by Tim Shorrock
But Congress was not receptive to Woolsey’s pitch for investments in technical systems. In 1994, the Senate cut $300 million from Woolsey’s $1 billion request for accelerated development of a new generation of classified spy satellites. Senators urged him to pay more attention to human intelligence, and reminded him that spending on satellites had already tripled during the 1980s.39 This did not sit well with Woolsey. In one hearing, according to an account in the Washington Post, he “sternly instructed senators—pointer in hand—how their budget cuts had ‘decimated’ the spy agency’s operations and would have to be reversed.”40 Woolsey also riled lawmakers when he opposed creation of a congressionally mandated commission on the future of intelligence and lobbied against legislation that would have resolved some of the turf battles between the CIA and the FBI.41
In the end, Woolsey’s demise was caused by his refusal to fire anyone inside the CIA over the damage caused to the nation by Aldrich Ames, a CIA agent who spied for the Soviet Union for eleven years. Ames, a notorious drunk who lived a lavish lifestyle that included fancy cars and houses, was arrested in 1994. He admitted to handing over to the Soviets the names of thirty-four American spies in the Soviet Union, at least ten of whom were later executed. All Woolsey managed to do in response was hand out letters of reprimand to eleven CIA officials—eight of them retired—for allowing Ames to operate despite years of living beyond his means and being denied promotions because of his alcoholism. But he adamantly refused to fire anyone, saying “that’s not the American way.” No officials were docked pay or forced to change jobs.
Woolsey’s mild response infuriated many in Congress, including some of his Republican supporters in the Senate. The final factor may have been a CNN interview in which Ames bragged about how easy it was to spy at the CIA. In 1995, two months after the Senate Intelligence Committee criticized Woolsey for being too lenient in the Ames case, he resigned. “People were killed, after all,” said Senator Dennis DeConcini, the Arizona Democrat who was his fiercest critic in Congress.42 Some in the CIA never forgave him. In 2005, Michael Scheuer, who once directed the CIA’s Osama bin Laden unit, described Woolsey as “the pariah of President Clinton’s first-term national security team and the man who failed to punish those who ignored the suspicious behavior of Aldrich Ames, thereby letting that traitor destroy the CIA’s network of human assets in the Soviet Union.” Woolsey was among several directors who “lacked the courage to take the disciplinary action needed to clean up after CIA disasters,” Scheuer concluded.43
Woolsey was succeeded by John M. Deutch and, in 1997, by George Tenet.* Deutch, who served for less than two years, played an instrumental role in the creation of the National Imagery and Mapping Agency, the predecessor to the NGA, but otherwise had little impact on intelligence policy. Under Tenet, however, the CIA and the rest of the Intelligence Community began outsourcing tasks that had previously been done by government employees. Clinton’s Reinventing Government project played a key role; but this time around, the administration was getting deeply involved in military conflicts overseas, and defense spending was on the rise. With the Pentagon and Intelligence Community pared down because of the post–Cold War budget cuts, outsourcing became a convenient way to keep up with military demands for logistics, security, and, ultimately, intelligence.
By Clinton’s second term, he had used military force several times, primarily in Bosnia and Haiti, and had come close to launching bombing strikes on North Korea during the 1994 standoff over that country’s threat to develop nuclear weapons. He had also softened a bit on defense spending. In 1996, after threatening to veto an $11 billion spending increase passed by the Republican Congress, a sum that was greater than what the Pentagon said it needed, he went ahead and signed it. And after the disastrous tenure of former congressman Les Aspin as Clinton’s first secretary of defense, the president had smoothed relations with the military by appointing William J. Perry, a former defense undersecretary with considerable experience in the defense electronics industry, to replace him. After winning reelection in 1996, Clinton and Gore were in a position to begin implementing their “reinvention” initiatives in defense and intelligence.
These efforts coincided with a raft of mergers and acquisitions in the defense industry. The M&A boom was encouraged by the administration, which recognized that the Pentagon would not be ordering enough ships, planes, missiles, and other weapons systems to sustain the number of companies that had flourished during Reagan’s huge military buildup of the 1980s. Lockheed Martin, for example, was created through a merger of Lockheed’s aircraft division with Martin Marietta, Loral Defense, and the General Dynamics combat aircraft division. In the end, five huge firms were left standing: Lockheed Martin, Northrop Grumman, Raytheon, Boeing, and General Dynamics.
In response to the changes sweeping through the industry, the Defense Science Board, which advises the Pentagon on acquisition, technical, and manufacturing issues, convened a special task force to find ways in which the Department of Defense could use outsourcing and privatization as tools in reducing the costs of the defense support structure. The task force was chaired by Philip A. Odeen, the president and CEO of BDM International Inc., a major defense and intelligence contractor, and filled primarily with representatives from the largest defense companies, including SAIC, Boeing, and Lockheed Martin. Not surprisingly, given its makeup, the task force recommended a major expansion in outsourcing.
“The Task Force believes that all DoD support functions should be contracted out to private vendors except those functions which are inherently governmental, are directly involved in warfighting, or for which no adequate private sector capability exists or can be expected to be established,” Odeen wrote in the final report. The report recommended that the Pentagon establish a target for 2002 to “generate up to $10 billion or more in outsourcing related savings to fund the badly needed expansion of investment programs for DoD,” and estimated that outsourcing would provide the Pentagon with savings of 30 to 40 percent.44 The report, however, failed to identify which defense functions were “inherently governmental.”*
Odeen chaired a second task force that was convened by Secretary of Defense William S. Cohen, Perry’s successor at the Pentagon, in 1997. The National Defense Panel was formed under a congressional mandate to study future challenges for U.S. defense and national security and also endorsed outsourcing as a way to provide “effective combat support services.” The Department of Defense, it concluded, “must embrace a new paradigm” that will “fully leverage the capabilities, technologies, and business practices of the commercial sector, adapted to the unique mission and special circumstances of the military environment.”45
That panel, too, was dominated by contractors. They included retired Marine Corps General Richard D. Hearney, the vice president of military aircraft and missile systems for the Boeing Company; retired Army General Robert W. RisCassi, an executive with Lockheed Martin and a future board member of the defense intelligence contractors ATK Inc. and L-3 Communications; and Richard Armitage, a former undersecretary of defense who had recently been named to the advisory boards of two companies that were just entering the intelligence contracting field, ManTech International and CACI International.
In November 1997, just before the defense panel unveiled its report, Secretary Cohen and Vice President Gore jointly announced a “revolution in business affairs” at the Pentagon. The plan, said Gore, would “bring America’s defense into the next century—efficient, effective, the strongest in the world.” It proposed slashing 25 percent of the department’s workforce and for the Pentagon to begin to identify functions that could be performed by the private sector and open them to market competition. Altogether, more than thirty thousand jobs were eliminated by the plan. “What we are doing is providing a corporate vision for the Defense Department,” said Cohen.46 Jacques Gansler, who ranked third in the Pentagon hierarchy, served as point man for the program. “To meet the challenge of modernization,” he said in o
ne speech, the Pentagon “must do business more like private business. My top priority as Undersecretary of Defense is to make the Pentagon look much more like a dynamic, restructured, reengineered, world-class commercial sector business.”47
After Cohen and Gore announced their downsizing plans for the Pentagon, a group of CEOs represented by an organization called Business Executives for National Security (BENS) announced that they would lobby Congress and the White House on behalf of Gore’s defense reform initiative.* It put together a high-profile commission to promote outsourcing, privatization, and acquisition reform in the defense industry and promote the Clinton administration’s plans to force the military to compete with the private sector for support work.48 The program was called the “tail to tooth” commission. The idea, says Ken Beeks, BENS’s current vice president for policy, was to convince the U.S. government to get out of the tail, or the support side of defense, and “get back to the tooth, the fighting side.”49 Like Odeen’s two Pentagon study groups, the commission was stacked with privatization promoters and defense contractors. It was co-chaired by former senator Warren Rudman, R–New Hampshire, who had once proposed the most sweeping privatization legislation in the history of Congress, and advised by two former secretaries of defense with deep roots in the defense and intelligence industries, Frank C. Carlucci and William Perry.
Both men were working for companies that had much to gain from the Pentagon’s outsourcing programs. Since leaving the Reagan administration, where he served in the top two positions at the Pentagon and as national security adviser, Carlucci had been chairman of the Carlyle Group, the defense-oriented private equity fund. There, he managed an acquisition drive that transformed Carlyle from a small boutique investment bank into the eleventh largest defense contractor, with holdings in aerospace, armaments, and intelligence. When he took on his advisory role at BENS, Carlucci was on the boards of four major defense contractors: Westinghouse Electric, Kaman Corporation, Ashland Oil, and the RAND Corporation, the military think tank funded by the Air Force. Perry, who’d served in the Carter administration as the primary intelligence adviser to Secretary of Defense Harold Brown, had been director of several contractors, including ESL Inc., which specialized in signal processing systems and was one of the first outside contractors at the NSA (it was later sold to TRW). Perry later served as a director of Boeing, United Technologies, and SAIC.
After three years of study, the Carlucci-Perry commission proposed a sweeping array of changes that, it claimed, would save an estimated $30 billion a year if enacted. They included the full privatization of the Pentagon’s long-haul defense communications and its supply chain management. In a circular pattern of backslapping, the private study was then used by the Clinton administration and the Pentagon as a basis for selling their own programs to Congress. The administration’s point man in this effort was Jacques Gansler, who was the undersecretary of defense for acquisition, technology, and logistics from 1997 to 2001. During this period, Gansler spoke frequently about the need to expose noninherently governmental work to competition and pushed the Pentagon to encourage both public-private competition and partnerships. He was particularly interested in proposals to expand the outsourcing of logistics. “Since we spend more than $80 billion annually on logistics and yet don’t match world-class performance (in either responsiveness or costs), there is enormous potential here,” he said in a 1999 speech to defense contractors.50
Expanding the outsourcing of logistics was especially welcome news to the Kellogg Brown & Root (KBR) subsidiary of Halliburton, which had been quietly expanding its government services business behind the leadership of Halliburton’s new CEO, former secretary of defense Dick Cheney. During the waning days of the administration of the first President Bush, Cheney had spearheaded a major effort at the Pentagon to expand the private sector role in defense into logistics. In 1991, under his direction, the Department of Defense paid $9 million to Halliburton’s KBR subsidiary to study whether the private sector should handle all of the military’s logistics, such as transporting materials to battlefields and providing food and housing to front-line troops. The idea was seen at the time as the logical extension of the policies enacted under the Reagan administration to outsource the Navy’s supply lines. KBR, not surprisingly, responded positively, and in August 1992, it won the Pentagon’s first Logistics Civilian Augmentation Program contract, also known as LOGCAP. Under the terms of the contract, KBR was to provide logistics support wherever U.S. forces were engaged around the world.
Halliburton’s work on LOGCAP began with a relatively modest $4-million contract, but mushroomed in size as the Clinton administration began deploying U.S. troops to various hot spots around the world. Between 1992 and 2000, KBR sent its contract employees to Bosnia, Kosovo, Macedonia, Hungary, Albania, Croatia, Greece, Italy, Somalia, Zaire, Haiti, and Southwest Asia to support U.S. Army operations. The first LOGCAP contract ended up with a value of $815 million.51 In 1997, KBR lost the LOGCAP contract to DynCorp, a private military contractor now owned by Veritas Capital. But with U.S. forces heavily committed in Bosnia, the Army carved out a separate contract for KBR in the Balkans. There, the company became legendary for its vast array of services. “In effect, the firm was the US force’s supply and engineering corps wrapped into one corporate element,” Peter Singer wrote in his brilliant book, Corporate Warriors.52 Ultimately, KBR earned more than $800 million for its work in the Balkans.53 Other companies winning contracts there included Raytheon and Bell Helicopters, which provided “critical aviation assets” and support to the U.S. peacekeeping effort in Bosnia.54 In addition, the Army handed out contracts to AT&T and Sprint to provide radio links between U.S. commanders and peacekeeping troops deployed in Bosnia and Croatia.
Like KBR, some of the companies that won military contracts in Bosnia had advised the Pentagon on outsourcing. Most of the interpreters used by the U.S. Army in Bosnia, for example, were employees of BDM, where Philip Odeen, who had managed two Pentagon task forces that recommended an expansion of outsourcing, was the CEO. At the time of its contract award, BDM was owned by Carlyle, whose chairman, former Secretary of Defense Frank Carlucci, had publicly urged the Pentagon to expand contracting as adviser to the “tail to tooth” commission. Carlyle, through its United Defense Industries subsidiary, also won a contract in Bosnia to provide maintenance support for U.S. Army ground vehicles. Its biggest payoff came in 1996: in one of the first big defense-related privatizations completed by the Clinton administration, Carlyle acquired the investigation service arm of the Office of Personnel Management. Renamed US Investigations Service, USIS remained in Carlyle’s hands until 2007, and is the largest provider of security investigations for employees and contractors hired by the Pentagon, the National Security Agency, and other U.S. government agencies.
Direct contracting wasn’t the only way that privatization expanded. Some of the military contracts signed during that time were drawn up after many U.S. bases were either closed or reduced in size as part of the Defense Reform Initiative. In 1999, for example, a team of contractors led by Lockheed Martin won a fifteen-year, $10.2 billion contract to maintain aircraft engines for the U.S. Air Force; the work was put out for bid after President Clinton blocked a recommendation from an independent commission to close Kelly Air Force Base in San Antonio, Texas, but agreed instead to the outsourcing of some of the base’s work. “In its place, engine work being handled there by Air Force personnel is now being done by private companies,” the Washington Post reported. “For Lockheed, the contract is another in a series of privatization deals in which the giant aerospace company has been taking on work once performed by the government.”55 In 1997, Hughes Electronics Corporation won a contract to design and build electronics gear for Navy planes after the Pentagon closed the Naval Air Warfare Center in Indianapolis, Indiana.56
Another area where defense outsourcing blossomed during the Clinton administration was in overseas military training. The origins of this practice date bac
k to the early 1980s, when Vinnell Corporation, which had worked for the Pentagon in Vietnam, won a contract to train Saudi Arabia’s National Guard, a 75, 000-man army that enforced domestic security for that country’s authoritarian government (at the time, Vinnell was owned by the BDM subsidiary of Carlyle, which had close ties to the Saudi royal family).57 Meanwhile, SAIC was training the Saudi navy and bringing Saudi military personnel to company headquarters in San Diego for further study.58 Under contract with the U.S. Navy and Marines, Booz Allen Hamilton was managing the Saudi Marine Corps and running the Saudi Armed Forces Staff College. The biggest player in this business was Military Professional Resources Inc. (MPRI), a company founded in 1987 by several retired U.S. Army generals. In 1995, in what the company said was a private deal with the government of Croatia, MPRI was hired to train the Croatian army,* and later signed a contract to train the Bosnian armed forces after winning a bidding war against SAIC and BDM.59
Ken Silverstein, who is currently the Washington editor for Harper’s, was one of the first journalists to write about the corporate role in overseas military training. “For the Pentagon, the privatization of military training programs is a win-win situation,” he wrote in his 2000 book Private Warriors. “In addition to providing plausible deniability about overseas entanglements, it allows Washington to shed military personnel while simultaneously retaining the capacity to influence and direct huge missions.” Moreover, he added, “Retired generals and private companies have far more leeway in evading questions from Congress or the press.”60