Come the end of this month, U.S. Investigations Services LLC will lose its place on two contracts worth nearly $3 billion and supported by more than half its workforce. Can the Falls Church company survive?
“Yes, but as a very different company,” said Alan Chvotkin, executive vice president and general counsel at the Professional Services Council, an Arlington trade group that advocates for federal contractors.
And perhaps just as important, can the Office of Personnel Management survive without USIS, which at last count performed nearly half of the background checks for the federal government?
The decision by OPM to not exercise its remaining options on USIS’ Background Investigation Fieldwork contract, worth up to $2.5 billion, and the Background Investigation Support Services contract, worth $288 million, come after the agency already issued stop-work orders. These prevented the company from performing duties following a massive security breach that potentially exposed the personal information of thousands of people.
It also comes amid an investigation into fraud allegations, which spurred the company to clean house and — just Monday — release a statement to set the record straight about what it described as inaccurate allegations.
USIS released a statement following the OPM decision, saying that it’s “deeply disappointed,” and that it is reviewing the decision — but will fulfill its obligations to ensure an orderly transition. It pointed to the fact that 3,000 of its 5,700 employees support the contracts. I reached out to the company to find out how the losses might effect its future, but it declined to comment beyond the released statement.
That begs the question: Can USIS survive the loss?
“While the background investigation work was their largest and most visible, USIS has other federal contracts, plus numerous state and commercial work, that can sustain continuing business operations,” said Chvotkin.
It’s worth noting, too, that if OPM lifts the stop-work order, USIS should be able to complete the cases it already has in process and be paid. It won’t get any new work, however, after Oct. 1.
Beyond a potential transition to or expansion of other focus areas, USIS will likely lay off a fair number of employees — which will result in a far smaller company, added Ray Bjorklund, president of BirchGrove Consulting LLC and the former assistant deputy director of procurement and logistics at the Defense Information Systems Agency.
“Their parent company, Altegrity, is primarily controlled by private equity and is somewhat immune from fickle markets,” he added. “They probably have enough resources to buffer them while they reset the company.”
That said, the harm could extend beyond these specific losses. Winning new work to make up for the lost revenue might also be difficult — particularly from OPM, which is the primary agency contracting for the background investigation services that USIS counts as its specialty. While politics should never enter into the procurement decisions of federal agencies, “the precipitous OPM action — on top of past history — will probably give contracting officers further pause in assessing the risks of awarding contracts,” Bjorklund noted.
Then there’s the question of how OPM will accomplish the work. Arlington-based CACI International Inc. and KeyPoint Government Solutions Inc. in Loveland, Colorado, also hold contracts under the larger Background Investigation Fieldwork contract, and both have already begun to ramp up capabilities. But as noted by Chvotkin, no contractor had the nation-wide footprint or scalability that USIS had — which is why USIS dominated the work.
And long term, companies might not see the appeal of taking on the workload left by USIS. As I reported a year ago, performing background checks is a low-margin, high-volume business. And that means a lot of companies just aren’t interested. It’s also why, perhaps, one investigator called the job “virtually impossible to do efficiently and effectively.”
It’s a quandary that could create a lot of problems for industry and government alike.
“There is reason for government and industry to watch this situation with caution to be sure that the requirements for background investigations and quality reviews can be accomplished without creating a new backlog of clearances that does not now exist, but did previously,” Chvotkin said.
