The money was spent in the name of improving security at the nation's airports:
· $526.95 for one phone call from the Hyatt Regency O'Hare in Chicago
to Iowa City.
· $1,180 for 20 gallons of Starbucks Coffee -- $3.69 a cup -- at the
Santa Clara Marriott in California.
· $1,540 to rent 14 extension cords at $5 each per day for three weeks
at the Wyndham Peaks Resort and Golden Door Spa in Telluride, Colo.
· $8,100 for elevator operators at the Marriott Marquis in Manhattan.
· $5.4 million claimed for nine months' salary for the chief executive
of an "event logistics" firm that received a contract before it was
incorporated and went out of business after the contract ended.
Those details are contained in a federal audit that calls into question $303
million of the $741 million spent to assess and hire airport passenger screeners
for the newly created Transportation Security Administration after the terrorist
attacks of Sept. 11, 2001. The audit, along with interviews with people involved
in the passenger-screener contract, paints a rare and detailed portrait of how
officials at the fledgling agency lost control of the spending in the pell-mell
rush to hire 60,000 screeners to meet a one-year congressional deadline.
The audit, performed by the Defense Contract Audit Agency at the TSA's behest,
spotlights scores of expenses: $20-an-hour temporary workers billed to the government
at $48 per hour, subcontractors who signed out $5,000 in cash at a time with
no supporting documents, $377,273.75 in unsubstantiated long-distance phone
calls, $514,201 to rent tents that flooded in a rainstorm, $4.4 million in "no
show" fees for job candidates who did not appear for tests.
The audit faulted the prime contractor, NCS Pearson Inc., which was hired by
the TSA to test, interview, fingerprint, medically evaluate and pre-certify
the candidates. The audit said Pearson failed to properly justify costs and
improperly awarded subcontracts without competitive bidding. The audit also
said the company demonstrated a "lack of management or oversight of subcontractors."
One of the audit's key revelations is that a decision to move the hiring process
from Pearson's 925 U.S. private assessment centers to 150 hotels and other meeting
facilities added at least $343 million to the cost of the contract, according
to an estimate by Pearson. The company said it was ordered to make the change
by the TSA, which said it made the decision in collaboration with Pearson.
The decision also reduced the time Pearson had to evaluate and hire 60,000
screeners from 32 weeks to 14 because the TSA delayed the schedule, the company
said. Pearson later said the decision forced the company to hire a small army
of subcontractors, whose invoices and charges are at the heart of the spending
highlighted in the audit.
"It was a waste of taxpayer's money," said Patrick Cowan, of Denver,
who supervised hiring efforts for Pearson at 43 sites in the central part of
the country. "There was abuse of the taxpayers' trust. We didn't get the
bang for our buck."
While government officials in the past have hinted at problems with the contract,
which rose to $741 million in April 2003 from $104 million in February 2002,
the extent of the questionable spending has never been disclosed. Only a few
details have emerged in brief congressional testimony and scattered news reports.
Government officials have repeatedly denied media requests for access to the
audit, which was completed last year and labeled "For Official Use Only."
A copy was obtained independently by The Washington Post.
The audit scrutinized expenses as small as $2.95 paid for a soft drink and
as large as $114 million spent on all subcontractor labor, sampling bills and
finding a consistent theme of a failure to follow federal contracting rules
for documenting and justifying charges and cost increases.
The audit refers to internal Pearson reports that sharply criticized the behavior
of some of the 168 subcontractors hired to help complete the contract. One Pearson
official, referring to a security company hired to provide services, wrote that
"there appeared to be serious fraud occurring."
Government managers and Pearson executives have long maintained that they performed
a "major and historical accomplishment" by replacing an inefficient
patchwork of private passenger screeners with a more professional federal workforce.
They said they did the best they could under difficult circumstances and spent
taxpayer money wisely.
"We are a threat-driven, risk-management organization," said Tom
Blank, the TSA's acting deputy administrator. "We knew we were threatened.
There were bad guys out there. We never questioned that we needed to do this
within the time frame Congress mandated. . . . Any time you are on a war footing,
you will pay a premium for products and services."
Last year, in a 204-page response to the audit, Pearson said the document was
"fundamentally flawed" and "distorted" and should be withdrawn.
Pearson pointed out that the auditors did not "question" their costs
as unreasonable, but instead called them "deficient," a term that
means unsubstantiated or not properly documented.
"DCAA's conclusions as to 'deficient costs' are based on a legal fiction,"
Pearson said in its response. "DCAA does not opine that costs under the
Contract are unallowable, unallocable, or unreasonable, nor does it question
such costs. DCAA declines to become the arbiter of whether a cost is reasonable
or not under the circumstances."
Pearson President Mac Curtis defended his company's handling of the contract
in a written statement yesterday.
"Under a time of national urgency and constantly changing circumstances,
Pearson met the mandate and delivered a federal screener force by a deadline
which many thought was impossible," Curtis said. "In the end, Pearson
was required to do four times the originally requested work in less than half
the originally allotted time. Over the 22 months while the DCAA audit was conducted,
Pearson fully cooperated."
DCAA auditors said in their report that they were blocked from conducting a
complete review by Pearson executives, who declined to provide key documentation
about cost and pricing, subcontractor activity and other matters. In some cases,
the auditors said, Pearson officials declined to respond to specific questions
about the contract.
'For the Purpose of Efficiency'
The TSA awarded the passenger screening contract on Feb. 25, 2002, to the winner
of a competitive bidding process -- NCS Pearson, an educational testing division
of Pearson PLC, a media and publishing company based in England. Three months
earlier, President Bush had signed the bill creating the TSA and directing it
to federalize the passenger screening workforce at the nation's 429 major airports
by Nov. 19, 2002.
Officials at Pearson, which maintains an office in Arlington, said they would
use a network of their own educational "assessment centers" to test
applicants for 30,000 screener jobs. Although the company had worked for Wal-Mart
Stores Inc. and other large firms, its passenger-screening contract dwarfed
its previous efforts.
The original contract started at $104 million. But the contract was on a "time
and materials" basis, meaning that most of the costs for the number of
hours worked and services were not fixed. Pearson and government officials said
they had no idea how much the contract would end up costing. Procurement experts
say that such an arrangement is less desirable than other contracts because
costs can get out of control if they are not closely monitored.
With the contract barely a month old, the TSA made two decisions that would
profoundly alter the project's course.
First, the government doubled the number of screeners to be hired, to 60,000.
Then, Pearson says it was directed to deploy the same model the government
used to hire roughly 3,000 federal air marshals. Rather than interview job applicants
at Pearson's assessment centers, the company would now have to set up assessment
centers from scratch at hotels and other facilities located at or near airports
across the country.
Suddenly, the company needed to find hotel space and conference centers. The
solution was to hire people and companies with one goal in mind: meeting the
congressionally mandated deadlines. Pearson ended up hiring 168 subcontractors
to handle everything from call-center operations to security squads at every
assessment center. Pearson's subcontractors hired their own subcontractors.
Along the way, costs were marked up, according to the audit.
Security guards in the Virgin Islands paid $15 and $20 an hour were billed
to the government at $30 and $40 an hour. Office workers provided by Kelly Services
Inc. at $20 an hour were billed to the government at $48.07 an hour. Auditors
later determined that Kelly provided about one-third of the $114 million in
costs Pearson claimed for subcontract and temporary labor.
In its response, Pearson said it billed subcontractor hours at higher rates
than it paid for them under an accepted practice known as "mapping"
-- where labor performed is matched against job categories specified in the
contract. Pearson said it was under no legal or contractual obligation to "simply
pass-through labor costs (on a dollar-for-dollar basis)."
Pearson handed out much of the work with little oversight and no competitive
bidding, the audit shows. The justifications for hiring without bids were often
created months after the work was awarded, the auditors said. In many cases,
the justifications amounted to a few words: "National Security" or
"Time Limits" or "Exigent Circumstances" or "Unusual
and Compelling Urgency."
Frank Berger, who ran assessment centers in Des Moines and Davenport, Iowa,
said Pearson officials and subcontractors worked hard but sometimes fell victim
to pressure and haste.
"Pearson was challenged to do a horrendous job in a short period of time,"
said Berger, who along with Cowan and others was fired after Pearson accused
them of planning a competing business, a charge the men deny. "The waste
was unbelievable because there were little checks and balances. There were Pearson
officials and subcontractors who had carte blanche."
"I never saw any government people," he said. "There was zero
government people involved."
In an interview yesterday, TSA contracting officer Richard Lieber said it was
Pearson's responsibility to keep watch on subcontractor activity on behalf of
"I paid the contractor to do that," Lieber said.
A Costly Decision
The decision to move the screener interviews to hotels from Pearson's assessment
centers has been cited as one of the key reasons for the increase in the contract's
cost. Exactly how the decision was made is in dispute.
The audit turned up a Pearson program-management review dated March 29, 2002,
attributing the decision to TSA official Pamela E. Pearson (she has no family
ties to NCS Pearson). The reason for the change: "For the purpose of efficiency,"
according to the Pearson review document.
When auditors asked for documentation from the TSA about the decision, the
agency's legal office responded that "there was no written documentation"
for the change and that the hotels and other locations were chosen by Pearson.
Pamela Pearson is now the vice president and general manager of Covenant Aviation
Security LLC, a company that works with the TSA to provide private passenger
screeners at airports. She denied that TSA officials directed Pearson officials
to use the air marshal model and to move the work to hotels.
"We didn't specify it had to be hotels," Pamela Pearson said. "We
did not dictate the method. . . . At no point in time did I direct them to use
the [air marshal] model. I left it up to them."
Pamela Pearson said the idea of using the air marshal model emerged from her
discussions with colleagues at the TSA and with Michael P. Jackson, then deputy
transportation secretary and now second-in-command of the Department of Homeland
Pearson officials maintain they were given no choice and did not make the decision
"Why would we want to change a model that we spent a lot of time preparing?"
said Pearson spokeswoman Eileen Cassidy Rivera. "Why would we do that?
There's no logic to it."
Current TSA officials said Pearson agreed with them to use the air marshal
model. They said they took the action in consultation with Pearson because the
company's original plan -- to use its own assessment centers -- was being tested
at Baltimore-Washington International Airport and was not working well.
The TSA officials said they thought the air marshal model would give them more
control over the hiring process, with all the work done at a central location.
To book the hotels, Pearson turned to a company called HelmsBriscoe Inc., a
travel-and-event coordination firm. Even though Pearson never had a formal contract
with the company, HelmsBriscoe became the hotel agent for the passenger-screening
hiring effort, taking 10 percent off the top of every room it booked, according
to the audit.
On June 26, 2002, Pearson's logistics manager, Debra Herbst, sent a letter
to the nation's hotel industry. "I have selected Helms-Briscoe to be my
'Agent of Record,' " she wrote, according to an excerpt of the letter contained
in the audit. "As such, Helms-Briscoe has the authority to negotiate on
Auditors questioned the arrangement, saying that HelmsBriscoe had no incentive
to keep costs down and that taxpayers did not get the best possible deal.
"The higher the guaranteed room block and the higher the room rates the
more money (Helms-Briscoe) was guaranteed to receive as a placement fee,"
the auditors said. The arrangement "did not lend itself to controlling
costs on this contract. To the contrary, it seems to have added costs buried
within the charges from vendors at the assessment centers."
Pearson disagreed with the auditors. "The use of brokers such as HB to
assist organizations in finding hotels suitable to specific event needs is a
standard industry practice," the company said in its response.
For the hotels, many of which were experiencing low occupancy rates after the
Sept. 11, 2001, attacks, the change in the contract to the hotel-based model
meant millions of dollars in unexpected revenue. Auditors reviewed about two
dozen of the 150 assessment centers and said they documented unsubstantiated
spending at nearly every turn.
Bill Carney, who managed the assessment center at a Holiday Inn in Joplin,
Mo., said many of the problems were due to pressure from government officials
to ignore contracting rules designed to ensure that money was well spent.
"The normal procedures, where you dot the i's and cross the t's: We were
told we didn't have time for that," said Carney, who was recruited by a
subcontractor to work for Pearson. "You've got to remember the times. The
country was pretty much in a panic. They wanted something they could point to
and say, 'Everything is okay. We can go back to normal.' "
A Leaky Tent
In Manhattan, the government reserved three prominent hotels as assessment
centers: the Marriott Marquis, the Millennium Broadway and the Waldorf-Astoria.
The government also rented Pier 94, an exhibition-and-trade show center near
the Hudson River. Auditors categorized more than $1 million in costs at those
locations as "deficient" or unsupported.
At the Marriott and Millennium hotels, the government was billed $129,621.82
for long-distance phone calls without any supporting documentation. "Our
review disclosed $3,403 of these costs were for international calls, a portion
of which were to Columbia, South America," the audit states. "In addition,
we found numerous calls that are $25 to $100 per call (at about $1 per minute),
some of which were made in the late hours of the evening to residential numbers
after normal work hours (past 10:00 p.m.)."
In its response, Pearson said the large hotel phone bills were justified because
the TSA did not give the company enough time to fully staff its own call centers
at the hotels. Most of the long-distance calls, the company contended, were
"NCSP has been able to find only $388.37 of the $3,403 in international
calls," Pearson stated. "This amount includes five calls to Columbia,
all on August 19, 2002, for a total of 12.7 minutes and at a charge of $156.36.
While NCSP will review this further, it must be noted that there were candidates
applying for the TSA positions residing outside the United States and who were
contacted overseas during the assessment scheduling process."
Auditors zeroed in on spending at Pier 94 on the west side of Manhattan. On
June 20, 2002, Pearson signed a one-page contract with a company called Port
Parties Ltd. to set up an assessment center at Pier 94. Most of the invoices
submitted were estimates, and the government paid the bills, the audit said.
Extra electrical circuits and cables: $19,292. An unknown number of tables:
$19,250. An unknown number of chairs: $24,000. Miscellaneous labor: $94,860.
Carpenters and electricians: $118,400. Security guards: $133,080.
The cost for the Pier 94 operation came to $662,988.51, or about $39,000 a
day for more than two weeks. Auditors said the entire amount was unsubstantiated.
Pearson disagreed, saying that proper invoices had been submitted and approved:
"DCAA's legal interpretation of the [contract] is thus flawed."
At a Hilton Hotel in Boston, a company called Atent For Rent Inc. was hired
to construct a large tent with cathedral windows in the hotel parking lot, along
with two smaller tents. The cost: $514,201.40. When it began to rain, the tents
flooded. Workers scrambled to buy sandbags at Home Depot, containment vats called
"cow tubs" to catch the runoff, and sump pumps. The work was directed
by hotel employees rather than Pearson or its subcontractors, the audit said.
"The tent costs at the Hilton Boston Logan Airport and (Pearson's) payment
of them highlights a lack of management oversight by (Pearson) in controlling
costs," the auditors wrote.
Pearson responded that its personnel were on site watching over the contract.
"There is no basis for the statement that NCSP lacked management control
over the contract," the company stated.
To provide protection for TSA officials and job candidates at the hotels and
assessment centers, Pearson hired a series of private security firms as subcontractors.
In doing so, the auditors said, the company failed to follow a number of federal
contracting rules requiring competitive bidding, price analysis and justification
for sole-source awards and cost increases.
The auditors said the entire $27.4 million spent on security was deficient.
Again, Pearson contested the auditor's report: "There was and is plenty
of objective data to demonstrate that the costs incurred and claimed by NCSP
for security subcontractors are reasonable."
One of Pearson's security subcontractors was Ambassador Protection Services
Inc. of New York. The company rented six magnetometers at a cost of $475 a day
for a total of $125,400. Auditors said similar magnetometers could have been
purchased for between $2,500 and $6,000 apiece. In its response to the audit,
Pearson said it determined on its own that Ambassador could not support $76,264
of its service invoices and $39,900 of its magnetometer charges.
"NCSP refused to pay certain amounts to Ambassador and was subsequently
sued by Ambassador," Pearson stated. "NCSP successfully negotiated
a settlement to this dispute."
The DCAA is a division of the Pentagon that also reviews civilian contracts
for the government. TSA officials hired the agency as part of an effort to gain
control of the costs of the passenger-screening contract.
The auditors concluded in their reports that they could not get to the bottom
Instead of categorizing unusual costs as "questioned," a term frequently
used by auditors in drawing conclusions, the DCAA auditors examining the Pearson
contract used the word "deficient" when they could not substantiate
"We are unable to determine the reasonableness of the claimed amounts
because we have not had access to (Pearson's) cost data for the related entries,"
the auditors wrote in their first 186-page report dated May 3, 2004. They produced
a second 42-page document on Nov. 26, 2004.
DCAA officials have declined to release the audits, saying they are the property
of their client, the TSA. Despite months of requests by The Post, including
Freedom of Information Act filings, TSA officials continue to withhold the audits.
In response to the audit, Pearson executives argued that the federal government
was not in a position to determine labor costs. Pearson told the auditors that
the commercial marketplace should determine labor rates. They also said the
TSA had waived its right to approve any no-bid work awarded to subcontractors.
Pearson contended that TSA officials made that waiver through their "acquiescence
and silence" when they listened to Pearson's proposal in the spring of
2002 and did not object.
TSA officials said they looked out for taxpayers by calling on the DCAA to
examine Pearson and subcontractor spending in the summer of 2002. In an interview
yesterday, Lieber, the TSA contracting officer, said the audits helped him and
his colleagues negotiate a settlement with Pearson, reducing their contract
from $867 million in claimed costs to $741 million.
"I negotiated a settlement that is considered fair and reasonable for
the services received," Lieber said.