SHORTLY after 9/11, Senator Bob Graham, the chairman of the Senate Intelligence Committee, called for ''a symbiotic relationship between the intelligence community and the private sector.'' They say you should be careful what you wish for.
In the intervening years a huge espionage-industrial complex has developed, as government spymasters outsourced everything from designing surveillance technology to managing case officers overseas. Today less than half of the staff at the National Counterterrorism Center in Washington are actual government employees, The Los Angeles Times reports; at the C.I.A. station in Islamabad, Pakistan, contractors sometimes outnumber employees by three to one.
So just how much of the intelligence budget goes to private contracts? Because that budget is highly classified, and many intelligence contracts are allocated without oversight or competitive bidding, it seemed we would never know. Until last month, that is: a procurement executive from the Office of the Director of National Intelligence gave a PowerPoint presentation at a conference in Colorado and let slip a staggering statistic -- private contracts now account for 70 percent of the intelligence budget.
Of course, our spies always relied on private sector expertise. But in the decade after the cold war the intelligence community's budget was cut by 40 percent. On 9/11, our spies found themselves shorthanded -- untrained in the languages spoken by terrorists, unable to crack new communications technologies, generally lagging behind their counterparts outside the government. The privatization boom emerged out of sheer necessity. As one slide at the Colorado briefing had it, ''We can't spy ... if we can't buy!''
As it happened, the dot-com bubble had burst shortly before 9/11, cutting loose a generation of technology entrepreneurs who, when the government came calling, were only too happy to start developing new data-mining algorithms and biometric identification programs. New startups began sprouting in the suburbs around Washington. The number of ''contractor facilities'' cleared by the National Security Agency grew from 41 in 2002 to 1,265 in 2006. It was a gold rush, a national security bubble.
Seeing this emerging market, the traditional Beltway Bandits -- military-industrial giants like Boeing, Lockheed Martin and Northrop Grumman -- established intelligence and homeland security divisions. At Booz Allen Hamilton, a consulting firm one former C.I.A. official called ''the shadow intelligence community,'' revenue has doubled since 2000.
There is nothing inherently wrong with all this. We want our spies to have access to the best technology and expertise, and if that means they have to look outside the building -- and pay top dollar -- then so be it. The problem is that the ''symbiotic relationship'' has turned decidedly dysfunctional, if not downright exploitative.
Take, for example, one (very big) contractor, and one (very big) contract. In 2002, Science Applications International Corporation, a San Diego behemoth with more than 40,000 employees and $8 billion in annual revenue, received a $280 million contract from the National Security Agency to modernize its systems for sifting through the vast flows of information it intercepts. The project was called Trailblazer. By 2005, costs had ballooned to over $1 billion and the system had still not gotten off the ground. One C.I.A. veteran familiar with the program has declared it ''a complete and abject failure.''
Trailblazer was a notorious boondoggle, but it wasn't the biggest. That prize goes to the Future Imagery Architecture, a contract Boeing won before 9/11, in 1999, to develop a new generation of spy satellites that could photograph targets from space.
Inexperienced at building satellites with optical lenses, Boeing started missing deadlines and exceeding cost estimates almost immediately. By the time the Pentagon took the program away from Boeing in 2005, it was five years behind schedule and had cost $10 billion, including $4 billion in cost overruns. For contractors, this sort of failure is seldom punished -- it's often rewarded. Many contracts are ''cost plus,'' meaning there will be no penalty if a contractor wildly exceeds the initial projection. Better still, a contractor can break something, then bid for the job of putting it back together. When the N.S.A. wanted to create another program, ExecuteLocus, to replace Science Applications International's failed Trailblazer, it needed a contractor to build it. Who got the job? Science Applications.
The orthodoxy of privatization -- that it's the government that's mired by inefficiency and a lack of competition -- has been turned on its head in the intelligence industry. However patriotic, contractors must ultimately answer to their shareholders and the bottom line. There's more than one way to read Lockheed Martin's recent advertising slogan: ''We never forget who we're working for.''
It's not just the money that flows out the door, either: it's also the people, as the companies offer hefty raises to government employees who join their ranks. A recent report from the Office of the Director of National Intelligence found that ''contractors recruit our own employees, already cleared and trained at government expense, and then 'lease' them back to us at considerably greater expense.''
This process -- called ''bidding back'' -- has created a brain drain. Two-thirds of the Department of Homeland Security's senior officials and experts have departed for private industry. Michael Hayden, the C.I.A. director, worries that his agency has become ''a farm team for these contractors.''
The revolving door helps firms score more contracts. Federal law prohibits executive branch officials from lobbying former colleagues after leaving public office -- but just for the first year. Can a government acquisitions officer who might someday like a job at a contractor really evaluate the contractor's bid objectively?
William Black Jr. left the National Security Agency in 1997, after a 38-year career, to become a vice president at Science Applications. He returned to the agency as deputy director in 2000, and shortly thereafter the Trailblazer contract was awarded to his former employer. Nothing illegal here, but is there not at least the appearance of a conflict of interest? The good news is that Congress seems to have finally caught on to the scale of the problem. The intelligence authorization bill that passed the House last month included an amendment that would require the director of national intelligence to submit a report on the functions performed by contractors, the ways contracts are vetted, and the savings associated with outsourcing. The Senate Intelligence Committee explicitly chided the spy agencies earlier this month for ''increasing reliance on contractors.'' In response, the C.I.A. announced that it would pare the number of contractors by 10 percent.
These are promising first steps. But the inspectors general of America's intelligence agencies must become more aggressive in policing how contracts are awarded -- and in halting cost overruns before they reach the billions. The intelligence community should limit the parasitic practice of bidding back, perhaps by limiting contracts with firms that poach too many federal employees. It should also fine companies -- or at least stop rewarding them -- when they fail to deliver on time and on budget.
Congress should enact more comprehensive legislation, establishing oversight procedures to govern the many conflicts of interest that arise when agencies and industry are this close. If our spy agencies are truly going to protect us, they must learn how to develop -- and retain -- their own in-house expertise.