Pentagon investigators have begun an inquiry into whether the Defense Advanced Research Projects Agency, which helps develop cutting-edge technology for the military, showed favoritism when it gave $1.75 million to a company co-owned by the agency’s director and run by her father.

The Pentagon’s inspector general said it would examine DARPA’s contracts over the last two years with RedXDefense, a Maryland-based contractor that builds devices to detect trace amounts of explosives. The technology is used to help find roadside bombs in Iraq and Afghanistan.

Investigators also will conduct a broader audit to “determine the adequacy” of how DARPA has awarded and administered all its contracts over the last two years, according to a letter from the inspector general’s congressional liaison, John Crane, to the Project on Government Oversight, a nonpartisan watchdog group that has urged an investigation into potential conflicts of interest at DARPA.

Regina Dugan was a senior official at DARPA before she left in 2005 to co-found RedX with her father, Vince Dugan. She was president of the company until she returned to DARPA as director in July 2009, records show.


RedX received a total of $4.3 million in DARPA contracts from September 2005 to February 2009, the agency disclosed. RedX won another $400,000 contract in January 2010, after Dugan was named director, and $1.35 million more last August, the agency said.

DARPA spokesman Eric Mazzacone referred questions Tuesday to the Pentagon inspector general. The spokesman there, Gary Comerford, said the letter “speaks for itself.”

DARPA has an annual budget of about $3 billion and operates like a venture capital firm for the Pentagon, awarding grants to companies and research institutions to develop war-fighting technology. In recent years, agency projects have created the predecessor to the Internet, Stealth aircraft technology and the Predator drone.

When news reports highlighted the RedX contracts in April, DARPA said the contracts were proper because Dugan had recused herself and had let a subordinate handle the matter.


Ethics experts said the arrangement was unusual. Senior Pentagon officials are required to sell holdings in defense contractors to avoid a potential conflict of interest, but that rule does not apply at DARPA. Officials there said it was common for DARPA executives to have financial ties to companies that win contracts.

On her 2010 financial disclosure statement, Dugan reported that her stake in RedXDefense had no fair market value, and also said the company owed her $250,000 from a loan she had given it. The loan appears to be her largest single asset.

Dugan also reported investment holdings worth between $151,000 and $305,000 on the form, which allows officials to disclose totals within a broad range.

ken.dilanian@latimes.com