Congressional ties bankroll area company

By David Heath
Seattle Times staff reporter

Dec. 29, 2008

Port Townsend, WA - Not long after Nelson Ludlow and his wife started a technology business in Port Townsend with money scraped together from friends, family and retirement accounts, they spent precious dollars in an unlikely way:

They hired a lobbyist and started giving to a congressional campaign fund.

The lobbying paid off. Soon, an $800,000 earmark for the Ludlows was tucked into a 2003 spending bill, giving their tiny startup, Mobilisa, a no-bid contract to provide Internet service on Puget Sound ferries.

Mobilisa is one of a new breed of companies sustained by lawmakers handing them government contracts through line-item appropriations known as earmarks.

These companies make their sales pitch not to experts in places like the Pentagon but to lawmakers and their staff in the halls of Congress. The startups rely on dollars from taxpayers rather than from venture capitalists who demand a cut of profits. All the while, company executives usually give campaign donations to lawmakers.

Nelson Ludlow and his wife, Bonnie, have donated generously in the past five years, giving $11,500 to U.S. Sen. Patty Murray, D-Wash., and nearly $20,000 to U.S. Rep. Norm Dicks, D-Bremerton.

At the same time, the Ludlows have mastered the earmark game. Since 2003, Murray and Dicks have favored Mobilisa with at least nine earmarks worth $20.3 million.

Mobilisa had to split some of the earmark money with others and hasn't received all of it yet. But most of the company's $13 million to $14 million in revenues since 2003 have come from political pork, federal dollars for which Mobilisa didn't have to competitively bid. That puzzles competitors, who describe the company's technology as dated and overpriced.

Mobilisa, for example, sells a bar-code scanner to swipe ID badges at security gates on military bases. The off-the-shelf Motorola scanner retails for about $3,000. Yet Mobilisa sells the same handheld device to the government for nearly $7,000.

"What Mobilisa is doing is selling the government a $500 hammer," said Mark R. Baughman, president of Tricom Card Technologies, a small identity-card company in San Pedro, Calif.

Ludlow said Mobilisa modified the scanner to make it easier to read in bright sunlight and added more memory.

Earmarks pay for projects that lawmakers want but no federal agency requested. Feeling pressure from voters, lawmakers this year tried to curb the explosive growth of earmarks. They cut the number of defense earmarks, for example, by one-fifth, to 2,050, and the amount spent on them by about half, to $5 billion.

Mobilisa, however, suffered little from the cuts. Lawmakers gave the company two earmarks for 2008 worth $5.6 million, only a 5 percent cut from 2007.

"Two ways to play"

Nelson Ludlow spent most of his career in the Air Force as a pilot, a mathematician, an intelligence officer, a manager and a professor. After a stint working for defense contractors, Ludlow and his wife started Mobilisa in 2001. A year later, they bought a house in Port Ludlow and hired a lobbyist.

Hiring a lobbyist, Ludlow said, was a way to take Mobilisa beyond being just a startup.

"There are two ways to play Little League baseball: One is everyone gets a chance to bat, and the other is that the team decides they want to win," Ludlow said. "And people at Mobilisa decided they wanted to win."

In July 2002, Murray announced she was sponsoring an earmark for Mobilisa to set up free Internet access for ferry passengers.

The $800,000 federal grant Murray got for the Washington State Ferries came with strings attached: The state had to put up an additional $200,000 and was instructed to award a sole-source contract to Mobilisa, despite its meager track record.

"We were told by the federal government what to do with that particular contract," said Tami Grant, a contract manager at the Washington Department of Transportation.

The Internet service on the ferries was free. And the initial feedback was good. But an independent review, paid for by the grant, found slow download speeds and lost connections were common over the water.

Murray got Mobilisa another $1 million earmark in 2006. Ultimately, the federal government paid more than $200 for each of the 8,000 passengers who the state agency said tried the free service.

In late 2006, Washington State Ferries switched to a paid service, giving the contract to another company after Mobilisa and a partner lost in competitive bidding. A ferry spokeswoman said connection problems continue.

Murray defended her earmarks for Mobilisa: "My job is to do everything I can to make sure that Washington state businesses can compete and create good family-wage jobs. I'm proud not only to have helped Washington State Ferries provide commuters with wireless access on their way to work but also to have given their security workers the ability to download critical safety information with the click of a button."

Meanwhile, Mobilisa lobbied to take its "floating area network" technology to the Navy and has gotten three earmarks worth $5 million from Murray and Dicks. The idea is to offer wireless networking technology at sea, using buoys to relay radio waves from ship to ship.

Navy ships for years have had access to the Internet via satellites, technology that "they are very happy and reliant" upon, Ludlow says.

Knowing the Navy wouldn't be receptive, he said, he pitched Congress instead, arguing that his technology was faster and cheaper. The Navy plans to test a prototype of the Mobilisa system next summer, and wrote in response to questions, "This effort, if successful, will provide a capability that will be useful."

Meanwhile, prices for satellite technology have fallen and now cruise ships offer passengers roaming cellphone service and Internet access via satellite. Nancy Brumfield of Seattle-based SeaMobile, which sells this technology to cruise lines, ferry services and even the Navy, said prices are comparable to what customers pay for roaming cellphone calls or Internet access in hotels.

Checking IDs

Mobilisa's biggest success has come in creating a system to check the ID badges of people entering military bases. In 2005, Dicks got the company a $4 million earmark to research and implement an ID-check system. Mobilisa focused its research on reading driver's licenses, a technology that other companies were already selling.

By then, however, the Defense Department was issuing expensive "smart" cards, which are difficult to counterfeit and store biometric information, such as fingerprint images. The cards are intended to offer the highest level of security.

Mobilisa used an off-the-shelf bar-code scanner to build its system, a technology that industry sources say fails to read the advanced security features embedded in a chip in the Defense Department cards.

"When you've got a chip card available, using a bar code is living a little bit in the past," said Neville Pattinson, vice president of government affairs for Gemalto, a multinational smart-card company that is not a Mobilisa competitor. "If they chose to use bar codes as a convenience, that's fine. But they should be aware of the risk of fraud."

Dicks, through a spokesman, said Mobilisa's technology may be less complex but the Navy is happy with it -- for now.

Ludlow says terrorists don't carry smart cards, so it makes more sense to focus on checking driver's licenses. Mobilisa's system scans the bar code on a license and instantly runs the name against a database of watch lists, sex offenders and criminal records.

But Steve Larson, chief of EID Passport, a Portland company that offers an alternative to Mobilisa's approach, said there is a thriving black market in genuine driver's licenses with fake names. Several states also do a poor job of verifying the identity of people getting licenses, Larson said, so systems focused on driver's licenses can be thwarted.

Not only that, millions of military personnel carry smart cards and soon contractors will as well. Sal D'Agostino, executive vice president of CoreStreet, a Massachusetts-based software company in the smart-card business, predicts that military bases will ultimately want to use the more complex technology and switch to a system more secure than what Mobilisa offers.

The Department of Homeland Security is establishing a smart-card system for the nation's ports and ships, as well. At a recent congressional hearing about the much-delayed process, Dicks tried to convince Homeland Security officials that they could speed up things by talking to Mobilisa. "We have been just e-mailing them, and they do it for cards of this complexity," he said.

David Heath: 206-464-2136 or dheath@seattletimes.com.