False Choices at the Nuclear Weapons Complex: We Don't Have to Accept Lies and Shoddy Work in Order to Have a Reliable Stockpile

Today, the Los Angeles Times published a story about how the National Nuclear Security Administration (NNSA) announced that the "first refurbished W76 nuclear warhead had been accepted into the U.S. nuclear weapons stockpile by the Navy," when in fact no delivery was ever made to the Navy.

POGO alerted the Times about the story because the NNSA was (mis)using the example of the W76 to promote itself. In March of this year, NNSA's Deputy Administrator boasted of the refurbished W76: "This is another great example of the unsurpassed expertise throughout NNSA's national security enterprise." In fact, it was the NNSA's mismanagement of the refurbishment process that led to the serious technical problems that resulted in the warheads' status--currently in pieces inside a production cell at the Energy Department's Pantex plant. The Navy told the Times, "We have not received delivery of any refurbished W76 warheads. The answer is none."

Those who believe in the refurbishment process, also known as the Life Extension Program (LEP), are outraged at how the process has been devalued by senior Lab management. For example, Roger Logan, a former Livermore Lab weapons designer and certifier, told POGO:

"LLNS&LANS [the contractors running Livermore and Los Alamos]...did everything they could to chase away W76 (and B61) expertise at both Livermore and Los Alamos. I was alarmed when my colleagues at Los Alamos sent me the long string of names of experts on these systems that LANS...chased out of the weapons program. Why? Because these people were honest and therefore a threat to the LLNS&LANS profiteering agenda.

Protect the labs...and screw the production plants. This theme pervades nearly every study to this day...It is often unintentional -- but fueled by the "Gray Beards", protecting the money at the labs they fondly remember at the expense of the "non-scientists" and production plants. Manufacturing and assembly is just viewed as menial and trivial, often by those who have never done it. The result is that the people at the plants -- and considering such careers -- got the message -- LEAVE. So they did."

NNSA instead promotes unproven, but showy, projects like the National Ignition Facility (NIF) instead of the LEP program and high risk components for a critical weapons system. According to Logan, these more boring, menial (but essential) missions were neglected at the expense of drama, purported science, and profit. The operating costs of refurbishment is about $200 million per year as opposed to the $400 million per year operating costs on NIF alone (if it works).

This story is not to say that the LEP program can not work. In fact, the Knoxville News' Frank Munger reports that the technical problems at Y-12 that had been holding up the completion of the W76 refurbishment were finally resolved in March. So the issue is not that we can't refurbish the warheads, but that NNSA is incredibly sloppy and regularly hides behind national security to avoid accountability, and we've been letting them get away with it for too long. And pretending they are doing a good job when they are not does not provide the confidence necessary for this critical mission. NNSA needs to be held accountable for not maintaining the integrity of one of its most important responsibilities and lying about the status of its programs. Ultimately, what this story shows is that NNSA needs new leadership that will no longer make excuses for its mismanagement, but will instead demand excellence.

-- Ingrid Drake and Peter Stockton

100 Days of Stimulus Projects, Hundreds of Hidden Contracts

The fourth project listed in Vice President Biden's 100 Days, 100 Projects of the American Recovery and Reinvestment Act (ARRA) report released this week is the $14.9 million Delaware Avenue reconstruction project in Albany County, New York. As one of the first uses of ARRA funds doled out in New York State, POGO is highlighting this project as an example of how in most states, the public cannot easily find which contractors and subcontractors are being awarded ARRA funds.

New York Governor David Paterson released a press release when the project broke ground earlier this month, but no contractors were named nor contract links provided. This echoes the analysis by the States for a Transparent and Accountable Recovery (STAR Coalition), which found that on the NY Recovery website, contract award “details are generally vague (for example, the name the contractor is not provided) and the site does not have comprehensive information on them.” This runs counter to the promise from Governor Paterson that the site “will detail how we spend that money, and provide information for governments, organizations and other entities interested in applying for funding under ARRA.”

The Office of the State Comptroller (OSC) has committed to the NYS Stimulus Oversight Working Group that additional contract information will be posted on Open Book New York in July 2009. While this is a positive development, members of the NYS Working Group say that it falls drastically short of the needed level of disclosure because Open Book lists only the pedigree of contracts, not the contract itself nor the level of detail needed to evaluate the contract's progress. The OSC has expressed concern that they won't be able to track sub-contractor information in any level of meaningful detail until the second quarter of 2011.

If you visit the New York state agency responsible for contracting, the Office of General Services (OGS), there is no easy way to identify the contracts for Delaware Avenue reconstruction. I could only find the name of the contractor, Callanan Industries Inc. of Albany, from this news article. Of course, this is only one example, and POGO is in the process of evaluating other states' contracting websites to see what details they provide for ARRA projects.

Unfortunately, the Recovery Act does not require these full contracts to be posted on either Recovery.gov or the state websites. Only full-text contracts would contain the key details by which the public and oversight bodies could measure the quality and effectiveness of government contractors. POGO is a member of the Coalition for an Accountable Recovery (CAR), which is submitting public comments on the need for full contract posting.

-- Ingrid Drake

Morning Smoke: More Conflicts of Interest for Bailout Contractors

Government Taps Bailout Contractors With Conflicts of Interest [The Washington Independent]

Obama misses key elements in rolling back secrecy practices [Nextgov]

Robert Gates: The Bureaucrat Unbound [TIME]

Navy shipbuilding plans run into fiscal reality [Government Executive]

Why Government Regulators Need Corporate 'Boot Camp' [The Hearing]

Banks Seek Role in Bid to Overhaul Derivatives [The Wall Street Journal]

100 Days, 100 Questions on the Recovery [OMB Watch]

Attitude Adjustment

Back in March, POGO released its second report on the Inspector General (IG) system, entitled Inspectors General: Accountability is a Balancing Act, in which we examined how to hold IGs accountable. One of our most troubling findings in that report was that IGs often treat whistleblowers as mere afterthoughts. In our experience, IGs often project an attitude of indifference towards whistleblowers and do not aggressively pursue whistleblower disclosures or adequately protect whistleblowers from retaliation. Given the history of significant government misconduct disclosed by whistleblowers as well as the history of retaliation suffered by whistleblowers for disclosing that misconduct, POGO finds that attitude shameful.

A simple way to gauge an IG's attitude toward whistleblowers is to look for public statements highlighting the integral role played by whistleblowers in cases that resulted in a successful outcome. An example of that can be found in recent testimony before the Senate Aging Committee by the IG for the Pension Benefit Guaranty Corporation (PBGC), Becky Batts. In her testimony, Batts noted:

"I am grateful to the PBGC employee who first reported the questionable actions of the former Director to my office. Disregarding concern about how well the Whistleblower Protection Act could protect his/her identity, this loyal employee made a choice to put PBGC's interests above the employee's own interest to be free from possible retaliation. That choice will help the PBGC Board and PBGC leadership make the changes needed to maintain the public's trust. This employee deserves our gratitude and thanks."

These statements go a long way towards informing potential whistleblowers that reporting government misconduct is a valuable and courageous act that should be celebrated rather than neglected. If the IG community is truly interested in improving their ability to work effectively whistleblowers, they should start by following the lead of IGs like Batts, Special IG for the Troubled Asset Relief Program Neil Barofsky, and SEC IG David Kotz.

-- Jake Wiens

Morning Smoke: Administration Considers Sweeping Financial Regulatory Overhaul

U.S. Weighs Single Agency to Regulate Banking Industry [The Washington Post]

Don't Count on Real Regulatory Reform, Even Though It's a Great Idea [The Washington Independent]

Review of Government Secrecy Ordered [The Washington Post]

FDIC Won't Rule Out Banks as Buyers of Toxic Assets [naked capitalism]

Citi, SEC Are in Talks to Settle Asset Probe [The Wall Street Journal]

Who Should Manage the Tanker Competition?

As readers of the POGO Blog are well aware, the Air Force's midair refueling tanker contract is one of the most hotly contested acquisition programs. This acquisition has been plagued with problems, with POGO and our congressional allies uncovering the now-infamous Boeing tanker lease scandal that resulted in Air Force procurement official Darleen Druyun going to jail for steering the deal to Boeing while negotiating for an executive position with Boeing. Last June, the Government Accountability Office (GAO) sustained Boeing's protest of the Air Force awarding the contract to Northrop Grumman. And earlier this month, Senators Richard Shelby (R-AL) and Jeff Sessions (R-AL) slowed down the confirmation of Department of Defense (DoD) acquisition chief Ashton Carter over concerns with the fate of tanker competition. Now comes news from Defense Tech that DoD is trying to determine whether the next competition for the tanker should be managed by the Air Force or Carter.

The missteps that have occurred with the tanker program have of course been one of the main reasons that the Air Force's acquisition system has been under such close scrutiny, and it is also part of the impetus behind the Air Force's Roadmap to Recapture Acquisition Excellence. The tanker contract could be an opportunity for the redemption of the Air Force's acquisition system to demonstrate that they have improved their management and can do this program right.

But what is also interesting about the oversight dispute is how this isn't only a debate over who will be ultimately responsible for the program, but that it will also determine how much this program will be impacted by the new Weapons Acquisition Reform Act of 2009. One of the major revisions to the Senate's initial version of the bill in the Senate Armed Service committee's mark-up was changing language that would require the newly established Director of Independent Cost Assessment to conduct independent cost assessments for all major defense acquisition programs (MDAPs) to only those programs where the Under Secretary for Acquisition, Technology and Logistics (AT &L) is the Milestone Decision Authority (MDA). As Travis Sharp at the Center for Arms Control and Non-Proliferation pointed out in his analysis, this language was changed because DoD argued that giving the Director this large of a purview would discourage the services from improving their own cost estimate competencies.

But as a result of this change in mark up, if DoD chooses to give the Air Force management of the tanker program, there will be no mandatory role for the new Director of Independent Cost Assessment to provide oversight and implement policies and procedures to make sure that the cost estimation process is reliable and objective. One can't help but wonder how much DoD had the tanker program in mind when requesting this change to the legislation. As we have repeatedly said, the real test of the new legislation will be in its implementation, and DoD's decision over who manages the tanker program may serve as an important indicator as to how committed they are to improving financial management in their major acquisition programs.

-- Mandy Smithberger

A Treasure Trove for Stimulus Oversight

Yesterday, States for a Transparent and Accountable Recovery (STAR Coalition) launched a new website for “promoting state and local activism to ensure the $787 billion American Recovery and Reinvestment Act (ARRA) is transparent, accountable, fair and effective.” Many of the groups involved with STAR are also members of the Coalition for an Accountable Recovery (CAR), of which POGO is a member.

There's a lot of great information available on the site, including an analysis of the recovery websites for all 50 states plus DC comparing the disclosure of contractor information and key data such as total ARRA funding the state is expected to receive. Take the analysis of Nevada, for example, and its Open Government website, which:

"...allows users to compare budgeted spending to actual spending. But it does not document contracts or line item expenses. The site was created by executive order in March 2008 with the intention of posting all information collected by the comptroller, treasurer, legislature and administrative courts on state financing. ARRA revenues and expenditures are not clearly reported on the site.

Status of contractor information: none"

POGO will be largely relying on this site for our State POGO (SPOGO) project, which will identify some of the most effective and innovative state and local good government mechanisms. These can be policies, rules, structures, or procedures in a city, state, or county government. We will soon be launching a survey to get the input of taxpayers and state and local public interest and good government groups on this project.

-- Ingrid Drake

Banks to FDIC: Let Us Game the System

Last month, POGO submitted a public comment raising concerns that the Federal Deposit Insurance Corporation (FDIC) was not doing enough to address potential conflicts of interest in the Legacy Loans Program (LLP), part of the new Public Private Investment Program (PPIP) that was set up to deal with the toxic assets that are clogging the balance sheets of banks across the country. As we pointed out, most commentators who are sounding the alarm about the LLP have imagined complex scenarios in which banks could exploit the system by using intermediaries or swapping their toxic assets with other banks. But now it appears that some banks are proposing to game the system right out in the open.

The Wall Street Journal reported this morning that some banking industry groups are lobbying the FDIC to allow banks to bid on their own distressed loans as private investors. That might sound outrageous, but it was recently proposed in numerous public comments on the LLP.

For instance, Irene Esteves, CFO of Regions Financial Corp., wrote that "while banks will be participating as sellers, the LLP should be crafted in such a way that allows for participation as investors as well." Tanya Wheeless, President and CEO of the Arizona Bankers Association, urged the FDIC to "consider allowing banks and affiliates of selling banks to participate as 'purchasers' of pooled assets....There may be a scenario in which bank purchasers or affiliates (including a bank holding company) of a seller of assets might make sense." (She explained to the Journal that this would be a "win-win" for bankers.) And Norman Nelson, general counsel of the Clearing House Association, wrote that "the selling bank should be able to participate as an equity investor in a Public-Private Investment Fund to the extent of 50% of the equity designated for the private sector," and that in some cases, "the selling bank should be able to participate as the only private sector investor."

We think it's fairly obvious why banks should not be allowed to bid on their own assets, but perhaps it's worth reviewing. In its latest report to Congress (p. 147), the Special Inspector General for the Troubled Asset Relief Program (SIGTARP) found that the PPIP is "inherently vulnerable to fraud, waste, and abuse," and warned that "the same entity might buy and sell toxic assets for its own benefit." Since the FDIC is providing up to 6:1 leverage for the public-private investment funds (PPIFs), taxpayers might be forced to incur significant losses if the investments go bankrupt. In an article last month, Professors Laurence Kotlikoff and Jeffrey Sachs outline one possible scenario in which a bank could set up its own PPIF to overbid on its assets, making millions in net profit and leaving taxpayers to foot the bill. In order to cover the losses on these investments, the FDIC might have to dip into its Deposit Insurance Fund, the balance of which decreased by 25 percent during the first quarter of 2009.

But even if taxpayers don't incur significant financial losses on the PPIFs--and that's a big if--there's still the underlying issue that banks could gain an unfair competitive advantage by acting as both buyers and sellers of the eligible assets, which is sure to undermine public confidence. Mark Tenhundfeld, a lobbyist for the American Bankers Association, acknowledged to the Journal that "a bank bidding on its own assets has the potential to look awful in the public's mind."

Thankfully, the initial terms of the LLP prohibit private investors from participating in a PPIF that "purchases assets from sellers that are affiliates of such investors or that represent 10% or more of the aggregate private capital in the PPIF." As the FDIC and Treasury negotiate the final terms of the program, we urge them in the strongest possible terms to keep this provision in place, and to implement other safeguards to protect the government from the types of self-dealing described in the Journal article.

-- Michael Smallberg

UPDATE: FDIC Chair Sheila Bair just reiterated that banks will not be allowed to bid on their own assets.

They're Everywhere: Consultants and Federal Contracting

There seem to be consultants in every field, and federal contracting is no exception. A number of firms offer consulting services and training on acquisition processes to both government agencies and businesses, and other consultants offer to help businesses secure a steady stream of federal contract revenue. Both types of consulting services raise questions about the integrity and efficacy of the federal contracting process.

Firms that provide acquisition services and training to both federal agencies and corporate clients create an opportunity for organizational conflicts of interest. Although these consultants do not advertise assisting businesses in bidding for contracts, they could easily find themselves in the ethically suspect position of assisting the government in managing a contract on which one of their clients is bidding. This situation would easily allow a consulting firm to tailor the requirements of a contract to favor a corporate client. In fact, federal regulations explicitly forbid such arrangements and instruct contracting officers to avoid them.

It is beyond the scope of a blog post to investigate how often these situations arise or whether they actually compromise the fairness and integrity of federal contracting, but the opportunities for such conflicts clearly exist. For example, the consulting firm Whitney, Bradley & Brown, which received about $16 million in federal contracts in FY 2008 mostly for acquisition or management support or training, lists customers on its website that include all five branches of the armed forces and various government agencies as well as major defense contractors such as Lockheed Martin, Boeing, Northrop Grumman, Raytheon, and General Dynamics.

Even some consulting firms themselves recognize the undesirability of such potential conflicts of interest. Acquisition Solutions, which received approximately $42 million in federal contracts in FY 2008, explains on its website, “We do not consult, market, or lobby for commercial firms that could benefit from privileged information to which we might have access in the course of performing under contract to the government.” The fact that at least one acquisition consulting firm takes this stance suggests that concern over organizational conflicts of interest is more than idle speculation.

The presence of these acquisition consulting firms also raises the question of why government agencies must turn to the private sector for contracting expertise. Firms such as Whitney, Bradley & Brown and Acquisition Solutions boast of their employees' extensive experience in contracting as public servants in the military and civilian agencies. The federal government's inability to retain these individuals and its effective re-hiring of them as contractors suggest that private employment is more lucrative for consultants and potentially more expensive for taxpayers. These consultants can hardly be blamed for taking jobs that offer more money, so the federal government will continue to lose talented, experienced employees to the private sector unless it sets a precedent of refusing to use external consultants and retaining its own workforce.

Consultants who assist businesses in winning federal contracts raise entirely different concerns. These firms advertise themselves as guides through the complexities of federal contracting, and merely providing information on the necessary paperwork or registrations is no cause for concern. However, the information these consulting firms provide may be less innocently aimed at helping businesses exploit loopholes in contracting procedures to their advantage. For example, POGO recently received a tip that the Business to Government Institute was holding seminars teaching small business owners to mark up goods from large manufacturers and resell them to the government, which will purchase them at a higher price because of requirements to buy from small businesses. As the Business to Government Institute explains on its website, “the government needs companies both large and small to apply for its contracts. And the potential is huge. More than $327 billion in contracts will be available nationally this year alone. Of this total, nearly $70 billion in contracts will be reserved exclusively for small businesses.”

With the government pumping hundreds of billions of dollars into the economy and everyone, including businesses looking for contracts, trying to get a piece of the pie, the federal government should take steps to ensure that businesses and acquisition consultants are competing honestly rather than exploiting loopholes that raise costs for taxpayers.

-- John Cappel

The End of RIK?

The Royalty-In-Kind (RIK) program that POGO has long criticized and recommended abolishing may be coming to an end. According to The Hill, the Democratic staff of the House Natural Resources committee has crafted a bill to overhaul federal drilling rules that would alter royalty rates, shorten the duration of leases from 10 years to five, and move the leasing function out of the Minerals Management Service (MMS) and the Bureau of Land Management (BLM) into an Office of Federal Energy and Minerals Leasing. I haven't seen the legislation yet, but this last proposal would also seem to address POGO's concern that MMS has an inherent conflict of interest since it is charged with both leasing federal lands for drilling and auditing these leases.

-- Mandy Smithberger

Morning Smoke: Banks Seek to Manipulate Public-Private Partnerships

Banks Aiming to Play Both Sides of Coin [The Wall Street Journal]

AF Plans to Fix Acquisition [DoD Buzz]

Last Line of Defense [Management Matters]

How Much Cash Have We Wasted in Afghanistan? [Danger Room]

Bailed-Out Bank Tries Golden Parachute Loophole [ProPublica]

Panel says Fed should monitor systemic risk [Government Executive]

The fight over rehiring retirees [Federal Times]

Jeepers, Creepers...What's The Deal With PPIRS?

On Friday, the Government Accountability Office (GAO) released an assessment of the Past Performance Information Retrieval System (PPIRS--pronounced “peepers”), a database of contractor past performance information that federal agencies are supposed to consult before awarding or renewing contracts. The report, "Federal Contractors: Better Performance Information Needed to Support Agency Contract Award Decisions", looked at the current state of PPIRS and found it wanting.

GAO estimated that an assessment of past performance occurred in less than a third of contracts awarded by the Department of Defense, Department of Homeland Security, Department of Energy, General Services Administration and NASA in fiscal year 2007. These five agencies combined accounted for about 85 percent of all contracts awarded that year.

The report found that contracting officials have a deep skepticism about the relevancy and reliability of PPIRS data. It also found that only a small percentage of contracts had documented performance assessments, while other useful performance-related data, such as terminations for default and subcontract management, are not being systematically tracked across agencies. As a result, agencies are renewing or awarding contracts to contractors with questionable performance records. Most significantly, the report concluded that a lack of central oversight and management of PPIRS, combined with a lack of funding, ensures these shortcomings will continue to plague the system for the near future.

“Several efforts have been initiated to improve PPIRS and provide pertinent and timely performance information,” the report states, “but little progress has been made.”

Since its implementation in 2002, concerns have been raised about the sufficiency of the information contained in PPIRS. In February 2008, the DoD Inspector General examined the Pentagon's Contractor Performance Assessment Reporting System (CPARS), which is fed into PPIRS, and found it to be so lacking in completeness that it concluded DoD contracting officials “do not have all past performance information needed to make informed decisions related to market research, contract awards, and other acquisition matters.”

POGO has repeatedly pointed out the limitations of the federal government's main tools for vetting contractors: PPIRS and another Web-based data resource, the Excluded Parties List System (EPLS). It was these limitations, in fact, which prompted POGO to create its Federal Contractor Misconduct Database (FCMD).

Last year alone, the federal government did business with over 186,000 contractors and spent over $536 billion outsourcing functions ranging from landscaping services to intelligence gathering. A government that relies so heavily on contractors must be able to thoroughly evaluate their background, including how they have performed on prior contracts. As the GAO report observed, basing contract award decisions on past performance encourages contractors to achieve better acquisition outcomes over the long term.

-- Neil Gordon