"Watchdog: TSA overpaying Boeing for airport security contract"

Monday, October 18, 2004

Watchdog: TSA overpaying Boeing for airport security contract
BY KATHERINE PFLEGER SHRADER
The Associated Press


WASHINGTON - The Transportation Security Administration has overpaid Boeing
Co. by at least $49 million on a contract to install explosive detection
equipment at U.S. commercial airports, according to an internal audit
released Monday.

Homeland Security Department Inspector General Clark Kent Ervin found TSA
failed to follow appropriate procedures in awarding Boeing the contract,
worth $1.2 billion with the possibility of lucrative extensions.

TSA gave Chicago-based Boeing at least $44 million in "provisional award
fees" - incentives designed to motivate the company to perform at a high
level - without ever evaluating the job Boeing was doing.

"TSA did not follow sound contracting practices in awarding and
administering the Boeing contract," the report concluded.

Boeing was awarded the contract in June 2002 to install more than 7,000
explosive detection devices and systems at 429 airports. TSA initially
estimated the contract was worth $508 million and would last seven months,
with options to extend it. But TSA modified the contract 54 times by
December 2003, increasing the base value to $1.2 billion and the length to
18 months, the report found.

TSA spokeswoman Amy Von Walter said the contract and payment structure were
reasonable "given the competitive market conditions and the schedule-driven
environment required to meet the numerous congressional mandates which
existed during the first year of the agency."

Lawmakers have complained about the slow pace of installation of
bomb-detection equipment in airports and have criticized TSA's spending
practices.

Last week Ervin's office issued a report criticizing the TSA for an
"unnecessarily expensive" banquet marking its two-year anniversary. The
November 2003 celebration, held at a lavish Washington hotel, cost $461,745,
including nearly $200,000 for travel and lodging and $85,000 for a party
planner.

Ervin's office spent 11 months investigating the Boeing contract and found
the profit paid to Boeing was "disproportionately high when compared to
Boeing's cost and risk and compared to what other agencies allow as profit
under such contracts."

For example, it found that while Boeing incurred costs of $39 million
serving as project manager and supervising subcontractors around the
country, it received $82 million from TSA to cover those costs, for a rate
of return of 210 percent.

Boeing spokesman Fernando Vivanco defended his company's work. He said
Boeing did a job that "everybody said could not be done. We are pleased to
have helped the TSA restore the confidence of the traveling public."

Boeing also has come under fire for military contracts. Last year, the
Pentagon punished the company for stealing trade secrets from rival Lockheed
Martin to help win rocket contracts.

Boeing also lost an Air Force tanker lease deal after an Air Force employee,
hired by Boeing, rigged the contract to boost prices. She was recently
sentenced to nine months in prison.

Ervin's office made a series of recommendations to TSA. Among them, he said
the agency should come up with a plan to evaluate Boeing's performance and
recoup any unreasonable fees.

TSA responded that the agency is reviewing the contract to make sure any
extra costs are valid.

ON THE NET

Transportation Security Administration: http://www.tsa.gov

Homeland Security Department: http://www.dhs.gov/


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