San Diego Firm Proving Ground for Defense Posts

With the likely elevation of Bobby Ray Inman to secretary of defense, an innovative, employee-owned company specializing in military contracts will find itself with some of the most powerful connections Washington has to offer.

Assuming he is confirmed by the Senate, Inman will become the fourth member of the board of directors of Science Applications International Corp. to get a top Pentagon post within the last year.

Since last spring, two other board members have become deputy and assistant defense secretaries, while a third was tapped as a contracting deputy and is responsible for monitoring contracts between the government and private firms.

The San Diego-based firm’s close ties to the new Pentagon leadership illustrate the extremely tight web of relationships inside the modern military-industrial complex, where defense experts frequently move back and forth between the public and private sectors.

But even by those standards, the connection between Science Applications and the federal government is extraordinary.

Jack Modzelewski, a defense analyst with PaineWebber Inc. in New York, said he knows of no other defense contractor with so many former board members now inside the Pentagon hierarchy.

“It looks like they’re a good training ground” for future government service, he said of the firm. “It looks like they are something you need on your resume.”

Some defense analysts attributed the elevation of Science Applications directors to the company’s status as a premier defense research firm, noting that the 16,000-employee organization has more government contracts--4,000--than any other firm in the nation.

With its reputation for aggressiveness and innovation, their argument goes, it is only logical that the company should attract some of the industry’s best and brightest--who also would be strong candidates for top Defense Department jobs.

But others contended that, given the potential for conflicts of interest--or even the appearance of such conflicts--the unusually powerful relationship bears watching.

“They’re obviously a very influential company and they’re a far-reaching company,” said Keith Rutter, assistant director of the Project on Government Oversight, a Washington public-interest group. “They have a lot of political influence.”

Rutter and other government and defense analysts said that since members of the firm’s board have begun arriving so recently and because Inman’s nomination is still being considered, it is too early to tell how the relationships will be perceived--or what, if anything, they will mean for the company or the government.

But they also said that Inman’s directorship with Science Applications will likely be a subject of discussion during his confirmation hearings, which begin Jan. 25.

Inman has said he would not comment about any defense-related issues until after the confirmation process. Likewise, Pentagon administrators were reticent to discuss the relationship between the Defense Department and the firm.

“We are going to decline to comment on this,” said Capt. Michael Doubleday, a Pentagon spokesman. “I don’t think that we would have anything that would be meaningful to say.”

The company’s ties to Washington are indeed impressive.

* Inman, a board member for 12 years, was nominated last month by President Clinton to run the Pentagon. A retired Navy admiral, he headed the National Security Agency under President Jimmy Carter and served as deputy director of the CIA under President Ronald Reagan.

At Science Applications, he has chaired the board’s executive committee. He is expected to tender his resignation when his Pentagon appointment is confirmed by the Senate.

* William J. Perry was a board member of the firm for six years before he was tapped last year to join the Pentagon in the No. 2 slot as deputy secretary of defense. He was considered a candidate for the top job before Clinton chose Inman to succeed Defense Secretary Les Aspin.

* John M. Deutch was a board member for 13 years but left Science Applications to become undersecretary of defense for acquisition and technology.

In that role, he has developed a high public profile for his work researching the causes of the mysterious post-Persian Gulf War maladies reported by men and women who served in the conflict and for renegotiating the contract for development of the troubled C-17 cargo plane.

* Anita K. Jones, a board member for six years and former professor and chairwoman of the Department of Computer Science at the University of Virginia, serves as a contracting deputy at the Pentagon under Deutch. She reviews defense contracts to assure that private companies meet Pentagon standards.

Perry, Deutch and Jones, who have long been considered experts in the defense field, were nominated by the White House and came to the Pentagon to serve under Aspin. They have been considered key players in his attempts to retool the military at the end of the Cold War.

Under government procurement rules, Science Applications will not be precluded from continuing to bid for military contracts.

While the company’s connections could gain it preferred treatment in the awarding of highly lucrative contracts, Inman and the other former Science Applications directors at the Pentagon could find themselves under so much pressure not to show favoritism that the relationship ultimately could do the firm harm, company officials say.

Mark Albrecht, Science Applications’ senior vice president for government relations in Washington, suggested that the company actually could lose some defense work because the new Pentagon leaders will be “bending over backwards” to show there are no conflicts of interest.

“It’s a very mixed blessing,” he said. “On the one hand, we are very proud to have people associated with our company that are so attracted to the Administration, and at the same time know our company well.”

But he predicted that because of the unique relationship, Inman, Perry and the others will use an “abundance of caution” in any future dealings with Science Applications.

Lorenz A. Kull, the company’s president and chief operating officer, agreed, pledging that the firm will be careful about not expecting special treatment or drifting into appearances of conflict of interest.

“To quote a familiar phrase,” he said, “the Queen of England must not only be virtuous but she also must be perceived to be virtuous.”

But an official from another defense contracting firm, who asked not to be identified, said that because Science Applications is one of the premier research and development firms in the nation, it would be a loss to the government if they are excluded from future Pentagon work.

“In the specialized areas of research houses, they have a dominant position,” he said. “I’m not sure who could up them in this field, irrespective of what their situation is with who is at the top of the Pentagon administration.”

While it remains to be seen what if anything will come of the current ties between Science Applications and the Pentagon, it is unclear whether special connections were any help to company officials two years ago, when the firm was charged with falsifying the results of test samples taken from Superfund hazardous waste sites.

The case, which erupted in 1991 and before the latest company board members went to Washington, became what one prosecutor called “the largest environmental fraud fine we’ve had here.”

During the investigation, Melvin R. Laird, another board director and a former secretary of defense, wrote a letter to then-Atty. Gen. Dick Thornburgh, asking him to delay the prosecution.

In his hand-delivered letter marked “personal,” Laird wrote that “there was no wrongdoing on the part of the corporation.” He went on to mention that “President (George) Bush recently recognized three of our directors” with appointments to the President’s Foreign Intelligence Advisory Board, a six-member group that evaluates work by U.S. intelligence agencies.

The three were Inman, Perry and Deutch.

“He (Laird) was trying to tell the Justice Department that we were not a bunch of crooks, that they were dealing with ethical people,” Kull said.

Ultimately, in a settlement agreement in U.S. District Court here, the company pleaded guilty to seven counts of making false statements to the Environmental Protection Agency and three counts of making false claims for payment.

“They were taking in more samples than they could do,” said Melanie K. Pierson, the assistant U.S. attorney who prosecuted the case. “They were more interested in money than they were in health and safety concerns.”

Six employees were terminated after an internal investigation by the company found that no senior managers were involved in the scheme.

Nonetheless, the company was ordered to pay $1.3 million in restitution and penalties. In announcing the heavy fine, federal Judge Rudi M. Brewster called the episode an example of “corporate greed” and said he wanted to make sure the company accepted its share of the blame.

“Is this going to be a situation where the (employees) were, in a sense, victims of the corporate greed? I don’t know any other way to describe it.”

Kull acknowledged that the whole episode was a grave mistake. “It was an absolute embarrassment,” he said. “It was not a good time for us.”

But the episode appears to have been the only public blemish on the company’s otherwise successful record.

Science Applications was founded 25 years and today, about 91% of its work is in federal government contracts. But base closings and defense conversion have had a sharp impact on the firm’s military work. Eight years ago, 68% of its work was in defense and national security fields. That figure is now down to 51%.

Still, company revenues are predicted at $1.5 billion this year.

The company has taken on a number of non-defense contracts, such as developing automated highway toll booths in California and Florida. Other projects have included new technology for fossil fuels, systems to monitor pollutants on the ocean floor and programs to turn air pollution into fertilizer.

The company’s most ambitious defense project, begun in 1986, is the $1-billion program to computerize the medical records at all 700 of the military hospitals and health clinics around the globe.

John H. Warner, executive vice president and a board director, predicted that the new military hospital computer system, just two years from completion, eventually will save taxpayers up to $2.6 billion.

Company technicians are also providing rugged, battle-ready laptop computers for the Army and Marine Corps.

Company officials said they have so many government contracts because, unlike most other contractors, they bid on almost every research and technological project that is proposed by defense, environmental and other federal agencies.

“We’re always trying to diversify and become more balanced in our work with the federal government,” Albrecht said.