Rise of the Native National Security Corporation

Native American corporations, led by dozens from Alaska, are coming under fire in Congress for their preferential access to billions of dollars in defense, intelligence, and homeland security contracts – and because of the often shoddy, largely unaccountable work on national security and homeland security contracts.

Another related concern is that these preferential contracts – granted without the normal open bidding process – are actually performed by other corporations who receive subcontracts from the Native American corporation, which functions largely as a vehicle to secure contracts, not implement them.

Two of the main critics of the Alaska Native Corporations (ANCs) that have captured major national security contracts are Sen. Claire McCaskill (D-Mo.) and former senator and current Secretary of State Hillary Clinton. ANCs were created in the wake of the Alaska Claims Settlement Act of 1971.

Since 2000 ANCs have captured large military and homeland security contracts even though these corporations have only minimal in-house experience in the much of their contracted jobs.
The Chenega Corporation, which partners with the infamous Blackwater (recently renamed Xe Services), lists the “strengths and services” of its “Intel and Military Operations” on its corporate website:

• Transformation and future force development

• Support to Intel and special operations

• Operational readiness, asymmetric warfare and C4ISR support

• Weapons system engineering and logistics

• Operational analysis, concept of operations development

• Linguistics, debriefers, and translation services

Two federal initiatives – one by the Small Business Administration and the other by the contracting oversight committee of the Senate Homeland Security Committee – are investigating the pillaging of federal defense and homeland security contracts by ANCs and their subcontractors.

But neither the efforts of the SBA to reform its own contracting regulations nor the work of Senator McCaskill’s subcommittee have gained much media attention or public support – in part because of the esoteric nature of these preferential contracts and in part because of the power of the national security industry that has benefited by partnering with ANCs.

Overview of the Alaska Native National Security Bonanza

Contract awards to ANCs increased by 916% from 2000-2008, rising from $508.4 million in 2000 to $5.2 billion in 2008. A sharply declining percentage of ANC contracts are performed in Alaska. In 2008 approximately 80% of the contract dollars went for work outside Alaska – with Virginia being the leading state for ANC operations

The first volume of a two-part report recently prepared for the Senate Committee on Homeland Security and Governmental Affairs for Senator McCaskill found that ANC federal contracts have been increasing at a 33.6% annual rate since 2000 – six times greater than the overall increase in federal contract spending.

The value of federal contracts did rose rapidly during the Bush administration – up $149% in eight years – but the dollar amount of ANC contracts jumped more than 900%.

Despite their being multimillion corporations, the ANCs still depend on their officially designated status as small businesses to rake in billions of dollars in preferential federal contracts.

ANCs receive a disproportionate share of 8(a) or federal small business contracts. Between 2000 and 2008, ANCs received $12.1 billion in federal contracts through the 8(a) program. In 2008, awards to ANCs constituted 18% of all federal contract dollars awarded through 8(a) prime contracts.

Also in 2008 nearly three-quarters of all federal contracts were awarded to ANCS under the government’s small business procurement practices.

There are federal regulations that limit the amount awarded in small business contracts. As a rule, sole-source 8(a) contracts must be valued under $5.5 million for goods or $3.5 million for services. That’s not a problem for the ANCs, which are exempt from this restriction because of their special Native Alaskan status. ANCs captured a flood of 8(a) contracts in 2000-2008 valued more than the stated maximum.

In that eight-year period the federal government issued $6.3 billion in contracts to ANCs like Ahtna, Chugach, ASRC Management Services, and Chenega that far out-stripped the $3.5 million set by the federal government to give preference to small businesses.

Generally, sole-source 8(a) contracts must be valued under $5.5 million for goods or $3.5 million for services. ANCs, which are exempt from this restriction, received $6.3 billion in 8(a) contracts valued at more than $3.5 million each between 2000 and 2008.

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Key Findings of the Senate’s Homeland Security

Contracting Oversight Subcommittee

The key findings (below) of the contracting oversight committee are alarming. They point to widespread and systematic abuse of preferential contracting by the ANCs and their subcontractor partners.

• ANCs are now among the largest federal contractors.
In 2008 four ANCs – Arctic Slope Regional Corporation, Afognak Native Corporation, NANA Regional Corporation, and Chugach Alaska Corporation – were among the top 100 recipients of federal contract awards.

• ANCs are big businesses.

The majority of the Alaska Native Corporations surveyed by the Subcommittee exceed the size requirements applicable to other 8(a) companies. 11 out of 19 surveyed companies have had annual revenues higher than the Small Business Administration’s limit since 2002.

• ANCs have created multiple 8(a) subsidiaries.
The ANCs have taken advantage of the exemption from the size requirements to create multiple 8(a) subsidiaries. Over the last 9 years, the 19 companies surveyed by the Subcommittee have enrolled 248 subsidiaries, joint ventures, or partnerships in the 8(a) program.

• ANCS are awarded multiple large federal contracts on a sole-source basis.
Between 2000 and 2008, ANCs received $6.6 billion in 8(a) sole-source contracts valued at more than $3.5 million each. The single largest ANC 8(a) contract is the $1.13 billion Inter-Service Supply Support Operations Program (ISSOP) contract that was awarded by the Defense Department to FSS-Alutiiq, a joint venture of Arctic Slope Regional Corporation and Afognak Native Corporation, in 2002.

• ANCS are passing work through to subcontractors.
The Afognak Native Corporation can be viewed as a case study of how ANCS create subcontracts to pass work to large, non-Native companies. Nine subcontractors alone received more than 70% of all subcontract awards under Afognak contracts. For 91 individual contracts collectively worth more than $827 million, Afognak paid subcontractors more than 50% of the total prime contract revenue on each contract.

• ANCs employ a relatively small percentage of shareholders.
The 19 Alaska Native Corporations that provided information to the Subcommittee employ more than 45,000 individuals throughout their corporations. Of these, approximately 2,400 employees – 5.2% - are shareholders (or relatives of shareholders) of the employing corporation. On average, nearly 95% of ANC employees are not ANC shareholders.

• ANCs have relied heavily on highly-paid, non-Native executives.
Of the 13 corporations that provided detailed information to the Subcommittee regarding executive compensation for non-Native executives, 69% of executive compensation was paid to individuals who were not shareholders in the Native Corporations. The information produced to the Subcommittee also shows that for one or more years between 2000 and 2008, eight Alaska Native Corporations paid their Chief Executive Officer, who was a shareholder, substantially less than a non-shareholder holding a lower-ranked position.

* Little Trickle-Down to ANC Community Members or Shareholders.
One of the primary rationales for the ANC contracting preferences is that they provide economic support and other benefits for Native shareholders and communities. The Subcommittee’s investigation shows that the 19 ANCs have provided cash, scholarships, preservation of cultural heritage, or other benefits valued at approximately $720.1 million over the last nine years to members of the Alaska Native community as a result of federal contracts. On average, that amounts to a value of $615 per person per year.
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Border Security Bonanza Boondoggle

The awarding of homeland security, defense, and intelligence contracts to ANCs has been on the upswing since the late 1990s but has experienced a major up-tick since 2001 when national security outsourcing has become core to post-Sept. 11 national security and operations.

It’s not that there is a new federal emphasis on doing business with Native America corporations. Rather, it’s simply that there has been a surge in outsourcing as a result of hurried attempts by DOD to keep the Iraq and Afghanistan wars going while the military itself is overstretched, and also as the result of a dramatic surge in homeland security and intelligence contracting.

From the beginning of this upswing in outsourcing, ANCs have been plied with federal contracts. Some of the most stunning problems with this outsourcing to ANCs have been associated with border security.

One of the earliest cases of wasted money and failed projects that came to the attention of government investigators and brought unwanted attention to one of the Democratic Party’s rising stars in intelligence, defense, and homeland security issues – U.S. Rep. Silvestre Reyes (D-Tx.), who represents the El Paso area.

Like many of the Native American national security contracts, a 1998 Border Patrol contract for border electronic surveillance with Chugach Development Corporation also involved a non-ANC subcontractor, International Microwave Corp. The Integrated Surveillance Intelligence System (ISIS), which was to be deployed along portions of the southern and northern borders, was a predecessor of the Border Patrol’s current SBInet.

The chief promoter of ISIS, which operated through two successive no-bid contracts, was Rep. Reyes, who served as district Border Patrol chief of the El Paso sector before his election to Congress in 1997. Reyes was closely tied to the project not only through his role in Congress but also through family members who found high-level jobs at Chugach and later ISIS (and still later in the management of L-3 Communications, which bought IMC).

Questions about Reyes' campaign financing and possibly related contracts have surrounded the congressman's persistent and longtime support for high-tech electronic surveillance along the border, involving two no-bid contracts. Since coming to Washington in January 1997 Reyes has been a key advocate of constructing a "virtual fence" along the southwestern border, despite the all-too-real multibillion dollar price tag and absence of hard data that the billions result in improved border security.

Although the oversight problems with ANC contracting – and with border electronic surveillance projects – had existed since the late 1990s with the launching of the ISIS pilot project, it wasn't until the Inspector General (OIG) of the federal government's General Services Administration in December 2004 released an audit of the border electronic surveillance project that some of the details of the electronic surveillance project were publicly revealed.

The audit focused on the Border Patrol's relationship with the two ISIS contractors, starting with the Alaska native-based Chugach Development Corp. (headquartered in Virginia) and continuing with its successor, International Microwave Corp. Rebecca Reyes, daughter of Rep. Reyes, directed the ISIS project for the two contractors.

According to GSA, the audit review of ISIS encountered serious management issues that undermined the value of the more than $200 million that had been spent on the surveillance project.

The GSA inspector general found, among other things, that ISIS suffered from: "lack of competition in the awarding" of the contract, "inappropriate contract for construction services," "inadequate contract administration and project management," "providing equipment without contract approval," and "ineffective management controls."

The GSA inspector general's audit concluded that the government had paid for "shoddy work" or "for work that was incomplete or never delivered." Official inattention to the contracted project "placed taxpayers' dollars and … national security at risk."

Next: Rise of Native National Security Corporation, Continued.

Also See:

New National Security Complex:Bringing Together Homeland Security, Intelligence, and Defense

"Who's taking care of our national security—our nation's defense, military operations, homeland security, and intelligence? There's the Department of Defense, the U.S. Armed Forces, the Department of Homeland Security (DHS), and the "intelligence community" of agencies led by the Office of the Director of National Intelligence. But since Sept. 11 national security has been increasingly outsourced."

Native Corporations as National Security Corporations

Native American corporations, particularly an array of Alaska Native Corporations, have become major defense and homeland security contractors – responsible for a wide range of national security operations, including electronic surveillance on the border, running immigrant detention centers, and supplying security and other services in U.S. overseas wars and energy exploitation.

Ahtna Inc., one of the thirteen Alaska Native Corporations (ANCs) established in 1971 through the Alaska Native Claims Settlement Act, received an infusion of federal funds in compensation for common lands lost to government and the private sector.


Its subsidiary Ahtna Technical Services operates the Varick Street Detention Facility in Greenwich Village under a 2008 contract with Immigration and Customs Enforcement (ICE), which is an agency of the Department of Homeland Security. Its role at the NYC immigrant detention center was reported recently in a New York Times article by Nina Bernstein.


Ahtna is a major federal contractor. In addition to fifteen DHS immigrant-detention related contracts in 2009, the Native American corporation has multiple contracts with the Department of Defense, Department of Energy, and Veterans Affairs.

Why does a Native American company from distant Alaska, one that was initially capitalized with federal funds, operate an immigrant detention center in the heart of New York?

Because the Native Alaskan company specializes in penal services? Because it is intent on reviving the Indian connection with the original Manhattans who sold their island to the Dutch West India Company – and now want a better financial return? Because the federal government, and in particular the Department of Homeland Security, believes that these Alaskan natives deserve favored treatment in securing federal contracts?

There is no ready answer that explains why Ahtna Technical Services has the ICE contract to manage, operate, and maintain the Varick Street Detention Facility in New York City.


Nor is there a good explanation or rationale why Homeland Security has selected Ahtna, which has no experience in correctional services, to provide operational, maintenance, and other support services at two other ICE immigrant detention centers – Buffalo Federal Detention Facility and Krome Service Processing Center in Miami. In addition, ICE has contracted the Alaskan corporation to manage food services at six other ICE processing centers.

The explanation lies in complex mix of well-intentioned economic development theory, grave historic grievances, modern identity politics and affirmative hiring, preferential contracting, political contrivances, a recent surge in government outsourcing, and ostensibly strict federal contracting requirements that are easily manipulated.

Ahtna’s recent entrance into the immigrant incarceration business is but one example of how federal programs and statutes that were created to alleviate Native American poverty and promote development have become badly distorted and misused.

What Does Ahtna Do?

That’s not easy to determine given the corporation’s own lack of specificity and the variety of its contracts. The simplest thing would be to say, as it does, that it is “A Full-Service Operations and Maintenance Company.”

Or if you want a slighter more fleshed out description the Ahtna Development Corporation, the umbrella entity that spins out all the Ahtna subsidiaries, asserts that it “possesses the talent, vision and resources to the leader by providing our clients with customized solutions and the technological edge needed to meet their goals and to build partnerships, cultivate talent, invest in resources and integrate services in the marketplace of tomorrow.”

What is more, Ahtna says it has:

“…positioned itself for future growth, both financially and geographically, by offering clients a strong, balanced, and diverse portfolio of services in both the private and public business arenas. [We are] a multi-disciplinary operations and maintenance (O&M) services company which offers a suite of service capabilities to federal agencies and private sector that are essentially global in nature.”

With respect to its “Business Classifications,” the Ahtna Development Corporation highlights its following four classifications for federal contracts: Alaska Native-owned, Woman-owned, Minority-owned, and Small Disadvantaged Business.

Alaska Native Corporations have come under escalating criticism in the last couple of years from congressional oversight committees, governmental investigative bodies, angry competitors, and government watchdogs.

At the heart of the mounting criticism of Ahtna and other Native American corporations, particularly the ANCs and the numerous Alaska Native Village Corporations, is the breakdown and abuse of federal contracting.

Preferences are given to these Native American corporations in federal procurement as part of an affirmative action social and economic policy framework that was intended to offer economic development opportunities to impoverished, disadvantaged communities.


But the preferences have functioned as shields to deflect competition, to gain access to no-bid contracts, and to pass the bounty of federal defense, homeland security, energy, and services contracts to non-Native partners.

Nine of the top ten federal contractors based in Alaska were ANCs in 2009. Chugach Alaska Corporation, the top ANC federal contractor, won $496.7 million in federal contracts in 2009, according to preliminary estimates. Ahtna Inc. was sixth with $86.9 million.

Top 10 Federal Contractors in Alaska, 2009
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Chugach Alaska Corporation $496,679,772
Nana Regional Corporation, Inc. $294,486,882
Afognak Native Corporation $207,556,969
Arctic Slope Regional Corporation $195,743,314
Inuit-Nci JV $90,490,505
Ahtna, Incorporated $86,865,509
Watterson Construction Company $80,786,703
Suulutaaq/Sloan Fencing JV $73,496,604
The Kuskokwim Corporation $68,961,125
Ukpeagvik Inupiat Corporation $63,486,802

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Source: USAGovernmentSpending.gov


Through skillful political intervention and corporate maneuvering, the ANCs began to develop a higher profile in the late 1990s and blossomed this decade as national security corporations. More than 70% of ANC contracts in 2000-2008 came from the Department of Defense. From 2000 to 2008 DOD had $16.9 billion in contracts with Alaska Native Corporations. Next largest federal contractor was the Department of Interior with $1 billion in ANC contracts, followed by the Department of Homeland Security with $980 million in ANC contracts in the same period.


Next: Rise of the Native National Security Corporation

Also see: New National Security Complex:
Bringing Together Homeland Security, Intelligence, and Defense
Who's taking care of our national security—our nation's defense, military operations, homeland security, and intelligence? There's the Department of Defense, the U.S. Armed Forces, the Department of Homeland Security (DHS), and the "intelligence community" of agencies led by the Office of the Director of National Intelligence. But since Sept. 11 national security has been increasingly outsourced.

Native Americans Profit from Abusive Immigrant Detention and Billions of Dollars in National Security Contracts

(Another article in the continuing Border Lines series on the Homeland Security Complex and National Security Contracting.)

The New York Times had another horror story about immigrant detention, another in a impressive string of investigative articles by NYT’s Nina Bernstein that have underscored the federal government’s lack of oversight and abusive treatment of legal and illegal immigrants.


Such stories – about deaths and suicides in immigrant prisons, huge profits in immigrant inmate outsourcing, and the tragic isolation of immigrants without legal recourse or access to families – are now common fare in both the mainstream and alternative media.

What’s new in this latest report on the country’s abusive and systematically outsourced immigrant detention and imprisonment system is that the contractor that runs the NYC detention center is an Alaska Native Corporation (ANC) – one of the dozens of such corporations that since 2000 have cashed in on billions of dollars of preferential and often no-bid, single-source contracts from the defense, homeland security, interior, and energy departments.

Many of the recent immigrant-outsourcing stories involving private prison firms are of remote prisons, many along the border, where immigrants are mass incarcerated and mass processed for deportation. In this case, though, the maltreated immigrants are largely New York residents who are locked up in a little-known immigrant jail on the fourth floor of the federal building in Greenwich Village.

The Varick Street Detention Facility is an Immigration and Customs Enforcement (ICE) facility with a 275-500 bed capacity that sits three floors above the local Greenwich Village post office on the corner of Houston and Varick Streets. There are no open-air or recreational facilities in the lock-up, which functions as a temporary holding center for male immigrants picked up by Homeland Security’s ICE or other federal agents in the New York City area. As many as 11,000 immigrants pass through the Varick lock-up every year.

The Native American corporation Ahtna Inc., which is increasingly specializing in immigrant detention, has a collection of management, operational, custodial, and maintenance contracts to run the immigrant holding center for ICE.

Its subsidiary Ahtna Technical Services took over the operation and management of the facility in 2008 after ICE reopened the controversial detention center – which had become unmanageably overcrowded in the late 1990s as the result of an influx of legal immigrants held on mandatory detention and deportation orders because of new laws that greatly expanded the number of deportable offenses, including drug possession. The center also gained notoriety after of the 1999 death of a Dominican immigrant from untreated pneumonia.

Systematic Barriers to Legal and Community Support

One of the main tragedies and abuses here -- and at most other immigrant detention centers -- is the transient character of immigrant detention and imprisonment. For lawyers and families, it is a challenge to find client and loved ones because they are routinely transferred to other, often far-removed prisons with little or no prior notification.

Regarded as “aliens” with no right to be in the country, the federal imprisoning agencies at Homeland Security and the Justice Department give little consideration to the family, legal, or community ties that immigrants have made in the areas where they have lived or worked – in many cases for decades.

When asked about the legal, emotional, and psychological problems of placing immigrants so far away from their families, community of friends, and legal and other support networks, Hassel Terry, warden of the Otero Processing Center in New Mexico, replied with a smirk:

“We are taking them away from their homes. They left their homes in Mexico or wherever else they came from. We are simply trying to get them back home.”

The Otero Processing Center, located in the barren desert alongside north of El Paso, holds ICE detainees from all parts of the country, including New York, Maine, Massachusetts, and other distant states. Warden Terry is an employee of the Management Training Corporation, the country’s fourth largest prison company.

Most of the immigrants held at the Varick center are transferred out of New York City to geographically remote and rural areas to larger ICE detention centers as well as to immigrant prisons and detention centers contracted out by the U.S. Marshals Service and the Bureau of Prisons – the two Justice Department agencies that imprison immigrants.

Depending on their ICE- and Justice Department-defined status – legal or illegal, criminal aliens, asylum petitioners, fugitive aliens – the immigrants go to a succession of USMS, BOP, and ICE prisons and detention centers. From the big city they are scattered throughout the country in a network of isolated privately run facilities that are federal in name only.

Those immigrants (legal and illegal) with criminal records, often simply drug possession or driving violations, go first to Department of Justice prisons sponsored by the USMS and Bureau of Prisons – although all operated by private firms – and then to detention centers operated under the authority of the Department of Homeland Security.

Immigrants without criminal records are also shifted to remote ICE detention centers in Texas and Louisiana where the per-diem fees are much lower than the $227.68 per day that ICE pays Ahtna Inc. for detaining immigrants at the Varick detention center.

Immigration Consequences for Criminal Violations -- Double-Jeopardy

What’s so striking – and so typical – about the horrors of immigrant detention at this ICE lockup in Greenwich Village is the double-jeopardy faced by immigrants, especially long-term legal residents.

At the Varick facility, like every ICE, USMS, and BOP immigrant prison, the merger of misguided drug control and immigration control policies forms a juggernaut of enforcement -- from which there is no legal escape and which metes out immigration consequences for even nonviolent drug violations.

The NYT story highlighted the case of a Haitian, described as a barber, interpreter, and legal resident of Brooklyn for 23 years, who had previously served time for a drug-related offense but now was being processed for deportation because of his criminal record—not apparently because he living and working illegally in New York. “It is double jeopardy,” he protested, nursing a swollen jaw with teeth missing. “I become a diabetic here, because of anxiety, stress and suicidal conditions.”

Bernstein described the case of another 25-year-old who had come to New York as a legal immigrant from Belize at age 2. As an adult, the Belizean immigrant had been working at Kentucky Fried Chicken to support his 5-year-old daughter, a citizen, when his sickle-cell anemia permitted. Despite his long presence in the country, lawyers told him, according to Bernstein, that since he had old convictions for marijuana where was ineligible for release on bond or with an electronic monitoring bracelet.

The Fordham Law Review has published an excellent report in its November 2009 edition that treats the Varick jail as a case study in the systemic barriers to legal representation.

Next: What Does Ahtna Really Do?

Government Contracts Driven By New National Security Spending

Government contracts constitute a mammoth economic sector – more than a half-trillion dollars in federal contracts in 2008 alone, and most of this goes to large corporations that specialize in national security operations. Not included in that massive figure was the contracting done by state Homeland Security offices and by the private sector itself for their own cybersecurity and “critical infrastructure protection.”

The fastest growing sector in federal contracts is information and communication services with the Department of Defense, Department of Homeland Security, and the intelligence community (sixteen government agencies including DOD intelligence agencies and DHS intelligence apparatus).

Private contractors with intelligence and information-technology divisions are salivating over the boom in related government contracts.

Top Ten Government Contractors, 2008
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Lockheed Martin Corporation $34,785,141,737
Boeing Company $23,784,593,887
Northrop Grumman $18,177,546,625
BAE Systems $16,137,793,437
General Dynamics $15,992,669,588
Raytheon Company $14,663,608,137
United Technologies Corporation $8,927,106,729
L-3 Communications Holdings $7,597,574,871
KBR, Inc. $5,995,025,351
SAIC $5,945,115,101
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Source: USAGovernmentSpending.org
http://www.usaspending.gov/fpds/tables.php?tabtype=t2&subtype=t&year=2008


Top Ten Homeland Security Department Contractors, 2008
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Boeing Company $591,048,628
International Business Machines $486,219,723
Accenture Ltd $392,700,978
General Dynamics Corporation $391,294,040
Integrated Coast Guard Systems LLC $386,344,211
Unisys Corporation $367,722,670
SAIC $362,403,533
L-3 Communications Holdings, Inc. $329,431,785
Lockheed Martin Corporation $294,412,822
Booz Allen Hamilton Inc. $242,899,612
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Source: USAGovernmentSpending.org
http://www.usaspending.gov/fpds/tables.php?tabtype=t2&subtype=t&year=2008

Global Homeland Security 2009-2019 is a new report by VisionGain, an information provider to the defense industry and U.S. government. The company says that homeland security is “one of the defense industry’s newest and most promising sectors” and projects that global governmental spending on homeland security services and goods should top $141 billion in 2009.

Included under the homeland security branch of national security are such boom areas as cybersecurity, infrastructure protection, border security, intelligence, disaster preparedness and response, datamining, biosecurity, and national health networks to respond to transborder threats.

One industry report projects that twenty federal contracts will be valued at $180 billion in 2010 – 50 percent higher than the top federal contracting opportunities in 2009, and most of the new contracting will be from civilian agencies, notably DHS.

Washington Technology, a information company that serves the high-tech industry, tracts IT government contracts and reports that traditional military contractors are also the government’s largest information and cybersecurity providers. Nine of the top ten are major military contractors, most of which now have dedicated intelligence and homeland security divisions.

Top IT and Systems Integration Federal Contractors, 2009

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1 Lockheed Martin Corp. $14,983,515,367
2 Boeing Co. $10,838,231,984
3 Northrop Grumman Corp. $ 9,947,316,207
4 General Dynamics Corp. $ 6,066,178,545
5 Raytheon Co. $ 5,942,575,316
6 KBR Inc. $ 5,467,721,429
7 SAIC $ 4,811,194,880
8 L-3 Communications Inc. $ 4,236,653,555
9 Computer Sciences Corp. $ 3,435,767,906
10 Booz Allen Hamilton Inc. $ 2,779,421,015
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Source: Washington Technology, Eagle Eye Publishers Inc., and Houlihan Lokey
http://washingtontechnology.com/toplists/top-100-lists/2009.aspx

Lockheed Martin leads the pack as it has for 15 straight years straight. Like last year, Boeing and Northrup Grumman rank No. 2. and No. 3, respectively. Although IT contracts are expanding rapidly, there are few new entrants to the list of top IT providers to the government. In Washington Technology’s list of the top 100 IT providers, there were just 12 new entrants while traditional military giants dominant the list.

In addition to those in the top ten, other military contractors that are now majors in IT include BAE Systems, United Technologies, CACI, Aerospace Corp., BearingPoint, General Atomics, Alliant Technologies, and Alion Systems – all of which have more than a half-billion dollars in federal information-technology related contracts.

One of the largest sources of federal contracting at DHS has been the EAGLE (Enterprise Acquisition Gateway for Leading Edge Solutions) IT program, which awarded $8.2 billion in contracts in the past three years. Among the leading contractors are CACI, Booz Allen Hamilton, Lockheed Martin, SAIC, Northrup Grumman, General Dynamics, and BAE Systems – all major military contractors. Most of the EAGLE IT bonanza are in the form “indefinite-delivery, indefinite quantity contracts” that provide generous operating room for IT firms to determine their own enterprise solutions to DHS’ vast IT and cybersecurity needs.

DHS claims that it has greatly improved its oversight and management capacity since its early years, but time and again DHS has attested to its heightened diligence with private contracting only to shock evaluators at its level of incompetence and failure to learn from past contracting failures. Given that the EAGLE contracts are a work in progress, it’s too early to assess their success at meeting DHS’ ever-expanding IT ambitions.

You can find information about this massive DHS contracting program on the department’s “Open for Business” web pages. Initially, the multibillion dollar IT services program was handled by a DHS unit called the Enterprise Solutions Office. But in the face of congressional criticism that DHS was churning out private contracts without oversight or project management, the enterprise solutions office is now called the Acquisition Program Management Branch.

The major military corporations have quickly formed new operations branches to focus on the national security opportunities outside of their traditional core contracts with the Pentagon and armed services. This year, for example, Northrup Grumman created a new Information Systems division to seek defense, homeland security, and intelligence IT contracts.

Recognizing the interest in the Obama administration in cybersecurity and information war, corporations such as Booz Allen Hamilton and HP have created new cybersecurity divisions or subsidiaries.

Similarly, the new administration focus at DHS and elsewhere on transnational disease have led military companies such as General Dynamics to acquire health company subsidiaries to ensure a place in the expanding homeland-security health care market. As Washington Technology (May 7, 2009) noted in its recent overview of the IT boom in federal contracting, “Mergers and acquisitions are also playing a role for companies that want to stay current with their customers.”

Next: Persistent Problems with DHS Private Contracting

Privatizing Homeland Security

Nearly one of three dollars of the annual $42 billion budget of the Department of Homeland Security budget flows to private contractors. The corporate community, led by the national security sector, has greeted with enthusiasm and outstretched hands this flood of homeland security dollars.

But in the wake of this surge in contract dollars for homeland security are rising questions about the management and oversight of this outsourcing, the purported benefits to national security, and the rising power and influence of the national security sector – now led by corporations that dominate all military, homeland security, and intelligence contracting.

Outsourcing Government

The DHS budget has expanded rapidly since its creation in 2003 led by the rising numbers for immigration enforcement and border security. The annual budgets for immigration enforcement and border security (not including supplemental funding and special administration initiatives for border fences and drug control) have more than doubled since the creation of DHS, rising from $7.4 billion to $14.9 billion in 2009.

Outsourcing to the private sector by DHS has increased at even a faster pace than annual budget increases, rising from $4.2 billion in 2003 to $13.7 billion in 2009.

DHS is not alone in the rush to the private sector to do the government’s job. Outsourcing now defines governmental operations, with private contractors now doing everything from running prisons, protecting U.S. embassies, gathering intelligence, interrogating foreign prisoners, building border walls (virtual and real), and fighting our wars in Afghanistan and Iraq.

Private contracting – promoted as “public-private partnerships” by both the corporate world and the privatization divisions of federal departments -- has far outpaced federal budget increases even for such favored programs as border security. The dollar amount of federal contracts for goods and services from the private sector – led by national security firms – experienced an unprecedented surge during the Bush administration, rising from just over $200 billion in 2000 to $528 billion in 2008. (See chart. Not included in these figures in intelligence outsourcing, which now dominated intelligence operations, accounting for an estimated 70 percent of the intelligence budget, estimated by GlobalSecurity.org to be $66 million this year.)

Leading the way in private contracting is the Department of Defense, with a whopping $3.1 trillion in private contracts, followed by the Department of Energy and with DHS ranking sixth in federal contracts in 2008.

What’s The Problem?

For the booming homeland security industry, this public-private partnership brings flexibility and innovation to protecting the homeland. Marc Pearl, president of the Homeland Security & Defense Business Council (established in 2004), told a management subcommittee of the House Committee on Homeland Security: “This partnership then provides our government with the ability to access the best solutions and capabilities to achieve mission success – a safer and more secure nation.”

Soon after DHS opened for business there were new concerns that a “homeland security complex” was in the offing – much as the onset of the cold war raised concerns by President Dwight Eisenhower and others about the undue influence of a new “military-industrial complex.”

For the most part, though, criticism about the role of private homeland security contractors has not touched on concerns about power, influence, or security achievements of the homeland security industry. Rather most criticism of the outsourcing practices of DHS has focused on the department’s incapacity to manage and monitor its private sector contracts. The toughest critics of DHS come from government itself – various congressional committees, the General Accounting Office, and the department’s own Office of Inspector General.

Although congressional critics and government reports express concern about the waste of taxpayer money because of the lack of adequate procurement and oversight procedures, there is little evaluation of the DHS public-private partnership itself – and how much the government needs to rely on private firms for services that it formerly provided in-house.

The issue of increased outsourcing is, of course, not one particular to DHS. It runs through government, which has since the 1980s increasingly relied on the private sector. The ideological conviction that the private market should be the engine of the entire economy, the associated political push to downsize government, weakened unions and the related effort to skirt unionization, and government strategies to cut costs and increase efficiency (oftentimes proving counterproductive) have all driven outsourcing of government functions.

Chart: Federal Contracts, FYs 2000-2008, USAGovernmentSpending.org

Next: Federal Contract Dollars Creating New National Security Corporations

Homeland Security Partnership Promoted by New Business Council

Within the defense industry there is widespread talk of a more expansive partnership between government and business. The new partnership defense contractors are promoting extends beyond the Pentagon and the armed forces – the traditional partners in the military-industrial complex – to the intelligence community and the Department of Homeland Security.

Private contracting by DHS – averaging more than $12 billion annually – now forms a fundamental part of a new national security complex comprising corporations with major intelligence, military, and homeland security divisions.

One sign of this broadened public-private partnership is the Homeland Security & Defense Business Council, which was created in 2004. The council says that it provides “a forum among the leading private-sector companies and senior federal government homeland security leaders to implement the administrative and legislative landscape dictated by the creation of the U.S. Department of Homeland Security.”

Most of its members are traditional military contractors, including such corporations as Lockheed Martin, L-3 Communications, Northrup Grumman, Raytheon, and SAIC.

Marc Pearl, the business council’s president and CEO, told Congress that the council fosters the public-private partnership in Homeland Security because this “partnership provides our government with the ability to access the best solutions and capabilities to achieve mission success – a safer and more secure nation.”

Partnership Includes Former Homeland Security Officials

But the partnership goes beyond simply entering contracts with DHS. The council also populates its advisory board with former DHS officials. The seven members of its advisory board were formerly all in top positions at DHS and are now all involved in the booming homeland security business.

Council advisor Andrew Manner, the current CEO of the National Interest Security Company, was, for example, the former chief financial officer at DHS. As part of the kind of partnership fostered by the business council, NISC (which has intelligence, homeland security, and defense divisions) was awarded an $8.8 million infrastructure-protection contract in October by DHS.

The partnership was also on show at the council-sponsored Partners in Preparedness Symposium in September, where the featured speaker was former DHS Secretary Michael Chertoff. Now director of the Chertoff Group, which specializes in bringing security “providers” together with DHS and the Pentagon, the outgoing DHS chief Chertoff was honored in December 2008 with the council’s Distinguished Service Award.

According to council president Pearl:

“Secretary Chertoff has established incredible working relationships with all sectors involved in homeland security and our nation is the better for it. From the integration of the Federal Emergency Management Agency into DHS, to stopping up our porous borders, to improving tracking of the people and products entering the country, he has done a tremendous job to assure that the nation can go about its business safely and securely."

The DHS’ sorry record of emergency preparedness and private-sector waste under Chertoff’s tenure apparently does not figure into the council’s concept of an effective public-private partnership.

Waste, Abuse, and Mismanagement

Since the beginning DHS has proved unable to manage the partnership with industry, as documented by a continuing series of reports by the General Accounting Office and the department’s own inspector general. These problems were highlighted at a special hearing last year of a subcommittee of the House Committee on Homeland Security. The hearing, titled “Waste, Abuse, and Management: Calculating the Cost of DHS Failed Contracts,”

In its announcement for the hearing, the Subcommittee on Management, Investigations, and Oversight expressed its wrath and frustration at DHS’ continuing inability to properly oversee its private sector contracts:

“Billions of dollars have been spent on contracts for programs that have been delayed, deferred, and/or discontinued resulting in a waste of taxpayer money. Unfortunately, the wasting of these funds was not haphazard or as a result of conditions that could not have been foreseen. On the contrary, the Department has failed to implement a “lessons learned” approach, which has resulted in the same mistakes being made over and over again.

The financial cost of DHS failed contracts, as illustrated below [see chart], is close to $15 billion. However, this figure only represents the failed contracts illustrated herein. There have been numerous other contracts that have been delayed, discontinued or deferred after millions of dollars have been spent. The financial cost; however, does not take into consideration the cost to our homeland security.”

Statements by subcommittee members, as well as by Homeland Security Committee Chairman Bennie Thompson (D-Ms.), lambasted the DHS for its lack of oversight and its practice of having private contractors monitor other private contractors.

Introducing the hearing, subcommittee chairman Christopher Carney (D-Pa.) said that a “broken acquisitions process at DHS” sparked the hearing. “Tens of millions have been paid out to contractors for what amounts to nothing more than bad ideas and empty promises,” he complained.

Rep. Thompson told the hearing that the DHS partnership with the homeland security industry had resulted in:

“$5 million-dollar-a-mile fences; TWIC [transportation worker identification credential] cards that can’t be read; ships that don’t fit into ports; formaldehyde soaked trailers that make the occupants sick, and an information-sharing program that law enforcement personnel do not want to use. Taxpayers have had enough. Americans deserve a country that is safe, secure, and ready to respond in the event of a natural or man-made disaster.”

Problems and Costs of DHS Contracted Programs
_______________________________________________________________
SBInet (Boeing)
Lack of Defined Requirements; Wasteful Spending; Mismanagement; Poor Contractor Oversight
$1.549 billion
Secure Flight (Lockheed Martin, IBM, MITRE, EagleForce, et al.)
Lack of Defined Requirements, Mismanagement, Legal Noncompliance
$200 million
Deepwater (Lockheed Martin & Northrop Grumman)
Lack of Defined Requirements; Wasteful Spending; Mismanagement; Poor Contractor Oversight
$351.1 million
EMERGE2 (Bearing Point)
Lack of Defined Requirements; Wasteful Spending; Mismanagement
18.3 million
TWIC (Lockheed Martin)
Lack of Defined Requirements; Wasteful Spending; Mismanagement
$103 million
HSIN (General Dynamics)
Lack of Defined Requirements; Mismanagement; Poor Contractor Oversight
$91 million
ADVISE (Lawrence Livermore Labs)
Lack of Defined Requirements, Mismanagement, Legal Noncompliance
$42.5 million
US VISIT (Accenture et. al.)
Lack of Defined Requirements; Wasteful Spending; Mismanagement
$10 billion
Temporary Housing for Katrina Evacuees (Bechtel National, Inc., Fluor Enterprises)
Mismanagement, Wasteful Spending
$200 million
Test and Hire Airport Passenger Screeners (NCS Pearson, Inc.)
Lack of Defined Requirements; Wasteful Spending; Mismanagement
$741 million
Installation of Baggage Screening Machines (Boeing)
Wasteful Spending, Mismanagement
$1.2 billion

___________________________________________________________________
Source: Subcommittee on Management, Investigations, and Oversight, House Committee on Homeland Security, Sept. 17, 2008

Greater Innovation Not Restrictions

In the face of increasing evidence that the private-public partnership at DHS has been abused and that many billions of dollars flowing into the new department have been plundered by the private sector, the Homeland Security and Defense Business Council -- the leading voice of the private sector in homeland security issues – is unrepentant and instead calls for more cooperation.

At the September 2008 House hearing on DHS waste and mismanagement in private contracting, council president Pearl advised that Congress and DHS shouldn’t reduce their reliance on the homeland security industry. Nor should it introduce an oversight process that alienates the private sector. “New restrictions on government contracting won’t make our borders safer; greater innovation will,” asserted Pearl.

“It would be extremely detrimental to our nation for the private sector to walk away,” said Pearl. “That would only lead to failure for both DHS and our nation.”

Without acknowledging that too often homeland security contractors – such as Lockheed Martin and Accenture – have failed to deliver promised goods and services, Pearl pointed out in his testimony that council “members are responsible for the operational component of a contract – serve as a resource to this Committee and the Department.”

Pearl recommended a deepened partnership in which the Homeland Security and Defense Business Council – “as a neutral but very interested actor” -- would function as “a conduit between the public and private sector to achieve these goals of reform.”

Aside from directly promoting the interests of homeland security/defense businesses, the council is, among other things, cosponsoring a homeland security certification program at Georgetown University, which now offers a certificate in Homeland Security Studies. The council also has a Thought Leadership Committee that works to ensure that the private sector’s views on homeland security contribute to public policy discussions.

Among council members are such leading government contractors as Accenture, BAE Systems, Bechtel, Booz Allen Hamilton, CACI, Deloitte, DRS Technologies, DuPont, DynCorp, General Dynamics, IBM, L-3 Communications, Lockheed Martin, Northrup Grumann, Raytheon, SAIC, and Unisys.

Next: Privatizing Homeland Security

The Homeland Security Boom

(Part of a BorderLines series on the Homeland Security Complex.)

Color it red.

The Obama administration has left in place the brightly colored, much-criticized terrorism threat chart of the Department of Homeland Security. But new administration and congressional policies and budget priorities are provoking elevated levels of activity in the counterterrorism market.

The fifth annual Homeland Security Investors Conference on Oct. 21 in Washington, DC brought featured the largest number of sponsors, presenters, and participants. Excitement about billions of dollars in DHS contracts was feverish.

John Mack III, executive vice president of conference sponsor Imperial Capital, said the homeland security business is booming. One reason for increased corporate attention to homeland security, explained Mack, is widespread perception that Democratic Party politicians are more willing to increase spending for homeland security than for defense.

Mack told Homeland Security Today that among investors “DHS s seen as a model for public and private partnerships." What is more, at DHS "there are just so many different long-term programs" in so many different areas, particularly identity solutions, critical infrastructure protection and information security. Furthermore, "the macro trend is that the government is the only one spending money."

Since its creation in early 2003 DHS has been constructed as a public-private partnership fed by an ever-larger homeland security budget and a departmental proclivity to outsource homeland security operations.

This so-called partnership has, together with increased intelligence outsourcing to private firms, greatly boosted the national security contracting by the federal government but also given rise to a new national security complex that joins defense, intelligence, and homeland security spending. The leading firms in the military-industrial complex, such as Lockheed Martin and SAIC, are also the leading intelligence and homeland security contractors.

The Homeland Security Investors Conference was just one indication of the meteoric rise in homeland security business. Since the terrorist attacks of Sept. 11 there has been a proliferation of homeland security and border security conferences that aim to grow a security partnership between government and business.

What distinguished the latest of these conferences was its focus on the new merger & acquisitions market in the homeland security industry. Conference sponsors were investment firms like Imperial Capital, Civitas Group, and CapitalSource.

Next: Homeland Security Partnership Promoted by New Business Council