New Details in CityTime Corruption Case: Contractor Arrogance and Incompetence

It is often said that if government could just run like a business, taxpayers would save billions and the public sector would be more effective. If only that were so. In fact, corporations are just as capable of fraud, waste, and abuse as any government agency -- indeed, even more so since there is much less oversight of private executives than public officials. And ironically one of the reasons that government sometimes does appear ineffective is that private contractors have failed to deliver on their promises.

The staggering corruption case in New York City around a new computerized payroll system shows these truths on display. Not only did private consultants steal an estimated $80 million for the city government, but the main company in charge of the contract -- Science Applications International, Inc (SAIC) -- appears to have been egregiously incompetent and dishonest. Moreover, they remained so even after being sharply criticized by city officials, as revealed by the emergence of a 2003 letter written to SAIC executive Mark Hughes by Richard Valcich, then executive director of the City's Office of Payroll Administration.

Valcich's tone suggests a public official who is dumbfounded by how a major company could be so ineffective. "SAIC has repeatedly been late on virtually every deliverable. The inability of SAIC to deliver on time has resulted repeatedly in wasted city resources. . . . The City has found that SAIC's commitment to quality is almost non-existent and is reflected from the top down."

Richard Valcich complained that the City had spent $35 million and had no system to show for its funds. Over subsequent years the cost rose to $700 million and there still isn't a completed system. The greed and gouging in all of this is staggering. Earlier this year, the New York Daily News found that there were 230 consultants at SAIC being paid an average of $400,000 annually -- with this money coming from a city where two million people live in poverty.

Why didn't the Bloomberg Administration move more quickly to kick SAIC off the job? Part of the answer is surely about how large contractors can be irreplaceable because they do things that other companies cannot do -- operating, in effect, as monopoly providers. (Think Halliburton, which has unique capacities for large-scale work in war zones.) But my guess is that there is more to this scandal, and that it involves questionable political influence by SAIC -- which is hugely well-connected in Washington and other power centers. (Think Halliburton again. SAIC's board of directors has included two former secretaries of defense and a former CIA director.)

CityTime is not the first big government contract that SAIC has screwed up. In 2001, the FBI contracted with SAIC  to create a new database system and paid $122 million for a project that was an utter disaster. As FBI Robert Mueller would testify to Congress: "When SAIC delivered the first product in December 2003 we immediately identified a number of deficiencies – 17 at the outset. That soon cascaded to 50 or more and ultimately to 400 problems with that software ... We were indeed disappointed."

SAIC also handled a big project for NASA where it was several hundred millions of dollars over budget and years behind schedule.

Valcich Letter in CityTime Corruption Case