by Tim Shorrock
During the Eisenhower administration, the CIA contracted with Lockheed Corporation to build the U-2, the famous high-flying spy plane that provided unprecedented surveillance of forbidden areas in the Soviet Union and the People’s Republic of China and is still in service today. By the 1960s, TRW, General Electric, Eastman Kodak, Itek Corporation, and Polaroid were legendary in the black world for building spy satellites, cameras, and other reconnaissance aircraft to keep watch on America’s enemies. Those tools and systems, managed by the CIA, the Air Force, and the super-secret National Reconnaissance Office, allowed U.S. intelligence to photograph Soviet military installations from outer space at incredible detail. One of the most famous systems was the CIA’s CORONA photoreconnaissance satellites, supplied by Lockheed, General Electric, and Itek, a small high-tech company financed by a member of the Rockefeller family.
CORONA greatly expanded the CIA’s reach, taking thousands of pictures from space and dropping them back to earth in an eighty-four-pound gold-plated pod suspended beneath a huge orange-and-white parachute (according to a 1958 top secret CIA report on CORONA declassified nearly fifty years later, the surveillance equipment and recoverable film cassettes were “procured covertly” by the CIA, primarily from Lockheed, and their products were “compartmentalized” among several companies). These collection systems helped dispel fears of a “missile gap” and, by 1964, had photographed all Soviet ICBM complexes and allowed U.S. intelligence to catalogue Soviet air defense and antiballistic missile sites, nuclear weapons facilities, and submarine bases, as well as airbases and military facilities in China and Eastern Europe.3 The United States didn’t acknowledge the existence of its spy satellites until President Jimmy Carter disclosed “the fact of” U.S. photoreconnaissance satellites in a speech at the Kennedy Space Center on October 1, 1978. “Photoreconnaissance satellites have become an important stabilizing factor in world affairs in the monitoring of arms control agreements,” Carter said, according to documents unearthed by the National Security Archive in 2007. “They make an immense contribution to the security of all nations. We shall continue to develop them.”4 The existence of the CORONA satellites was finally declassified in 1993.*
The National Security Agency, too, has maintained close ties with the private sector. From the late 1940s to the mid-1970s, Western Union, AT&T, and several other communications companies allowed the NSA to read and listen in on every international telegram and phone call placed to the United States. AT&T also cooperated closely with the CIA, on occasion handing over phone records to the agency.* Beginning in the 1950s, information technology and communications companies such as IBM, Bell Labs, and Cray developed the first supercomputers and encryption equipment used by the NSA to crack coded diplomatic and military messages and convert the huge volumes of signals intelligence into actionable intelligence.
And to keep its global network of listening posts humming and assist covert CIA operatives working overseas, the NSA always had a small coterie of electronics and communications suppliers ready to assist. Those companies maintained NSA equipment and traveled to all corners of the globe, from U.S. bases in Japan to CIA safe houses in Beirut. “If you had problems with your radio, you wanted Motorola to send the repairman out, not the CIA,” recalls Robert Baer, a former CIA agent who worked undercover in Iraq and Lebanon.5
Many of the companies that dominate the intelligence industry today got their start by providing technical services and products to the Intelligence Community. Unlike the present day, when Booz Allen, SAIC, and other companies operate openly as intelligence contractors, the firms that dominated the industry during the Cold War stayed in the shadows, and their actions only came to light through leaks or as the result of a crisis.
During the 1970s, for example, when Iran under the Shah became the largest foreign customer for U.S. arms sales, Rockwell International was the prime contractor on a $500 million project to build a huge intelligence collection system along Iran’s borders with Iraq and the Soviet Union. The project, called IBEX, was jointly managed by the CIA and the NSA with SAVAK, the Shah’s secret police, and recruited many of its executives from U.S. intelligence agencies. The plan was to use both airborne and ground-based receiving and recording equipment to monitor communications and radar signals from countries on Iran’s borders.
IBEX was kept secret until August 1976, when three American civilians working for Rockwell were assassinated on the streets of Tehran by an underground organization opposed to the Shah’s dictatorial rule. Even though the project was never completed, the list of bidders tells us how large the contracting industry had grown by this time. Among the companies competing for the project were Boeing, the aircraft and electronics manufacturer, which eventually acquired Rockwell’s intelligence operations and merged them with its Integrated Defense Systems unit; E-Systems, which was later incorporated into Argon ST, a key NSA contractor we will meet later on; ITT Corporation, one of the largest suppliers to the IC of high-resolution cameras used on satellites; and GTE Sylvania, an aerospace company later acquired by General Dynamics.*
During the 1980s, the spying industry received a huge, multibillion-dollar stimulus from a highly classified government project that wasn’t fully exposed until the early twenty-first century. This was the “continuity of government” task force initiated by the Reagan administration to protect the nation’s leadership in case of a nuclear attack. In the early 1980s, President Reagan appointed a select group of former high-ranking officials to periodically gather in secret locations around the country to practice setting up an underground government in case Washington was destroyed in a Soviet nuclear attack.
Some of the participants in the program, which was known by the acronym COG and referred to as the Armageddon Project, would later take key positions in the George W. Bush administration or as supporters of the Bush foreign policy agenda. They included Donald Rumsfeld and Dick Cheney, who had both served as chief of staff for President Gerald Ford, and James Woolsey, who was CIA director under President Clinton. Participants in the exercises were pulled from their jobs in the private sector and dispatched, without a word to their families and very little notice, to secret locations around the country, such as the huge Greenbrier Hotel in West Virginia and a farmhouse in rural Pennsylvania.
Once in position, the shadow government was joined by sitting members of the president’s cabinet as well as members of Congress, the CIA, and various domestic agencies, and ran through exercises that would, at a time of war, maintain a governmental structure to fight on through the holocaust. Many of the details about the program were first disclosed in 2002 by the journalist James Mann in his excellent book on the Bush war cabinet, Rise of the Vulcans.
The COG program was abandoned during the Clinton administration; but, according to Mann, a version of it was put into play on September 11, 2001, when members of the Bush administration joined senior lawmakers and top officials with the CIA and other intelligence agencies at secret government locations in the hills of Pennsylvania and Virginia to plan the U.S. response to the terrorist attacks (Cheney and Rumsfeld “were familiar with the Armageddon exercises of the Reagan era,” Mann wrote. “They themselves had practiced all the old drills.”6). For Woolsey, the experience provided valuable background for the homeland security exercises he would later run for corporations and government agencies as vice president of Booz Allen Hamilton.7
The Armageddon Project served as a catalyst for outsourcing in much the same way that the war on terror does today. To manage the mock operations, the Reagan administration created a secret agency called the Defense Mobilization Planning Systems Agency, which reported to Vice President George H. W. Bush. Four agencies were charged with executing the plan: the CIA, the Departments of State and Defense, and the Federal Emergency Management Agency (FEMA). In 1989, the journalist Steven Emerson, who would later become well-known as an expert on Islamic terrorism, wrote about some of the technical plans for the agency.
In the event of a nu
clear attack, he reported in U.S. News & World Report, special teams equipped with war plans, military and security codes, and data on all aspects of government were to accompany designated presidential successors and their cabinets to secret command posts scattered around the country.8 A CNN special investigation later discovered that the communications and logistics part of the plan was managed by a super-secret agency called the National Program Office, which was headquartered in Fort Huachuca, Arizona, the headquarters for Army intelligence. It reported that as much as $8 billion was spent on the program, including spending to manufacture secure, mobile command, control, and communications links for the secret plan.9
To build those systems, CNN reported, FEMA hired the Harris Corporation, an important intelligence contractor based in Florida, the CIA hired McDonnell Douglas (this was before its merger with Boeing), and the Pentagon hired TRW, an important intelligence contractor that was acquired in 2002 by Northrop Grumman. The military’s contracting tasks were assigned to the Army’s Information Systems Command based at Fort Huachuca, Arizona, where the project was managed by the late Major General Eugene Renzi, the deputy chief for operations at the base and the senior national program officer at the Army systems command. In a practice that would be repeated during the Bush administration, his office awarded contracts “worth tens of millions of dollars to former military officials who worked on COG while they were in the Pentagon,”10 Emerson reported.
One of the biggest winners was Betac Corporation, a consulting firm composed of former intelligence and communications specialists from the Pentagon.11 Betac, which was eventually sold to ACS Government Solutions Group and is now a unit of Lockheed Martin, was one of the largest government contractors of its day and, with TRW and Lockheed, dominated the intelligence contracting industry from the mid-1980s until the late 1990s.12 Its first project for the continuity of government plan was a sole-source contract to devise and maintain security for the system. Between 1983 and 1985, the contract expanded from $316, 000 to nearly $3 million; and by 1988, Emerson found, Betac “had multiple COG contracts worth $22 million.”13
These contracts would become the source of the first major scandal involving the intelligence contracting industry when a whistle-blower inside the National Program Office reported that Betac had benefited from its ties with General Renzi, the commandant at Fort Huachuca, whose son, a future congressman from Arizona, worked for Betac. We’ll pick up that thread later in the book, when we focus on Renzi’s current employer, the NSA contractor ManTech International.
Together, the IBEX and Armageddon projects pumped hundreds of millions of dollars into the intelligence contracting business, which by the 1980s was beginning to take on a life of its own, separate from the broader defense industry. One of the first signs of this emerging industry was the formation in 1979 of the Security Affairs Support Association. SASA, as mentioned earlier, provided a mechanism for companies involved in intelligence to come together with intelligence officials to exchange views on common issues and problems, and in recent years has become a voice for the most powerful players in the Intelligence Community.
Three of SASA’s thirty-four founding members were contractors in the Armageddon Project: Harris, Betac, and TRW. Several others, including Boeing, Hughes Aircraft, Lockheed, and Ford Aerospace, were major defense contractors with a stake in the intelligence business. But the majority were specialized companies that provided surveillance and eavesdropping technology that the CIA, the NSA, and other spy agencies couldn’t produce themselves, and most of them have either gone out of business or disappeared as corporate entities. Only four of SASA’s thirty-four founding companies—Booz Allen Hamilton, IBM, SAIC, and Northrop Grumman—are still around today.*
Yet somehow an obscure industry with just three dozen members evolved, in twenty years, into a booming spy market of $50 billion a year. To learn how that happened, we will analyze four developments: the privatization revolution that started during the Reagan administration but reached full fruition during the Clinton years; the great leap in defense outsourcing that occurred in the late 1990s, largely as a result of Clinton’s policies; the surge in intelligence spending negotiated at the turn of the century by CIA director George Tenet after years of budget cuts and personnel reductions; and the post-9/11 expansion of the intelligence industry. Out of that milieu, the full force of privatization and outsourcing came into existence. Bush, as the lobbyist said earlier, simply took it to the next level.
In 1982, President Reagan appointed J. Peter Grace, a conservative industrialist, to head the Private Sector Survey on Cost Control. Reagan directed its members to “work like tireless bloodhounds to root out government inefficiency and waste of tax dollars.”14 The survey group, better known as the Grace Commission, marked the start of a grand experiment in privatization and outsourcing that would eventually turn over large sectors of the government, including military and intelligence services, to the private sector. It was the perfect expression of Reagan’s ideological fixation on “big government,” and reflected his belief that capitalism and free markets were the answer to society’s problems.
Grace was the ideal man to lead Reagan’s charge. He was the founder and CEO of W. R. Grace & Company, one of the largest chemical companies in the world. As the head of a major foreign investor in Latin America, where governments at that time played a key role in economic development, he had firsthand experience in dealing with bureaucracies and state planning agencies. Like Reagan, he believed that the U.S. government had grown so large that it was teetering on socialism, and he viewed free enterprise and private property as sacrosanct.* “The government is run horribly,” he declared in 1984. “There is no company I know of, except maybe IBM, that could survive if they ran it this way.”15
Over a period of four years, the Grace Commission methodically surveyed every government service that might conceivably be provided more efficiently and cheaply by the private sector. In a report issued in 1984, it made 2, 500 recommendations, including the sale or lease of dozens of government agencies to the private sector. The commission called for the sale of most of the government’s dams and hydropower stations in the Pacific Northwest and for the privatization of parts of the U.S. Postal Service, the Coast Guard, the Federal Aviation Administration, and the two federally run airports near Washington, D.C., Dulles and National. It proposed exposing 500, 000 federal jobs to private competition under an Office of Management and Budget Circular, A-76, that was first issued in 1966 but had been basically ignored until 1980.
Reagan heartily endorsed the commission’s recommendations and made privatization the centerpiece of his campaign to reduce the size of government. Even before the Grace Commission had finished its work, Reagan proposed privatizing millions of acres of public lands, primarily in the West, as a way to stimulate resource extraction and reduce U.S. dependence on foreign oil. In 1987, declaring that the government “should not compete with the private sector to perform ‘commercial type operations,’” Reagan proposed selling off the Naval Petroleum Reserve in California, the Federal Housing Administration, and the Power Marketing Administration, the government agency that markets electricity generated by federal dams.16
That same year, the administration completed its first major sale of a government entity by auctioning off the assets of Conrail, the Northeastern freight railroad, for $1.6 billion. During Reagan’s second term, the Pentagon also outsourced the U.S. Navy’s fleet of cargo ships and tankers, which delivered oil, fuel, military supplies, and weapons to hundreds of U.S. bases scattered around the world. Starting in the mid-1980s, the operation and management of these ships was passed from the Pentagon to private shipping companies.
But that was about it; Reagan’s venture in privatization proved to be more illusory than real. Many government agencies resisted his privatization and outsourcing edicts. Congress, which remained under Democratic control for most of his presidency, stoutly resisted the program as well; many statutes were written to disc
ourage and even prohibit privatization.17 Nor did the public embrace it. In fact, many Americans, including some of the president’s closest supporters, were appalled at Reagan’s proposal to sell off public lands. At the same time, Reagan did little to promote his program to the public, in the mistaken belief that his ideological commitment to free markets would bring the people along. By the end of Reagan’s presidency, only two government agencies had actually been sold—Conrail and the National Consumer Cooperative Bank. That left radical proponents of privatization deeply disappointed.
Reagan’s reputation as a champion of privatization “is largely a misconception,” Robert Poole, the founder of the libertarian Reason Foundation and a former Reagan adviser, wrote in 2004. “While [Reagan] was generally positive about privatization, he viewed it as a remedy for fixing what was wrong with socialist countries, not as a key pillar of economic reform in the USA…. Ironically, there was more real privatization during the Clinton administration than the Reagan administration.”18 Stan Soloway, the contracting lobbyist, agrees with that assessment. “If you look at the numbers, very little privatization took place in the Reagan administration, and none under [the elder] Bush,” he says.19
In fact, as president, George H. W. Bush had little interest in privatizing government agencies, and devoted some of his time to studying “whether the private sector was doing too much relative to government,” Peter Fairman, an academic specialist on privatization, wrote in an unpublished study that compares the Reagan and Clinton approaches to privatization. Bush, according to Fairman, reversed some of Reagan’s policies and gutted the federal privatization office; it would fall on Clinton’s shoulders to push forward the privatization agenda and expand contracting into defense and intelligence.20
