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US: Technology Company Hired After 9/11 Charged Too Much for Labor, Audit Says

Federal auditors say the prime contractor, Unisys Corp., overbilled taxpayers for as much as 171,000 hours' worth of labor and overtime by charging up to $131 an hour for employees who were paid less than half that amount while working on a $1 billion technology contract to improve the nation's transportation security system.

by Robert O'Harrow Jr. and Scott HighamThe Washington Post
October 23rd, 2005

Federal auditors say the prime contractor on a $1 billion technology contract to improve the nation's transportation security system overbilled taxpayers for as much as 171,000 hours' worth of labor and overtime by charging up to $131 an hour for employees who were paid less than half that amount.

Three years ago, the Transportation Security Administration hired Unisys Corp. to create a state-of-the-art computer network linking thousands of federal employees at hundreds of airports to the TSA's high-tech security centers.

The project is costing more than double the anticipated amount per month, and the network is far from complete -- nearly half of the nation's airports have yet to be upgraded. Government officials said last week that the initial $1 billion contract ceiling was only a starting point for the project, which they recently said could end up costing $3 billion.

Procurement specialists said the Unisys contract illustrates the pitfalls of relying on corporations to manage ambitious homeland security contracts with little oversight from a thinly stretched federal procurement force. Since the Sept. 11, 2001, terrorist attacks, several projects have experienced similar problems with cost and performance, including efforts to hire federal airline passenger screeners and to place bomb detectors and radiation monitors at airports and seaports.

In two reviews conducted last year, federal auditors found that Unisys charged higher per-hour labor rates than were justified for lower-level employees, according to copies of the audits obtained by The Washington Post. For example, Unisys billed taxpayers $131.12 an hour for a technical writer who should have made no more than $46.43 an hour. The extra money was generally not passed along to the employees but was kept by the company.

Last spring, the auditors referred findings of "suspected irregularity" to the Office of the Inspector General at the Homeland Security Department, which includes the TSA, according to copies of the audits and referral.

The contract is under review for possible violations of the federal False Claims Act, according to documents and interviews. A spokeswoman for the inspector general's office declined to comment.

"There certainly was no attempt here to commit any type of misdeed of any form," said Tom Conaway, managing partner of homeland security for Unisys who is overseeing the contract.

Unisys of Blue Bell, Pa., inappropriately charged some of the highest rates possible under the contract by labeling lower-level employees as experts in their fields, the auditors found. Unisys said the employees' experience and responsibilities merited the higher rates.

At the same time, the auditors discovered that timesheets were repeatedly adjusted to change job and labor categories long after the work was performed without "adequate explanations," the auditors said.

"We found significant internal control weaknesses regarding the reliability of the recorded labor hours," said auditors from the Defense Contract Audit Agency, which was hired by the TSA last year to examine the Unisys contract. "We were unable to quantify the impact of the adjustments due to the lack of verifiable documentation."

The TSA has not publicly released the audits. The Post obtained copies independently.

Conaway acknowledged that Unisys had problems with its internal financial controls. He also said that employees miscoded timesheets and that mistakes were not caught until months later because the company was pushing to meet the demands of the contract.

"Our discipline on some of our internal processes lapsed a little bit," he said.

Conaway said the company, in partnership with the TSA, has since begun a new program, "Project Bedrock," to improve oversight and resolve questions raised by the audits, including a plan to review all of the labor hours billed under the contract. He also disputed the audit findings on the overtime.

TSA officials acknowledged that they were initially not well-prepared to manage the contract but were able to identify problems and refer them to auditors. The officials say they have since hired more staff members and improved oversight. They declined to comment on the findings of the audit.

"Given that we are currently working through audit results, TSA cannot speculate on the nature of those issues or how they may or may not have impacted the scope of work completed to date," said Yolanda Clark, chief spokeswoman for the TSA.

As of last month, less than halfway through the contract, Unisys had already billed the government $940 million. Conaway said the cost soared in part because the TSA and Homeland Security Department added more work to the contract. In addition, he said, the money earmarked for the project was never expected to be enough to achieve the system the TSA wanted within the desired time frame.

The $1 billion ceiling cited in contract documents at the time was simply a guess to get the project started, according to Patrick Schambach, the former chief information officer at the TSA who managed the project. Government officials who spoke at a background briefing said last week that they knew at the time that the project would cost closer to $3 billion but used the $1 billion figure because it would be more palatable to Congress. Schambach said senior Transportation Department officials told him to cite the $1 billion figure.

"That $1 billion was a number out of the air, frankly," said Schambach, who now works in the private sector for a government contractor. "I had no clue if that number was going to be enough to carry us," he said. "All I got from the DOT was, 'When you hit $1 billion, come back to us.' "

The nation's 27 largest airports are now on the high-speed network. But more than half of the country's airports where the TSA has a presence -- 228 of 443 -- still are not.

"They're not getting the secure-type information we were led to believe that this project among others would produce," said Stephen Van Beek, executive vice president for Airports Council International-North America, a trade group that represents the top airport authorities in the nation. "You have to have good information, and we're not getting that, and people are frustrated."

During the confusion that accompanied the Sept. 11, 2001, terrorist strikes, transportation security authorities were certain about one thing: The nation's aviation system needed state-of-the-art information technology to prevent another attack.

"The mindset at the time was an extreme sense of urgency," said Conaway, the Unisys executive.

The tasks included outfitting the TSA's headquarters with laptop computers, cell phones and other digital essentials. The project called for giving TSA officials at airports access to high-speed networks, computers, BlackBerry devices and Internet services -- to plug communications gaps that made airports vulnerable.

In early 2002, TSA officials decided to launch a competition for the contract by using a little-known Transportation Department program begun in the 1990s to ease the purchasing of information technology. But the program, which speeds the process by pre-qualifying contractors and abbreviating competition, has had documented problems with oversight.

TSA officials also decided to award a nontraditional contract. Instead of the government providing detailed specifications to the contractor, the government would ask the contractor to determine what was needed, according to documents and interviews with government and company officials.

Both the competition and the contract would require extra vigilance by the government. But the TSA did not have the necessary procurement staff, according to government officials. "I frankly have to agree that the government is sorely lacking in that area," said Schambach, the former TSA chief information officer.

In August 2002, the TSA announced that Unisys had won the contract, which was set to last seven years, with a renewal required after three. The contractor would maintain ownership of most of the equipment, including the networking computers.

A year into the contract, the TSA had 25 contracting-oversight specialists. Today, it has 242. "That reflects how seriously we take oversight now," the TSA's Clark said.

Spending on the contract soon averaged more than $24 million a month, double the projected amount, contract documents show. Part of the reason, according to government and Unisys officials, was that the Homeland Security Department and the TSA were adding jobs to the contract beyond the original scope of the work. So far, the Homeland Security Department has added $94 million worth of work unrelated to the TSA's mission, including $2.4 million to launch a new Web site for the department.

By mid-2004, TSA officials were becoming concerned about labor costs under the contract. In June 2004, a TSA contracting officer sent an e-mail to the auditors asking for help to review Unisys's billings.

Auditors said they reviewed tens of thousands of hours of labor bills submitted by Unisys for the first six months of 2004. Under the contract, Unisys was supposed to enter employees into one of 103 labor categories, based on their education, work experience and other qualifications. In an examination of the timesheets of 80 Unisys employees, auditors discovered that Unisys had used the top labor-rate designation -- functional subject matter expert -- for employees who did not warrant it.

"We have found that Unisys has been billing the Functional Subject Matter Expert (FSME) labor category for employees who do not have the requisite knowledge and expertise," the auditors said in their referral to the Homeland Security Department's inspector general.

Those employees included a computer systems analyst with seven years' experience who auditors said should have been paid $53.75 an hour under the contract. Instead, the employee was billed to the government at $131.12 an hour as a subject matter expert, a worker whom, under guidelines, should have at least 15 years of experience.

In all, the auditors said they found 146,059 hours billed at the "functional subject matter expert" rates.

In response to the audit, Unisys said that it had wide latitude under the contract to choose the labor categories for its employees and that it made those choices based on education, work experience, academic background and other factors. Unisys officials said that when they had trouble matching their employees to contract-labor categories, they opted for the highest category as a "catch-all."

The auditors also reported that Unisys and its subcontractors billed the government for 24,982 hours' worth of overtime that was not permitted under the contract. The overtime billed appeared to represent "100 percent profit to Unisys," the auditors concluded.

Conaway said Unisys believes it is allowed to bill for overtime under the contract and is disputing the auditors' findings.

TSA officials recently called Unisys's performance "acceptable." In a statement to The Post, the agency noted that the government had paid the company "a minimal amount of incentive fees in the contract" -- $972,000 when Unisys was eligible for $44 million.

The Unisys contract is about to hit the $1 billion ceiling. With work on the project far from finished, some officials within the TSA wanted to put the remaining four years of the project out for competitive bids. But that suggestion was shelved. Instead, the TSA is negotiating a new contract with Unisys.

Staff researchers Alice Crites and Meg Smith contributed to this report.





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