Iraq Case Sheds Light On Secret Contractors

Wall Street Journal (2008-07-17) Siobhan Gorman and August Cole

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By SIOBHAN GORMAN and AUGUST COLE
July 17, 2008; Page A1

When Dave Boone complained that his fellow security contractors in Iraq were stockpiling weapons and padding their expense reports, his company talked him out of quitting and promised to run a tighter ship.

Later, Mr. Boone reported that colleagues guarding U.S. spy personnel had fired shots into a Baghdad neighborhood and falsely claimed they defeated a horde of snipers. This time, the company fired him -- though two of its people backed up Mr. Boone's account. He has spent more than three years trying to get U.S. officials to investigate the incident.

Security contractors in Iraq have been in an intense spotlight since employees of another firm, Blackwater Worldwide, were involved in a shooting incident last fall that left 17 Iraqi civilians dead, leading to a Justice Department investigation and efforts by the Iraqi government to clamp down on their actions. Overall, the U.S. has about the same number of contractors as military personnel in Iraq and Afghanistan.

But a fast-growing type of government contracting largely escapes such scrutiny: secret programs, or "black" contracts, assisting intelligence agents as they operate in war zones. These contractors have carried out some of the government's most sensitive work -- conducting interrogations, manning secret prisons and guarding spy-agency personnel. The programs' existence, size and scope are classified, and so are the details of their troubles.

The House of Representatives Wednesday passed a broad bill tackling a wide range of intelligence policy issues, including tightening oversight of such contractors. It would force intelligence agencies to keep Congress better informed about their use as well as any formal probes into wrongdoing. But the legislation faces serious headwinds: The White House threatened a veto Wednesday, arguing that some of the provisions would hamper its spying operations.

Mr. Boone's little-known employer, MVM Inc., before 2001 mainly provided school and courthouse guards in U.S. cities. As the U.S. sought to supplant its own overstretched forces, MVM quickly grew to become one of the top few providers of secret security in Iraq and Afghanistan, alongside companies including Blackwater. MVM has handled much of the Central Intelligence Agency's and National Security Agency's personal security in war zones.

CIA Station

It's hard to assess the total of intelligence workers in Iraq because the numbers are classified. In addition to the 150,000 troops in Iraq, Baghdad has become the CIA's largest station overseas with officers estimated in the hundreds. The NSA, the super-secret electronic eavesdropping service, has significantly expanded its presence in Iraq.

MVM's entry into the security elite has been rocky. Mr. Boone is suing the firm over his firing after the 2004 shooting incident, which occurred after his team, while guarding NSA personnel, was hit with a car bomb. Mr. Boone contends the firm let him go rather than address a pattern of hazardous field management in the program, dubbed "Scorpion."

Scorpion team members, including Dave Boone at center, in Baghdad.

In court papers from the case, in federal district court in Colorado, MVM responds to Mr. Boone's claims about the shooting incident by saying the company "is without sufficient information to admit or deny the allegations...and therefore denies those allegations." A federal district court ruled against Mr. Boone's claim of wrongful termination on technical grounds; Mr. Boone is appealing.

Documents from the court case and other interviews provide a rare look into the troubles of MVM's classified security contracts. Other employees and managers have written detailed critiques of company operations. A member of the Scorpion team wrote lengthy notes about poor training, procedures and equipment. Two managers of another MVM program for the CIA -- a program then known as "Viper" -- wrote of similar problems there and said they got no response.

MVM, which had no comment on the managers' letter, has repeatedly been warned by U.S. officials that it hasn't provided adequate personnel under its contracts. MVM recently learned it could lose a big chunk of its Viper operation, now renamed "Panther," to rivals that have been invited to bid for it.

The company's difficulties aren't unique, although its larger competitors can more easily absorb these kinds of problems. All firms face a finite number of highly skilled ex-soldiers, leaving many short of qualified personnel. Others have struggled to meet government standards because they're new to working in war zones. Contracting in a war zone is also an inherently unpredictable venture.

In an interview, MVM's chief executive, Dario Marquez, said the government has been satisfied with MVM's work. "We have a great working relationship with both these clients," he said, referring to the CIA and NSA. To buttress that point, MVM showed The Wall Street Journal a handwritten, favorable NSA review of the Scorpion program. But Mr. Marquez acknowledged that MVM, along with its rivals, has had personnel problems.

"Every contractor has a harder time finding these qualified people," he says. The NSA declined to comment about its experience with MVM, as did the CIA and the State Department.

MVM, of Mc Lean, Va., was started in 1979 by three former Secret Service agents, who named the outfit with the first letter of each of their last names. Mr. Marquez bought out the other two and built a company specializing in protecting buildings. Shortly after the terror attacks of 9/11, the company's security business boomed. Demand for its domestic protection work soared as government buildings of all types sought more guards and gates.

The firm started to seek more overseas work and landed contracts with the Army and the Justice Department, the latter to protect scientists examining mass graves in Iraq. The company says its classified contracts for overseas intelligence operations have grown to represent 30% of the company's quick-rising revenue, bringing in $60 million last year. The company says it hopes to triple that total within five years. But MVM has run into problems with the way it manages both of its major classified programs.

In the runup to the Iraq war, MVM won the Viper contract, providing security for CIA officers overseas. After 18 months, some of its managers began to write MVM officials about problems. Two managers complained of poorly trained personnel, unresponsive senior management and weapons that went missing, in excerpts seen by the Journal. MVM Chief Financial Officer Joseph Morway attributes any equipment issues to "start-up" problems and declines to comment on the managers' letters.

In a deposition for Mr. Boone's lawsuit, a former Viper manager named Mark Adams said, "They couldn't keep track of their equipment, they didn't have an accounting system for it, they couldn't get their bills paid." The 15-year CIA protective-services veteran added, "In my opinion, they were putting people in harm's way out there...We had written several reports on the memos on these issues, and they were not well received."

Hurt by Turnover

MVM received CIA warnings about inadequate personnel on Viper in 2004 and again last year after the agency ratcheted up requirements that MVM had to meet, said current and former MVM managers. The program has been hurt by turnover, going through about 10 program managers during the past five years, three former managers said. Mr. Marquez discounted the significance of the turnover, saying that the "backbone of the company" was a group of experienced senior managers.

To rapidly fill empty slots, two former managers say, MVM has been offering bonuses in the tens of thousands of dollars to new hires, even for short-term commitments -- and even as it has reduced the daily pay it offers. Mr. Morway acknowledged that MVM and other companies have to offer bonuses to qualified applicants because "the pool is shrinking," yet competition for government contracts has lowered the pay they can offer. "There's pressure to bring down those salaries," he said.

Late last month, the CIA decided to rebid the bulk of MVM's contract -- one of MVM's biggest, say former managers. Blackwater and a small Nevada-based firm, SOC Inc., also currently have portions of the contract. Mr. Morway described the CIA's offer to other firms to split the work as a way to make staffing the program easier for the government and his company. Two former managers said the unusual move came after MVM regularly delivered between five to 30 fewer guards than required. Mr. Morway said that the company did have challenges meeting the staffing requirements but subsequently addressed them.

The State Department terminated a nonclassified MVM contract guarding the U.S. embassy in Kabul, Afghanistan, in 2005, citing inadequate personnel in that case as well. Among the issues: The firm provided a crew of Peruvian guards who couldn't speak sufficient English, Mr. Marquez acknowledges. He says the State Department couldn't give MVM enough time to correct the problem. The State Department terminated the contract "for convenience," language that permitted MVM to win other federal contracts.

Mr. Boone first joined MVM in March 2004 for the Scorpion contract providing security in Iraq for NSA personnel. A 20-year veteran of the Army's Special Forces and an experienced sniper with tours in El Salvador and Bosnia, Mr. Boone retired from the Army in 1998 and began work as a contractor.

His first rotation in Scorpion didn't go well. He complained that teammates filed for reimbursement from the government for items they hadn't purchased, and stockpiled assault weapons. In a deposition, John Hickman, who later took over managing the Scorpion program and eased some people out, said many on the team at the time "weren't qualified. They were living a big lie; they were on a magic carpet ride."

Mr. Boone quit in June 2004. That summer, teammate Daniel Elissalde wrote a 16-page memo to MVM detailing his own concerns about Scorpion, saying that MVM's armored-car convoys traveled too close together, leaving them too vulnerable to attack; personnel obtained weapons on the black market and lacked night-vision goggles; and vehicles had chronic, basic problems such as broken door handles.

"I am now using the string attached to the keys to pull the door open," Mr. Elissalde wrote. "Sort of inconvenient but during the last rocket attack I did manage to get out of the car in reasonably quick time." He also wrote that NSA officials had learned of weapons stockpiling and told MVM contractors to stop. Then, like Mr. Boone, he quit.

MVM owned up to some of the problems Mr. Boone raised. Former Scorpion program manager Louis Sengebush described in a deposition how MVM addressed Mr. Boone's complaints and asked him to return. "We knew...he was experienced," he said. "He was a straight-up guy and I trusted him." Mr. Boone returned that September, thinking the problems were fixed, but they continued, he says.

Then on Nov. 20, 2004, as the Scorpion team returned from the Baghdad airport after dropping off an NSA officer, Mr. Boone and his five teammates were hit head-on by a car laden with explosives. The single blast totaled the team's two vehicles, as Mr. Elissalde had warned could happen. According to Mr. Boone and a report by teammate Mickey Johnson, the only potential enemy in the area was a young man whom Mr. Johnson said he ordered to the ground.

One teammate began firing indiscriminately into a nearby neighborhood, the two men say, and ceased only when an Army unit arrived at the scene. It was unclear whether anyone was hit. The Army says it cannot find its report on the incident.

Two team members produced what would become the firm's official "after-action" report for the NSA, complete with diagrams. It said the team was ambushed by between 20 and 30 enemy snipers whom they fended off, killing three of the enemy and wounding seven more.

Team leader Mike Pietragallo wrote a similar report to the agency, but in his deposition for the Boone case he said he didn't see any snipers. He didn't respond to requests for comment. The authors of the official report couldn't be reached.

Claims of Coverup

Mr. Boone contends the report was a coverup meant to camouflage incompetence. In January 2005 he took his concerns to MVM's upper management. Bruce Tully, then a senior MVM manager at the time, conducted an investigation, according to Mr. Tully's deposition. He concluded Mr. Boone's version of events was the most credible.

Of the official report, Mr. Tully said in his deposition, "My personal and professional opinion is, I just don't believe this." Photos of the vehicles showed no bullet holes, he pointed out. No further records have surfaced of the Iraqi casualties or captives the report describes.

MVM's Mr. Marquez says the matter of the disputed report "was adjudicated" by MVM and the NSA, but wouldn't say how or provide further details. "I'm not going to tell you what's accurate and what wasn't," he says, adding the matter was mainly up to the NSA to resolve.

The NSA says it's up to the company. Mr. Boone got no response from the agency when he tried to report his concerns to its inspector general. The agency wrote Alaska Republican Sen. Ted Stevens, whose office tried to intercede for Mr. Boone, that it wouldn't pursue the matter, which it called an employer-employee dispute.

In February, Judge Edward W. Nottingham of the federal district court in Colorado ruled against Mr. Boone's claim of wrongful termination on technical grounds. Mr. Boone is appealing. The Pentagon's inspector general began a preliminary review in May. The office of Rep. Henry Waxman, the California Democrat who is chairman of a powerful House watchdog committee, initially didn't respond to Mr. Boone, but recently a spokeswoman said the office was opening a "preliminary investigation."

Write to Siobhan Gorman at siobhan.gorman@wsj.com and August Cole at august.cole@dowjones.com