Washington Post

September 10, 2008

Pg. D1


Contracting Audit Agency Target Of Investigations

By Robert O’Harrow Jr. and Dana Hedgpeth, Washington Post Staff Writers

 Link to Original:  http://www.washingtonpost.com/wp-dyn/content/article/2008/09/09/AR2008090902925.html



In 2005 and 2006, the Defense Contract Audit Agency helped enable Boeing to recover about $270 million in losses from a failed commercial satellite business, approving unorthodox accounting methods that allowed the company to receive the payments through an Air Force contract, according to testimony to be presented to a congressional panel today.


When veteran auditors at the DCAA pointed out potential violations of federal acquisition regulations, they were repeatedly told by supervisors to ignore them, according to the testimony from whistle-blowers and a recent investigation by the Government Accountability Office.


“My office was directed by DCAA upper management to basically play along with this outrageous government bailout,” Paul Hackler, a supervising auditor at DCAA, said in prepared testimony obtained by the Washington Post. “Boeing seized this opportunity to recover past losses by developing proposals that violated numerous procurement regulations.”


Boeing spokesman Dan Beck said the company had not seen the testimony, and that the GAO’s July report on the DCAA faulted the agency, not the company. “Boeing absolutely did nothing improper,” he said. “Boeing will not comment on one agency reporting on another.”


An Air Force spokesman declined to comment.


The testimony and investigations offer an unusually critical look at one of the most respected audit agencies in the country, which many lawmakers, watchdog groups and other federal auditors have traditionally considered a last line of defense against fraud, waste and abuse at the Pentagon and other agencies.


But the DCAA has suffered from sharp budget and stuffing cuts over the past 15 years. Since 2000, its workforce has dropped about 6 percent to 4,006, while Pentagon spending rose more than 136 percent to $315 billion last year because of wars in the Middle East and demands for new information technology and weapons systems.

DCAA director April G. Stephenson in her written testimony acknowledged shortcomings identified by the GAO’s inquiry, which pinpointed problems on contracts overseen by agency auditors. She said some of the problems stem from perceived pressure by managers to issue audits by a certain date, which led to cutting findings they did not think were adequately supported. She said the agency has launched changes to ensure that audits are properly conducted, independent of outside influence.


“DCAA is committed to ensuring that the agency is above reproach — that all of its audits are performed in accordance with auditing standards, that its culture promotes the kind of vigilance and quality that protects the interests of the American taxpayers,” Stephenson said.


“My heart sank when I learned what has been happening in the trenches at the DCAA,” said Danielle Brian, director of the Project On Government Oversight, a nonprofit watchdog group that has been tracking defense spending for years.


“The DCAA is perhaps the single most important entity in the government for its work in protecting taxpayers,” Brian said. “They’re our last hope.”


Today’s hearing, before the Senate Committee on Homeland Security and Governmental Affairs, follows two years of investigations by the GAO, the Pentagon inspector general’s office and the Defense Criminal Investigative Service, or DCIS. Calls by DCAA auditors to hotlines triggered those investigations.


DCIS investigators found that managers deleted material from audits without auditors’ knowledge. The managers issued “clean” audit reports without supporting documentation, according to material to be disclosed at the hearing. The DCIS investigators also confirmed that pressure to issue audits on deadline contributed to problems.


The GAO probe found that three DCAA offices under scrutiny had repeatedly diverged from standard accounting practices in their audits. In some cases, agency supervisors allowed contract officials and contractors to subvert DCAA’s independence and “improperly influenced” the scope and findings of audits. The GAO investigators also turned up evidence that managers had tried to intimidate or silence auditors, according to a recent report.


Greg Kutz, GAO managing director for forensic audits and special investigations, said the problems at DCAA may be widespread. “It’s clear that the issues go beyond the 14 audits that we investigated,” he said in an interview.


Hackler’s testimony touches on a contract involving a Boeing satellite launch capabilities, including a Delta IV launch vehicle. At issue were complex pricing methods that Hackler said were used to help Boeing recoup some of the hundreds of millions in losses from a failed commercial satellite cellphone business that also involved launches.

Hackler, who supervised audits of the Boeing proposals, said they included “costing methodology” he had not seen before, according to his prepared testimony. Boeing also did not include pricing details from subcontractors, the testimony said. The Air Force awarded a contract granting Boeing the recovery of losses.


“Time after time, GAO investigators and others have found that DCAA has issued audits of contractors that are favorable to contractors but are not supported by facts, thus encouraging waste, fraud and abuse of taxpayer money,” said Sen. Joseph Lieberman (I-Conn.), committee chairman. “It appears that DCAA is more interested in the speed of its process than the accuracy of the results. DCAA’s mission is too important for this to be tolerated.”\


From Bloomberg:


Boeing Almost Drove ICO Global Out of Business, Lawyer Says

By Joel Rosenblatt and Valerie Reitman

Link to original:   http://www.bloomberg.com/apps/news?pid=conewsstory&refer=conews&tkr=BA%3AUS&sid=aaSgwBeMnlQk



Sept. 12 (Bloomberg) — ICO Global Communications Holdings Ltd. should be awarded $1.5 billion because of Boeing Co.’s failed attempt to put the satellite-network company out of business, an ICO lawyer told a California jury.



ICO sued Boeing in Los Angeles Superior Court for an alleged contract breach that the Reston, Virginia-based company said led to its failure to build a network of satellites providing mobile-phone connections to remote locations.


“Boeing inflicted great damage on ICO and almost drove ICO out of business, but ICO was nimble and took the necessary steps to survive,” Barry Lee, a lawyer for the company, said yesterday in his closing argument to the jury. “We’re still here, we’re still alive. It’s not what Boeing wanted. Boeing wanted ICO dead and gone.”

ICO signed a contract in 1995 to pay more than $2 billion for 12 satellites with Hughes Electronics Corp.’s satellite unit, a business Chicago-based Boeing acquired in 2000, ICO said in court documents. Two of the satellites failed, and Boeing demanded $400 million in additional costs for what were supposed to be fixed-price contracts, ICO lawyer Robert Zeavin told jurors.


Boeing, whose 27,000 machinists walked off the job on strike this month, has argued ICO gambled on a market for satellite phones that didn’t materialize and is now trying to blame Boeing for its mistakes. Boeing is scheduled to present its closing arguments today.

Boeing was concerned “that ICO’s satellites be completed, that ICO pay for the satellites as agreed, and that ICO’s business succeed,” Boeing spokeswoman Diana Ball said yesterday in an e-mailed statement.



Business Nonexistent


ICO’s business didn’t exist and investors lost interest in the company by the time the suit was filed in 2004, Ball said in the statement. ICO’s decision to end its contracts with Boeing “was the result of ICO’s decisions and choices, not any conduct by Boeing,” she said.

ICO General Counsel John Flynn said in June that ICO would ask jurors to award it $2.7 billion. Flynn said yesterday in an interview that the total may be reduced to an amount larger than $2 billion, including $1.5 billion for the breach of contract as well as interest and possible punitive damages.


Founded in 1995 as a global satellite phone operator, ICO filed for bankruptcy in August 1999 and emerged in May 2000 with financing from mobile-phone pioneer Craig McCaw. The company now designs video and navigation programs for cars.


Boeing rose 86 cents, or 1.4 percent, to $62.57 in New York Stock Exchange composite trading. ICO fell 1 cent to $2.50 in Nasdaq Stock Market trading.


The case is Boeing Satellite Systems International Inc. v. ICO Global Communications (Operations) Ltd., BC320116, Los Angeles County Superior Court.


To contact the reporter on this story: Joel Rosenblatt in Los Angeles at jrosenblatt@bloomberg.net.



From:  The Washington Post

The Boeing 702 model spacecraft, called NSS-8, was declared a loss when the Sea Launch Zenit-3SL vehicle carrying the satellite experienced an anomaly during the launch on January 30, 2007.


WASHINGTON, Feb. 19, 2007/Satnews Daily/ ― Telesat Canada and Japanese firm Space Communications Corporation are suing the Boeing Company for a combined $610 million in damages related to alleged malfunctions in the BSS-702 model satellite made by Boeing’s Satellite International, Inc. and a failed orbital insertion. Boeing said the claims in both lawsuits were without merit.


Telesat Canada, the satellite unit of Canadian telecommunications company, BCE Inc., and its insurers are suing Boeing for $385 million in damages and $10 million in lost profits for the failure of its Anik F1 satellite, a Boeing 702 model. Telesat Canada filed an arbitration order against Boeing in November 2006 and an action in a Canadian superior court in December 2006.


On the other hand, Space Communications Corporation’s insurers are suing Boeing’s satellite unit for $215 million related to a bungled 2004 launch of Japan’s Superbird-6 satellite. Space Communications’ insurers filed an arbitration request on Dec. 1. Superbird-6 was allegedly damaged in low orbit after the 2004 launch.




Several early model 702 satellites such as Anik F1 allegedly failed after having problems with their solar panel cells. Industry sources said six Boeing 702 models have failed in orbit due to long-term power loss from a degradation of their solar concentrators: Anik F1, Galaxy 11, PAS 1R, Thuraya 1, XM 1 and XM 2.


They said Anik F1 suffered from a generic failure of the early BSS-702 model: fogging of the concentrator mirrors on the solar arrays that led to reduced available power.


The first version of the 702 used solar arrays with concentrators. These concentrators tended to early fogging, leading to reduced operating lifetimes. The outgassing of the solar cells was higher than expected due to an inherent design flaw. The flaw was corrected in later versions with higher power triple-junction gallium arsenide solar cells.


Anik F1 was launched on November 21, 2000 by an Ariane 44 rocket from the European Space Agency space center at Kourou, Guiana. The primary customers are the Canadian Broadcasting Corporation, Star Choice, Chum Limited and Canadian Satellite Communications, Inc. Anik F1 will be replaced by Anik F1R.


Boeing said Superbird-6 was launched into a lower-than-intended orbit and needed to expend additional fuel to get into the correct orbit. The unplanned fuel consumption in the orbit-raising maneuver reduced Superbird-6’s expected operational life below the planned 13 years. Superbird-6, a Boeing 601 model, was launched by an International Launch Services Atlas 2AS vehicle in June 2004.