SAIC Hires Havenstein As CEO

“The board of directors also formally approved a succession plan for the position of chief executive officer. The board announced that Walter P. Havenstein, former president and CEO of BAE Systems Inc., will become CEO on September 21, 2009. He will also become a member of SAIC’s board of directors.” (Press Release, June 23, 2009)
In a San Diego Union-Tribune article on the relocation of SAIC’s headquarters to Virginia, the paper stated: “Why move across then country when you don’t have to change your lifestyle for a new job? This could be one reason why, at the time Havenstein agreed to take the job in June, he specified that he would work out of SAIC’s offices in McLean instead of San Diego. . . . SAIC’s new headquarters is 20 minutes from Havenstein’s home in Bethesda, Md. — three minutes longer than his former commute to BAE’s headquarters, according to MapQuest.com.” (San Diego Union-Tribune, September 27, 2009)
SAIC In Acquiring Mode. SAIC’s new CEO Walt Havenstein plans to accelerate the company’s acquisition activity given its $3 billion available to make deals, Stephens Inc. defense and security analyst Tim Quillin says in a note about the company’s recent analyst meeting. Quillin says the acquisition strategy isn’t ‘clearly defined, but could include product-focused companies and will likely be within seven focus areas (C4, ISR, cyber, CBRNE/homeland security, energy, logistics and health).’” (Defense Daily, October 19, 2009)
According to statements filed with the SEC Havenstein earned $19,660,125 during his tenure as CEO of Science Applications International Corporation. The bulk of Havenstein’s income from SAIC came in the form of stocks, options, and incentive payments. (sec.gov)
On SAIC’s earnings conference call for the fourth quarter of 2010 Havenstein stated: “As you know, SAIC derives a large majority of its revenues from federal customers. So obviously federal spending is SAIC’s most important market driver. Our assessment of federal budget information typically focuses on discretionary spending for defense and federal information technology.” (FD (Fair Disclosure) Wire, March 30, 2010)
According to Defense Daily, “SAIC [SAI] on Tuesday lowered its organic revenue and earnings expectations for the year amid uncertainty in the government contracting environment including delays in the contracting cycle, and the company’s new chief outlined a strategy that deemphasizes some what core services market in favor directing more resources to specific high growth areas. . . . SAIC’s revised outlook calls for organic growth between 3 and 6 percent, down from 6 to 9 percent . . . Earnings per share (EPS) guidance for FY ’11 is between 8 and 14 percent growth, down from 11 to 18 percent growth.”” (Defense Daily, April 1, 2010)

SAIC’s Performance Under Havenstein

During Havenstein’s tenure as CEO of Scientific Applications International Corporation the company’s stock lost 32 percent of its value. On September 21, 2009, the beginning of Havenstein’s tenure, the closing stock price was $71.32 per share. The stock peaked at $78.80 on February 26, 2010. On October 3, 2011, when it was announced that Havenstein would be retiring the following June, the price had declined to $45.28. On March 1, 2012, Havenstein’s last day as CEO of SAIC, the company’s stock price was $48.64. (Google Finance)
Year Employees Revenue (in millions)
2010 46,200 $10,580
2011 43,400 $10,921
2012 41,100 $10,587


CityTime Scandal

“The company also is grappling with its New York City contract to manage an employment timekeeping system called CityTime‚Ķ the U.S. Attorney’s Office for the Southern District of New York has alleged that ‘a massive and elaborate scheme to defraud the city’ corrupted the program.” (Washington Post, November 14, 2011)
According to the New York Times, “The United States attorney’s office began its investigation into CityTime after receiving evidence of criminal activity from the city’s Department of Investigation.”Another Times Article from December 2010 reported on the initial charges and allegations coming from US Attorneys: “federal prosecutors in Manhattan charged several of the consultants with an $80 million fraud scheme that began in 2005, accusing them of manipulating the city into paying out expensive contracts to businesses that they controlled, and then redirecting some of that money to enrich themselves. They even submitted false time sheets, the authorities said.” Indictments were announced “six defendants.” (New York Times, March 14, 2012; New York Times, December 15, 2010)
A New York Times article reporting on the CityTime scandal and charges filed by US Attorneys investigating the matter reported that “Nearly all of the $600 million that New York City has paid to the main contractor for its troubled automated payroll project has been tainted by fraud . . . ‘Today we allege what many have long feared: The CityTime project was corrupted to its core by one of the largest and most brazen frauds ever committed against the City of New York,’ Preet Bharara, the United States attorney for Manhattan, said.” (New York Times, June 20, 2011)
“[T]he project, which automated the timekeeping of about 165,000 city employees working under various contracts. . . . CityTime was expected to cost $63 million when it was launched in 1998. But the cost ballooned tenfold as the undertaking grew into what prosecutors say became an international conspiracy with lead contractors earning kickbacks for each hour worked by consultants, resulting in unneeded staff and inflated hours billed to the city.” (Associated Press State & Local Wire, October 24, 2011)
An article from the engineering magazine IEEE Spectrum noted that “charges against four more defendants involved in the alleged defrauding of New York City in the development of its CityTime payroll and time keeping system” were announced in “Manhattan US Attorney Preet Bharara’s press release.” (IEEE Spectrum, June 21, 2011)
The New York Times reported on the charges filed by prosecutors in the CityTime scandal, “. . . Science Applications International, which employed two people who were named in the indictment unsealed on Monday: Gerard Denault, who had been the CityTime project manager at Science Applications International, and Mr. Bell, who pleaded guilty to charges that included wire fraud conspiracy, wire fraud and money-laundering conspiracy. According to the indictment, Mr. Denault and Mr. Bell directed $400 million from Science Applications International to TechnoDyne, of Wayne, N.J., as the CityTime project’s primary information technology subcontractor, in exchange for $15 million in kickbacks.” (New York Times, June 20, 2011)
An article from the engineering magazine IEEE Spectrum reported on charges noted in the press release from prosecutors in the CityTime scandal, “The press release also said that a chief systems engineer in the New York office of Science Applications International Corporation (SAIC) from 2003 to 2011 by the name of Carl Bell pleaded guilty to multiple criminal charges for his part in the scheme.” (IEEE Spectrum, June 21, 2011)
An article from the New York Daily News reported that “Mayor Bloomberg wants a full $600 million refund from the main contractor in the scandal-scarred CityTime payroll project . . . ‘because the project was apparently tainted by fraud and kickback schemes, the city must be made whole,’ the mayor said in a letter to Walter Havenstein, CEO of Science Applications International Corp. ‘I am, therefore, requesting that SAIC reimburse the city for all sums paid to it, approximately $600 million, as well as the cost of investigating and remediating the matter,’ the note said.” (New York Daily News, June 29, 2011)
The New York Daily News Reported “The CityTime payroll scandal has caused a major management shakeup at the company hired by the city to install what became a fraud-ridden boondoggle.” And according to a Washington Post report, “McLean-based Science Applications International said it has removed three of its top executives and begun an internal review following a fraud investigation into work the company did for New York City. . . Walter P. Havenstein, SAIC’s chief executive, said in a memo to employees Monday that Deborah Alderson, president of the company’s defense solutions group; John Lord, her deputy; and Peter Dube, general manager of the enterprise and mission solutions business, have been removed from their positions and are no longer with the company.” (New York Post, October 24, 2011; Washington Post, October 24, 2011)

Havenstein Suddenly Announces Retirement

“News that SAIC’s CEO, Walt Havenstein, would step down in June 2012 came without warning. He said he is leaving the McLean-based company for personal reasons. . . . SAIC reported lower profits and revenue for the fiscal second quarter and lowered its full-year outlook. . . As of Oct. 18, shares of SAIC were down 27 percent compared with six months ago.” (Washington Business Journal, October 21, 2011)
“Walter Havenstein, McLean-based SAIC Inc.’s outgoing chief executive, will receive a lump sum of about $920,000 from the company when he retires next week, The Washington Post reported. The amount is equal to one month short of his annual $1 million base pay, according to filings with the Securities and Exchange Commission. A cash incentive award for both the most recently ended fiscal year and the one that will end in January of next year will be given to Havenstein, which the company said will be prorated. Both awards will be based on performance criteria, SAIC said in an SEC document.” (Washington Business Journal, February 29, 2012)

Fallout From Havenstein’s Tenure As CEO

“SAIC used to be the stuff of legend, a secretive supplier of national-security services that generated dark profiles in fashionable outlets like Vanity Fair. But the company hasn’t fared so well since going public in 2006, and its shares have trailed the S&P 500 index throughout Havenstein’s tenure. Part of the problem has been the company’s board of directors, which is heavily populated with former government officials who aren’t afraid to second-guess the day-to-day actions of managers. But the larger problem is that SAIC holds literally thousands of service contracts, and an executive like Havenstein, who came to SAIC from military hardware maker BAE Systems, may have had trouble keeping track of so many different activities. That certainly seems to have been the case with New York’s CityTime payroll project, where costs grew tenfold beyond what had been expected and local officials are alleging a criminal conspiracy.” (States News Service, October 25, 2011)
“More than four decades after its founding, the contractor, now public and based in McLean, is struggling, facing two contracting scandals, the departure of its chief executive and declining sales and profit. The company’s plight has led to some soul-searching about whether its problems are linked to a generally tougher budget environment or tied to a change in strategy. In recent years, the company’s units have shifted from pursuing contracts autonomously to teaming up in an effort to bring more capabilities to the table. ‘Where some people would say we may have let go of our small, entrepreneurial nature, I would say what we’ve really done is helped transform ourselves to be able to punch our weight in the marketplace,’ said chief executive Walter P. Havenstein, who plans to step down in June. ‘We’ve got to be able to think as a scaled company, not just in the individual pieces, and I think that’s at the heart of the cultural shift.’ Thus far, that strategy has not yielded the kind of results that SAIC has produced in the past, and analysts and industry observers say the company is at a critical juncture as it readies to select a new leader.” (Washington Post, November 14, 2011)
“Beleaguered federal contracting giant SAIC Inc. will take a hard look at unloading some segments of its business – and will steer clear of state and local government work – as new leadership at the McLean company tries to right the ship. Executives won’t go so far as to confirm any plans to divest portions of the company’s business, but analysts say SAIC will have to do more than shuffle its portfolio internally if it wants to win over nervous investors who watched a fraud scandal result in a payout of more than half a billion dollars and saw earnings fall 3 percent to $10.59 billion during fiscal 2012, which ended Jan. 31. Stu Shea, who was appointed chief operating officer this month as part of a restructuring that also brought in John Jumper as CEO, said SAIC will trim investments in areas that offer little return, including “generic” information technology services and systems engineering and technical assistance.” (Washington Business Journal, March 23, 2012)
“Walter P. Havenstein took the helm in 2009 as CEO three days before the company announced it would move its headquarters from San Diego to Tysons Corner, putting it near competitors like General Dynamics and ManTech. Northrop Grumman and Computer Sciences Corp. have also made the pilgrimage east from California. A new strategy emerged for SAIC, as Havenstein tried to steer the business to better capture government work. In recent years, federal officials who award contracts have come to depend more and more on what’s known as a contract vehicle, which companies have come to think of as a hunting license because it clears them to pursue projects. This approach, ultimately more efficient for the government, has forced some contractors to rethink how they do business. In the past, an employee’s convincing pitch or professional connection with a government official might have reeled in a small or midsize contract. But sprawling contract vehicles are decided at a high level and then can be broadly used across agencies and offices. These vehicles give the government a pre-approved pool of vendors, making it simpler and quicker to buy what it needs. But for contractors, it means considerable uncertainty. They might earn a spot on a vehicle worth several billion dollars, but it’s unclear how much money the government will spend or how much the company will make. In this model, SAIC’s nimble, entrepreneurial units lose much of their appeal.” (Washingtonpost.com, April 15, 2012)
“SAIC was historically known as one of the most entrepreneurial of contractors. Founded by a physicist who led the business for more than three decades, SAIC’s units operated autonomously, and managers were encouraged to pursue their own work. But Walter P. Havenstein, the previous chief executive, moved the company toward a more integrated approach, arguing that the government’s focus on large contracting programs favored companies that could deploy a wide range of skills. The company struggled under the strategy, watching its profit and revenue decline.” (Washington Post, August 30, 2012)
“SAIC used to be known as one of the most entrepreneurial businesses, as units operated nearly autonomously and even competed against each other. But in recent years, the contractor shifted to a more coordinated approach in order to better compete for big-dollar, broad-based contracting programs. Walter P. Havenstein, SAIC’s former chief executive, argued that the government’s increasing use of a procurement strategy that preselects a pool of companies to win future work favored contractors that could offer a wide range of skills. But SAIC floundered in recent years as profit and revenue declined and the company was plagued by problems, most prominently the fallout from a scandal over a New York City contract that it settled for $500 million. In its most recent quarter, the company saw profit fall nearly 62 percent from the same quarter the prior year and cut financial projections for fiscal 2014.” (Washington Post, October 1, 2013)

Havenstein Steps Down Early as SAIC Reaches $500 Million Fraud Settlement in CityTime Case

“SAIC, Inc.’s (NYSE: SAI) Board of Directors announced today that John P. Jumper will succeed Walter P. Havenstein as chief executive officer on March 1, 2012.” (SAIC Press Release, Feb 21, 2012)
The New York Times reported that “A major government contractor agreed on Wednesday to pay a record $500 million to avoid federal prosecution for its role in the scandal-tarred CityTime project . . . The project was plagued by widespread fraud and weak oversight . . . Under an agreement with federal prosecutors, the contractor, Science Applications International Corporation, will reimburse the city for about 80 percent of the money it spent on the project, whose budget ballooned to nearly $700 million, from $73 million, and was described by the United States attorney in Manhattan, Preet Bharara, as ‘a fraudsters’ field day that lasted seven years.’ The $500 million, in restitution and penalties, is believed to be the largest amount ever paid to resolve an accusation of contract fraud involving a state or local government, said Mr. Bharara, who announced the agreement at a news conference.” (New York Times, March 14, 2012)
“The federal government agreed not to press fraud charges against Science Applications International, a Fortune 500 company, if over the next three years the company complied with a series of reforms, including whistle-blower protections and the hiring of an independent monitor.” (New York Times, March 14, 2012)
“SAIC agreed to the filing of one count of conspiracy to commit wire fraud and agreed to disgorge proceeds of the offense, including $370.4 million in restitution to the city and a $130 million penalty, according to a Justice Department letter describing the settlement. . . . If SAIC pays the money and cooperates with federal investigators, the U.S. will seek to have the charges dropped after three years, according to the agreement.” (Bloomberg, March 14, 2012)
“McLean-based SAIC Inc. will pay $500.4 million as part of a deferred-prosecution agreement settlement over a fraud investigation into a management contract with New York City. . . . SAIC admits that it, ‘through the conduct of certain managerial employees and others, defrauded the city’ into significantly overpaying for the CityTime contract work, the company said in a regulatory filing.” (Washington Business Journal, March 14, 2012)
“The Company acknowledges that the conduct and managerial failures described herein contributed to the ability of Denault and Bell to commit their alleged crimes against the City, and that the City was defrauded by SAIC as a result.” (SAIC Filing with SEC, March 14, 2012)

The CityTime Scandal Timeline

CandidateUnder Haverstein’s watch, SAIC was charged with defrauding New York City’s taxpayers of more than $500 million.

  • September 21, 2009
    Walt Havenstein becomes CEO of SAIC [SAIC Press Release, June 23, 2009].
  • September 24, 2009
    Havenstein relocates SAIC’s headquarters to Virginia “20 minutes from Havenstein’s home in Bethesda” [SAIC Press Release, September 24, 2009; San Diego Union-Tribune, September 27, 2009]
  • December 15, 2010
    Over a year into Walt’s tenure as CEO, Federal prosecutors in Manhattan announce first fraud and money laundering charges related to CityTime case…[New York Times, December 15, 2010; United States Attorney Southern District of New York Press Release, December 15, 2010].
  • December 21, 2010
    SAIC project manager on the CityTime project, Gerard Denault, placed on administrative leave [SAIC Letter to Financial Information Services Agency, May 23, 2011].
  • May 23, 2011
    SAIC fires Gerard Denault [SAIC Letter to Financial Information Services Agency, May 23, 2011]
  • June 29, 2011
    Mayor Bloomberg sends letter to Walt Havenstein demanding “SAIC reimburse the city for all sums paid to it, approximately $600 million, as well as the cost of investigating and remediating the matter” [New York Daily News, June 29, 2011].
  • Oct. 3, 2011
    SAIC announces Walt Havenstein will retire as CEO, effective June 15, 2012, for “personal reasons.” [Washington Biz Journal, October 3, 2011].
  • Oct. 24, 2011
    “CityTime scandal causes shakeup at SAIC,” three executives fired [New York Post, October 24, 2011].
  • Mar. 1, 2012
    Havenstein retires three months earlier than planned [SAIC Press Release, February 21, 2012]
  • Mar. 14, 2012
    SAIC agrees to pay $500 Million to settle New York CityTime fraud case, acknowledges “managerial failures.” [Bloomberg, March 14, 2012; SAIC Filing with SEC, March 14, 2012]