The Puerto Rican government has paid out more than $50 million to S2 Services Puerto Rico LLC, the company in charge of inspecting containers at the San Juan port, even though its contract with the Ports Authority expired in September 2021, according to the Comptroller’s Contract Registry.
Government contracting rules prohibit the disbursement of public funds without a valid written agreement.
However, in early August, Ports Authority Executive Director Norberto Negrón told the Centro de Periodismo Investigativo (CPI) that the agency decided in 2020 that the contract was still valid, arguing that its 11-year, 9-month term did not begin when it was signed in 2009 but rather in the summer of 2021, more than a decade after the company had already started providing services.This change, however, is not recorded with the Comptroller.
During the interview, Negrón admitted that the inspections conducted by S2, which cost $11 million annually, had never uncovered significant contraband in nearly 15 years. On Monday, six weeks after the CPI’s inquiries, Governor Jenniffer González Colón announced the cancellation of the Ports Authority contract with S2 Services, which has received $168 million for its scanning services since 2009.
Photo by Brandon Cruz González | Centro de Periodismo Investigativo
S2 has handled container inspections since 2010, after taking over the contract first signed by its sister company, Rapiscan Systems. Under the contract, the San Juan port, which receives over 340,000 containers annually, is equipped with at least eight Rapiscan Eagle X-ray scanners mounted on trucks with square, arch-shaped metal arms that scan the interiors of containers. These machines produce X-ray-like images that reveal contents in search of drugs, weapons, or other contraband.
In 2009, the Ports Authority first contracted Rapiscan and then S2 to inspect 100% of the containers arriving at Puerto Rico’s main cargo port in San Juan with these X-ray machines. It was a campaign promise by former Governor Luis Fortuño, and the contract was promoted as a public-private partnership, where the company would handle the entire operation. To cover its cost, the government later imposed a special security charge, now $57 per container, payable by shipping companies and ultimately passed on to consumers.
Photo provided by La Fortaleza
Announcing the contract’s cancellation, the Governor said consumers would see immediate price relief from eliminating this special charge. When the CPI asked, Manuel Reyes, vice president of the Chamber of Food Marketing, Industry and Distribution (MIDA, in Spanish), who accompanied the Governor as part of a private-sector and port organizations group, could not specify the exact impact on product prices.
Since 2010, politicians, distributors, and the maritime transport industry have questioned the effectiveness of S2’s container inspection program. Last May, the Fiscal Control Board (FOMB) requested information from the Ports Authority about the agreement and demanded a cost-effectiveness analysis.
On June 20, in response to the FOMB’s request, the agency reported “more than 3,400 discrepancies between shipping manifests and scanned cargo” from 2011 to 2024 but acknowledged that “there have been no significant contraband seizures directly attributed to the scanning program.”
Nevertheless, 15 years later, S2 Services continues scanning containers for $1.1 million monthly. The contract cancellation will take effect in 90 days, according to the Governor.
In written statements to the CPI before the cancellation announcement, S2 expressed pride in the scanning program it operates in Puerto Rico and assured compliance with applicable laws and regulations. The company declined to share data on how many machines are operational and what significant findings, if any, have been made, citing security reasons.
Over $50 Million in Payments Without a Registered Contract
For over three years, the contractor has received payments without a valid contract registered with the Comptroller’s Office, the CPI’s investigation found. An amendment to the contract made in December 2020, during Governor Wanda Vázquez’s administration, extended its original 10-year term by 1 year and nine months. The agreement, as recorded with the Comptroller, expired in September 2021.
However, the alleged agreement between Ports Authority and S2 Services, which has yet to be registered with the OCPR, changed the “start date of operations” from December 2009 to June 2021 due to an alleged government breach at the contract’s outset, according to the agency’s response to the FOMB when asked about the expiration date. According to the Ports Authority, the agreement’s term was extended to September 2031. But this agreement was neither endorsed by the FOMB nor registered with the OCPR as required by law.
By the summer of 2021, S2 Services had already been inspecting containers for over 10 years and had received around $80 million in public funds, according to agency data shared with the CPI.
“If that contract wasn’t amended in time or renewed, all disbursements to this company since its expiration [in 2021] would be illegal,” warned Comptroller Yesmín Valdivieso in July to the CPI, emphasizing that it is a recognized norm that all government contracts and their amendments must be registered promptly to be valid. Retroactive payment for services is not allowed in government contracting.
In response to the CPI’s questions, the OCPR indicated it would conduct a legal analysis of the contract’s validity, but more than a month later, the entity had yet to report the results of its examination. The Office did not explain why it failed to detect this issue or make any remarks for nearly two years.
Photo taken from the agency’s Facebook page
For its part, S2 told the CPI that the container inspection contract “remains valid and in full force, according to duly made amendments,” and that it complies with competitive process requirements and the Ports Authority’s guidelines. Additionally, government officials approve billing and payment for its services, according to the arrangement’s terms, the company stated.
“During the agreement’s term, which is currently in effect, we have fully complied with our duties and responsibilities,” the company added.
Since September 2021, when the contract expired according to the Comptroller’s Contract Registry, the Ports Authority has disbursed about $52 million to S2 Services.
Instead of seeking to recover the money or launching a new competitive process, the Ports Authority’s executive director told the CPI in early August that he did not yet know what would happen with the contract.
In February, the FOMB rejected a request made during the previous administration to extend the agreement with S2 Services until 2031, at a rate of $1.16 million monthly.
The Ports Authority executive director said that upon taking the position earlier this year, he did not request reconsideration from the FOMB.
Negrón described S2 Services as an “important contractor” for the agency, which has received over $130 million for nearly 15 years. Discussing the contract and its five amendments, the official indicated it has been shaped “piece by piece,” but avoided commenting on the actions taken by each Ports Authority director involved in the arrangement and its amendments.
After announcing the contract’s cancellation, Negrón stated he would conduct a “reconciliation” with S2’s invoices to determine if the company received public funds improperly, to then initiate the recovery process.
However, he insisted that the contract with S2 remains valid despite the FOMB’s questions and the Comptroller’s Registry indicating otherwise.
Businessmen, Politicians, and Lobbyists
How does one secure such a lucrative business?
A state lawsuit in Florida between former business partners reveals what happened about 15 years ago when former Governor Luis Fortuño’s administration awarded the container inspection contract.
The contract signing did not occur in a vacuum. Fortuño’s political platform included a public-private partnership for container inspection at the dock. A year before entering La Fortaleza, the Governor’s office, Act 12 of 2008 was signed to establish public policy on “port security with the mandate to align local laws with federal laws requiring a high level of security at ports.”
The bill was introduced by the current Governor when she was a member of the House of Representatives.
Meetings followed between the Ports Authority officials and businessmen interested in the contract, coordinated by lobbyists, to promote the security “solutions” they offered the government, from selling X-ray machines to running the inspection operation from start to finish.
In 2009, Ports Authority initiated a competitive request for proposal (RFP) process to formalize the business, resulting in a 10-year contract with Rapiscan, with an option to extend it to 20 years.
A few months later, S2 and Rapiscan sued Tactical Operational Support Services (TOSS) in Florida to stop claiming money for the contract they had just obtained with the Puerto Rico Ports Authority. TOSS, a security company, alleged they were left out of the business with the Puerto Rican government despite helping secure it as a partner of Rapiscan and S2.
The case was settled in April 2021, 11 years after it began. Along the way, it left court documents revealing how Rapiscan and S2 won the business.
In a deposition as part of the lawsuit, Rapiscan Vice President Jonathan Fleming, who signed the contract with the Ports Authority on behalf of S2 Services, said he contacted the government through “another partner:” Globalize, Alfredo Escalera Maldonado’s lobbying company.
Fleming said that through Globalize, he met “a bunch of people” in the government, including “the leadership of the Ports Authority,” which led them to win the contract. In his deposition, he recounted that Globalize coordinated meetings with then-Ports Authority Executive Director Álvaro Pilar and other agency officials as part of S2 and Rapiscan’s efforts to secure the business.
After several meetings with Ports Authority staff, Fleming recalled receiving a request for information from the agency, which later became an RFP. Other “four to five” competitors, who have this type of business worldwide, participated in the process, he added.
“We secured a contract,” said Fleming, who signed the agreement with the Ports Authority on behalf of Rapiscan and later S2 Services Puerto Rico LLC when this local entity assumed the contract in 2011.
Globalize’s involvement reportedly sparked a legal dispute between S2 and Rapiscan and TOSS, a Florida security company seeking business opportunities with the Puerto Rican government.
In 2010, S2 and Rapiscan sued TOSS in Florida to stop demanding money after securing the container inspection business in Puerto Rico. TOSS, in turn, claimed they were fraudulently left out of the business despite helping secure the contract.
In a deposition in the lawsuit, TOSS owner John Haynes recounted warning Fleming of S2 Services about bringing Globalize onto the team after Fleming told him the lobbying company “could secure the contract” with the Ports Authority.
“I said, ‘I don’t know if I want to be associated with [Globalize], check this guy’s [Alfredo Escalera] background.’ That’s what I meant, based on the whole group they were bringing in and dealing with. I didn’t trust them,” the testimony reads.
The contract between Rapiscan and the Ports Authority was signed in December 2009 by Fleming and then Ports Authority Executive Director Álvaro Pilar.
Additionally, TOSS also alleged that Globalize would receive part of the fee charged for each inspected container.
The CPI asked Escalera if Globalize connected the government and Rapiscan and if the lobbying company receives money for the inspections conducted. Escalera sent an affidavit but did not authorize the CPI to publish his statements.
When specifically confronted with Fleming’s sworn deposition, which places Globalize in the initial conversations with the Ports Authority, Escalera stated that the relationship between S2 Services, Rapiscan, and Globalize LLC began in 2017, seven years after the contract was awarded.
“Our records show no evidence of a contractual, collaborative, or representative link between Globalize, LLC, and the referred client before that date,” Escalera said.
“The presentation of proposals and solutions to government entities, aimed at addressing operational and administrative challenges, is a legitimate practice, a valid effort fully aligned with the current regulatory framework,” Escalera added in his response. He declined to comment on whether Globalize receives income for each inspected container.
Today, Rapiscan, S2 Services, and OSI Systems, the parent company, are registered as Globalize clients, according to the Department of Justice’s Lobbyist Registry.
The conglomerate is responsible for the entire operation: from installing and maintaining the machines to hiring and training employees. It has similar businesses with the governments of Albania, Guatemala, and, more recently, Uruguay, as announced to its shareholders in its annual report.
During the contract cancellation announcement, the Governor declined to answer why the government kept this company for nearly 15 years and stated she had no suspicions of corruption related to the container inspection program. She said her decision was due to the system’s ineffectiveness and the cost it has had for the government and consumers, to whom the private sector passes the burden of the special security fee for importers.
Ports Authority Asserts Contract is Valid
The government, during the administrations of Fortuño and Vázquez, amended the contract five times, increasing rates and extending the original 10-year term to 11 years and nine months, until September 2021.
In September 2024, the FOMB questioned the Ports Authority about why the contract with S2 Services did not end in September 2021, when it was supposed to expire. It was then that the agency claimed the contract term never began, despite Rapiscan providing the service. The Ports Authority explained that an alleged breach of its terms during the initial phase caused the company to never certify an operations start date.
The Ports Authority then agreed with S2 Services to establish June 1, 2021, as the start date.
In other words, the arrangement would expire in 2033, nearly 25 years after being signed and without undergoing a new competitive process.
In her interview with the CPI, the Comptroller admitted it is unusual for a government contract term to begin more than 10 years after being signed.
“No matter how you try to justify it… I can understand one or two years of trial, but 10 years after signing and now saying the term begins in 2021 — that doesn’t convince anyone,” Valdivieso said.
In 2024, under Governor Pedro Pierluisi’s administration, the agency submitted a new amendment to the agreement with S2 Services for the FOMB’s approval, to extend the arrangement’s term until 2031 and switch to a fixed payment of $1.16 million monthly. Under the current arrangement, the government pays a fee of $57 per container.
In a letter sent on February 22, the FOMB authorized a contract extension but only until December 2025, conditioned on holding a new competitive process to provide container inspection services.
On May 28, in a new letter, the FOMB stated that the contractor opposed the changes requested by the governing body and assured that the Ports Authority “has not taken concrete steps” to address the issue.
Additionally, the FOMB requested information from the agency about the nearly $43 million that, according to the Ports Authority, is owed to S2 Services for alleged unpaid invoices, surcharges, and interest. It also asked how the switch to a fixed monthly payment benefits the government and what significant contraband findings have been made thanks to the inspections.
Until then, there was no official data showing the program’s effectiveness, such as the amount of illegal material detected and confiscated thanks to the scanning machines.
On June 20, the Ports Authority responded to the FOMB that the $43 million debt with S2 Services arose from “a pattern of late and partial payments,” despite the money collected through the special security charge. Regarding significant contraband findings, it said that “between May 2011 and December 2024, the program detected more than 3,400 discrepancies between shipping manifests and scanned cargo,” but that “there have been no significant contraband seizures directly attributed to the scanning program.”
Another FOMB request was to identify how much has been paid to S2 Services for containers that were not inspected, but the company still billed for them. The arrangement between Ports Authority and the company allows it to receive payment for containers not inspected when, for example, an electrical system failure affects the scanning machines’ operation or when the waiting line is extended.
In its response, the Ports Authority said that between December 2015 and May 2024, S2 Services billed for 4,510 containers that were never inspected. The agency stated that the proposal to switch to a fixed monthly rate would limit the risk of paying for containers that were never inspected.
In 2019, a special report by the Comptroller’s Office concluded that this part of S2 Services’ contract was exploitative, contrary to public policy and the rules governing the use of public funds. It also ordered Ports to recover over $200,000 paid to S2 Services for 3,768 containers that were never inspected between 2013 and 2015.
Regarding the allegations of exploitative clauses, S2 stated that the contract was mostly drafted by the Ports Authority, except for the program’s technical aspects.
In its request to the Ports Authority, the FOMB asked for details of the actions taken by the agency to address the report’s findings. According to the Ports Authority, the proposed contract changes rejected by the fiscal entity in February sought to eliminate payment for uninspected containers and contemplated forgiving the agency’s debt with S2 Services. It also reported implementing changes to improve data collection and manage security charge revenues.
When asked if any lobbyists had intervened on behalf of S2 Services, Negrón told the CPI: “I have not received any pressure from lobbyists. And as I said, this is something I am working on closely with the governor.”
From the Legislature, Project Dignity Senator Joanne Rodríguez Veve filed a resolution in May to investigate the proposed extension without bidding for S2 Services. The measure was referred to the Internal Affairs Commission and has had no further activity. In the House, New Progressive Party (PNP, in Spanish) Representative José Aponte filed a similar measure to investigate the container inspection business.
S2 welcomed the legislative scrutiny and assured that it is a “valuable tool” for evaluating and improving the program.
This translation was generated with the assistance of AI and reviewed by our editorial team to ensure accuracy and clarity.
