US Investigations Services LLC, the company that vetted Edward Snowden, risks a federal contracting ban following U.S. fraud accusations, according to former government officials.
The Justice Department said in a filing last month as part of a whistle-blower’s lawsuit that the top provider of government background checks failed to do adequate investigations in at least 665,000 instances.
The contractor, known as USIS, has replaced its chief executive officer and cooperated with authorities. If the company loses the lawsuit, the government will probably take action, said Dan Gordon, associate dean for procurement law at George Washington University Law School.
Losing the lawsuit “in an area so relevant to government contracts would very likely be a basis for suspension or even debarment,” said Gordon, former top procurement official for President Barack Obama.
The company, which received $466 million in contracts last year, performs records reviews, credit checks and interviews for workers’ security clearances. A decision to suspend or ban USIS might shift future U.S. vetting work to competitors such as CACI International Inc.
USIS received $295 million from the U.S. Office of Personnel Management, which handles most federal background investigations, in the year that ended Sept. 30. USIS’s share of that expanding market declined to 57 percent in fiscal 2013 from 81 percent in fiscal 2010.
Representative Carolyn Maloney, a New York Democrat, questioned why USIS is being allowed to keep its federal work after the fraud accusations. “Is it too big to suspend?” she asked at a House Oversight committee hearing on the security-clearance process.
USIS, a unit of Falls Church, Virginia-based Altegrity Inc., has appointed a new leadership team, strengthened oversight and increased the number of employees reviewing investigations for quality, said Ellen Davis, a New York-based spokeswoman at Sard Verbinnen & Co. representing USIS.
Sterling Phillips, who had run government services provider GTSI Corp., was brought in as CEO in January 2013.
The allegations in the Justice Department complaint “are inconsistent with our values and strong record of customer service,” Phillips testified during the congressional hearing today. “From the outset, the company has fully cooperated with the government’s investigation and will continue to do so.”
Altegrity and its owner, Providence, Rhode Island-based Providence Equity Partners LLC, declined to comment, according to Andrew Cole, a spokesman at Sard Verbinnen representing the two companies.
For vendors in trouble, the best bet is to take corrective action and persuade the government that the issues are behind them, contracting specialists said.
“You march in and say, ‘What happened happened, and we are now handling it in a responsible manner and you can trust us,’” said Rob Nichols, co-chairman of the government contracts group at law firm Covington & Burling LLP.
Officials at USIS knew the company was under scrutiny by an inspector general in 2012, long before Snowden, a National Security Agency contractor, disclosed U.S. spying programs and helped expose gaps in the security-clearance process.
USIS had no registered lobbyists from January 2012 until July 2013, a month after the company was publicly identified as having investigated Snowden for a clearance renewal.
The firm brought in McDermott Will & Emery LLP, which was paid $50,000 from July through December, Senate records show.
The contractor also hired the Podesta Group Inc., the third-biggest lobbying firm by revenue, in October. That was the same month the Justice Department joined the whistle-blower lawsuit in federal court in Alabama, and later accused USIS of fraud.
Beginning at least in March 2008 through September 2012, USIS management started “dumping” or “flushing” cases, releasing them to the government for payment without the required quality reviews, the U.S. said in the complaint, citing internal company e-mails. The filing doesn’t mention Snowden or Aaron Alexis, the Washington Navy Yard shooter who USIS also vetted.
Patrick McFarland, inspector general for the personnel office, said during a Senate hearing in June that there may have been shortcomings in USIS’s vetting of Snowden. Merton Miller, an associate director at the Office of Personnel Management, has said Alexis’s file “was complete and in compliance with all investigative standards.”
The inspector general’s probe of alleged violations of the False Claims Act by USIS is ongoing, said Susan Ruge, associate counsel for the watchdog office.
The contractor paid Podesta Group $280,000 from October through December. Tony Podesta, the firm’s chairman and founder, is a longtime lobbyist and Democratic fundraiser.
The Office of Personnel Management already has taken action. It has banned some USIS officials from handling the agency’s contract work, said Lindsey O’Keefe, a spokeswoman for the office. She didn’t identify the employees or say exactly how many were barred.
Last week, the personnel office said it would handle final reviews of background investigations, taking that job from USIS. The office earlier increased audits, inspections and oversight of the checks, O’Keefe said.
The agency hasn’t moved to suspend or bar USIS, she said in an e-mail.
USIS’s actions to placate the government may not satisfy federal officials after the fallout from Snowden and Alexis, who killed 12 people at the Navy Yard in September.
Alexis’s clearance helped give him access to the base, where he died in a shootout with police.
After the shootings, Obama ordered a review of procedures for granting and keeping security clearances. A report is due this month.
USIS and other contractors may also lose work if the government decides to take on all vetting responsibilities -- something that is being studied.
The White House Review Group on Intelligence and Communications Technology on Dec. 18 recommended that the government or a nonprofit corporation handle all background investigations. The National Security Council will lead a study, said Caitlin Hayden, a council spokeswoman.
Dropping a company like USIS may create as many problems as it solves, said Charles Tiefer, a former member of the U.S. Commission on Wartime Contracting and a University of Baltimore law professor. It might shift a backlog of background investigations to the government or other companies, creating more opportunities for vetting lapses.
The personnel office “would probably consider it better to stay with USIS even if it is at the risk of more Snowdens,” Tiefer said.