Sale of NSI to SAIC

Domain Name Fees Benefit Defense Contractor
by Stephen Pizzo

SAIC's board of directors is a veritable who's who
of retired defense and intelligence officials.

Copyright, Songline Studios 1995. Published in Web Review, Sept. 29, 1995 (http://www-e1c.gnn.com/gnn/wr/sept29/news/natl/index.html), has additional links that can't be forwarded.

The news swept the Web September 14 like a brush fire on a dry summer day. Network Solutions, Inc., of Herndon, VA, under an agreement with the National Science Foundation, would begin charging $50 a crack for domain names , like ours (gnn.com). The change was announced without warning, the NSF said , to avoid a rush of registrations.

A letter to the editor from Susan M. Volek, Vice President for Media Relations, SAIC.

Predictably, the grassroots Internet community groused -- who gives them the right to charge for domains? And the mainstream media ran stories proclaiming the end of the free lunch on the Internet. But through it all, in the wings, virtually unnoticed stood Scientific Applications International Corp. (SAIC)

of San Diego -- a $2 billion company whose ranks bristle with former defense and intelligence officials. And who, it just so happens, purchased NSI four months before the user-fee system was announced.

Already some who were involved in the contract negotiations have begun to anonymously leak their concerns. "It (the NSI contract) is just the old guard of defense researchers behind the scenes clawing away, trying to maintain control over the Internet," said a source close to the negotiations.

Though some are unhappy with the NSI contract, others wonder whether the NSF should have reopened the contract for review after it learned that SAIC had purchased NSI just as the user-fee scheme was to go into effect. George Strawn, a Director at the NSF, told Web Review that the sale of NSI to SAIC really left the NSF with few options. "The contract had been awarded to NSI two years earlier. At that point (May 1995) our only concern was to determine if SAIC was a financially stable and viable company with the resources to fulfill the InterNIC agreement we had with NSI."

And viable SAIC certainly is. As their annual report shows, the company, with over 20,000 employees and 450 locations around the world, reported $1.9 billion in gross revenues in 1994. Over 90% of its income was generated by government contracts -- more than half of that from defense, intelligence, and federal law enforcement contracts.

No background check

Over the years SAIC's relationship with the government has had its ups and downs. A quick check of public databases shows that:

In 1990 SAIC was indicted by the Justice Department on 10 felony counts for fraud in its management of a Superfund toxic cleanup site. (SAIC pleaded guilty.)
In 1993 the Justice Department sued SAIC, accusing it of civil fraud on an F15 fighter contract.
In May 1995, the same month SAIC purchased NSI, the company settled a suit that charged it had lied about security system tests it conducted for a Treasury Department currency plant in Fort Worth, TX. (The company paid the government $125,000 to cover the cost of the investigation as part of that settlement.)

The NSF was unaware of these cases when it let the SAIC/NSI merger pass, according to director Strawn. "I can't really say that we did much in the way of a background check on SAIC at the time," he said.

But Sue Volnek, an SAIC spokesperson, described the three cases as isolated events. "SAIC has completed over 5,000 government contracts successfully." She said that the responsible SAIC employees had broken company rules in each case and were fired for it.

Current SAIC government jobs include contracts to re-engineer the information systems at the Pentagon, track weapons of mass destruction around the world, study the spread of ballistic missile technology, integrate and automate the FBI's computerized fingerprint identification system, and build a national criminal history information system.

Influential Board of Directors

How does SAIC land such major government contracts? For one thing, sources who have worked with them say they're good at what they do. More important, some say, is that

SAIC's board of directors is a veritable who's who of retired defense and intelligence officials.

Current board members include:

Admiral Bobby Inman, former National Security Agency head and deputy director of the CIA,
Melvin Laird, defense secretary under President Nixon,
Retired General Max Thurman, commander of the Panama invasion,
Donald Hicks, former head of research & development for the Pentagon, and
Donald Kerr, former head of the Los Alamos National Laboratory.

Recently departed from SAIC's board:

Robert Gates, former CIA director (left in 1994 to join TRW's board),
William Perry, the current secretary of defense,
John Deutch, the current CIA director, and
Anita Jones, Deutch's procurement officer when he was at the Pentagon.

As a subsidiary NSI also maintains its own board of directors, comprised of former SAIC executives Donald Telage and Michael Daniels, and NSI founder Emmitt McHenry.

In a name-dropping town like Washington, such connections carry weight. When the General Accounting Office (the auditing arm of the federal government) opened an investigation into an SAIC project, GAO senior investigator Frank Reilly said his phone rang off the hook. "I got phone calls from everyone but the President," he said. Reilly said that the GAO was reviewing a $2 billion contract SAIC has to computerize the entire Defense Department medical system. "In the end we concluded that SAIC had done a terrific job on this contract," Reilly said.

InterNIC Timeline

March 1992: National Science Foundation solicits bids on the contract for InterNIC (Internet Network Information Center), the service it created to register domain names.
May 1993: NSF awards Network Solutions Inc. the InterNIC contract worth $5.9 million a year. Contract expires on March 31, 1998.
December 1994: NSF advisory committee recommends moving to a user-fee system as soon as possible.
May 1995: SAIC acquires NSI as a wholly owned subsidiary.
September 14, 1995: NSF and NSI announce fee registration system.

A source close to the NSF, who asked to remain anonymous, was not surprised by the selection of NSI or the appearance of SAIC on the scene: "The Internet has always been run by the defense establishment. First it was SRI (Stanford Research Institute), then a precursor to NSI, then NSI which is under contract to maintain all the .mil domains for DoD, and now we have SAIC."

John Postel, who as the Internet Numbers Assignment Authority head has been the sole person responsible for assigning upper level domains since the Internet began, disagreed with this assertion. "Actually I think the user-fee scheme that's been implemented represents the first evidence that the government is now prepared to let go of the Internet," Postel said. "They knew in 1992 that a user-fee system had to be set up and they dragged their feet until now. But I think this is a very important break with the government. With no taxpayer dollars going into it any longer, they will no longer feel they have a right to control it."

The current NSF contract runs through March 31, 1998. After that the Internet community will have an opportunity to decide again who should perform this job. Between now and then, the NSF will form a committee comprised of a "representative cross-section of the Internet community" to review how NSI handled the contract and decide if changes are necessary. At the end of this contract, a new contract will be up for bid. NSI said it will "absolutely" bid again, and other organizations surely will too.

Until then, it's NSI's contract, and that leaves some of the Net's more vocal libertarians uneasy. "First of all I always get nervous when I find out that the federal government has taken a great public utility like the Internet and established a monopoly business that benefits some large corporation," said Jim Warren, a writer and Internet commentator for MicroTimes and Government Technology magazine. "I don't have any particular problem with a nominal charge for domain names, but the money should go to the Internet Society or some other nonprofit that can funnel most of it back into the Internet."

Warren also worries about NSI's connections with SAIC. "And of course, at the very time the Internet community is struggling with the issues of encryption and privacy, I'm more than a little uneasy to find this bunch of ex-spooks sitting at the very entry point of the Net."

But David Graves, NSI's InterNIC business manager, said that SAIC's decision to purchase NSI had nothing to do with the InterNIC contract and he's puzzled by suggestions that SAIC is some kind of Trojan horse for defense or intelligence agencies. "I can't imagine what about this task -- registering domain names -- would be attractive to the intelligence community," Graves told Web Review. "All our data is public. We're not keeping any secrets."

Graves added that the Internet community might benefit from SAIC's law enforcement and security experience. "Security is a big issue for the Internet community and SAIC can bring a lot of experience to bear on that subject. We just want everyone to know that we consider ourselves a good Internet citizen."

In the October 13 issue of Web Review, we will continue coverage of this important story with a comprehensive look at the changing face of the Internet "establishment." From its defense origins, the Internet has emerged as a public resource. How do its creators feel about this? What are they doing about? And where is it all heading? Watch for the next issue.

Stephen Pizzo , senior editor, covers national politics for Web Review. He has reported on national political events and scandals from Iran/Contra to Whitewater.

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