US: Boeing Punished for Stolen Data
by Renae Merle, Washington PostJuly 25th, 2003

The Air Force stripped Boeing Co. of $ 1 billion in potential revenue as a penalty for possessing documents stolen from Lockheed Martin Corp. during a competition for a large contract to launch military satellites. The Air Force also suspended three Boeing space subsidiaries from winning new government contracts for an unspecified period, delivering a sharp blow to the company's already battered space and communications operations. Those divisions account for about one-fifth of Boeing's revenue. The penalties stem from an Air Force inquiry that found that Chicago-based Boeing violated federal law during a 1998 competition for a $ 1.8 billion contract to launch weather, spy and communications satellites. Two former Boeing employees, William Erskine and Kenneth Branch, possessed stolen Lockheed Martin documents while working on Boeing's proposal, the Air Force found. Erskine and Branch, a former Lockheed employee who arrived at Boeing with the documents, have been indicted by a Los Angeles grand jury. Boeing also faces a lawsuit by Bethesda-based Lockheed and a Justice Department investigation. The ruling reallocates the planned launches under the rocket contract, giving the majority to Lockheed and resulting in the $ 1 billion loss of business for Boeing. Under the original contract, Boeing was awarded 19 launches to Lockheed's seven. Yesterday, the Air Force boosted Lockheed's launches to 14 and decreased Boeing's to 12. "We do not tolerate breaches of procurement integrity, and we hold industry accountable for the actions of their employees," said Peter B. Teets, undersecretary of the Air Force. Boeing committed "serious and substantial violations of federal law," he said. The Air Force also disqualified Boeing from competing for three additional launches under the program and awarded them to Lockheed. Teets said he was staggered by both the number of Lockheed documents -- 25,000 -- in Boeing's possession during the competition and the quality of them. Boeing was not forthcoming about the quantity of the documents and did not turn them all over for four years, he said. "I have never heard of a case of this scale," Teets said. The suspension of future contracts for the Boeing space units will remain in place -- possibly for 60 to 90 days -- until the Air Force is satisfied the company has changed its ways and atoned for its misdeeds, he said. As part of its ruling, the Air Force will help Lockheed finance the development of a $ 200 million West Coast launchpad that it needs to fulfill the contract. Lockheed had scrapped plans for the facility after the company was originally awarded so few launches, saying it could not afford it. The ruling "is a stunning rebuke to Boeing from its most important customer," said Loren B. Thompson, a defense industry analyst for the Arlington-based Lexington Institute. "It means the company will have to rethink whether it wants to be in the launch business." "Boeing has invested billions of dollars in trying to become the global leader in space," Thompson added. "Right now it is not so clear they are ever going to make a good return on that investment." Philip M. Condit, Boeing's chairman and chief executive, struck a contrite note yesterday, saying he understood why the penalties were necessary. "We are extremely disappointed by the circumstances that prompted our customer's action, but we understand the U.S. Air Force's position that unethical behavior will not be tolerated," Condit said in a statement. "We apologize for our actions." Last week, Boeing appointed former senator Warren B. Rudman (R-N.H.) to lead an independent review of the company's policies on ethics and the handling of competitive information. The ruling comes as Boeing is suffering from a weak market in aircraft sales, its core business, and is seeking to offset the sluggishness with an expansion of military contracts. The Air Force made the announcement after the stock markets closed. Shares of Boeing fell 49 cents yesterday to close at $ 32.20. The reallocation of the launches and the establishment of a Lockheed facility on the West Coast even the playing field but do not permanently impair Boeing, said Marco A. Caceres, a senior analyst and director of space studies at Teal Group Corp., a defense research firm. "What has happened is that Boeing has lost its huge advantage over Lockheed, but it's not at a disadvantage," he said. "It's not a bad deal for Boeing given that they are guilty of something." Lockheed said it would continue to pursue its lawsuit against Boeing. "We have said from the very outset that honest and fair competition is a bedrock principle of business in the United States," said Thomas J. Jurkowsky, a Lockheed spokesman. "Our role is to now execute [the Air Force's] decision by providing high quality and reliability in our launch services." The Pentagon was under pressure to take tough action against Boeing in part because this was not the first time the company has been accused of using a competitor's documents in a bidding competition, industry analysts said. The General Accounting Office found that Boeing used proprietary Raytheon Co. documents during a competition in the late 1990s to provide the "kill vehicle" that is key to the U.S. missile defense system. The vehicle soars into space on a booster rocket, homes in on an enemy warhead and destroys it. The Air Force found that Boeing had studied Raytheon's approach after inadvertently obtaining the documents. Boeing then bowed out of the competition, and Raytheon received the contract. In a recent study, the Project on Government Oversight, a government watchdog group, found that Boeing committed 50 acts of misconduct and paid $ 378.9 million in fines and penalties between 1990 and 2003.

US: Boeing’s Skillful Lobbying Efforts
by Marianne Brun-Rovet, Joshua Chaffin, Caroline Daniel and James Harding, Financial TimesDecember 8th, 2003

In a June day this year, just over 50 executives from the Boeing Company trooped into Room 405 upstairs in the Old Executive Office building adjacent to the White House. From the podium where George W. Bush often hosts visiting groups, Karl Rove, the president's chief political strategist, briefed the Boeing managers on the administration's agenda and how it overlapped with Boeing's concerns.Second only to a private audience with the president himself, a meeting with Mr Rove is arguably the most sought-after appointment in Mr Bush's White House. The fact that Boeing could bring in a cohort of managers - not to mention the meetings on June 17 and 18 with senior officials from the State Department and Commerce Department and at least 13 members of Congress - was a testament to Boeing's government relations team.But then Boeing has made an extraordinary effort to make its presence felt in Washington, as it has moved from influencing the government as regulator to wooing it as its biggest customer, accounting for half its sales. In the past fortnight, its most ambitious lobbying effort - to secure an Dollars 18bn (Euros 15bn, Pounds 10bn) contract for aerial refuelling tankers - has ended in scandal and scrutiny. Mike Sears, Boeing's chief financial officer and leading successor to run the company, has been fired for his part in hiring Darleen Druyun, a Pentagon procurement official who was central in arguing the case to lease 100 Boeing 767 tankers. Phil Condit, chief executive, has resigned, becoming the highest-profile executive since the 1980s to lose his job in the aftermath of a military lobbying scandal. The Pentagon last week put the deal on hold, pending an investigation.Keith Ashdown, director of Taxpayers for Common Sense, an opponent of the deal, says: "What was unusual about Boeing's lobbying was that it gained complete access to all divisions of government from the president down, to having the key leadership of the House and Senate and dozens of lawmakers pushing their wares on the deal. People like Card, Hastert, Dicks, were lobbying for this."Andy Card is the White House chief of staff, Dennis Hastert is Speaker of the House and Norm Dicks is US Congressman from Washington state, the home of Boeing's manufacturing base.Boeing is not the only company to cultivate powerful people. In June Lockheed Martin, a defence rival, recruited Pete Aldridge, the Department of Defence official in charge of acquisitions, to its board. (He approved the Boeing tanker deal on his last day at the Pentagon.)Yet more than 8,500 e-mails gathered by the office of John McCain, the Arizona senator who has led efforts to stop the Boeing deal, reveal how Boeing lobbied the Pentagon, Capitol Hill and the White House. The e-mails provide a unique insight into the military industrial complex at work and show how Boeing pushed back the boundaries of corporate lobbying.Of all the industries damaged by the events of September 11 2001, the commercial aviation industry was perhaps the most severely hit. In the emotional aftermath, the US airlines secured Dollars 15bn in aid. Boeing, however, which was heavily dependent on the US airline industry, missed out on the first tranche of aid. Even before the attacks it was suffering from sluggish sales, ceding its lead in new aircraft orders to Airbus, its European rival. The production line for its mid-sized 757 and 767 was suffering weakening orders and faced closure. Mr Dicks was prompt to present a solution in Sepember 11 terms. In a letter to Mr Bush on October 4 2001 he wrote: "We have a unique opportunity to address the problems affecting Boeing while also meeting urgent requirements to modernise air force and navy aircraft."Boeing had already developed a plan to extend the prospects for its 767 line by adapting it as a military refuelling tanker. In February it had presented the air force with an unsolicited offer: to purchase 36 767 aircraft to be delivered by 2010. After September 11, however, the scale and the structure of the deal changed. Ms Druyun, then a leading procurement official in the air force, put together a proposal at the end of September for a deal to lease, not buy, 100 tankers as well as an action plan to win political approval.Whether the US military really needs the tankers remains a moot point. In testimony to Congress, James Roche, secretary of the air force, said the existing tankers had the oldest average fleet age, at 44 years, of any air force aircraft and the costs of maintenance promised to escalate dramatically. But there have been plenty of contradictory assessments. For example, the air force's own economic service life study in February 2001 concluded that the existing KC-135 fleet could "remain viable through the year 2040".Still, in the aftermath of the attacks the sense of urgency changed and the proposal seemed to be a win-win for both sides. The air force could afford - through the use of a lease - to get the aircraft promptly. For Boeing, any deal could keep its 767 line open. Signs also emerged that the contract could expand to 200 aircraft. As an internal e-mail from a Boeing executive on May 22 2003 put it: "We may actually be looking at a Dollars 35+B (Dollars 35bn-plus) deal with some additional political work."By late 2001 Ted Stevens, the Republican senator from Alaska who chairs the powerful appropriations committee, had inserted language to get the air force its aircraft through a leasing contract. Mr Stevens, a long-time recipient of political contributions from Boeing, had a month earlier received Dollars 21,900 from Boeing at a fundraiser in Seattle.Even early on it was clear there would be problems selling the deal. An air force e-mail sent on September 30 2001 noted: "Throughout the uniformed air force, the realisation exists that leasing is considerably more costly to the air force and taxpayer." Mitch Daniels, director of the Office of Management and Budget, also consistently opposed the idea, which was seen to add Dollars 2bn-Dollars 6bn to the costs.But Boeing had built a strong political base. As America's largest exporter and as the leading aerospace manufacturer (building, among other things, the iconic Air Force One), it had long commanded attention. It and its subsidiaries employ more than 153,000 people in 47 states, generating more than Dollars 1bn of wealth a week in the US.Boeing had long understood the appeal of job generation. The company has an internal database that allows executives to type in a state and find out how many jobs Boeing creates there. The database also shows how much Boeing spends on utilities and charitable contributions. "When Boeing was a commercial aircraft maker, they were prominent in sponsoring tables at philanthropic and arts related events and wanted to be seen as America's flying icon, creating a warm, fuzzy feeling in Congress," says one aerospace veteran.The nature of Boeing's lobbying efforts, however, changed after the merger with McDonnell Douglas and Rockwell in the late-1990s, shifting gear from monitoring benign issues, such as air traffic control, to aggressively elbowing for multi-billion-dollar contracts. "MDC was the lobby king in aerospace," says an employee in Boeing's defence operations. "The DC office became decidedly MDC after the merger; all the MDC guys got the leadership positions."The appointment of Rudy deLeon, deputy secretary of defence from March 2000 to 2001, as senior vice-president of Boeing's Washington operations also bolstered the company's defence connections. Boeing improved its clout oversees by recruiting Tom Pickering, a former US ambassador, to create a global network of diplomats. Boeing wooed mid-level military officials through, for example, golf tournaments for the Army Guard and National Guard. "They were very chummy events. They made sure each foursome had a Boeing guy and one or two government people along with a supplier," says one employee.The company was also active in Washington, making strategic political donations, such as Dollars 100,000 to Mr. Bush's inauguration party, and funneling nearly Dollars 1m in contributions to politicians on the armed services and defence appropriations committees.As Boeing ran into opposition over the tanker deal last year, it mobilised its supporters. An e-mail from Mr deLeon in September 2002 notes: "Speaker Dennis Hastert and congressman Norm Dicks spoke directly with President Bush in support of moving ahead on the tanker lease. In both cases, President Bush reportedly expressed his support for moving ahead with the tanker initiative and asked chief of staff Andy Card to be 'on point' for this effort."The White House, meanwhile, had cause to be sympathetic. "The reason the president and Karl Rove are interested is because they want to win in Washington (a battleground state) in the next election. That is why the president went out there and endorsed the tanker deal two months ago," says a former government official.Boeing brought in outside lobbyists with impeccable connections to help its cause. According to a draft review by Taxpayers for Common Sense, Boeing spent at least $1.2 million on lobbyists for the tanker deal, led by Akin, Gump, Strauss Hauer & Feld, which was paid $300,000. Its chief Boeing lobbyist is Bill Paxon, a former Republican congressman who served as one of the "gang of six" advisers who aided Mr Bush during his presidential run. When the tanker deal was running into trouble, Jim Albaugh, head of Boeing's defence division, sent an e-mail setting out a new case: "Rudy, we'd like you to ask Bill (Paxon) to try this on Andy Card."Boeing courted the defence elite, hiring as consultants two members of the Defence Policy Board (which advises Donald Rumsfeld, the defence secretary): General Ronald Fogelman, air force, and Admiral David Jeremiah, ex-navy. A Boeing executive says in December 2002 he held talks with consultants "who have relationships with Rumsfeld (Jeremiah)."Boeing also invested Dollars 20m last year in adefence-related venture capital fund run by Richard Perle, a former Reagan-era assistant defence secretary, regarded as an architect of US policy in Iraq. Mr Perle co-authored an editorial in The Wall Street Journal in August supporting the deal. He did not disclose the Boeing investment.Towards the end of the process even Mr Bush and Mr Card were involved in price negotiations. An e-mail from Andy Ellis, a Boeing executive, in May notes that "both the president and Andy Card" reacted negatively when they saw the Pentagon was getting the same discount for 767s as Continental Airlines. Mr Card was then reported as saying the White House would be happy to negotiate down the price on the understanding that Boeing could sell not 100 but 200 aircraft. "I asked her (another official) about the 200 tankers, she said YES, that was Andy Card's view of the deal," said a Boeing e-mail of May 22.Yet, while the scale of the corporate lobbying was extensive, what marked it out was how it was promoted within the Pentagon. "It was not so much the lobbying as the way Boeing handled it internally, with the games they played with the contracts, from manipulating the alternative analysis document and helping define the requirements," says one former government official.Ms Druyun from the start acted as much as lobbyist for the deal as customer. "She was a very powerful person and built up an empire in the air force. No one crossed her," says one person who has dealt with her in previous negotiations. Within Boeing Ms Druyun was seen as a supporter. "Darleen was the 'godmother of the C-17' (a Boeing military airlift). There were banners proclaiming that throughout the factory," says a Boeing defence employee. "They first showed up during her first visit to Long Beach and stayed up in the Moose Cafe until she came to work for Boeing."Ms Druyun worked in close collaboration to shape the contract. On ber 12 2001 a Boeing e-mail stated: "USAF wants us to support their language for an operating lease. Darleen will make the actual contract favourable." On June 17 2002 another noted: "Meeting today was very good. Darleen spent most of the time bringing the USAF price up to our numbers.""Everyone in Washington was talking about Darleen before this happened and her perceived relationship with Boeing," says one procurement lobbyist. "People were nervous about it." Even so, Ms. Druyun was not in a position to swing the final contract. Last November she left the Pentagon to take a job with Boeing.Other Pentagon officials worked closely with Boeing. Marvin Sambur, assistant secretary of the air force for acquisitions, in April e-mailed Mr Albaugh an internal e-mail he had sent his bosses, adding: "Please treat this as sensitive." He also sought Boeing's help in fending off criticism from Mr. McCain about the deal.Boeing denies there was anything unusual about its ties. It says that throughout the negotiations it followed government regulations.On November 24 Mr. Bush signed legislation authorising the compromise deal to buy 80 tankers and lease another 20. Almost as soon as it had gone through, it started to come apart. That same day Mr. Sears and Ms. Druyun were fired from Boeing, accused of breaching internal rules about holding job talks before she had excused herself from working on Boeing-related work, and of covering this up.Opponents of the 767 deal moved quickly to exploit the dismissals. They want an inquiry into what effect this apparent conflict of interest may have had on the contract and whether Boeing gained unfair advantage in other contracts Ms. Druyun worked on. Senator McCain is considering hearings on the wider question of "revolving door" appointments from the government to the private sector. Boeing has denied that it gained any unfair benefit from these early job discussions.The scandal could bring more fallout for prominent people in government, such as Mr. Roche, who is seeking confirmation to become secretary of the army, Mr. Sambur and even Mr. Card.Boeing now faces the hard task of ensuring the 767 deal is not permanently grounded. But it is unlikely to be fatally wounded. With the US current account deficit worsening, the US needs to protect Boeing's status as the leading aerospace group. And, with the merger activity in the defence industry over the last decade slimming the number of contractors, it is simply too big to fail.

US: The Booming Defense Businessby William D. Hartung, Los Angeles TimesDecember 10th, 2003

It's not every day that the chief executive of a major defense contractor steps down because of ethical wrongdoing on his watch, as Boeing CEO Phil Condit did Dec. 1. But let's be clear about one thing: This mounting scandal, which centers on whether Boeing improperly offered Pentagon procurement official Darleen Druyun a job while she was negotiating the terms of a $20-billion deal to lease 747s from the company, goes well beyond a few misguided executives at one corporation.In fact, under the guise of reforming Pentagon business practices, President Bush and Secretary of Defense Donald Rumsfeld have created an ethically challenged environment at the Pentagon that is an open invitation for contractors like Boeing to engage in waste, fraud and abuse.As soon as he took office, Rumsfeld set out to recruit a core group of corporate executives to run the Pentagon in what one commentator described as "Department of Defense Inc." Nowhere was Rumsfeld's vision of a corporate-dominated department more evident than in his initial choices to run three military services: Secretary of the Air Force James Roche, a former vice president at Northrop Grumman; Secretary of the Navy Gordon England, a former executive at General Dynamics; and former Secretary of the Army Thomas E. White, who came from Enron. In its first year and a half in office, the Bush administration named 32 appointees to top policymaking positions who were former executives, paid consultants or major shareholders of top defense contractors.It's not just the number of military-industry hires that distinguishes the Bush administration from its predecessors; it's how they have conducted themselves in office.Take Roche. He was a driving force behind the plan to have the Pentagon lease and modify 100 Boeing airliners for use as aerial refueling tankers -- which would have cost $4 billion more than buying them outright. Sen. John McCain (R-Ariz.) described this no-bid deal as "war profiteering." Roche's former company, Northrop Grumman, was a major partner with Boeing on programs like the F-18 combat aircraft. His backroom dealing on Boeing's behalf carries a strong whiff of conflict of interest. Roche's role pales in comparison with longtime Rumsfeld crony Richard Perle. Perle stepped down as chairman of the Pentagon's Defense Policy Board last spring after it was revealed that he was using his position on the board to solicit investments for his firm, Trireme, and consulting contracts on defense-related matters from companies like Loral and Global Crossing.Perle's evasive maneuver -- stepping down as chairman while remaining on the board -- is testimony to his long-standing friendship with Rumsfeld. In fact, Perle has frequently cited his role as a close advisor to Rumsfeld in seeking investments for his firm and consulting contracts for himself.Perle also has a Boeing connection. The company is the biggest investor by far in Trireme. Perle has been a staunch advocate of the Boeing tanker lease, writing and speaking out on behalf of it -- a year after Boeing committed to invest up to $20 million in his company. Was the Boeing investment in Trireme a recognition of Perle's investment savvy or a not-so-transparent ploy to curry favor with a close Rumsfeld confidant?Does it bother Rumsfeld that two of Perle's colleagues on the Defense Policy Board, retired Adm. David Jeremiah and retired Air Force Gen. Ronald Fogelman, have simultaneously been working as paid consultants to Boeing, also promoting the lease deal?The ethical rot at the Pentagon goes further. Rumsfeld has reduced independent testing and budgetary reporting requirements on pet projects like the Pentagon's $9-billion-per-year missile defense program. He has given Undersecretary of Defense for Policy Douglas Feith, an ideologue with no track record at running large projects, primary responsibility for managing the secretive, privatized rebuilding of Iraq. He has empowered companies like Boeing to be lead program managers on major initiatives like the Army's Future Combat Systems, supplanting the government in the role of picking who gets multibillion-dollar contracts involving major weapons systems.Taken individually, some of these initiatives might make sense as ways to cut red tape or promote innovation. But taken together, in an environment of mushrooming budgets, decreased accountability and a level of cronyism that is more reminiscent of Indonesia under Suharto than anything Washington has seen in recent memory, the Bush/Rumsfeld "reforms" are a budgetary disaster in the making. Boeing's misdeeds are undoubtedly the tip of a very large iceberg.It's time for a bipartisan coalition in Congress to hold real hearings -- with subpoena power -- on how to reinstitute accountability at the Pentagon. Otherwise, we'll be paying for Bush and Rumsfeld's Pentagon follies for generations to come.

US: Wages Of Sin - Why Lawbreakers Still Win Government Contractsby Christopher H. Schmitt, U.S. News & World ReportMay 13th, 2002

In the mid-1970s, Lockheed Aircraft Corp. was center stage in a scorching bribery scandal. Millions in secret payments were slipped to public officials and political parties around the globe, to curry favor and win government contracts. Stung by the blowback, the company promised stringent reforms. Two decades later, Lockheed was again in the spotlight, pleading guilty to paying off an Egyptian official to win a deal for C-130 cargo planes. Once more, the company was contrite. Standing before a federal judge in 1995, a top executive pledged Lockheed's "commitment to the highest ethical standards of conduct." In the years since, however, Lockheed's troubles have only grown. The company has been named in at least 33 more cases covering overcharges on government contracts, improper technology transfer to China, falsifying results of nuclear safety tests, job discrimination, environmental pollution, and more. These cases, some of which were in motion before the 1995 conviction, have produced at least $145.3 million in penalties, settlements, and restitution. And at least 13 more cases are pending. Lockheed Martin, as the company is known today, says it has a vigorous ethics and compliance program. And, it turns out, says it has a vigorous ethics and compliance program. And, it turns out, that promise is good enough for the Pentagon. Last October, despite the company's record, the federal government awarded Lockheed the richest military contract in history - a deal to build the nation's next generation jet. The project, the F-35 Joint Strike Fighter, could be worth as much as $200 billion over several decades. Lockheed Martin is not the only big federal contractor that continues to do business with Washington despite repeated contract difficulties and other legal and regulatory trouble. In the past dozen years, 30 of the 43 largest federal contractors have racked up more than 400 enforcement cases, resulting in at least 28 criminal convictions, 286 civil settlements, and 88 administrative settlements, mostly involving their government contracts, according to data from the Project on Government Oversight, a nonprofit Washington, D.C., group that investigates government activities, and additional research by U.S. News. The companies have breached environmental, labor, and securities regulations as well, For their difficulties, the analysis shows, they have paid at least $3.4 billion in fines, penalties, and restitution. Injuries The cases cover a wide swath, including price fixing, bogus testing, polluting, overcharging, hiding product defects, violating export laws, and withholding financial data from the government. They also represent more than accounting quibbles: Company workers have been killed and seriously injured and national security potentially put at risk. Yet, together, these firms have corralled more than 4 of every 10 federal procurement dollars. "If it was a food-stamp recipient, they'd go to jail," says Rep Peter DeFazio, an Oregon Democrat, who complains about repeat offenders. "If it was a student-loan recipient who wasn't paying, they'd have their wages garnished. It's an extraordinary double standard." The government actually has a process for cutting off wayward contractors from future work, but in practice, purchasing officers focus on getting projects done, not holding firms accountable for past behavior. And other officials responsible for barring firms can't legally use punishment as a motive, says Robert Meunier, head of a committee of those officials. "We're here to protect the government's business interest," he says. Even if a current contractor is prevented from doing future business, the company could continue to do billions of dollars' worth of government work under existing agreements. As best as can be determined, the government has cut off only one of the 30 big contractors with problems - General Electric Co. - and, even then, suspended the company for just a few days. If federal agencies wanted to crack down on offending contractors, they couldn't. The U.S. government is the biggest shopper on the planet, buying some $235 billion worth of goods and services last year - everything from military hardware to management of nuclear laboratories to food for school lunches. But the reasons of cost, bureaucracy, and plain indifference, it doesn't keep tabs on the behavior of its vendors. Contracting officers don't know, for instance, if a company has already agreed with other agencies to clean up its act, and several agencies - including the General Services Administration - can't even produce a list of whom they have suspended or barred from further contracts. In effect, contractors have no official history when they line up for government work. Little guys The military tops the government's buying list - with contracts for $156.5 billion last year. Not surprisingly, some of the worst offenders are military contractors. But while the government may be reluctant to move against its biggest suppliers, federal agencies don't have the same qualms about cracking down on small firms. Officials maintain that federal rules are written evenhandedly, but they acknowledge that larger companies can naigate them more successfully. Take James Verlander, a Houston-area researcher who in early 1990s got tangled up in Operation Lightning Strike, a federal sting operation targeting NASA suppliers. Federal agents drew Verlander and several others into a scheme revolving around a bogus medical device that supposedly could improve monitoring of space-station astronauts. Threatened with a heavy prison sentence, he pleaded guilty to having accepted $2,000 as part of an effort to win approval and funding for the device, says his attorney, Charles Portz. Barred from government work ever since, Verlander suffered a nervous breakdown and has since become a medical technician. By contrast, two big contractors that came under scrutiny in the affair - Martin Marietta and General Electric - settled their involvement by paying $1 million to defray the government's expenses. "They didn't want to make arrests of the higher-up people because it would damage the space program," says Portz, "so they busted a bunch of little people.""They're pretty willing to settle it to stay in business," says Jacques Ganaler, former undersecretary of defense for acquisition, technology, and logistics, who is now a professor of public affairs at the University of Maryland. Oversight of military and other federal spending has been kneecapped in recent years - through budget cuts and under the banner of streamlining regulation - and new proposals would weaken it further. Reflecting those developments and changing priorities, federal prosecution of contract fraud has fallen sharply in recent years, as have attempts by federal agencies themselves to rein in abuse, according to government data obtained by the Transactional Records access Clearinghouse at Syracuse University. Many expect enforcement efforts to suffer further still as homeland defense comes to the fore. U.S. Department of Justice officials did not respond to requests for comment. Corporate crime Even in extreme situations, the biggest firms don't face contracting's version of the death penalty. Take behemoth General Electric. In the early 1990s, problems including bribery and mispricing became so pervasive that the Pentagon's Defense Contract Manage Small fry get nailed more often because it's more likely that senior executives were involved in any wrongdoing, say those familiar with the issue. And large contractors have more financial juice to make a case go away - to hire pricey legal talent, create compliance programs, or pay settlements. ment Agency took the unusual step of setting up a special investigations office just for GE. The office produced 22 criminal indictments of the company, its sub-contractors, and employees, and recovered $221.7 million. Although individuals were booted from future government work, the company was not, despite recommendations from frustrated investigators. Not barring the firm "is clearly a disincentive to forcing a major contractor to institute [change]," they said at the time. "Other remedial actions, including criminal prosecutions, did not seem to be effective." Since then, GE has been named in new cases, involving both its military and civilian businesses. GE spokesman Gary Sheffer says that the earlier cases involved a small number of people and that the company used the experience to tghten an already strong compliance program.... Big Contracts, Repeat Offenders In the past dozen years, 30 of the federal government's biggest contractors have accumulated more than 400 enforcement cases, resulting in at least $3.4 billion in penalties, settlements, and restitution. The top 10 firms: GENERAL ELECTRIC ... $982.9 million for 63 cases TRW ... $389.5 million for 17 cases BOEING ... $358.0 million for 36 cases LOCKHEED MARTIN ... $231.9 million for 63 cases UNITED TECHNOLOGIES ... $214.8 million for 18 cases ARCHER DANIELS MIDLAND ... $208.2 million for 8 cases UNISYS ... $182.2 million for 12 cases RAYTHEON ... $128.7 million for 24 cases LITTON * ... $111.5 million for 8 cases CARGILL ... $102 million for 8 cases * Acquired by Northrup Grumman

US: Slashing Safety?by Nina Shapiro, Seattle WeeklyApril 1st, 2000

Is Boeing compromising on safety in order to cut costs? Some workers believe so, pointing to changes in the way the company carries out inspections. A former head of the National Transportation Safety Board, among others, seems to agree.The new inspection procedures are the subject of a labor grievance filed with Boeing by the International Association of Machinists and Aerospace Workers, according to several sources. Unable to agree in initial talks, the company and the union are setting up arbitration for the summer.At issue is a process known as "self-inspection." That's when parts are inspected by the people who build them, rather than full-time, extensively trained inspectors. Boeing has been using self-inspection for more and more plane parts for a number of years. But, according to veteran tool inspector Bryan DuPaul, who has supplied information to the union for its case, "Now we're beginning to move to aircraft systems that are critical to safety of flight" – for example, portions of what's known as the wire bundle, which gathers together all of a plane's wiring.The job security of DuPaul and other inspectors is at stake, which is undoubtedly a big reason the machinists union that represents them is complaining. The union itself won't comment publicly, other than to say that it has agreed with Boeing on a panel of six arbitrators for a process that will be binding.DuPaul, however, says that workers are equally concerned about safety. "This is a very emotional issue for people on the floor." He says they have a love of aircraft that makes them want to see things done right. In addition, he says, "We fly on planes too."Because under self-inspection employees are judging their own work, DuPaul says, "people have a vested interest in passing work that could be marginal or questionable. Or they could be under pressure from their supervisor to get [the part] out on time." What's more, he says, using the example of a wire bundle builder, "the person who is building the wire bundle actually has a full-time job. So you're asking him to do more in the same amount of time."A part needs thorough inspection at the time it is built, he continues, because "some of the things that go into an airplane are buried so deep, there is no way they'll ever be inspected again." Furthermore, he adds, "As you know from recent history, there could be problems built into an airplane that could take years to manifest." Consider, for instance, the possible manufacturing problem with a part called the jackscrew assembly on the Alaska Airlines plane that crashed last month. (The MD-83 was built by McDonnell Douglas before its merger with Boeing).Boeing couldn't manage to find someone to talk about the issue for this story, despite repeated requests over a week's time. Company spokesperson Peter Conte says only, "Safety is the number one priority of the company," and "every plane meets FAA [Federal Aviation Administration] requirements."It doesn't take an aerospace engineer, however, to figure out that Boeing is trying to save money by getting rid of its high-priced inspectors and asking other workers to take on more responsibility for the same pay. After a postmerger change in management and a historic financial loss in 1997 that had Wall Street screaming for blood, Boeing has made no bones about its intention to cut costs – a principle that when applied to employee benefits gave rise to the bitter engineers' strike. Plagued by production delays in recent years, the company is also trying to speed up the manufacturing process. To that end, it would help if builders didn't have to wait around for an inspector to come and approve every part.But as management keeps telling workers that it wants to build planes "faster, cheaper, and better," workers like longtime toolmaker David Clay are saying, "All it's gotten is cheaper."The FAA is well aware of what Boeing is doing. In fact, since January of last year it has been monitoring a self-inspection program in two Boeing shops, the wire and fabrication shops in Everett, according to Seattle FAA spokesperson Kirsti Dunn. She puts the most palatable gloss on the changes. "The point is to promote ownership," she says. "You're building in quality rather than inspecting for quality." If nevertheless the FAA is not satisfied when it evaluates the program in July, Dunn says, it could require Boeing to revert totally back to the traditional inspection method.Yet FAA supervision isn't necessarily reassuring. "Unfortunately, I think the FAA's record has shown that it is a handmaiden of the aerospace industry," says Jim Brunett, a transportation safety consultant in Arkansas and, from 1982 to 1988, chairperson of the National Transportation Safety Board, the federal agency that investigates airplane crashes. One recent example was the FAA's willingness to keep secret information about Boeing's troublesome 737 rudders, as revealed last month by The Seattle Times' Byron Acohido.That Boeing has swallowed its American competitors hasn't helped the situation, Brunett suggests. "The danger we have now with one major aerospace manufacturer in the US, one that finds itself in competition with a foreign firm," he says, referring to the rivalry between America's Boeing and France's Airbus, "is that we've become a bit of a cheerleader. I hope that's not influencing [the FAA's] decision making."Brunett himself, when told of Boeing's use of self-inspection, finds it "very disturbing. The idea of quality control means that there is some independent determination of quality." He says that must be done by staff who have a "completely different reporting channel" than the people who are doing the job to be inspected. For example, he says, when airlines bring their planes in for maintenance, quality-control inspectors who look over the work report to a different vice-president. "Not only is there different personnel, but a whole different administrative unit," he stresses. "In fact, regulations require it, and the failure to do that by some airlines has been identified as a cause of accidents."Perhaps self-inspection has already taken a toll. "Boeing has had a number of production problems over the last few years which have been significant enough to shake the FAA into an audit," notes David Evans, editor of the industry newsletter Air Safety Week. The FAA has finished the unusual production audit but won't make results public for several months.Boeing inspector DuPaul insists that despite his concerns planes are still safe to fly – for now. "I don't think anybody's life is at stake at this point in time." He says workers are more worried about the future, as Boeing continues to extend self-inspection into critical areas.Still, the consequences are so great that it's hard not to feel uneasy. As DuPaul says, "At 30,000 feet, you don't want things to start to go wrong."