Since Regina Dugan became the director of Darpa, the Pentagon's top research division has signed millions of dollars' worth of contracts with her family firm, which in turn owes her at least a quarter-million dollars. It's an arrangement that has raised eyebrows in the research community, and has now drawn the attention of the Defense Department's internal auditors and investigators.

The Pentagon's Inspector General is launching an audit of those deals – and of every other research contract Darpa has signed during Dugan's two-year tenure. This is just "the first in a series of planned audits to review [Darpa's] contracting processes," the Inspector General's office promises.

The probe isn't itself an accusation of wrongdoing; just an investigation to see if any occurred. Darpa representatives have insisted that the agency acted properly in its dealings with RedXDefense – the bomb detection firm Dugan co-founded with her father, Vince Dugan. She recused herself from any decisions involving the company, they say, and RedXDefense won its $1.7 million in research contracts from Darpa fair and square.

"At no time did Dr. Dugan participate in any dealings between the Agency and RedXDefense related to the contract," Darpa spokesman Eric Mazzacone told Danger Room in March. (He declined to comment for this story.)

Nevertheless, the Inspector General's office wants to take a closer look. Not only does Dugan still own tens of thousands of dollars' worth of stock in RedXDefense; according to a financial report she filed last year, the company (now led by her father) has yet to reimburse Dugan for a "note/loan" with "no schedule of payment or guarantee of repayment."

That's one reason, presumably, why the IG is also launching a separate inquiry into "Regina Dugan's continued financial and familial relations with Darpa contractor RedXDefense," the office noted in a letter to the Project on Government Oversight, a watchdog group.

The look into Darpa's deal-making won't end there, however. Every research contract issued by the agency over the last two fiscal years will be reviewed, to "determine the adequacy of Darpa's selection, award, and administration of contracts and grants," the IG's office wrote in a July 26 memorandum to other military agencies. So will Darpa's relationship with airship-builder (and one-time agency contractor) Aeros, which now counts former Darpa director Tony Tether as a member of its board of advisors.

The scrutiny of Darpa's $3 billion budget is needed, agency insiders say. Darpa gets wide latitude from the rest of the Pentagon – and from Congress – in how it hands out its contracts.

"You could pull a lot of money out of that place if you really wanted to," a recently retired Darpa official tells Danger Room. "There really isn't any due diligence there."

The potential for the appearance of conflicts of interest is also quite high. Many of Darpa's chosen research fields — pathogen detection, biomorphic robotics, brain-controlled prosthetics — are relatively small and tightknit. Any Darpa official worth his or her salt is bound to run into former co-workers while on the job.

These interactions with one-time colleagues used to be tightly proscribed. During Tony Tether's tenure, if there was even a slight chance that a company might bid on a Darpa research project, that firm and and that program manager were disqualified to work on that particular effort. If the program manager owned stock in a defense contractor, that financial relationship had to be severed.

"With Tony, there wasn't a little line. There was a valley. You either sell your stock [in your old firm], or there's the door," one former Darpa program manager says. "With Regina, things were very different."

And not without some justification. Tether's bright ethical guidelines had unintended consequences. If a company allowed an employee to take a sabbatical to join Darpa, the firm was essentially blocking itself from millions of dollars in agency research projects.

Under Dugan, program managers with potential ethical conflicts could designate someone else at Darpa – usually someone in a more senior position – to make decisions about their former company or university. In a speech last year, Darpa deputy director Ken Gabriel called the new conflict of interest rules "more realistic."

One of the things that makes Darpa's deals with RedXDefense so unusual is that those decisions weren't passed to a more senior defense official, who would, in theory, be immune to any influence from Dugan. The decisions were left to a subordinate, who might feel all kinds of pressure to do right by the boss, and by the company run by her dad.

"These policies and practices are in place so that qualified people can come to government service and to ensure that all organizations have access to fair and open competition; neither favored nor disfavored," Mazzacone said.

Nick Schwellenbach, director of investigations at the Project on Government Oversight, isn't convinced.

"If I was a Darpa employee," he says, "I wouldn't want to be in a position of depriving my boss' family members of a large contract."

Photo: Nosillacast/Flickr

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