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US: Uncle Sam Keeps SAIC On Call For Top Tasks

by Scott ShaneBaltimore Sun
October 26th, 2003

When the Pentagon wanted to assemble a team of Iraqi exiles to assist in restoring postwar Iraq, it gave the job to a company with a name not chosen for flashy marketing: Science Applications International Corp.

When Gov. Robert L. Ehrlich Jr. wanted experts to assess alleged security problems with electronic voting machines Maryland is buying, he, too, turned to SAIC.

The National Security Agency signed a contract with SAIC last year to overhaul its top-secret eavesdropping systems. The Army hired the company to support the delicate task of destroying old chemical weapons at Aberdeen Proving Ground. The National Cancer Institute relies on SAIC to help run its research facility in Frederick.

And this month, when the Transportation Security Administration decided it needed help disposing of all those nail clippers confiscated from air travelers, it gave the multimillion-dollar contract to SAIC.

While SAIC is dwarfed by such defense giants as Bethesda-based Lockheed Martin, no contractor does a more mind-boggling variety of jobs for the government. None is entrusted with more sensitive tasks. Yet few Americans have heard of the San Diego-based company, whose forgettable name and low public profile have long been a draw for publicity--shy intelligence agencies.

SAIC is the 34-year-old brainchild of one man, physicist J. Robert Beyster, who will step down as chief executive officer next month, and its structure as an employee-owned, decentralized company is unique. But its role as on-call contractor for the Washington bureaucracy illustrates the benefits and controversies of contracting at a time when the private sector handles much of government's business and officials move routinely from agencies to contractors and back.

"We're in an era when everything from garbage collection to prison systems to public schools are being turned over the private companies," says P.W. Singer, a Brookings Institution scholar and author of Corporate Warriors: The Rise of the Privatized Military Industry. "The privatization wave is immense and often shocking."

The billions being doled out for Iraq reconstruction - such as the contract for oil-field restoration by Halliburton, once headed by Vice President Dick Cheney - have come under fire from members of Congress who suspect well-connected companies will benefit more than the people of Iraq. But such contracting is no aberration. It is the way government runs.

The federal government pays contractors well over $200 billion annually, or about 30 percent of discretionary spending, according to Harvard University contracting expert Steve Kelman. For some agencies, the proportion is far higher: The Pentagon spends nearly half of its budget on contractors, NASA about 78 percent and the Department of Energy 94 percent.

In the competition for these riches, SAIC has grown from $243,000 to nearly $6 billion in revenue since 1970. Two-thirds of its work comes from the federal government, and 14,000 of its 40,000 employees work in the Washington, D.C., area.

Any company so intertwined with security agencies can seem spooky. A news brief in June announced that SAIC had rented space in Sterling, Va., for a unit called "Reconnaissance and Surveillance Operations," not further identified. A 1996 article in an Air Force journal spoofed the company as "VAIC" - Violence Applications International Corporation - and an old joke hints at one of the company's biggest customers by asking: What is SAIC backward?

SAIC's record is not perfect: Iraqis and international organizations have accused SAIC of bungling a Pentagon contract to set up new Iraqi media, and the Maryland voting machine contract has been clouded by allegations of a conflict of interest.

But an overall reputation for competence and expertise has won for SAIC such key jobs as designing the federal instant background-check system for gun buyers and putting together the security system for the Salt Lake City Olympics.

SAIC was built on two principles Beyster believed would encourage worker loyalty and enterprise: All stock is held by employees, and operations are extraordinarily decentralized.

"It's in one-person offices and 500-person offices," says Steve Rizzi, 40, a corporate vice president and 20-year employee who works in Annapolis. "What the company's really all about is the inspiration of individual entrepreneurs."

In Annapolis, Rizzi says, SAIC people are in three completely separate offices - Rizzi's 100-person information technology shop; EPA's Chesapeake Bay Program office; and a maritime operation that designs yachts for the America's Cup.

What draws sharp people to SAIC, Rizzi says, is "the freedom to build the business you want to build. ... The company is extremely opportunistic."

SAIC's opportunities have been expanded by the war on terrorism. The company trained U.S. Special Forces troops to hunt for biological weapons in Afghanistan and Iraq - a task for which it employed Dr. Steven J. Hatfill, the former Army biowarfare expert who has been a focus of the FBI's anthrax investigation. It developed a gamma-ray imaging system that can see through 6 inches of steel to find contraband in cargo entering the United States. It wrote data-mining software that hunts through masses of text, such as NSA's voluminous intercepts, for word patterns that might reveal a planned terrorist attack.

Good for the country

In many regards, the contracting boom that has fueled SAIC's rise is a good thing for taxpayers and the country, says Harvard's Kelman, who headed federal procurement policy at the Office of Management and Budget from 1993 to 1997. But "there are some problematic issues, too," he says.

In theory, profit-seeking companies operate more efficiently than government. Competition holds down costs. Reliance on contractors prevents a temporary project from permanently swelling government payrolls. And the government could never match the range of talent and experience boasted by the private sector.

At the National Cancer Institute in Frederick, more than half of the 2,800 employees work for SAIC. As a private company, it has flexibility in hiring and procurement that "allows us to do new things, state-of-the-art things, very quickly," says Paul E. Nisson, an NCI project officer. "We have SAIC employees running laboratories and overseeing research. There's no way of telling who's SAIC and who's government without looking at ID badges."

On the other hand, government work turned over to contractors can disappear behind a screen of corporate confidentiality. Suspicions of conflict of interest arise when fat contracts go to companies that hire former government officials.

Also, the notion that contracting inevitably saves money is dubious. Contractors pay higher salaries for most jobs than the government, and pricey companies sometimes win work that seems unnecessary.

Consider SAIC's new $2 million, seven-month contract with the Transportation Security Administration to dispose of knives, scissors and other items confiscated at airport checkpoints, which might be extended to $17 million over five years.

If TSA employees can't handle the low-tech task of throwing away the contraband, common sense suggests that small, local businesses might be cheaper. But the TSA, which took over airport security last year, says that the items seized include "hazardous materials" such as butane lighters and fireworks and that the national contract should be "more cost-effective" than existing contracts.

Some observers say contracting inevitably gives private entities such as SAIC subtle influence over policy.

"The principle is, government makes the policy and SAIC implements it," says John Pike, who tracks intelligence and defense at GlobalSecurity.org. "But given the complexity of these jobs, it's often difficult to make that distinction."

Milton Leitenberg, an expert on arms control at the University of Maryland, says SAIC and like companies are too apt to tell the Pentagon and other agencies what they want to hear.

"These contractors are in business to make money," Leitenberg says. "So they actually serve the interest of the agency that hires them. You don't tell your employer that he's a jerk."

Such suspicions are fueled by the long list of former defense and intelligence officials who have worked for SAIC or served on its board, including defense secretaries Melvin R. Laird and William J. Perry, CIA directors John M. Deutch and Robert M. Gates, NSA director Bobby R. Inman. In the current lineup at SAIC are former Drug Enforcement Administration chief Donnie Marshall, former Assistant Defense Secretary Duane Andrews, FBI veteran David Tubbs and former chief of the Army's medical command at Fort Detrick, Maj. Gen. John S. Parker.

Two-way flow

The flow is in both directions. Former United Nations weapons inspector David Kay went to SAIC as a vice president from 1993 to 2002. This year he was hired by the CIA to return to Iraq and head the search for weapons of mass destruction.

NSA veteran William B. Black Jr. retired from the intelligence agency in 1997, went to SAIC for three years and returned to the NSA as deputy director in 2000. Two years later, SAIC won the $282 million job of overseeing the latest phase of Trailblazer, the most thorough revamping in the agency's history of its eavesdropping systems.

An NSA spokeswoman says that on his return to the agency, Black sold his SAIC stock and recused himself in writing from "involvement in any matter affecting the financial interests of SAIC" for one year, as the law requires. SAIC was chosen from three bidders for the Trailblazer contract in a "formal source selection process" that considered technical issues, management, cost and past performance, the spokeswoman says.

SAIC's web of connections has haunted contracts to analyze electronic voting machines in Maryland and Ohio. In Maryland, legislators seek a review of SAIC's assessment of Diebold machines that Johns Hopkins researchers say might be vulnerable to hackers or vote-tampering. They mention several issues - SAIC and Diebold share a lobbyist, both companies are part of an industry group that is trying to improve the image of electronic voting, and a former SAIC president, retired Adm. William A. Owens, serves on the board of a Diebold rival.

In Ohio, the secretary of state replaced SAIC as its contractor for studying Diebold machines after learning that SAIC had promised a $5 million investment to a company that owns part of a competing voting-machine maker.

SAIC officials say no one has produced evidence that such conflicts have distorted the company's work.

Mark V. Hughes, SAIC executive vice president and board member, says the company hires former government officials not for influence but for expertise. "We do a much better job for our customers if we have people in the company who really know the customers," he says.

In any case, Hughes says, the company scrupulously obeys laws designed to prevent conflicts of interest. It's a matter not only of ethics but of survival, he says.

"As a government contractor, just one or two violations could cause us to be suspended from government contracts," he says. "That would destroy our company."




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