal up for open competition although the initially secret arrangement effectively grew to $2.5 billion in payments, half of which was then paid for with seized assets from Saddam Hussein’s toppled regime.

The GAO report only went so far. It never mentioned one of the most controversial agreements of the past year that allowed the Pentagon to hire private interrogators from a Virginia-based company called CACI to work at the Abu Ghraib prison through what was originally a database contract with the Department of Interior office in Arizona with an entirely different company. Several of these interrogators were implicated in the investigation of torture and mistreatment of prisoners in a classified Pentagon report that was leaked to the press last May.

Another investigation discovered that the Pentagon had exploited the Federal Technology Service (FTS), a government-wide clearing house for pre-approved technology contracts. Seventy-five percent of the $5 billion in sales that FTS does annually is with the military.

But the Pentagon was found to often use the FTS for purposes other than technology, such as construction and mental health services, or to carefully select a preferred contractor for agreements that sometimes grew by two, ten, and even 100 times over the original dollar value with no competition.

One Army contract through the FTS provided interrogators for the U.S. detention facility at Guantanamo Bay, Cuba, where prisoners are held as part of the war on terrorism. When the General Services Administration discovered in 2002 that the technology contract was being used inappropriately, the Army moved the contract with Affiliated Computer Services Inc., now a subsidiary of Lockheed Martin Corp, to another management agency at the Interior Department. (That same Interior agency, called the National Business Center, also managed the CACI interrogation contract for Abu Ghraib.)

Investigations of Affiliated Computer Services and CACI found no wrongdoing on the part of either company. Whatever happened to the Army officials who in wrongly ordered the interrogation services to be grafted onto technology contracts was never made public.

Moves in Congress to sever the Pentagon’s business with FTS were aborted last year after intense last-minute lobbying by trade groups representing military contractors.

Buy Native American

Military contractors have also recently been exploiting another major loophole to win lucrative contracts by partnering with corporations run by native American tribes, because tribal companies enjoy special status under law that allow them to receive contracts without first competing against other companies.

Recent news stories have reported that after landing the contracts, the tribal businesses – mostly Alaska native corporations – then frequently subcontract the work, according to writer Michael Scherer of Mother Jones magazine.

“The system was established in the mid-1990s to help native communities, where unemployment rates often exceed 40 percent,” Scherer notes in the January 2005 issue. “It has also become a way for large corporations with no Native American ownership to receive no-bid contracts, an avenue for federal officials to steer work to favored companies, and a device for speeding privatization.”

One tribal company, Olgoonik Corporation, won a $225 million contract for construction work on U.S. military bases and embassies, but much of the actual work is being done by Halliburton, Scherer reports. (See also Private Company Manages Daily Bombing of Korean Village)

The Los Angeles Times also recently identified two similar contracts worth as much as $1 billion signed with two small Alaska Native firms for security services as 36 military bases without competitive bidding. Part of the work was then subcontracted to two of the country's largest security firms: Wackenhut Services and Vance Federal Security Services, despite the fact that the same two companies both lost in contract competitions against other companies for similar security contracts, according to reporter T. Christian Miller.

Congressional Democrats have called for further investigation saying that such arrangements are “sleight of hand.”

Cutting Red Tape, Increasing Prices

Another challenge is the decade-long trend to reform the Pentagon’s acquisition regulations and culture so that private military contractors are considered trusted “partners” in the nation’s security rather than adversaries across the bargaining table who are to be closely supervised on performance and cost.

“What once was considered corruption is now considered standard operating procedure,” comments Danielle Brian, executive director of the watchdog group, Project on Government Oversight, known as POGO. “It’s depressing.”

POGO and similar groups have taken aim at a number of military contracting practices that have been put into place under the guise of acquisition “reform,” which lessen government oversight and provide contractors the opportunity to pump up charges.

One such reform allows the Pentagon to label weapons purchases as “commercial” buys, which waives close scrutiny of costs. The purpose behind commercial items was to cut red tape on purchases of common items such as office supplies, hardware and other items available to the public. But the Air Force took that practice a step further when it deemed the C-130J propeller driven transport plane as a commercial “off-the-shelf” item in 1995, despite the fact that the planes have never been sold commercially or even passed safety muster for the military missions they were designed for.

Since then costs for the plane have soared from $33.9 million each to $66.5 million apiece. The Air Force has spent $2.6 billion on 50 of these planes despite the fact that a recent report by the Pentagon’s inspector general blames Lockheed, the manufacturer, for 33 deficiencies in the planes including cracked propellers and faulty missile defense systems. (Druyun was part of the closed door meetings to approved the initial pricing on the plane)

“If it is deployed in combat, you are putting people's lives in danger,” said Ken Patellas on ABC News in November. Patellas, a DCMA engineer in Marietta, Georgia, has been warning the Pentagon for years about the problems. Ten years later, the Pentagon is finally considering canceling the C-130J program as a cost-savings move.

Isolated Circumstances?

Defenders of the status quo claim that each of these abuses are isolated and not reflective of the good work being done. Others find a growing need for concern over faulty contracts that overcharge and avoid competition that might deliver better value and pricing.

"Much of what's wrong is a perception, because people aren't getting the full story,” said the Pentagon’s top contract policy official, Deidre Lee, during a lengthy interview last summer at her Pentagon office. Tacitly expressing frustration with the news media, she added: “You don't hear about the 90 percent of the people or the 99.5 percent of the people who are using these things right and properly, getting better services at the right price and doing a good job.”

Angela Styles, the former head of procurement policy for the Bush administration, who resigned last year, disagrees.

“It’s not isolated, it’s a trend,” she says, believing that many of the acquisition reforms have led to sloppiness and sometimes fraud. She also has problems with the Pentagon culture that views contractors as business partners instead of companies with their own self interest.

“In business, you don’t view your contractors as partners,” she said. “You hold them at arms length.”

That is a lesson that Darleen Druyun may now be learning as she settles into her temporary new home in Marianna, Florida.

David Phinney may be contacted at phinneydavid@yahoo.com