Defense Media Network

SAIC Fires Three Key Executives in IT Scandal

Defense contractor fights New York demand for $600 million refund

Like many other large American corporations, defense contractor SAIC has placed a lot of emphasis on ethical business conduct as a series of corporate scandals have made front-page news in recent years.

Indeed, the company trumpeted the release last year of its Corporate Responsibility Report, a copy of which is posted on SAIC’s website.

As it turns out, not all of the company’s managers appear to have agreed with the report’s conclusion that “We believe high ethical standards are essential to the achievement of our individual and corporate goals.”

SAIC recently fired three senior executives, two of them related to defense operations, as part of a scandal involving alleged kickbacks at a New York city information technology project begun in 1998 that is hundreds of millions of dollars over budget.

The CityTime project also has led to several criminal charges; nearly a dozen individuals have been indicted to date. These include SAIC project manager Gerard Denault, indicted in June, and Carl Bell, the New York project’s main systems engineer. Fired last January, Bell pled guilty in June and is cooperating with federal prosecutors.

In a blunt memo to employees, CEO Walt Havenstein said he had dismissed Deborah Alderson, Defense Solutions Group president; John Lord, deputy group president; and Peter Lord, general manager of the Enterprise and Mission Solutions Business Unit. The company announced earlier in October that Havenstein would be retiring.

“The kind of behavior we have seen in CityTime is criminal and is an affront to everything SAIC stands for as a company,” Havenstein said. “SAIC has a long and proud history, with an outstanding reputation for integrity and strong ethical business practices. That’s why the actions of those involved are so appalling to me and to all of us at the company.”

But the CEO also noted SAIC has no evidence linking the three fired executives to any CityTime fraud.

“While each has made valuable contributions to SAIC,” he continued in his memo, “we must maintain the highest standards for all of our employees and for our industry, beginning with our management team.”

The firings come at a time when big American companies and Wall Street have come under more intense scrutiny for ethical conduct. Federal prosecutors in recent months have won several high-profile insider trading convictions that drew lengthy sentences, and protestors in the Occupy Wall Street movement have railed against alleged “corporate greed.”

SAIC finds itself engulfed in this larger pattern because of its involvement in the controversial and scandal-plagued CityTime IT program. Prosectors allege CityTime became an international conspiracy in which lead contractors earned kickbacks for hours worked by consultants that resulted in unneeded staff and inflated hours billed to the city.

Begun 13 years ago, the CityTime payroll project covering more than 160,000 municipal workers was originally supposed to cost just $63 million. It has since ballooned to a cost of roughly 10 times that amount.

In light of the indictments, executive firings and federal investigation, New York Mayor Michael Bloomberg said he wants SAIC to repay more than $600 million.

But despite the dismissals and public recriminations, Havenstein indicated he intends to take a hard line with Bloomberg’s financial demands. In his memo to employees, Havenstein noted SAIC had delivered a customized management system that works well and is saving money for the citizens of New York.

Meanwhile, Havenstein said SAIC is “building vigorous safeguards against such behavior in the future.” Key to those are the CEO’s decision to hire the prominent Gibson Dunn law firm to conduct a thorough analysis of key SAIC policies and practices.

The lawyers also expected to recommend changes to strengthen what Havenstein said is SAIC’s “culture of ethics, accountability, and compliance.”


Michael A. Robinson has written articles for some of the nation's more prestigious publications. As...