By NEIL GORDON
This week, it was announced that top 100 federal contractor Science Applications International Corporation (SAIC) agreed to pay a record $500 million to settle claims of defrauding New York City on the CityTime information technology contract. Under a deferred prosecution agreement with the U.S. Attorney’s Office for the Southern District of New York, SAIC agreed to the filing of one count of conspiracy to commit wire fraud, which the government will drop in three years if SAIC pays the money and cooperates with investigators.
The contract to build a computerized timekeeping system for the city was taken over by SAIC in 2000. Somewhere along the way, the project degenerated into a massive kickback and bill-padding scheme that has cost the city more than $650 million. The scandal has already brought down two high-ranking former SAIC employees, project manager Gerard Denault, who is charged with receiving at least $5 million in kickbacks, and chief engineer Carl Bell, who pleaded guilty in June 2011 to fraud and money laundering. It also prompted SAIC to fire three key executives last fall.
POGO would like to highlight three important aspects of the CityTime fiasco:
1. Whistleblower protection
Whistleblowers play a vital role in exposing corruption in government and business, but they often pay a steep price for their actions and thus feel pressure to keep their mouths shut. Back in 2005, SAIC got a whistleblower tip about misconduct occurring on the contract, but the company failed to properly investigate the complaint and did not notify the city. As part of the settlement, SAIC admitted that its New York office at the time was a “hostile atmosphere” for whistleblowers (see page 31 of the deferred prosecution agreement), and promised to reevaluate its whistleblower policies and practices (see p. 13).
2. Contractor accountability
The $500 million penalty handed out in this case may seem harsh, but keep in mind that SAIC earns billions of dollars in revenue each year. Most of its income comes from government contracts, for which SAIC will likely remain eligible as long as the U.S. Attorney’s Office defers prosecution of the fraud charge. As a financial analyst told the New York Times, this single incident will probably not have much of an impact on SAIC’s long-term financial prospects. (SAIC’s stock actually rose in value after the settlement was announced.)
3. The dangers of outsourcing
SAIC isn’t the only one whose reputation has suffered as a result of the CityTime scandal. New York Mayor Michael Bloomberg has been sharply criticized for being overly eager to outsource projects to contractors rather than keep them in house. Bloomberg remains a steadfast proponent of relying on outside expertise, particularly for technology projects, despite repeated instances of cost overruns and inadequate oversight. POGO has long documented the similar situation occurring on the national level, as the federal government’s overreliance on contractors is resulting in billions of wasted taxpayer dollars and lack of control over contractors.
Neil Gordon is a POGO investigator.
Image via Town of Amherst, MA.