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War on Terror a Boon For Virginia

Image has not been found. URL: /wp-content/uploads/2008/10/arlington.jpgArlington, Virginia

When three State Dept. contract employees looked into the presidential candidate’s passport records, Rep. Henry A. Waxman (D-Calif.) didn’t ask Condoleezza Rice who the employees were. Instead, he wanted to know who these contract employees worked for. It turned out two worked for Stanley, Inc., an information-technology company in the Washington suburb of Arlington, Va. The other worked for The Analysis Corp., an IT corporation based in the D.C. suburb of McLean, in Fairfax County.

Image has not been found. URL: http://www.washingtonindependent.com/wp-content/uploads/2008/09/nationalsecurity1-150x150.jpgIllustration by: Matt Mahurin

Stanley and TAC are two of the more than a dozen information-technology companies that have played a central role in the government’s response to Sept. 11. The notion of making money off war conjures up notorious companies like Halliburton and Blackwater (and, perhaps now, AEY Inc. ), that supply armed personnel or military equipment. But it is these relatively unknown IT’s, largely based in Northern Virginia’s Arlington and Fairfax Counties, that are involved in virtually all aspects of the executive branch’s “war on terror.” These companies supply the databases, data-mining and surveillance technology that have helped to define counterterrorism policy.

Northern Virginia’s economy has been buoyed by government contractors since the Department of Defense was created and headquartered in Arlington at the dawn of the Cold War. But the Cold War economy pales in comparison to the bonanza made from the war on terror. Perhaps the biggest beneficiaries of all are the Northern Virginia IT’s. The Bush administration and Congress turned to these companies to make the technology that is supposed to thwart terrorism — and have paid them billions to do it.

“Government doesn’t understand the technology well enough,” said Angela Styles, the Bush administration’s head of the Office of Management and Budget between 2001 and 2003. “It’s not like dealing with traditional defense contractors, where DOD engineers know how to design and build a ship. They need the technology companies.”

Styles, now a partner at Crowell & Moring, where she is a consultant for businesses seeking to procure government contracts, said that Fairfax has “done a great job” persuading the government that it deserves to supply the surveillance, database and telecommunications equipment to fight the war on terror.

Northern Virginia IT’s are, of course, indicative of government’s rapidly increasing reliance on private contractors.

The number of private contract employees went from 5.2 million in 2002 to 7.6 million in 2005, according to Paul C. Light,a professor at New York University who studies the federal bureaucracy. Despite the creation of DHS and two continuing wars, the federal workforce has stayed the same at 1.9 million. Since 2002, Virginia companies alone have created 50,000 IT jobs, according to Virginia Business Magazine. Nearly all those jobs are in Fairfax, Arlington and, to a lesser extent, Loudoun and Prince William Counties.

The number of private contract employees went from 5.2 million in 2002 to 7.6 million in 2005

Total spending on federal contracts went from $219 billion in 2001 to $430 billion in 2007, according to Eagle Eye Publishers, a market research firm that tracks government procurement. The D.C. metropolitan area secured $56 billion in federal contracts during fiscal year 2007, approximately $28 billion of which went to Northern Virginia companies.

Where the IT’s are unique has been their role in privatizing counterterrorism work throughout the bureaucracy. About 70 percent of total federal contracts came from the Defense Dept. But Northern Virginia companies have tapped into the counterterrorism work in other departments. “Today DOD makes up less half of the total contracting value in Northern Virginia,” said Stephen Fuller, an economist at Arlington’s George Mason University. “Everybody else needs technology services too.”

Terry Holzheimer, director of the Arlington economic development authority, said the most promising local contracting is actually with the Dept. of Homeland Security. In 2006 — its fourth year of existence- the Dept. of Homeland Security rewarded $15.6 billion in government contracts. Arlington County alone received approximately 20 percent of all DHS contracts, according to the county’s economic development authority. It contributed to a countywide increase from $1.9 billion in federal contracts in 1997 to $5.5 billion in 2007.

These totals don’t include the Central Intelligence Agency and the National Security Agency, which do not release their federal contracts publicly. “I would suspect that the CIA is fairly pervasive throughout the area,” said Holzheimer of Arlington’s economic development authority. “I’m sure we’ve got some contractors working on some intelligence related work.”

According to available public information, the contractors perform functions like creating and then sorting through databases on people who board planes or cross the border. They’ve been entrusted to create both the tools of surveillance and the power to analyze the information they accumulate.

The companies involved in the passport snooping scandal are examples of this new type of government contracting. Stanley’s entire business last year was procuring contracts from the federal government, including maintaining the government’s passport files. The company brought in $570 million in contracts from the State Dept., Dept. of Defense, Dept. of Homeland Security and several of the 16 intelligence agencies. Meanwhile, along with examining suspicious passports for State, TAC does counterterrorism work for most of the federal government’s 16 intelligence agencies. It also was responsible for automating the State Dept.’s controversial terrorist watch list.

Fuller, of George Mason, argues that such reliance on private contractors for sophisticated intelligence gathering and analysis was previewed by President Ronald Reagan. “Reagan ran on a platform of decentralization,” Fuller said. “The agency that could first best utilize this idea was the Defense Dept., since most of the tech wizards didn’t want to be bureaucrats.”

Reagan’s departure and the end of the Cold War brought an uncertain period for Virginia IT’s. John Sakatis, research manager at the Washington branch of the Jones Lang LaSalle commercial real estate firm, said that, during the late-90’s telecom boom, the region tried to bill itself as “Silicon Valley East.”

When the boom went bust in 2001-2, office vacancies shot up from 2 percent in 2000 to 20 percent in 2002. That year, however, George W. Bush announced his intention to fight the “war on terror” through the private sector. The president vowed to privatize half the civil service. Tom Ridge, the first secretary of the 2002-created Dept. of Homeland Security, said private contractors, not government employees, should protect America so “we could be as agile and aggressive as the terrorists themselves.”

Northern Virginia’s office vacancy problems disappeared. Already existing IT’s, like Booz Allen Hamilton and SAIC, expanded into the vacant space, and the rates fell below 10 percent. “What really saved Northern Virginia was the increase in defense and intelligence spending,” Sakatis said, “and the dual wars in Afghanistan and Iraq.”

Gerald Gordon, director of the Fairfax Economic Development Authority, recalled that the federal government quickly turned to experienced IT companies after 9/11. “There were some contracts where the government gave Fairfax companies money,” Gordon said, ” and told them, ‘fill the gaps in our war on terror.’”

It’s not Gordon’s job to question the $13.2 billion his county received last year in federal contracts. “Our interest is in filling office space,” he said. “It doesn’t matter whether we fill it with people doing DHS contracts or Dept. of Agriculture Contracts.”

It is, however, the job of Congress and a new administration. Waxman’s House oversight committee and even Sen. Joseph I. Lieberman’s Senate oversight committee have held hearings sharply critical of a federal procurement process where, for five years, contractors perform essential national security work with little oversight.

The current public safety-private profits arrangement could also be upset by a new administration that seeks to end the war in Iraq and re-define the “war on terror.” A future Washington Independent article will look at whether a new administration will be as terrific for Northern Virginia IT’s as the Bush administration has been.

*Correction: An earlier version of this story should have said the Pentagon was moved to Arlington in the 1940’s. We incorrectly reported that the Pentagon moved to Arlington at the dawn of the Cold War. *

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