Army let contractor get too involved in program, IG says

The Defense Department's inspector general criticized the Army in a new report for allowing large defense contractors to help develop a contract’s requirements and then bid on the contract.

Science Applications International Corp. has been the primary commercial contractor for advisory and assistance services since 1999 for the Army’s Future Combat Systems (FCS) program office, according to the IG report released Jan. 27.

Despite the advisory services, SAIC and Boeing Co. served as lead systems integrators for FCS system development and demonstration, according to the report. The Army’s contract solicitation explicitly excludes any company from bidding that has “significant involvement” in developing defense systems under the purview of the director of operational test and evaluation, the report states.

SAIC officials told the IG its service development and demonstration contract was for systems integration, not systems development, making the company still eligible, according to the report. However, the IG's office disagreed. It said that through Dec. 31, 2007, $11.4 billion in total contract expenditures were from the research, development, test and evaluation appropriation.

The IG’s analysis and conclusions are fundamentally flawed, said Melissa Koskovich, spokeswoman for SAIC.

“The report does not allege a conflict of interest on the part of SAIC,” she said. “Both the DOD director of operational test and evaluation and the Army say there wasn’t even the potential for a conflict in the way they handled the contracts the IG examined. The detailed comments submitted by [the director] and the Army clearly back this up. For these reasons, SAIC believes the record and the views of our customers, as recorded in the IG report itself, show clearly the hotline allegations that launched this IG inquiry are untrue.”

“The DOD IG is using this report to push an extreme and unprecedented policy position on potential conflict of interest that is not supported by the facts or existing regulations,” Koskovich said.

The director of operational test and evaluation and “the Army did not exercise the good judgment and sound discretion needed to prevent the existence of conflicting roles that might bias a contractor’s judgment or provide it an unfair competitive advantage,” the IG concluded.

The IG recommended that the Army stop receiving advisory services from SAIC for FCS, and the Army agreed, according to the report.

The situation with SAIC isn’t unique. In fiscal 2007, four other services contractors received about $91 million in funding for advisory and assistance services even though the contractors were involved in system development projects for FCS, the report states.

The government has been cracking down on such organizational conflicts of interest to keep one company from getting an unfair advantage and unduly influencing the government.

In response, Northrop Grumman announced in November that it had signed a deal to sell its TASC unit for $1.65 billion to an investment group. The sale was necessary because Northrop Grumman was feeling pressure to comply with new conflict-of-interest laws, experts said.

TASC provides advanced systems engineering, technical assistance and other analysis and advisory services, primarily to the Defense Department and intelligence agencies. Other parts of Northrop Grumman then competed with other companies to win the contracts to build and maintain those systems.

In May, President Barack Obama signed the Weapon Systems Acquisition Reform Act, which tightened rules governing those types of conflicts of interest.

In the new report, the IG commended the contracting officer in the Army’s Test and Evaluation Command for quickly deleting the FCS-related tasks from SAIC’s contract after concluding that the company had statutory organizational conflicts of interests regarding those tasks.