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Thursday, Aug. 27, 2009 | A year ago, the San Diego Business Journal recognized National City’s Technical Logistics Corp. as one of San Diego’s fastest-growing privately held companies.
The company’s revenues grew 847 percent from $320,000 in 2005 to $3 million in 2007, the Business Journal reported. Technical Logistics founder and CEO Elizabeth Ramos attributed the growth to her hard work cultivating military clients.
“We had gotten so much exposure in the military that we were given the opportunity to win small-business contracts and that made all the difference,” she told the newspaper.
The nearly $600,000 in bribes Ramos now admits to paying to a high-ranking Space and Naval Warfare Systems Center official didn’t hurt either.
When Ramos talked with the journal she was months away from being indicted on charges relating to a decade-long bribery and fraud scheme in which Technical Logistics netted nearly $5 million in SPAWAR subcontracts through her relationship with Gary Alexander, who headed the agency’s Air Surveillance and Reconnaissance Branch, according to the federal grand jury indictment unsealed last month.
Last week, Ramos and her husband Louis Williams pleaded guilty to wire fraud and will serve a maximum of 20 years in jail, and pay as much as $250,000 in fines as well as restitution. Ramos and Williams are scheduled to be sentenced in February
Another SPAWAR subcontractor, Pamela Banks, previously pleaded guilty in the case. She operated a document scanning business out of her home on Wren Street in San Diego and was sentenced in April to two years in prison.
Alexander has also been indicted, as have his wife Kelly Alexander; his mistress, Sinthia Nares; and Jackie Godwin, an employee of the San Diego-based company now known as Kratos Defense Security Solutions. The Alexanders, Nares and Godwin are scheduled to stand trial in January.
This case sheds light on the murky world of defense subcontracting where companies can come from nowhere and make big money from federal contracts, and do so with scant oversight. Government accountability watchdogs say it is yet another example of the waste and fraud that is endemic to the federal procurement system.
“The situation has become so bad that it’s taken as predictable and unexceptional that these kinds of things are discovered,” said Winslow Wheeler of the Center for Defense Information, a Washington D.C.-based think tank. “We have a system that seeks not to discover these things.”
The bribery scheme, which began in 1999, was thwarted after a tipster called a federal fraud hotline in late 2007. The charges were brought after a lengthy investigation during which investigators monitored wire transfers among the defendants, and observed cash exchanges between Ramos, Williams and Gary Alexander, according to the indictment and plea agreements.
Ramos told the Business Journal that she started Technical Logistics in December 1999 just after graduating from San Diego State University with a degree in a child and family development. Despite her degree in a completely unrelated field, Ramos told the Business Journal that her goal after college was to “build a small business” based on technical documentation support.
In her plea agreement, Ramos admitted to a more complete story.
In mid-1999, Gary Alexander, who was acquainted with Ramos and Williams, met with the couple in their home. He told them that if they started her own company he would use his influence as a SPAWAR official to ensure that the company would be hired to perform work under government contracts, according to the plea agreements signed by Ramos and Williams. In exchange, the plea agreements said, Alexander wanted 20 percent of the total value of the subcontracts the company received.
Alexander worked for the SPAWAR division that supported the military’s Joint Interagency Task Force South, which coordinated efforts to hunt down and capture drug runners in the Caribbean Sea and Gulf of Mexico. He started as a software engineer, and rose through the ranks to become the Air Surveillance and Reconnaissance chief, which gave him broad authority over the scope of work to be done, personnel and purchase requests, the indictment said.
Between late 1999 and the spring of 2008, Technical Logistics was given $4.8 million in SPAWAR subcontracts for a variety of services relating mainly to software engineering and administrative support. The company received the contracts, according to the court documents, through prime contractors Computer Sciences Corp. and High Technology Solutions, Inc. HTS was bought by Wireless Facilities, Inc., which in turn changed its name to Kratos.
Gary Alexander, who as promised pulled the necessary strings to get contracts from the agency, through the prime contractors and to Technical Logistics, was rewarded handsomely, according to the court documents. Ramos and Williams paid him and his wife between $200,000 and $400,000 in cash throughout the course of the scheme, according to the plea agreements.
In addition to the cash payments, Ramos and Williams showered the Alexanders with gifts, including vacations, dinners out and a Rolex watch, according to the plea agreement. And, at the behest of Gary Alexander, Ramos hired his mistress, Nares, and paid her a $90,000 salary that was billed to Kratos, court documents say.
Godwin, the Kratos employee, was also a part of the scheme. She directed Ramos and Williams to buy more than $13,000 in televisions, game consoles and home theater systems, and then billed them to the government as legitimate purchases, according to the plea agreements.
In the summer of 2005, Gary Alexander made another deal, this time with his friend Pamela Banks, according to Banks’ plea agreement. Just like with Ramos and Williams, Alexander told Banks to start up a company and he would funnel SPAWAR subcontracts its way. The only difference was that this time he wanted 30 percent of the subcontracts, according to the plea agreement.
So on Sept. 7, 2005, Banks filed documents with the San Diego County Clerk listing herself as owner of Advance Technical Solutions. And over the next two years the home-based business garnered $325,000 in subcontracts for SPAWAR work, and Banks paid Alexander about $100,000 in kickbacks, according to her plea agreement.
SPAWAR and people who do business with and represent defense contractors, say there are safeguards in place to ensure proper oversight of contracts, but that even the most stringent safeguards can be thwarted by dishonest people in high places. That, they say, is what happened in this case.
“We shouldn’t be blaming the system for not catching everything,” said Gerry Nifontoff, president of the San Diego chapter of the National Defense Industrial Association. “There is a certain amount of triage in the oversight business. You spend a lot of time going after the $10 million and $100 million things, and the $100 grand falls through the cracks.”
In an e-mail statement, SPAWAR said that since the illegal activities came to light it has reviewed a range of things regarding how contracting officer representatives do their work. “We will incorporate all the lessons-learned from the criminal investigation into our processes to ensure that these types of activities are brought to light early on,” the statement said.
However, SPAWAR has no plans as of now for specific changes in its contracting regulations as a result of this case, said an agency spokesman. The argument against increasing oversight, say Nifontoff and others, is that an agency can have so many regulations that it can’t get anything done.
“You don’t spend all your resources preventing a bank from being rob-able,” said Nifontoff. “There is no way to create an affordable system that would stop all illegal activities.”
Wheeler, of the Center for Defense Information, said the problem is the Department of Defense doesn’t even know when they are being robbed. “We don’t know how many times the robbers have been in the safe taking out money — we don’t even know how much money is supposed to be in the safe,” he said.
Wheeler said that the Defense Department has the worst track record of all federal agencies when it comes to tracking waste and fraud. So much so, he said, that the department in the mid 1990s got itself exempt from the Chief Financial Officers Act of 1990, which mandated that all federal agencies be financially compliant and pass regular audits.
Jeswald Salacuse, a Tufts University professor and author of the book “Seven Secrets for Negotiating with Government,” said the SPAWAR case is a textbook example of how a system can inadvertently create fertile ground for corruption.
There are three primary things that make corruption possible in a system like the United States government, Salacuse said. First is a lack of oversight. Next is the amount of discretion that we give officials. And finally there is the issue of monopoly — when one official has control over a significant budget or area of work.
Although he said he is not familiar with the details of the Alexander case, Salacuse said it seems to have all three elements. Alexander was a high-ranking SPAWAR official; he was in charge of a large branch and had control over the contracts that came out of it.
However, he said, even if the agency would acknowledge that this is a problem and try to address it, it could face backlash. “Politicians will resist oversight or mechanisms for accountability,” Salacuse said. “Oversight costs money and reduces influence that outside constituencies may have.”
Ramos, in her interview with the Business Journal, summed it up more succinctly: “This industry is all about relationship-building,” she said.
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