The Pentagon's premier research arm isn't just giving six-figure contracts to a company owned in part by agency director Regina Dugan and her relatives. Turns out the Dugan family firm owes the Darpa chief a quarter-million dollars, too.

Financial ethics records obtained by Danger Room raise the uncomfortable possibility that Darpa money could ultimately wind up in the pocket of its director. And that introduces at least the possibility of the appearance of a conflict of interest at the very top of the legendary Defense Department science-and-technology division.

A Darpa representative insists that Dugan did nothing wrong. But Nick Schwellenbach, director of investigations at the Project on Government Oversight, says that "Dugan should have known better. She should have divested herself from her financial interest in this company."

Dugan filed a financial report on June 15, 2010, stating that she was owed $250,000 by RedXDefense, an explosives-detection company she co-founded with her father. This "note/loan" had "no schedule of payment or guarantee of repayment." Six months before Dugan made the official disclosure, Darpa awarded RedXDefense a research contract worth $400,000.

On the form, filed with the Office of Government Ethics, Dugan also notes that she claims between $100,001 and $250,000 in "assets and income" from RedXDefense. The company's CEO is her father, Vince Dugan, and her Uncle John is on its board.

When she became Darpa director in July 2009, Dugan declared at least $15,000 in stock assets from RedXDefense – a stake first reported by Danger Room earlier this month. Dugan recused herself at the time from all business dealings involving the agency and the company. "Effective immediately, I am disqualified from participating personally and substantially" from "any particular matter" that would impact RedXDefense’s bottom line, she noted on a government form.

"At no time did Dr. Dugan participate in any dealings between the agency and RedXDefense related to the contract," Darpa spokesman Eric Mazzacone told us March 7.

But Dugan didn't have to personally steer research grants towards her old firm in order to impact RedXDefense's standing within the agency. It was (and is) common knowledge at Darpa that RedXDefense is Dugan's family business. The company relied, in many ways, on the explosives-detection investigations she spearheaded in her previous stint at the agency, during the 1990s.

"I find it hard to believe that the program managers at Darpa would not know that their boss formerly headed this company and that her family members work there," Schwellenbach says. "If I was a Darpa employee, I wouldn't want to be in a position of depriving my boss' family members of a large contract."

Darpa spokesman Mazzacone says RedXDefense was turned down by the agency many times. "Your readers might be interested in knowing that between 2005 and July 2009, before Dr. Dugan became director of Darpa, RedXDefense proposed and was competitively awarded a total of $4,257,539," he says. "Since July of 2009, the company submitted proposals totaling $6,524,000 to Darpa [of which] $1,750,000 was competitively awarded and $4,774,000 was rejected."

A federal database of government contractors lists RedXDefense's revenues as substantially lower. And a substantial portion of the money it does get is from Darpa.

The database currently lists RedXDefense's annual intake at $1,756,214, meaning 23 percent of its cash comes from contracts with the agency run by its co-founder. RedXDefense's contracts with non-Darpa government agencies are for substantially smaller amounts.

"If the company goes under or it doesn't win new contracts, it can't pay her back," Schwellenbach says. "It basically increases her stake in the company, with the loan." By not divesting her holdings in RedXDefense, he adds, "it certainly looks worse and worse for her."

Mazzacone notes that Dugan's bio on Darpa's website contains her history with RedXDefense. "Her past association with the company is transparent," he says. "Part of the reason government ethics regulations are in place is so that qualified people are attracted to government service, and qualified organizations are neither favored nor disfavored."

Photo: Virginia Tech

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