June 24 (Bloomberg) -- In the 1990s, then-Vice President Al Gore led a program to reinvent government that included handing work to private businesses. One legacy: a company that an investigator said may have botched the background check of fired national security worker Edward Snowden.
The firm, USIS, was created in 1996 when the government agency responsible for vetting personnel was spun off to the private sector. USIS is accused of a “systemic failure to adequately conduct investigations,” according to Senator Claire McCaskill, a Missouri Democrat.
The revelation that Snowden disclosed two classified U.S. surveillance programs after being vetted by USIS may have damaged the company’s reputation and prompted questions about the wisdom of outsourcing security reviews.
“When we’re talking about botching background checks we might need to reconsider the policy,” said Scott Amey, general counsel at the Project on Government Oversight, a Washington-based watchdog group. “As we learn more about these contracted-out services, we are finding that the government lacked proper oversight, and that contractors cut corners or perform poorly.”
USIS, the government’s top provider of background check investigations, received $253 million for the work under a contract with the U.S. Office of Personnel Management in fiscal year 2012, according to data compiled by Bloomberg. That represented 67 percent of the personnel office’s spending on contracts for investigations that year.
USIS is part of Falls Church, Virginia-based Altegrity Inc., owned by Providence Equity Partners LLC.
Passing a background check is a requirement before a federal employee or contractor can be granted a security clearance. The personnel office is responsible for most of them, conducting more than 2 million investigations a year.
Patrick McFarland, inspector general of the Office of Personnel Management, said last week at a congressional hearing that there may have been flaws in USIS’s investigation into Snowden’s background.
The probe of the company by McFarland’s office began in late 2011, sometime after the company conducted a reinvestigation of Snowden that was tied to the renewal of his security clearance. Snowden, a former employee of Booz Allen Hamilton Holding Corp., has been charged by the U.S. with espionage and theft of government property in federal court in Virginia.
The Snowden case “clearly raises the question about whether or not the government gets the benefits that were promised under contracting out,” Don Kettl, dean of the School of Public Policy at the University of Maryland, said in an interview.
USIS’s prominence as a background check contractor is due to its origin as the Federal Investigations Division of Office of Personnel Management. The unit was privatized as part of Gore’s effort to “reinvent” government by reducing the size of the civil service, according to a 2011 report by the Congressional Research Service.
Contracting out security reviews was designed to help save the government money and secure new work for about 700 investigators who would no longer be needed because of a declining security clearance workload due to the end of the Cold War, according to Kevin Kosar, an analyst at the research service.
The company, originally known as U.S. Investigations Services Inc., was given a non-competitive, three-year contract for investigative work with the government personnel office and granted free access to federal computer databases that weren’t available to other firms, the report said.
“By any account, this government-sponsored, private corporation was given advantages and incentives not available to other private startup corporations,” Kosar wrote.
The Carlyle Group LP, a Washington-based private equity firm, and New York-based Welsh, Carson, Anderson & Stowe LP invested in USIS. They agreed in 2007 to sell USIS to Providence, Rhode Island-based Providence Equity Partners for about $1.5 billion.
Today USIS competes with CACI International Inc. and Keypoint Government Solutions Inc., a unit of Veritas Capital, a New York-based private equity firm.
Those companies may be able to take advantage of USIS’s association with the Snowden case, said Brian Friel, a contracts analyst at Bloomberg Industries.
“Competition is already eating away at USIS’s market share, and its competitors can try to use the bad publicity to their advantage,” Friel said.
Ray Howell, a spokesman for USIS, and Jody Brown, a spokeswoman for CACI, declined to comment. A Keypoint representative didn’t immediately return a phone call seeking comment.
There’s no evidence that using contractors for background checks instead of government employees has hurt the quality of investigations, Stan Soloway, chief executive officer of the Professional Services Council, an Arlington, Virginia-based contractors’ group, said in a phone interview. He said USIS isn’t a member.
A review by the federal personnel office’s inspector general found that out of 18 investigators convicted of falsifying reports since 2006, 11 were government employees and seven were contractors.
“The profit motive, frankly, can become the greatest tool the government has to use to get performance,” Soloway said in a phone interview. “The last thing a company wants is reputational damage or business loss.”
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