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SAIC Responds to Charges of Contract Abuse

An investigative piece in next month's Vanity Fair finds that San Diego-based Science Applications International Corporation hasn't delivered on some of its biggest government contracts -- costing tax

People usually associate names like Boeing and Lockheed Martin with big defense contracts. But for years, San Diego-based Science Applications International Corporation has been striking gold with the U.S. government. SAIC, as it is known, earned $8 billion in federal contracts last year. But an investigative piece in next month's Vanity Fair finds that despite the company's success on Wall Street, it hasn't delivered on some of its biggest projects costing taxpayers hundreds of millions of dollars. SAIC officials say the magazine piece is a fairytale. Full Focus reporter Amita Sharma has more.

SAIC may be a Fortune 500 Company but that doesn't mean it's well known.

Arnold Punaro: Is our name a household name like Nabisco, Coca-Cola? No.

That's Arnold Punaro, SAIC's executive vice president of government affairs.

Punaro: We do not market products in Wal-Mart or K-Mart. You know we are basically a government contractor.

But they're not just any government contractor. According to Vanity Fair reporters Don Barlett and James Steele, SAIC received more government contracts than any other company in the country. One of those was worth $124 million to build a badly needed new computer system for the FBI.

In fact one of the reasons the FBI gave in 2001 for not knowing that two of the September 11th hijackers were living in San Diego was that its antiquated computer system wasn't set up to share information. But SAIC spent three years buiding a system that ultimately failed. A report laid blame in part on the FBI's changing directions. But an audit also found that the system SAIC delivered to the bureau was so incomplete, it was useless and the FBI had to scuttle the project. Punaro acknowledges mistakes were made.

Punaro: We felt on that project that we, SAIC should have done a better job of communicating at the highest levels of the FBI that the way they were changing the requirements, the way they were managing the program was putting a successful completion at risk.

But there was another high-profile, big-budget project, according to Vanity Fair, that SAIC didn't finish. After the 9/11 terrorist attacks, SAIC won a $280 million contract from the National Security Agency to create a new computer system that would organize the agency's worldwide surveillance of telephone and e-mail communications. But after working on the contract for four years and receiving more than $1 billion from the NSA, the project was left unfinished. Punaro says he can't talk about it for security reasons. But overall, he says the company has had over 100,000 successful government contracts.

Punaro: Yes, like any big contractor and any small contractor, we've had a few troubled programs and when we have those troubled programs, some of them referenced in the article, the first thing we do is get with the customer and try to fix them and in all cases we've fixed them.

The NSA eventually awarded SAIC another contract for a revised program for $361 million. And therein lies the problem according to Wade Sanders, former deputy assistant secretary of the Navy.

Wade Sanders: If you have a defense contractor that establishes a pattern of failed projects and cost overruns, they should not be considered for further contracts.

In the case of SAIC, Vanity Fair reporters Barlett and Steele write that scrutiny of the company is unlikely because of its close ties with the government. The company's top ranks are filled with people who used to run the military, work for presidents and spy agencies. Case in point Defense Secretary Robert Gates used to sit on SAIC's board. Punaro himself is a retired Marine Corps General Major and used to help run the Senate Armed Services Committee. 

Punaro: We do not apologize for the fact that we have subject matter experts that have careers in government.

He says those connections don't pose any conflict of interest.

Punaro: The awarding of SAIC contracts again, unlike the fairytale in Vanity Fair is a highly regulated, highly deliberative, highly open process. Again, SAIC wins most of our work competitively. Over 75 percent. Most of our large competitors under 50 percent. There are rules and regulations that you go through. It's not done behind closed doors in a smoke-filled room. That's just not the way it happens at all.

But Sanders says the impact of having interlocking relationships between defense contractors and government can't be discounted.

Sanders: These relationships develop over the years. People start taking things for granted. I know I can trust so and so over at this particular defense contractor because I've been working with him for years. Well, that's not the way you do business with the taxpayer's money. The way you do business with the taxpayer's money is you demand the most stringent possible oversight and accountability.

And ultimate oversight lies with those who hold the purse strings for the defense department, Sanders says, and that is Congress.

Sanders: I think this issue, this article in Vanity Fair is an open invitation to some aggressive senator or members of Congress to take a really hard look at this. Now as we speak in the Congress is the process of holding hearings with regard to defense contractors and this could be a poster boy for the inquiry.

Punaro says there's no basis for SAIC to be called to the inquiry but if it happens, he says SAIC is ready.

Punaro: First of all I would hope that they would not take a fairytale as fact and make any decisions on stuff that again I say is so hyped and so made up. We don't shy away from working with the Congress and we would welcome an opportunity you now if there's a committee that's interested in hearing the SAIC story. We meet with them everyday so that's not something that concerns me.