Federal defense agency granted contracts to company with ties to director

The Defense Advanced Research Projects Agency has awarded contracts worth $1.8 million over the last two years to a company co-owned by its director and run by her father.

The awards were legal and proper, the agency says, because Director Regina Dugan recused herself from any role in DARPA’s dealings with the small defense technology firm. Nonetheless, ethics experts said the arrangement raises questions about whether her subordinates could be expected to treat her firm like any other.

Senior Pentagon officials and top generals are required to sell their holdings in defense contractors before taking office, but officials said that rule does not apply to the lower-level director of DARPA, the Defense Department’s cutting-edge research agency.

“I reviewed the contract and agreement at issue and have discussed the matter with DARPA personnel. I found no credible evidence of misconduct by the director with regard to RedXDefense contracts since 2009,” said Crane Lopes, DARPA’s general counsel, who works for Dugan.

RedXDefense, Dugan’s Rockville, Md., company, specializes in trace explosives detection. On her 2010 financial disclosure statement, Dugan reported that her stake in RedXDefense was worth nothing — because it had no fair market value — and also said the company owed her $250,000 from a loan she had made to it.

DARPA’s relationship with RedXDefense was first reported by allgov.com, a government watchdog blog.

Dugan co-founded the company with her father in 2005 and was chief executive until she was named to lead DARPA in 2009, records show.

Holder of a doctorate in mechanical engineering, from 1996 to 2000 she worked as a top official at DARPA, where “her primary program was aimed at developing new trace chemical sensors,” according to her biography.

RedX began receiving contracts from DARPA almost immediately after its founding, according to the agency, and soon developed a trace-detection product it now sells to other government agencies. The firm got a total of $4.3 million in DARPA funding from September 2005 to February 2009, the agency disclosed. Dugan was named to head DARPA in July 2009.

In January 2010, RedX won a $400,000 DARPA contract, and in August it won a separate deal worth $1.35 million, the agency said.

RedX has 21 employees and annual revenue of $1.8 million, federal records show. Records for the company listed on the public Federal Procurement Data System show that awards from DARPA make up the bulk of its federal contracting revenue, though that database is not always comprehensive.

Through a DARPA spokesman, Dugan declined a request for an interview. Her deputy, Kaigham Gabriel, said in an interview that it was common for DARPA officials to have financial ties to firms that contract with the agency, and to recuse themselves.

“Honestly, this is something that is prevalent,” he said. “We just know how to deal with it. It’s not that big of a deal, frankly.”

Gabriel said it wouldn’t be fair to disqualify RedX just because of its ties to Dugan. Nor would it be wise to require DARPA officials to divest themselves of holdings in companies that receive funding from the agency, he said, because the agency needs to be able to attract the most-qualified people.

DARPA officials are capable of dealing independently with a firm tied to the agency director and her family, Gabriel said, noting that the firm was turned down for $4.7 million in contracts it has proposed since Dugan took office.

All top Pentagon officials who must be confirmed by the Senate, as well as certain senior generals, are required to sell their holdings in defense firms before taking office. That rule applies to certain lesser officials as well, including the Army inspector general and the director of the Joint Improvised Explosive Device Defeat Organization, whose $3.5-billion budget is slightly larger than DARPA’s. But it does not apply to the DARPA director.

According to her financial disclosure statement, Dugan’s loan to RedX is her largest asset. She reports investment holdings worth between $151,000 and $305,000 on the form, which allows officials to disclose totals within a broad range.

“Much of her net worth is caught up in the fate of this company, and her subordinates are well aware that she came from this company,” said Nick Schwellenbach, director of investigations at the Project on Government Oversight, a watchdog group. “So even if she has personally recused herself from decision-making, can her subordinates within DARPA make independent judgments about contract awards to RedX?”

Before she joined DARPA, Dugan also was chief executive of an investment company, Dugan Ventures LLC, that also includes her father and her uncle John Dugan. The firm continues to feature her photo and biography on a website touting its services. The company did not respond to inquiries.

Dugan’s father, RedX CEO Vincent Dugan, did not respond to requests for comment. John Dugan also serves on the RedX advisory board, according to the firm’s website.

ken.dilanian@latimes.com