Defense Investigation Involves Leaks of Secret Data to Contractors

The government’s growing defense fraud investigation centers on a Pentagon contract bidding process that openly provides much technical information to companies interested in winning contracts for equipment sales but keeps other data confidential.

Officials say the inquiry has disclosed what amounts to an insider-trading scheme that provided secret information to some defense contractors to help them submit successful bids.

Under the government bidding process, when the Pentagon decides that it needs a certain type of equipment, it formulates a plan that sets out the function the equipment must perform and what specifications it should have. In the case of a military vehicle, for example, that might include what its approximate weight should be, the type of armament it should carry and its speed, among other factors.

The Pentagon then publishes a brief summary of this information--a “Request for a Proposal”--in the Commerce Business Daily, a government bulletin of contracts that are available for bids from industry.

Defense contractors interested in bidding on a job can then contact the Pentagon to receive more detailed information on it. Until the stated deadline for preliminary bids, the companies maintain frequent communication with the department, receiving clarifications and explanations on the specifications that will help them tailor their bids on the project. The responses to each company’s technical inquiries are shared openly with all the firms seeking the job.

After the bids arrive, however, further information is kept confidential to protect each company’s interest and to protect the Pentagon’s bargaining position. Companies may still seek clarification on contract points, but the responses are not shared with the competitors.

Also, the Pentagon does not disclose information to the bidders that might be sensitive on national security grounds--for example, intelligence information on the strength of Soviet armor that a particular weapon might have to penetrate. It also keeps secret budget information that would indicate how much the government would be willing to pay for the equipment.

After evaluating the preliminary bids, the Pentagon draws up a short list of companies that have the technical capacity to fulfill the job and whose proposals are generally satisfactory. It then informs each of any weaknesses in their bids.

Refined, final bids are then submitted, and the Pentagon chooses the one it considers the best.

Federal investigators are probing allegations that, during the bidding process on some projects, Pentagon officials may have leaked confidential intelligence information, government budget information and secret data from competing bids to allow certain companies to obtain contracts and receive the best price for them.