Outsourcing of technical service is a growth industry. One organizational structure for this application is the use of independent contractors organized by National technical service organizations (NSO). It can be expensive to hire direct employees across the country, and outsourcing the work via a NSO is often the less expensive alternative.
But the NSO community has a terrible reputation for paying their bills. The NSO business model is built on using contractors as a firewall. It's like a South Carolina Football team. If a play is successful, the credit goes to the brilliant coach. If a play fails, the blame goes to the flawed quarterback. The coach is never responsible for failures.
It's a classic David versus Goliath story. The NSO is Goliath, with deep pockets, and a staff of lawyers on retainer. The "David" is a small contractor operator, who not only cannot afford large legal bills, but he (or she) is also dependent on the NSO for future work.
With a problem NSO, the contractor finds themselves begging for money that has already been earned.
According to Committee of Sponsoring Organizations (COSO) of the Treadway Commission, fraudulent activity of this type occurs most frequently in the computer hardware and software industries.United Service Source Inc. (USSI) in Brevard County, Florida (Melbourne) is an interesting case study. USSI organizes work for companies across the United States through a network of subcontractors. USSI also does business as (DBA) "Kyadax", "National Service Source", "United Residential Services", and "Ascent Media Systems and Technology Services", all from the same location and with the same employees.
Companies like USSI have a poor record for meeting the financial obligations with their contractors (see Fraud Against Contractors or Programmer Sues USSI for Delinquent Payment). On average, a contractor working for USSI will spend 1 - 2 hours in haggle time for every hour of billable time. And beware of the large project, where USSI has a track record of reneging on agreements.
| USSI Known Associates | ||
|---|---|---|
| Organization | Vendor | Application |
| Financial Consultants | E-Trade | Stock Broker |
| Hotels | Lodgenet | Hotel Pornography |
| Hospitals | TipTV | Infomercials |
| Hospitals | Newborn Channel | Infomercials |
| Kentucky Fried Chicken | NCR Enterprise | Digital Display Menus |
| Kentucky Fried Chicken | Wireless Ronin | Digital Display Menus |
| Enterprise Rent-a-Car | AirMagnet | Order Processing |
| Pediatricians | Enqii KidCARE TV | Child Care |
| Oral Medicine | Dynasign | Dentists |
| Animal Medicine | EmebaVet | Veterinarians |
| Animal Medicine | Enqii PetCARE TV | Veterinarians |
| AT&T | Samsung | LCD Television |
| Corporate | Verizon | Business Satellite Link |
| Corporate | Samsung | LCD Television |
| Corporate | Star2Star Communications | Telephone via Internet (VoIP) |
| Movie Theaters | Mainstream | Satellite link for pre-movie commercials |
| Federal Aviation Administration | SPL Integrated Solutions | Communications |
| U.S. Postal Service | Logix | Internet Services |
| U.S. Postal Service | Target Vision | Postal Vision Employee Training |
NSO-Governmental Relationship
A corrupt NSO will typically cultivate a cozy relationship with the local government. It is not an accident that most of these operations are based in rural jurisdictions, probably more malleable to their needs. Non-locals should not expect objectivity with disagreements. The local judiciary acts as a "home-town referee". Florida Today (November 23, 2008) called the situation in Melbourne, USSI headquarters,
"an ugly pattern of incompetence and impropriety that cries out for investigation," Florida Today further said "It would be negligent at this point for the Governor to ignore his duty to the public to make sure that the laws and the Constitution are faithfully enforced. Today, reasonable people are making the conclusion that Brevard County systemically engages in corruption and collusion."
Florida, ranks as the state with the most federal corruption convictions over the past decade. Florida, with 824 convictions of local, state and federal officials, even exceeded Illinois (Blagojevich) and Louisiana (William Jefferson). Florida is the only state in the union to charge court fees to those who cannot afford to pay, effectively holding hostage the Constitutional rights of millions of Floridians to access the courts without sale, denial, or delay, a basic tenet on which our government was founded.
USSI manipulated local government officials in 2010 to receive local tax abatements. USSI feigned interest in moving the company to Texas, and used this leverage to give local authorities enough cover to award USSI a tax exemption. Insiders know the play was a complete ruse.
USSI has earned the Geeks Informed Smell Test rating of Somewhat Stinky.
Wolves tend to operate in packs. Many of companies that do business with USSI, including Samsung Electronics and Verizon Communications, have a lengthy history of marginally illegal activities.
Samsung has a long history of involvement with organized crime. A former CEO of Samsung, Lee Kun-Hee was convicted of tax evasion and security law violations. For his crimes, Lee was fined over $100 million and was sentenced to 3 years in prison (suspended because of his age). Lee stole a more than $2 billion.
Seong Hwan Kim, chairman of Samsung general labor union, was imprisoned even after Amnesty International selected him as a Prisoner of Conscience. Samsung maintains "free union", which effectively eliminates unions at their factories with violence. Samsung has legally maintained that any industrial disaster in one of their semiconductor factories is classified as a natural death.
Verizon is no stranger to involvement in seedy activities. In a well publicized example, a contract with the State of Pennsylvania wound up in court, because Verizon promised broadband services that it never delivered. Verizon made more than $1 billion in profit from this contract.
"The president of Verizon Pennsylvania struck a secret "gentleman's agreement" with State Sen. Vincent J. Fumo under which the phone company agreed to pay millions to a law firm of Fumo's choosing." Philadelphia Inquirer (6/26/07)
Fumo used his considerable influence in the Pennsylvania government to end a lawsuit in which state regulators opposed a plan to restructure Verizon into wholesale and retail units. Former Senator Fumo (D., Phila.) was recently convicted of 137 counts of fraud and corruption. Fumo joked with his girlfriend that he was good at spending "OPM", short for other peoples' money. Fumo will be eligible for release from prison (Ashland, Kentucky), in January 2013.
Is Your Neighbor Involved?
The strategy used by these companies brings back memories of Love Canal. In years past, large companies would hire a contractor to do their dirty work,
most famously dumping highly toxic waste into the rivers and lakes. The strategy provided plausible deniability while the waterways were permanently destroyed. They could pretend to be as guiltless as a Southern Preacher and point their finger at the contractor as the Bad Guy who had Ruined the Environment.Toxic waste from factories, chemical industry, and nuclear power plants can be very expensive to handle properly. Bean-counters from these industries are motivated to reduce these costs. An unfortunately common scenario would include a business partner hired to manage the waste. Of course, the lowest bidder would win the job. A competing bidder that properly performed the work would find it impossible to compete. The bean-counter would be unaware (and did not want to know) that the waste was being illegally dumped, after all, the responsibility had been delegated to the contractor -- the bean-counter's hands were clean. The resulting damage from thousands of these contracts has caused countless health and ecological problems in the affected areas, and the taxpayer is still paying for cleanup of these sites. Ignorance is no excuse.
As awareness improves, two trends are occurring:
Everyone must realize that if they do business with NSO operations with "questionable" business ethics, even through a 3rd party, they will ultimately be held accountable.
United Service Source Contacts
David Christiano, President, dave.christiano@ussi.org
Phone: (321) 723-5395, ext 114
Abed Alghani Zein, Director of Operations, azein@ussi.org
Phone: (321) 723-5395, ext 122
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