2010 Ends with Contracting Ethics Defeat

Last week, the Department of Defense (DoD) did a complete 180-degree turn on an ethics regulation that would have prevented contractors from becoming too entrenched inside the Pentagon. DoD gutted a proposed rule on organizational conflicts of interest, publishing a watered-down final rule that speaks volumes about the contracting industry’s influence over DoD policies and programs.

Organizational conflicts of interest (OCIs) present one type of ethics risk to the government that must be identified and avoided through full disclosure by contractors and careful government oversight. OCIs are often grouped into three general categories based on the problems they create: unequal access to information, impaired objectivity, and biased ground rules. Current regulation requires contracting officials to avoid, neutralize, or mitigate potentially significant conflicts of interest so as to prevent an unfair competitive advantage or the existence of conflicting roles that might impair a contractor’s objectivity. Organizational conflicts are more likely to occur on contracts involving certain services, such as management support services and consultant or other professional services.

Absent from the final rule is the strong language about providing uniform guidance and a tightening of existing requirements. In its place is a rule that was significantly scaled back (limited to major defense acquisition programs (MDAPs) and Systems Engineering and Technical Assistance (SETA) work) and altered in tone. The following language appears throughout the final rule, and it reads like a contracting association lobbying letter:

Specifically, the rule now provides that it is DoD policy to promote competition and, to the extent possible, preserve DoD access to the expertise and experience of highly qualified contractors. To this end, the rule now emphasizes the importance of employing OCI resolution strategies that do not unnecessarily restrict the pool of potential offerors and do not impose per se restrictions on the use of particular resolution methods …

POGO hoped that the proposed rule would be clarified and made stronger, applying to all DoD acquisitions—including contracts and task or delivery orders and not just those deemed to be major weapons systems—and also to contractors' total organization, including all subsidiaries and affiliates. Also missing are clearly defined penalties for violating conflict-of-interest regulations, including termination of a contract, fines, withholding of payments, and suspension or debarment. A lack of a remedy clause will hamper DoD’s ability to hold contractors accountable for failing to disclose an actual or apparent OCI.

Only time will tell if the new rule helps protect DoD and taxpayers, but I have a feeling that this rule will create numerous competition problems for small and mid-sized contractors and others who aren’t part of the inner circle. As someone wrote in an email to me, "Score one for contractors."

-- Scott Amey

Image by Flickr user t3rmin4t0r.

See also:

• POGO Weighs in on Pentagon Efforts to Tighten Organizational Conflict of Interest Requirements
• Defense Department Tackles Organizational Conflicts of Interest

Comments

[Dfens]

Honestly, I think it would be quite easy to get 34 states to call for a constitutional convention. Montana, Idaho, Nevada, Utah, Arizona, Wyoming, Colorado, North Dakota, South Dakota, Nebraska, Kansas, Oklahoma, Texas, Iowa, Missouri, Mississippi, Arkansas, Louisiana, Alabama, Georgia, South Carolina, Florida, Tennessee, North Carolina, Kentuky, West Virginia, Virginia, Indiana, Iowa, and Alaska would probably be pretty easy states to get to vote for the convention. That's 30 states right there. Given the fact that repealing the 16th amendment would much more strongly encourage the federal government to raise tariffs on foreign produced goods, I think you could certainly get 4 states to join in from Washington, Oregon, Minnisota, Wisconsin, Michigan, Pennsylvania, New Hampshire, and New Mexico. It would take a majority approval in 38 states to ratify any amendments to come out of the convention.

The opposition to this country's participation in "free trade agrements" and the granting of "most favored nation" status to China, along with the controversy created by the federal government not performing its duty in guarding our borders has created a huge bipartisan backlash against the major political parties and a surge of independent voters that I believe would be happy to put Washington DC in its place. The waste the federal government creates in the way they do business with government contractors also adds significantly to the general dissatisfaction with the way the country is being run. People do not feel safer today even though we spend at or above Cold War levels on defense. Add to this the fact there is no love for the IRS anywhere, and frankly I'm surprised we haven't seen the states vote for a constitutional convention already.

[Dfens]

Ok, then wait around for the federal government to voluntarily reduce it's own bureacracy and improve efficiency. It's wroked so well up to now, what could possibly go wrong?

If the 16th amendment could be ratified, it can be repealed, and it can be done without a single vote being cast in Washington DC. Which seems the more likely scenario to you, that the federal government will fix itself from within, or be fixed from the outside? I'm not going to hold my breath waiting for the government to fix itself.

[Jorge]

Dfens - your idea of a constitutional change is too far out to be considered seriously. We need more tactical solutions. All it takes is the political will to enforce the laws on govt emps and on contractors. Not a law or reg need be changed. And given your proposal, please do not feed us the Tea Party line.

[Dfens]

Throwing up our hands in the face of what amounts to government tyranny will only result in more tyranny. It is clear that we the people are over taxed and under represented by our federal government. That is the only means by which the federal govenrment can continue to do business in a way that clearly and obviously wastes our tax dollars. Making our fellow citizens aware of how the federal procurement rules allow this kind of waste is a start.

Ultimately I feel the only real solution to putting the federal government back under the control of the people instead of putting the people under the control of the government is for 2/3rds of the states to call a Constitutional Convention to repeal the 16th amendment.

The 16th amendment was meant to "soak the rich". As we have found out, the rich use off shore accounts and all sorts of tricks to successfully hide their money from taxation, and those of us in the middle class are really the ones who have been soaked by this amendment.

Last year, Bob Stevens, the CEO of Lockheed Martin put $34 million of your tax dollars in his pocket. The president of the United States of America, on the other hand, only made $400,000. Lockheed has no customer other than the US government and every program they run is behind schedule and over budget, but still you paid their CEO $34 million dollars. He makes more in a day than most Americans make in an entire year, and not a single program they manage is going well. You do have the power to fix this.

If the federal government is going to waste your money, then you have the power to take that money from them and you can do it without their consent. Talk to your state legislators and let's call a constitutional convention to repeal the 16th amendment! I mean, unless you love the IRS too much to want to see it go away. Then by all means, support the status quo.

[Scott Amey]

Wow, the conflicting responses are great and they highlight the differences in opinions on contracting issues.

Jorge – the link to the FCMD was for purposes of steering readers to the list of top 100 federal contractors, which are the inner circle when it comes to federal contracting. They received nearly $300 billion of the $540 billion spent in FY 2009. That’s 55% of all federal contract dollars. Also, I agree with your comments about fraud, waste, and abuse in the government sector, and POGO’s good government agenda is focused on the congressional and executive branches of government too – please bring those examples to my attention.

Mike – I feel your pain. POGO had high hopes based on Obama’s campaign promises and his early policy statements that wise spending and contracting would be a high priority. But as you have listed, there have been many moves in the opposite direction. Any suggestions that you have about turning the tide, I would love to hear from you!

DFENS – To steal a famous phrase, “you are correct, sir!” Unfortunately, with the current state of the personal and organizational conflicts of interest systems and the contracting system, I have very little hope that the issue will be resolved in the near future. The fear of losing jobs and votes, reductions in annual budgets, and the lack of protections for those who speak out, have created a system of silence and, most of the time, mediocrity.

This is a great discussion, and something that might have the ear of Congress as the House develops a critical view of government policies and programs.

[Dfens]

We do not need people with split loyalties working for our government. If you work for the government, you should work only for the government and not get your government check via Lockheed or Boeing. This is an obvious and inexcusable conflict of interest. The government should pay contractors for results only. They should not be paid for level of effort or process. We have more than enough process and few, if any results from our government. That's the problem, not the solution.

[Mike]

Contractors win again! For an administration that stated it would hold contractors more accountable, contractors have clearly had their way.
1. DoD watered-down the conflict of interest rules all the while DepSec Lynn has a waiver from the President for his own contractor conflict of interest issues.
2. DepSec Lynn announced that DoD budget cuts would be a fraction of Gate's original estimate while Federal employees' pay is frozen for two years.
3. DoD weakened the rule permitting contracting officers to withhold funds when contractors have inadequate systems and delayed the final rule for at least another year.
4. A reduction in audits when DCAA increased the threshold for forward pricing audits.
And let's not forget the significant weakening of DCAA by Comptroller Hale and Senators Lieberman and Collins.
How greedy can contractors be? POGO, you appear to be the only ones looking out for the taxpayers. We need you to step-up your efforts in a major way. Blog postings will not change the ways of the Pentagon.

[Jorge in Washington]

Mr. Amey -- your arguments are nicely put, but when you go over the top (i.e., the cute equation of "inner circle" with misconduct), you show your deep, ingrained bias and averted eyes. We all have biases, of course. I only wish that POGO would take a more balanced view. Discover the roots of waste and abuse, and even occasional fraud, and you will find them in routine government business in two of the three branches of government. For so many alleged, imagined, or documented instances of contractor misconduct, you can find an equal, and probably much larger--and ingrained for whole careers--governmental misconduct. The forms include low standards of productivity, incalculable time-wasting and other forms of dithering, idiotic program management and acquisition plans, incompetent oversight, and ignorance of the government's internal COIs, which are legion. It's more fun to bash contractors, but you are ignoring a much larger problem so much of the time. Look upstream of the contractors' activities, look at some (not all) mandates from Congress, look at the behavior/output of 18-month political appointees. I could go on, but I know you get the point.