Contract Casino

The Pentagon isn’t alone in handing out plump no-bid contracts to politically wired corporations. The new Department of Homeland Security, a collage of 22 sub-agencies sprawling across the federal bureaucracy, is sluicing billions into the coffers of a few favorite contractors and many of the deals have been awarded on the same no-bid basis that brought such amazing largesse to corporations doing business in Iraq and Afghanistan, such as Bechtel and Halliburton.

Over the past two years, about 30 percent of the Department of Homeland Security’s contracts have been awarded on a non-competitive, no-bid basis. These contracts amount to about $2.5 billion, for services ranging from computer systems to the maintenance of airport scanning devices.

Among the top beneficiaries of these sweetheart deals are two companies with a track record of contract fraud and overbilling: Boeing and Integrated Coast Guard Systems, the latter being a joint venture between Lockheed-Martin and Northrop Grumman. Combined, the two weapons giants reaped more than $700 million in no bid contracts from the Department of Homeland Security. This is in spite of recent audits by the Department’s Inspector General, Clark Kent Ervin, which accused both firms of overcharging. Indeed, in the past three years alone, Lockheed and Boeing had been forced to pay more than $250 million in fines for violations of their contracts with the Pentagon.

Integrated Coast Guard Systems was handed the huge contract to install new engines on the Coast Guard’s fleet of HH-65 helicopters. A task that the Coast Guard was more than capable of handling on its own more promptly and for much less money. But Lockheed’s lobbyists won the day and wrested the contract into their subsidiary. Almost immediately things began to go awry. First, the project proposal was delivered more than a month late. And when auditors began to look at the fine print of the proposal they discovered that it was larded with “$123 million worth of goods and services that the Coast Guard did not ask for.”

While the auditors raised a red flag, the Coast Guard brass and the honchos at the Department of Homeland Security sped on with the deal, ignoring the warnings of their own inspector general. Of course, any contract with Lockheed should come under special scrutiny given their ripe record of overbilling, shoddy work and contract fraud. Most recently, Lockheed was cited for providing the Air Force with C-130J transport planes that didn’t meet military standards, delaying troop and equipment deployments to Iraq and Afghanistan. Even so, Lockheed raked in $2.6 billion on the deal and stands to make another $5 billion on the planes.

Kent’s report cited Boeing with bilking the new department out of more than $49 million last year on its contract to install bomb detection equipment in the nation’s airports. For its part Boeing, which has witnessed several of its executives carted off to federal prison in recent months for illegal lobbying on Pentagon contracts, dismissed Kent’s allegation, saying they deserved the money for doing a stellar job. “Nobody thought it could be done and we did it,” brayed Boeing spokesman Fernando Vivanco.

Another huge no-bid contract went to scandal-plagued BearingPoint Technologies. The McLean, Virginia-based consulting firm was given a $229 million contract to install a new computer system at the Department of Homeland Security. The contract was awarded only months after the Department of Veterans Affairs dumped a BearingPoint $472 million computer system for its VA hospitals in Florida after it failed a 9-month test. Bizarrely, BearingPoint executives were paid a $200,000 incentive bonus for keeping the doomed project on schedule. Now, BearingPoint executives find themselves the subject of two investigations. “One deals with allegations involving criminal activity, the other one involves matters of civil litigation, basically involving money,” said Jon Wooditch, a spokesman for the Veteran Affair’s Department’s inspector general.

The IG’s initial report into the BearingPoint’s hospital computer system discovered “serious deficiencies” in the system and cost overruns averaging $4 million a month. According to VA investigators, key documents related to the award could not be located, “nor could we determine on what basis VA made the award to BearingPoint over other offers.”

Last month, BearingPoint disclosed to its shareholders that it’s also the subject of a federal grand jury investigation in California for improprieties on government contracts in that state from 1998.

One of the biggest of Department of Homeland Security contracts went to an obscure company called Chenega Technology Services Corp, which is owned by Alaskan natives from the small village of Chenega. Chenega is a coastal village accessible only by floatplane. In July of 2002, the Customs Service asked Lockheed and Dyncorp to submit proposals for a $500 million project to upgrade and maintain the x-ray and gamma ray machines at the US’s ports and border stations. But six months later the Customs Service issued a press release saying that the project would not be put up for competitive bidding. Instead, it was being awarded on a no-bid basis to Chenega Technology. The decision stunned executives at DynCorp, who figured they were front-runners for the deal. “I didn’t even know how to spell their name,” said Raymond Mintz, who had been hired by DynCorp to prepare its bid for the Customs contract.

Chenega officials may have been stunned as well. Their company had little experience with the high-tech scanning machines. In the end, Chenega contracted most of the actual work out to two other companies, SAIC, Inc. and American Science and Engineering Inc.

The deal was actually brokered by Senator Ted Stevens, the Alaska Republican, who inserted the deal into a legislative rider on the Defense Appropriations bill. Stevens chairs the mighty Senate Appropriations Committee.

Chenega, however, appears to be a native corporation in name only. Of its 2,300 employees, only 33 are Alaskan natives. The headquarters of the company is located not in Anchorage or Juneau, but in shiny glass building in toney Alexandria, Virginia, just down the road from the Pentagon.

Through the legislative magic of Ted Stevens, Alaska Native Corporations enjoy cushy loopholes when it comes to federal contracts. For one thing, they can continue to maintain their small business status even when they are bringing in millions in revenue. This special dispensation allows them to be exempt from the $3 million federal cap on no-bid service contracts that are in place for other minority small businesses.

By another legislative quirk, Alaska Native Corporations, such as Chenega, don’t even have to be run by Native Americans. Moreover, they can subcontract out most of the work to non-Native firms without having to undergo the rigorous cost-benefit analysis required for other corporations.

Jeff Hueners, the chief operating officer of Chenega, called the company “an American success story that benefits from preferential laws based upon the trust relationship the United States Government has with its indigenous, aboriginal people.”

Chenega’s success has hinged on the post-911 spending spree. In 2001, Chenega only recorded $42 million in revenues. Last year, Chenega’s revenues exceeded $480 million .

One of Chenega’s biggest contracts came after the start of the Iraq war when the Pentagon transferred most of its military police to places like Abu Ghraib and other prisons and detention centers in Iraq. This left thousands of open positions for military police at DoD facilities in the US. Strangely, Chenega and Alutiiq, another Alaska Native Corporation, won the contracts to provide security forces for 40 US military installations, ranging from Ft. Bragg to West Point to the Anniston Chemical Weapons Depot in Alabama. The contracts were worth about $500 million. They were awarded to the two Native Corporations on a no bid basis, even though neither corporation had any experience in providing security services. The Pentagon made no public announcement about the awarding of the contracts.

The deal calls for Chenega and Alutiiq to provide 4,385 private security guards. But neither company will actually provide any workers. Instead, both native firms subcontracted the work out to private security companies. Chenega made a deal with Vance International, the Republican-connected outfit that was founded by Gerald Ford’s son-in-law and which provided security for the Bush-Cheney election campaign in 2000. Alutiiq forged a similar deal with Wackenhut Services, the British-owned security corporation.

The Pentagon had originally put the security contracts up for open bidding. Both Wackenhut and Vance had submitted bids, but both were rejected. Then, through the suggestion of the Office of Senator Ted Stevens, the Pentagon decided to award the contracts on a no-bid basis to the two Alaskan Native Corporations, which had already formed their partnerships with Wackenhut and Vance.

“Alutiiq approached us, we got together, and they said, ‘We want to do this; we need you to come help us with it,'” explained Jim Long, Wackenhut’s CEO. “We split it up 51-49.”

The 51-49 relationship is crucial to the deal, since under the Stevens loophole 51 percent of the money from the contract must go to the Native Corporation. It’s a great deal for Wackenhut, since as a foreign-owned corporation with a shoddy record at other federal facilities they were unlikely to get any Pentagon contracts.

Wackenhut is a subsidiary of Group 4 Securicor. After 9/11, the company came under scrutiny for its mismanagement of security at several Department of Energy facilities, including serious breaches at the Oak Ridge Nuclear Weapons plant in Tennessee.

As a subcontractor, however, Wackenhut not only avoids competitive bidding, but they also evade scrutiny of their work by the Pentagon. Neither the Pentagon nor the Department of Homeland Security has any legal recourse over the performance of Vance or Wackenhut. That responsibility is reserved for the native corporations.

The Pentagon sees this kind of subcontracting as the wave of the future. An internal Pentagon memo unearthed by the General Accounting Office spoke of “contract security guards as a viable manpower option.” It’s not hard to see why the Pentagon likes it. They can please powerful senators like Stevens and free up troops for duty in Iraq and Afghanistan. Indeed, Rumsfeld has said that he would like to permanently transfer as many as 320,000 Pentagon positions to private companies.

Many federal employees see this as a kind of union-busting. “It’s not complicated what they’re doing here,” says Anne Wagner, a lawyer with the American Federal Government Employees Union. “They hook up with a corporation like Wackenhut, which runs the entire operation.” Wackenhut then hires former soldiers at non-union wages and offers them few or no benefits.

In 2003, the union sued to halt the issuance of these kinds of no-bid deals, but lost when the US Supreme Court refused to hear the case.

The privatized workforce isn’t taking home much money, but the corporations certainly are. In 2003 alone the Alaskan native corporations and their subcontractors brought in $12 billion dollars in federal contracts. But little of this money actually makes its way back to Alaskan Natives. In 2004, for example, Chenega Corporation, which brought in nearly a half billion in revenues, only distributed about $1 million to native shareholders and cultural and education programs for natives.

Back on those tribal lands in Alaska, poverty rates remain the highest in the nation and unemployment exceeds 40 percent. Not a single member of one of the Alaskan tribes works on any of the Alutiiq/Wackenhut or Chenega/Vance contracts.

This article is excerpted from JEFFREY ST. CLAIR’s new book, Grand Theft Pentagon.



Jeffrey St. Clair is editor of CounterPunch. His most recent book is An Orgy of Thieves: Neoliberalism and Its Discontents (with Alexander Cockburn). He can be reached at: or on Twitter @JeffreyStClair3