Lawmakers Seek Controls on ‘Shadowy’ Consultants

In 1982, when Mark C. Saunders was the civilian procurement chief for a division of the Navy’s Electronic Systems Command, he pleaded guilty to using inside information on a $58-million Navy contract to make a small killing on the stock market.

He paid a $5,000 fine, reimbursed the government for his $9,000 stock earnings and was fired from the Navy.

But that did not stop Saunders from continuing to earn a living off the $150-billion-a-year Defense Department procurement budget. In 1983, Saunders joined an unregulated and unlicensed industry around Washington that seeks to influence federal spending on behalf of defense contractors. He became a defense consultant.

An affidavit unsealed June 30 in the widening defense procurement scandal alleges that he once again took the opportunity to traffic in confidential government information--this time supplying it to companies vying for contracts with the military.

Most of the hundreds--perhaps thousands--of consultants hired by defense firms do an honest job of meeting a daunting challenge: helping contractors to find their way through Pentagon procurement regulations that, if placed side by side, would fill a bookshelf 1,100 feet long. But the affidavits filed in the Pentagon fraud investigation suggest that some consultants serve other, more dubious functions: bribing government officials and obtaining classified information about competitors.

The story of Saunders, as well as the handful of other consultants implicated in the continuing fraud probe, has prompted members of Congress and other defense experts to reassess what sort of regulations, if any, should be imposed on a profession that has operated for years out of the public view.

“Who are these shadowy figures clinging to the Pentagon’s coffers?” asked Sen. David Pryor (D-Ark.) during a Senate debate after the scandal broke. “Where do they come from? How many are there and how much are they paid? What controls do we have over their activities and whether they can retain high-level security clearances? And what can we do to prevent further fraud and waste by consultants who may want to take advantage of their privileged situation?”

Pryor said his governmental affairs subcommittee on federal services will hold hearings during the next few weeks to answer those questions.

James H. Falk, a Washington attorney who represents defense firms in court over disputed Defense Department contract awards, recommended to Pryor’s subcommittee on Friday that military consultants be required to register, publicly disclose their clients and report how much they are being paid.

The current “ ‘free agent’ environment, coupled with the extraordinarily competitive pressures in defense contracting, has contributed to the climate in which the recently publicized abuses have taken root,” Falk testified. “The only players in the procurement system today who do not have to abide by prescribed rules and standards of conduct are the consultants.”

In contrast, lobbyists working on Capitol Hill must disclose the names of their clients, their fees, the general and specific nature of the legislation they discuss and any expenditures in excess of $100.

For years, Pryor and other lawmakers have decried the growing number of technical and management consultants hired by the Pentagon to help write specifications, perform studies or write reports for the government. During a news briefing last month, a Pentagon spokesman said those outside experts cost taxpayers between $2.2 billion and $3.9 billion a year.

But the scandal has shifted attention to another type of consultant--those hired by defense firms willing to pay as much as $1,000 a day or huge annual retainers for help in obtaining projects from the Defense Department.

Many of the consultants provide a straightforward service.

“Consultants can direct companies to the right people in Washington,” said Donald Hicks, a former undersecretary of defense and Northrop Corp. senior vice president who now makes his living here as a defense consultant.

“They bring valuable knowledge of the inner workings of the Pentagon . . . and a great understanding of military requirements,” he said. “They are guides and critics in a company’s strategic planning efforts.”

At Burdeshaw Associates of Bethesda--known as “rent-a-general” because its principals are retired military officers with the rank of admiral or general--consultants tell defense contractors where to peddle a new idea for a weapon or how to tailor proposals to catch the Pentagon’s eye.

Those kind of services, however, are not the kind that have put consultants at the heart of the present scandal.

“The people caught in the scandal . . . played upon their old friends (still working in the government) to get information which they shouldn’t be getting, and provide it to their clients,” said retired U.S. Army Gen. William R. Richardson, Burdeshaw’s executive vice president.

Called “rainmakers” or “schmoozers” by those in the trade, those consultants are typically former Pentagon procurement employees or aerospace marketing representatives who have either retired or quit to work hustling business, securing information and exerting influence for defense contractors.

Federal affidavits filed in the fraud probe also say they are often the ones who procure restricted government documents, seek favoritism for their clients and “provide the government officials with bribes or gratuities.”

With no centralized reporting or licensing requirements, there is no way to find out exactly how many such consultants are plying their trade in Washington or in other military centers such as Norfolk, Va., and Southern California, say private experts and spokesmen for the Defense Department.

Working in the Shadows

And, for the most part, their movements working in the shadows of the defense procurement bureaucracy are largely invisible to the general public. “Frankly, it was an area that, until this scandal broke, no one had focused on,” said Danielle Brian-Bland, a researcher at the Project on Military Procurement, a nonprofit forum for whistle-blowers on military waste.

But the schmoozers are no strangers to defense contractors, who are said to be relying more heavily on the consultants to help gain an edge in the competitive world of winning defense procurement contracts--especially during the Reagan Administration when procurement conditions have changed so dramatically that consultants have greater opportunities to ply their trade.

Some companies see a particular advantage in hiring consultants to find out procurement information: A consultant may not be subject to the same ethical constraints as a company employee.

Firms Keep a Distance

Lawrence J. Korb, former assistant secretary of defense for manpower installations and logistics, said the consulting relationship “enables the company to distance itself from the acts of these people. They believe they’re not responsible for (the consultant’s) activities and at times there are certain people in the companies who like that.”

Korb, who has argued for regulation of defense consultants, said: “If an employer hires a consultant they should be as accountable for the acts of that person as they are for the acts of their own employees.”

Michael Beltramo, a Los Angeles-based consultant to the aerospace industry, said: “They are selling a warm and cozy feeling to their clients, a sense that they know what’s going on. There’s a creeping paranoia among contractors that somehow there’s just one more piece of information that they could use for the bid and they are determined to get it.”

For starters, consultants use their network of friends to find out what kinds of military contracts are on the drawing board--crucial information because contractors need plenty of lead time to develop technology and prepare bids, said a Washington consultant who asked not to be identified. In some cases this early information can tell a company not to bother bidding on a project, which can save millions of dollars in needless research and planning costs.

Pinpointing Projects

Once the contractor pinpoints the projects it wants to pursue, the consultant has to find out which ones are “wire jobs,” said the Washington consultant. “One of the first things you find out is: Is this contract going to be wired for a specific firm?” he said.

A contract might be wired, for example, for a company that has a technological lead in building a particular military system.

If the contract is not wired, he said, the consultant tries to persuade his former Defense Department colleagues that his client has developed the best technology for the job.

“If in these technical discussions you convince the proper people (in the Pentagon) that your solution is better than anybody else’s, they’re going to write an RFP (request for proposals) that is going to be tailored to you,” the Washington consultant said.

Extracting Pentagon Data

While the consultant lobbies government employees to write a favorable RFP, he also tries to extract information from Pentagon procurement officers that will help the contractor write a better proposal.

“He will call up his buddy and say: ‘Let’s talk about this particular program. What’s the government really looking for? What’s it going to take to win this?’ ” said J. Ronald Fox, a Harvard professor who has studied the military procurement process.

“That’s the kind of information the man making the call wants,” Fox said. “He wants to walk away from that conversation with some information that will help a contractor in writing that proposal.”

Often, the prize will be “under the table” information that shows how much the Defense Department is willing to pay for the project, what the technical thresholds are for the bids, and what features of the product are regarded by Pentagon brass as most important. All this is contained in documents stamped “for official use only” that are theoretically off-limits to consultants and their clients.

Leaking Is Winked At

Such a system of selective leaking of internal Pentagon documents, although technically incorrect, has long been winked at in the defense industry as a benign practice, said Fox, who documented it in his 1974 book titled “Arming America.”

“It (the information) is handed out through friendship and it’s handed out often, I believe, in good faith by people on the government side who believe that if that information gets to the contractors, the contractors will be able to put together a better proposal,” Fox said.

But the unspoken gentlemen’s agreement eroded during the 1980s, when competition for defense work began to intensify among aerospace contractors, said Richard DeLauer, former undersecretary of defense and now an aerospace industry consultant.

Contractors, once assured of being relatively unruffled sole-source bidders on military projects, had to endure arduous, protracted bidding processes. Finding out what the other guy was up to, DeLauer said, became an increasingly important part of the strategy.

Happy to Comply

And Pentagon officials, in a way, were more than happy to comply. To make sure that they shopped around and received weapon systems they wanted, they began to regularly divulge special features and technology proposed by one contractor to its rivals during the bidding process, an administrative strategy known as “technical leveling,” DeLauer said.

With that kind of information floating around, said attorney Falk, consultants were able to hire themselves out to competitors for the same contract without telling the competing companies.

“Essentially, this is a playing field with goal lines but no sidelines,” Falk said. “These guys are going into each team’s huddle and learning the signals and going into the other team’s huddle and telling them what plays the other team is going to call. That’s not fair.”

The current scandal, however, adds a new twist: collusion between consultants and allegations that government officials were bribed for the proprietary information.

Affidavit Tells of Bribes

An affidavit released in Dallas federal court on June 30 alleges that wiretaps of William Parkin, a retired acquisition director for the Pentagon’s Joint Cruise Missile Project Office, show he bribed Defense Department employees for “inside information” that he later sold to defense contractors.

And wiretaps on the Alexandria, Va., townhouse of Saunders allegedly show that he was given the sealed bid prices for the $120-million Navy and Marine Corps’ Advanced Tactical Air Command Control project, or ATACC. The bid prices were read over the phone to Saunders by George Stone, Saunders’ friend and successor as a Navy civilian procurement officer, the court documents allege.

Passed to Another Consultant

The affidavit said Saunders then passed the bidding information along to another consultant, Thomas Muldoon, who had a client in the competition. Muldoon paid Saunders $4,000 a month for his continuing help with procuring Defense Department information.

It also alleged that Saunders in late 1987 offered to use his position with one Navy contractor to steer a contract to Varian Continental Electronics Inc. of Dallas, which sought a contract to build low-frequency radio transmitters.

Saunders had been hired as a subcontractor by C-Cubed Corp., which in turn was hired by the Navy to write the request for proposals for the radio transmitters. Saunders approached Varian and offered to write the proposal in such a way that it would steer the contract to the company.

Because there is no regulation, nobody knows how often defense consultants work both for the Pentagon and for private industry.

“The whole area could be somewhat self-cleansing if all the players involved had more knowledge” of who was involved, said Stuart Platt, a retired rear admiral who, until 1987, was charged with promoting competition among defense contractors while at the Navy.

“It’s time to take some of the mystery out,” he said.

Ralph Frammolino reported from Washington and Carla Lazzareschi from Los Angeles. Also contributing to this story was staff writer Robert W. Stewart in Washington.