In the fiscal year ended in March 2013, Booz Allen Hamilton reported $5.76 billion in revenue, 99 percent of which came from government contracts, and $219 million in net income. Almost a quarter of its revenue—$1.3 billion—was from major U.S. intelligence agencies. Along with competitors such as Science Applications International Corp. (SAIC), CACI, and BAE Systems (BAESY), the McLean (Va.)-based firm is a prime beneficiary of an explosion in government spending on intelligence contractors over the past decade. About 70 percent of the 2013 U.S. intelligence budget is contracted out, according to a Bloomberg Industries analysis; the Office of the Director of National Intelligence (ODNI) says almost a fifth of intelligence personnel work in the private sector.
It’s safe to say that most Americans, if they’d heard of Booz Allen at all, had no idea how huge a role it plays in the U.S. intelligence infrastructure. They do now. On June 9, a 29-year-old Booz Allen computer technician, Edward Snowden, revealed himself to be the source of news stories showing the extent of phone and Internet eavesdropping by the National Security Agency. Snowden leaked classified documents he loaded onto a thumb drive while working for Booz Allen at an NSA listening post in Hawaii, and he’s promised to leak many more. After fleeing to Hong Kong, he’s been in hiding. (He didn’t respond to a request for comment relayed by an intermediary.
The attention has been bad for Booz Allen’s stock, which fell more than 4 percent the morning after Snowden went public and still hasn’t recovered. Senator Dianne Feinstein (D-Calif.), who chairs the Select Committee on Intelligence, has called for a reexamination of the role of private contractors in intelligence work and announced she’ll seek to restrict their access to classified information. Booz Allen declined to comment on Snowden beyond its initial public statement announcing his termination.
Edward Snowden was not hired as a spy. He’s a mostly self-taught computer technician who never completed high school, and his first intelligence job was as a security guard at an NSA facility. In an interview in the Guardian, he says he was hired by the Central Intelligence Agency for his computer skills to work on network security. In 2009 he left for the private sector, eventually ending up at Booz Allen. The job he did as a contractor for the NSA appears to have been basic tech support and troubleshooting. He was the IT guy.
Even so, spending can spin way out of control. According to the ODNI, a typical contractor employee costs $207,000 a year, while a government counterpart costs $125,000, including benefits and pension. One of the most notorious projects was the NSA’s Trailblazer. Intended as an advanced program to sort and analyze the vast volume of phone and Web traffic that the NSA collects hourly, Trailblazer was originally set to cost $280 million and take 26 months. Booz Allen was part of a five-company consortium working on the project. (SAIC was the lead contractor.) “In Trailblazer, NSA is capturing the best of industry technology and experience to further their mission,” Booz Allen Vice President Marty Hill said in a 2002 press release. In 2006, when the program shut down, it had failed to meet any of its goals, and its cost had run into the billions of dollars. An NSA inspector general report found “excessive labor rates for contractor personnel,” without naming the contractors. Several NSA employees who denounced the waste were fired; one, a senior executive named Thomas Andrews Drake, was charged under the Espionage Act after he spoke to a reporter. (The charges were eventually dropped.)
A U.S. Department of Homeland Security computer systems contract awarded to Booz Allen around the same time had similar issues. Over the course of three years, costs exploded from the original $2 million to $124 million, in large part, auditors at the Government Accountability Office would later report, because of poor planning and oversight. But even when the problems came to light, as the Washington Post reported, DHS continued to renew the contract and even give Booz Allen new ones, because the agency determined it couldn’t build, or even run, the system on its own.
Booz Allen and its competitors are able to keep landing contracts and keep growing, critics charge, not because their expertise is irreplaceable but because their Rolodexes are. Name a retired senior official from the NSA or the CIA or the various military intelligence branches, and there’s a good chance he works for a contractor—most likely Booz Allen. Name a senior intelligence official serving in the government, and there’s a good chance he used to work for Booz Allen. (ODNI’s Sanders, who made the case for contractors, is now a vice president at the firm, which declined to make him available for an interview.) McConnell and others at Booz Allen are quick to point out that the contracting process has safeguards and oversight built in and that it has matured since the frenzied years just after Sept. 11. At the same time, the firm’s tendency to scoop up—and lavishly pay—high-ranking intelligence officers once they retire suggests the value it places on their address books and in having their successors inside government consider Booz Allen as part of their own retirement plans.
Rich contractor salaries create a classic public-private revolving door. They pull people from government intelligence, deplete the ranks, and put more experience and knowledge in the private sector, which makes contractors even more vital to the government. “Now you go into government for two or three years, get a clearance, and migrate to one of the high-paying contractors,” says Steven Aftergood, who heads the Project on Government Secrecy at the Federation of American Scientists. That’s what Snowden did. “You have to have a well-developed sense of patriotism to turn that money down,” Aftergood says.