Close to 30 percent of the work in intelligence agencies is done by contractors at a huge cost to taxpayers.

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Second of three parts

In June, a stone carver chiseled another star into a marble wall at CIA headquarters, one of 22 for agency workers killed in the global war initiated by the Sept. 11 attacks.

The intent of the memorial is to publicly honor the courage of those who died in the line of duty, but it also conceals a deeper story about government in the post-9/11 era: Eight of the 22 were not CIA officers. They were private contractors.

To ensure that the country’s most sensitive duties are carried out only by people loyal above all to the nation’s interest, federal rules say contractors may not perform what are called “inherently government functions.” But they do all the time, in every intelligence and counterterrorism agency, according to a two-year investigation.

What started as a temporary fix in response to the terrorist attacks has turned into a dependency that calls into question whether the federal work force includes too many people obligated to shareholders rather than the public interest and whether the government is still in control of its most sensitive activities. Defense Secretary Robert Gates and CIA Director Leon Panetta last week said they agreed with such concerns.

The investigation shows that the Top Secret America created since 9/11 is hidden from public view, lacks thorough oversight and is so unwieldy that its effectiveness is impossible to determine.

It also is a system in which contractors are playing an ever more important role. Of 854,000 people with top-secret clearances, the Post estimates 265,000 are contractors. There is no better example of the government’s dependency on them than at the CIA.

Private contractors working for the agency have recruited spies in Iraq, paid bribes for information in Afghanistan and protected CIA directors visiting world capitals. Contractors have helped snatch a suspected extremist off the streets of Italy, interrogated detainees once held at secret prisons abroad and watched over defectors holed up in Washington’s suburbs. At Langley, Va., headquarters, they analyze terrorist networks. At the agency’s training facility in Virginia, they are helping mold a new generation of spies.

Through the federal budget process, the Bush administration and Congress made it much easier for the CIA and other counterterrorism agencies to hire more contractors than civil servants. They did this to limit the federal work force, to hire employees more quickly than the sluggish federal process allows and because they thought — wrongly, it turned out — that contractors would be less expensive.

Nine years later, the idea that contractors cost less has been repudiated, and the administration has made some progress toward its goal of reducing the number of hired hands by 7 percent over two years. Still, close to 30 percent of the work force in the intelligence agencies is contractors.

“For too long, we’ve depended on contractors to do the operational work that ought to be done” by CIA employees, Panetta said. But replacing them “doesn’t happen overnight.”

A second concern of Panetta’s: contracting with corporations, whose responsibility “is to their shareholders, and that does present an inherent conflict.”

Or as Gates, who has been in and out of government his entire life, puts it: “You want somebody who’s really in it for a career because they’re passionate about it and because they care about the country and not just because of the money.”

Contractors can offer more money — often twice as much — to experienced federal employees than the government is allowed to pay. And because competition among firms for people with security clearances is so great, corporations offer such perks as BMWs and $15,000 signing bonuses, as Raytheon did in June for software developers with top-level clearances.

The idea that the government would save money on a contract work force “is a false economy,” said Mark Lowenthal, a former senior CIA official and now president of an intelligence training academy.

As companies raid federal agencies of talent, the government has been left with the youngest intelligence staffs ever. At the CIA, employees from 114 firms account for roughly one-third of the work force, or about 10,000 positions. Many are temporary hires, often former military or intelligence- agency employees who usually work less, earn more and draw a federal pension.

Such workers are used in every conceivable way.

Contractors kill enemy fighters. They spy on foreign governments and eavesdrop on terrorist networks. They help craft war plans. They gather information on local factions in war zones. They are historians, architects, recruiters in the most secretive agencies. They staff watch centers across the Washington area. They are among the most trusted advisers to generals leading the nation’s wars.

So great is the government’s appetite for private contractors with top-secret clearances that there are now more than 300 companies, often nicknamed “body shops,” that specialize in finding candidates, often for a fee that approaches $50,000 a person, according to those in the business.

Making it more difficult to replace contractors with federal employees: The government doesn’t know how many are on the federal payroll. Gates said he wants to reduce the number of defense contractors by about 13 percent, to pre-9/11 levels, but he’s having a hard time even getting a basic head count.

“This is a terrible confession,” he said. “I can’t get a number on how many contractors work for the Office of the Secretary of Defense,” referring to the department’s civilian leadership.

The estimate of 265,000 contractors doing top-secret work was vetted by several high-ranking intelligence officials. The Top Secret America database includes 1,931 companies that perform work at the top-secret level. More than one-quarter — 533 — came into being after 2001; others have expanded greatly. Most are thriving even as the rest of the United States struggles with bankruptcies, unemployment and foreclosures.

The privatization of national-security work has been made possible by a nine-year “gusher” of money, as Gates recently described national-security spending since the 9/11 attacks.

Most contractors do work that is fundamental to an agency’s core mission. As a result, the government has become dependent on them in a way few could have foreseen.

Last week, typing “top secret” into the search engine of a major jobs website showed 19,759 unfilled positions.

Assets and liabilities

The national-security industry sells military and intelligence agencies more than just airplanes, ships and tanks. It sells contractors’ brain power. They advise, brief and work everywhere, at all hours.

The purpose: to answer any question the chairman of the Joint Chiefs of Staff might have.

Since 9/11, contractors have made extraordinary contributions — and extraordinary blunders — that have changed history and clouded the public’s view of the distinction between the actions of officers sworn on behalf of the United States and corporate employees with little more than a security badge and a gun.

Contractor misdeeds in Iraq and Afghanistan have hurt U.S. credibility in those countries as well as in the Middle East. Abuse of prisoners at Abu Ghraib, some done by contractors, helped ignite a call for vengeance against the United States that continues today. The shooting deaths of 17 Iraqis in 2007 by security guards working for Blackwater, since renamed Xe Services, added fuel to the five-year violent chaos in Iraq and became the symbol of an America run amok.

A defense contractor formerly called MZM paid bribes for CIA contracts, sending Randy “Duke” Cunningham, who was a California congressman on the intelligence committee, to prison. Guards employed in Afghanistan by ArmorGroup North America, a private security company, were caught on camera in a lewd-partying scandal.

But contractors also have advanced the way the military fights. During the bloodiest months in Iraq, the founder of Berico Technologies, a former Army officer named Guy Filippelli, working with the National Security Agency, invented a technology that made finding roadside-bomb makers easier, according to NSA officials.

Contractors have produced blueprints and equipment for the unmanned aerial war fought by drones, which have killed the largest number of senior al-Qaida leaders and produced a flood of surveillance videos. A dozen firms created the transnational digital highway that carries the drones’ real-time data on terrorist hide-outs to command posts throughout the United States.

Without these private firms, important military and intelligence missions would have to cease or would be jeopardized. Examples:

• At the Department of Homeland Security (DHS), the number of contractors equals the number of federal employees. The department depends on 318 companies for essential services and personnel. At the office that handles intelligence, six of every 10 employees are from private industry.

• The NSA, which conducts worldwide electronic surveillance, hires private firms to come up with most of its technological innovations. The NSA used to work with a small stable of firms; it now works with at least 484 and is actively recruiting more.

• The National Reconnaissance Office cannot produce, launch or maintain its large satellite surveillance systems without the four major contractors it works with.

• Every intelligence and military organization depends on contract linguists to communicate overseas, translate documents and make sense of electronic voice intercepts. The demand for native speakers is so great, and the amount of money paid for them is so huge, that 56 firms compete for this business.

Hiring contractors was supposed to save the government money. But a 2008 study published by the Office of the Director of National Intelligence found that contractors made up 29 percent of the work force in intelligence agencies but cost the equivalent of 49 percent of personnel budgets. Gates said federal workers cost the government 25 percent less than contractors.

Follow the money

Of 1,931 companies identified on top-secret contracts, about 110 do roughly 90 percent of the work on the corporate side of the defense-intelligence-corporate world.

To understand how these firms have come to dominate the post9/11 era, there’s no better place to start than the Herndon, Va., office of General Dynamics. Ten years ago, the company’s center of gravity was the industrial port city of Groton, Conn., where workers churned out submarines. Today, its core is made up of data tools, such as the secure BlackBerry-like device used by President Obama.

The evolution of General Dynamics was based on one simple strategy: Follow the money.

It embraced the emerging intelligence-driven style of warfare. It developed small-target identification systems that could intercept a single insurgent’s cellphone and laptop communications.

It also began gobbling up smaller companies. Since 2001, the company has acquired 11 firms specializing in satellites, geospatial intelligence, reconnaissance and imagery.

On Sept. 11, 2001, General Dynamics was working with nine intelligence organizations. Now it has contracts with all 16. The corporation was paid hundreds of millions of dollars to set up and manage Homeland Security’s new offices in 2003. Its employees do everything from deciding which threats to investigate to answering phones.

The company reported $31.9 billion in revenue in 2009, up from $10.4 billion in 2000. Its work force has more than doubled, from 43,300 to 91,700 employees, according to the company. Intelligence- and information-related divisions accounted for 34 percent of its overall revenue last year.

Party atmosphere

In the shadow of giants such as General Dynamics are 1,814 small to midsize companies that do top-secret work. About one-third were established after Sept. 11, 2001. Many are led by former intelligence- agency officials who know exactly whom to approach for work.

The vast majority have not invented anything. About 800 companies do nothing but IT.

The government is nearly totally dependent on these firms. Their close relationship was on display recently at the Defense Intelligence Agency’s annual information-technology conference this spring in Phoenix.

General Dynamics spent $30,000 on the event. It hosted a party at Chase Field, a 48,569-seat baseball stadium. Carahsoft Technology, a Defense Intelligence Agency contractor, invited guests to a casino night where intelligence officials and vendors ate, drank and bet phony money at craps tables run by professional dealers. McAfee, a Defense contractor, welcomed guests to a Margaritaville-themed social where 250 firms paid thousands of dollars each to advertise their services and make pitches to intelligence officials.

These types of gatherings happen every week. Many are closed to anyone without a top-secret clearance.

Such coziness worries other officials who believe the post-9/11 defense-intelligence-corporate relationship has become, as one senior military intelligence officer called it, a “self-licking ice cream cone.”

Another official, a lifelong conservative staffer on the Senate Armed Services Committee, described it as “a living, breathing organism” impossible to control or curtail.

Post researcher Julie Tate contributed to this report.