As Costs Grow, So Do Efforts to Come In Out of Cold War : Security: Defense secrecy eats up $13.8 billion yearly. Outdated rules abound, as do panels studying the issue.

Anxiety that U.S. defense technology would fall prey to savvy Communist spies gripped the Pentagon for the four decades of the Cold War, leading to the creation of a massive industrial security bureaucracy.

Today, that system for protecting 12,000 defense plants around the nation costs taxpayers a staggering $13.8 billion annually--enough to rebuild every skyscraper in downtown Los Angeles every year.

And amid massive defense spending cuts, much of the security seems senseless.

On a typical day at Grumman Corp., for example, employees spend an average of 840 hours sitting in various briefings that dwell on the government’s copious industrial security rules. The New York aerospace company bills the government $80 million annually just for the classes.

Dozens of federal inspection teams visit the firm every year to insure compliance with a myriad of security standards--measures that reach far beyond the 10-foot barbed wire fences and video cameras at plant perimeters.

The Air Force has one set of standards for insulating walls so that spies cannot eavesdrop on conversations; the Navy has a different rule book for walls. Some locking file cabinets are designed to meet intelligence agency rules, while others comply with atomic agency rules.

In all, the government administers 341 different regulations--some consisting of hundreds of pages of instructions--to combat espionage in the defense industry. Duplications abound; many of the rules are anachronisms.

“In my 38 years in the security field, I have never had a case where somebody broke into a safe and stole a secret,” Harry Volz, Grumman’s security chief, said recently.

Volz is co-chairman of a government and industry committee that is trying to inject some modern-day reality into a security system established in the 1950s and still running on a Cold War mentality.

Critics, which include senior government officials and top industry executives, contend that the system is woefully inefficient and that nobody has much authority to impose discipline across government agencies.

When the U.S. defense industry reigned supreme, security costs seemed to matter little. But rising international competition is threatening to seriously erode the U.S. industry’s market share, and the rising cost of U.S. weapons threatens to make them unaffordable to even the Pentagon. Indeed, some of the military’s most critical programs have been canceled or drastically scaled back because they became unaffordable, including the A-12 attack jet and the B-2 bomber.

Suddenly, the defense industry and the Pentagon see industrial security as an albatross.

“It is a big, complex, expensive apparatus, maybe all of which was necessary during the Cold War days, but the need has been largely supplanted today,” said Deputy Secretary of Defense William Perry. “I believe we should be able to dismember a significant part of this apparatus.”

Though the Berlin Wall fell in 1989 and the Soviet Union collapsed the following year, reforming the security behemoth, which became a powerful institution during the superpower arms race, is a tedious process that ultimately could take until the late 1990s.

The modernization effort, called the National Industrial Security Program, began in January, 1988. A report to President George Bush in November, 1990, disclosed for the first time the massive costs of security. That $13.8 billion a year is more than double the spending on any single weapon program.

Just days before leaving office, Bush issued an executive order that put into motion the most sweeping efforts to reform the security system since it was established in the 1950s. Teams of government and industry officials are creating an entirely new government security manual.

The new system, for the first time, is supposed to impose uniform standards on all executive branch offices, including military, intelligence and atomic agencies, as well as their contractors. “Redundant, overlapping or unnecessary requirements impede” U.S. economic and security interests, Bush wrote.

But attacking redundant regulations will mean reigning in a Balkanized system in which 12 different federal agencies set industrial security standards--not including hundreds of so-called special access program offices that can set standards of their own. Almost all the players are intent on protecting their own agendas.

“It is going to be difficult, because we are dealing in people’s rice bowls,” said Donald Fuqua, president of the Aerospace Industries Assn., a major proponent of reform. “People have their own empires, and they distrust everybody else.”

Indeed, the bureaucracy has shown few signs of slimming down while the defense industry has been shrinking. In 1993, the Defense Investigative Service, which conducts the largest number of site inspections and personnel investigations, will spend $198 million--25% more than in 1986, when the Pentagon’s overall budget peaked. Charles Forsythe, comptroller of the service, attributed the cost increases to inflation.

The new security manual is expected to be completed in January, but full implementation at defense plants will not occur until 1997, nearly a decade after the effort started, according to Volz, the project’s co-chairman.

Perry said he would like to move faster.

“I don’t anticipate it is going to be easy or quick,” he said. “This system has been put in place over four or five decades of the Cold War. For every idea of saving a million here and a million there, there is going to be somebody saying, ‘You are endangering the public interest by letting things that should be kept secret out.’ ”

Critics contend, however, that the Clinton Administration is taking a deliberately slow pace and has stymied reform by creating redundant studies of the problem.

Last month, the Administration initiated a major review of security rules, under a new Joint Security Commission, even while the existing multi-agency effort to rewrite the industrial security manual continues.

The security commission--a joint CIA and Defense Department effort--was launched on the thesis that security should be based on “reasonable risk management rather than near absolute risk avoidance,” according to an internal government memo that established it. The effort will take a year.

Meanwhile, a third overlapping security review was ordered in April by Clinton, overseen by Steven Garfinkel of the General Services Administration. The GSA review is examining classification practices throughout the federal government.

“What is it that we have kept secret that we no longer need to keep secret? We haven’t answered that question,” said Garfinkel, director of the GSA’s Information Security Oversight Office. “Everything was very simple in the old days, but today everything is very complex.”

Some say the issues are being studied to death.

“I am afraid that all of these duplications will play into the hands of those who want to maintain the status quo,” said Steven Aftergood, senior analyst at the Federation of American Scientists. “It is the opposite of streamlining.”

Others before the Bush Administration tried to attack excessive security but had limited success. Former Air Force Secretary Donald B. Rice, for example, said in an interview that he had difficulty making changes in a security system that had become too large and too sophisticated.

“It is harder to get things out of the black world than to put them in, because of where the authority lies and lethargy and inertia,” said Rice, who now is president of Los Angeles-based Teledyne Inc. “I found a situation where I had the authority to decide that one program should have (special access) protection, but then I had to go to the Defense Department and the Congress to get them out.”

Probably nowhere are costs greater than the Northrop B-2 bomber program, whose heightened security as a special access program has cost tens of millions of dollars.

For years, B-2 parts were made surreptitiously at factories around the nation, sometimes shipped to phony warehouse drop locations around Los Angeles and then trucked at night into Northrop’s Pico Rivera plant.

Inside, the operations resembled nothing like those in commercial industry. The entire plant was sectioned off by endless hallways that divided work spaces into small areas and prevented snooping. Massive doors, operated by special motors that opened and closed them in seconds, hid the work spaces.

Maintaining such tight secrecy during the production of an aircraft is especially costly, security experts explain.

“There is not sufficient controls for many programs that perhaps stay in special access for longer than they should,” said Lynn Mattice, Northrop’s former security chief, who now is head of security for Whirlpool Corp.

Lockheed, a major player in the special access world, conducted a survey of 178 defense contractors recently and found that 91%, concentrated in the West, had special access programs.

The heightened security costs plenty. While the government conducts background investigations, for example, workers sometimes are assigned to “holding tanks” in which they do little useful work or read magazines. The annual cost of salaries and lost profits associated with holding tanks is estimated to be $116 million at just 14 major defense firms, according to the 1990 report to Bush.

While the industry and government have negotiated reforms for the past five years, the security system has remained on autopilot.

In a single year, for example, the Pentagon sent 55 different industrial security inspection teams to Pratt & Whitney’s jet engine plant in Connecticut. Each team stayed an average of eight days, sometimes forcing the contractor to play host to multiple inspection groups on the same day, according to the industrial reform committee.

The Pentagon has long understood the problem. In the 1990 report to Bush, top security officials acknowledged that the system had “created an illusion of superior protection and in many cases obscured the extraordinary costs associated with providing maximum security to all aspects of a program.”

“If we can get uniform standards, we would have no need for duplicative inspections,” Volz lamented. “We are working on a manual that will replace 600 duplications. You would need a hell of a lot fewer supervisors and bosses,” Volz notes, an unappealing prospect to an entrenched bureaucracy.

Lawrence Howe, corporate vice president for security at Science Applications International Corp. in San Diego, acknowledged that many security procedures strike even insiders as “idiosyncratic,” hindering compromise between powerful groups such as the CIA and the Defense Department.

“Naturally, most of us tend to feel that whatever we’re doing is rational and what anybody else wants probably doesn’t make much sense. So, getting these people all to sit around the table and give up what they’ve been doing for years in favor of some commonality--it requires a great deal of negotiation,” said Howe, a key member of the reform committee.

Although the Bush executive order could have a profound effect on the system, the order makes no prescription for public or congressional input. While hopes run high in the industry that reform will cut costs, the outcome is unclear. Some senior government officials are wary of a major retrenchment.

Garfinkel, the GSA official, said the new security manual is not intended to reduce the level of industrial security or the number of secrets, but rather it should refocus the system on modern-day threats. Meanwhile, critics say the special access community is working to subvert the reform effort by exempting themselves from it.

At the peak of the 1980s’ defense buildup, an estimated 20% of the Air Force budget went to so-called black programs, so secret that spending and employment data were not disclosed. The percentage has dropped considerably, but whole segments of the industry--stealth, spy satellites and cryptography--remain in the black world.

At the Lockheed Skunk Works in Palmdale, one of America’s most secret plants, some computers are locked in lead-lined vaults to prevent eavesdropping. Executive phones must be checked regularly for bugs. And the government insisted that Lockheed certify its plant as drug-free.

Unions battled efforts to conduct drug and alcohol testing but finally agreed to allow urine testing for new workers.

“I was shocked,” one Lockheed insider said. “Over 40% of those who applied flunked the test. Some people took the test when they were drunk.”

Although Lockheed caught the drunks, he added, the company never nailed a single spy.

The Enemy Within

Sunday: Thousands of Americans lose defense jobs every year, having been denied clearances by an industrial security system that critics contend is capricious and unfair.

Today: U.S. defense contractors say the $13.8 billion spent each year for security at weapon plants is a wasteful anachronism of the arms race.

Tuesday: In the aftermath of the Cold War, U.S. officials are struggling to balance defense conversion efforts and the preservation of needed secrecy.