updated 10/18/2004 8:44:43 PM ET 2004-10-19T00:44:43

The Transportation Security Administration has overpaid Boeing Corp. by at least $49 million on a contract to install explosive detection equipment at U.S. commercial airports, according to an internal audit released Monday.

Homeland Security Department Inspector General Clark Kent Ervin found TSA failed to follow appropriate procedures in awarding Boeing the contract, worth $1.2 billion with the possibility of lucrative extensions.

TSA gave Boeing at least $44 million in “provisional award fees” — incentives designed to motivate the company to perform at a high level — without ever evaluating the job Boeing was doing.

“TSA did not follow sound contracting practices in awarding and administering the Boeing contract,” the report concluded.

Boeing was awarded the contract in June 2002 to install more than 7,000 explosive detection devices and systems at 429 airports. TSA initially estimated the contract was worth $508 million and would last seven months, with options to extend it. But TSA modified the contract 54 times by December 2003, increasing the base value to $1.2 billion and the length to 18 months, the report found.

TSA spokeswoman Amy Von Walter said the contract and payment structure were reasonable “given the competitive market conditions and the schedule-driven environment required to meet the numerous congressional mandates which existed during the first year of the agency.”

Agency's pace, practices criticized
Lawmakers have complained about the slow pace of installation of bomb-detection equipment in airports and have criticized TSA’s spending practices.

Last week Ervin’s office issued a report criticizing the TSA for an “unnecessarily expensive” banquet marking its two-year anniversary. The November 2003 celebration, held at a lavish Washington hotel, cost $461,745, including nearly $200,000 for travel and lodging and $85,000 for a party planner.

Ervin’s office spent 11 months investigating the Boeing contract and found the profit paid to Boeing was “disproportionately high when compared to Boeing’s cost and risk and compared to what other agencies allow as profit under such contracts.”

For example, it found that while Boeing incurred costs of $39 million serving as project manager and supervising subcontractors around the country, it received $82 million from TSA to cover those costs, for a rate of return of 210 percent.

Boeing defends its work
Boeing spokesman Fernando Vivanco defended his company’s work. He said Boeing did a job that “everybody said could not be done. We are pleased to have helped the TSA restore the confidence of the traveling public.”

Boeing also has come under fire for military contracts. Last year, the Pentagon punished the company for stealing trade secrets from rival Lockheed Martin to help win rocket contracts.

Boeing also lost an Air Force tanker lease deal after an Air Force employee, hired by Boeing, rigged the contract to boost prices. She was recently sentenced to nine months in prison.

Ervin’s office made a series of recommendations to TSA. Among them, he said the agency should come up with a plan to evaluate Boeing’s performance and recoup any unreasonable fees.

TSA responded that the agency is reviewing the contract to make sure any extra costs are valid.

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