Scanner Maker Navigates Homeland Security Labyrinth

The weapons seizure was modest: 37 revolvers, 1,280 rounds of ammunition and one silencer. But its discovery at a port halfway around the world last May packed a big punch at Rapiscan Systems Inc.

Using equipment built by the Hawthorne company, port inspectors in Bombay, India, found the cache at the bottom of a barrel of waste grease inside a cargo container.

A month later, during a news conference at Baltimore’s port, the Multiple Eagle cargo and vehicle inspection system used there picked up an endorsement from U.S. Customs and Border Protection Commissioner Robert C. Bonner. He said the Rapiscan system was a “unique tool in our arsenal of detection technology to protect our country ... achieving increased security against the terrorist threat, and doing so without shutting down the flow of trade and damaging our economy.”

By September, Rapiscan had parlayed the events into a $16-million sale of Multiple Eagle systems to a customer that the company declined to identify for security reasons.

It was a rare moment of clarity in a crowded field where companies have a hard time differentiating themselves from rivals, much less furnishing proof that their products will really thwart a terrorist attack.

“The Indian customs officials sent photos of the seizure to us and most of the engineers had them up on their desks for weeks,” said Peter Kent, Rapiscan’s vice president of government affairs. “For those who spent years of testing and failing, knowing it was being used and helping to protect against terror was exceptionally motivating.”

Rapiscan is among the hundreds of companies that have lined up since the 9/11 attacks to sell equipment and software to improve security at seaports, airports and other vulnerable spots.

The industry is difficult to pin down. The federal government spent $18 billion from 2001 to 2004 on homeland security, a congressional research report said, but there is no central supplier database. Instead, the companies -- from the tiny to the huge -- attend conferences and trade fairs to tout their products and hire lobbyists to navigate the government and corporate bureaucracies that pay their bills.

The customers’ changing needs have required Rapiscan and others to develop costly technology to respond to new types of threats.

Before September 2001, “we had some work with customs duty controls and anti-smuggling work, but the biggest focus was drug interdiction,” Kent said. “Now, you are looking for explosives, nuclear materials and chemical threats that do not have to be trafficked in large amounts. You need more sophisticated and higher-performing equipment. These were dramatic, wholesale changes for our company.”

The 400-employee operation came up with high-energy X-ray and thermal-neutron scanners that could see 98% of what was inside a cargo container, compared with the ability to see 40% to 50% before 9/11. As Kent put it, it’s like the difference “between watching the Ed Sullivan show on an old black-and-white television and watching ‘Pimp My Ride’ on HDTV.”

Even more sophisticated equipment is being tested that Kent says can tell the difference between table sugar and sand, and between olive oil and motor oil.

Rapiscan’s recent successes include a $2.2-million contract for its Secure 1000 body scanner, which President Ajay Mehra said “provides a comprehensive body search in seconds,” and last month’s government approval for sale in Britain of its Multi-View X-Ray airport baggage system, which the company says can scan 1,800 suitcases an hour and automatically detect explosives.

Developing such technology is expensive and the payoff for many companies is unknown.

Rapiscan’s parent, Hawthorne-based OSI Systems Inc., posted a third-quarter net loss of $4.2 million on revenue of $102 million. Most of the loss stemmed from its security group’s products “consisting of either first-of-a-kind projects with new technologies, or development grants with minimal margins and large upfront engineering costs,” OSI said in a filing with the Securities and Exchange Commission.

Another problem: figuring out the federal system that pays for the new security.

“It is very tough for us. We are historically a company that has not done business with the federal government,” said Shawn Strawbridge, vice president of homeland security for Embarcadero Systems Corp. of Alameda, Calif., which brings in about $15 million a year by setting up marine terminal security systems, accounting for about 20% of company operations. “Navigating the federal procurement and requirement process has been difficult.”

Among Embarcadero’s federally funded projects were cargo terminal security systems at the Los Angeles and Long Beach ports.

Some security experts said private industry was being shortchanged, forced to provide all of the upfront capital to fund technological advancements without a guarantee of success.

James E. Moore II, a faculty member at USC’s Center for Risk and Economic Analysis of Terrorism Events and chairman of the university’s Department of Industrial and Systems Engineering, said that the federal government should assume a portion of the financial risk by funding demonstration projects. That would ease some of the exploratory burden of technology development while ensuring that the equipment worked.

“The concern I hear about this is that we would be broadcasting the steps we are taking to the people we are trying to thwart and defeat,” Moore said. “There is a bit of a risk factor, but the hope is that we are learning more, and learning it more quickly, than our opponents.”

Lani Fritts, chief operating officer for Sunnyvale, Calif.-based Savi Networks, said the federal government could do a better job of defining its wants and needs.

“Some of the challenge with our business since 9/11 has been confusion in government standards,” Fritts said. “Companies have been reluctant to invest until they understand exactly what they want. It has become very political. There is more [technological] capability that exists than [the federal government] takes advantage of.”

A division of Raytheon until the end of 1999, 16-year-old Savi had expertise in Washington contracting, but that wasn’t enough, and the company, now privately owned, has had to evolve repeatedly, Fritts said.

The company, which once specialized in tracking children lost in shopping malls, now tracks cargo. One of its primary products these days is a kind of chain-of-custody program that requires a log of every transaction and every movement of a piece of cargo along its journey, including every individual who has come in contact with it.

“Before, there was much more of a loss-prevention security focus, keeping people from taking things out of containers,” Fritts said. “Now, we’re trying to keep people from putting something into them.”