Poor Government Management of Contracts Risks Billions in Losses

The Government Accountability Office (GAO) recently updated its bi-annual report to Congress on its High-Risk Program, which highlights areas of government that are at high risk for waste, fraud, or abuse. Of the five problems highlighted, the failure to manage federal contracting more effectively continues to put the government at high risk for suffering billions of dollars in losses. In particular, GAO highlights nearly twenty years of ineffective contract management in the Departments of Defense (DoD) and Energy (DOE), the two federal agencies with the highest expenditures in federal contracting.  Fraud, waste, and abuse are never acceptable consequences of government contracting, but continued risk of their occurrence is an even graver threat to good government at a time of ever-tightening budgets.

The GAO reports that in fiscal year 2008, the DoD spent nearly $400 billion acquiring goods and services, more than half of which were for services that might otherwise have been performed by federal employees. GAO has warned that DoD increasingly relies on contractors to provide services to help meet critical missions and support acquisition functions.  This is like allowing the fox to guard the chickens — this practice undermines the DoD’s ability to independently define and secure its core missions.  DoD’s unrelenting reliance upon time and materials contracts, and its failure to specifically define the tasks that are to be performed eliminates any incentive for private contractors to control costs, thus resulting in unnecessary cost overruns that have cost the taxpayers billions of dollars during the nearly twenty years GAO has been attempting to get the DoD to reform its contract management practices.

GAO also highlighted shortcomings in contract management for the National Nuclear Security Administration (NNSA) and Office of Environmental Management (EM), agencies in the DOE  that are responsible, respectively, for modernizing the nation's aging nuclear weapons production facilities and building facilities to treat and dispose of millions of gallons of radioactive waste. The joint annual budget for these two agencies is nearly $15 billion, accounting for nearly 60 percent of DOE’s budget. To meet their missions over the coming decades, EM is expected to spend billions of dollars on federal contracts, while NNSA is expected to spend tens of billions. 

SIGIR: Applying Hard Lessons

Happy belated birthday SIGIR! Created in October 2004, the Special Inspector General for Iraq Reconstruction has published numerous reports, issued nearly 400 recommendations, testified before Congress, and saved or challenged the expenditure of hundreds of millions of taxpayer dollars appropriated by Congress for Iraq. It has also published four lessons learned reports and a history of the Iraq reconstruction program.

What’s next? You would be correct if you answered … reforming the government to learn from both the successes and failures that have plagued relief, stabilization, reconstruction, and domestic governance programs in Iraq and Afghanistan.

Yesterday, POGO was lucky enough to take part in a brainstorming session on SIGIR’s draft recommendations and three proposals to improve civilian and military coordination during contingency operations. As I see it, the problem has been coordinating all the moving pieces: the White House creates policy, Congress authorizes agencies to act and appropriates funds, and the agencies (the Departments of Defense and State, USAID) are left implementing the planning and operations, and integrating it all together. Weaknesses in planning, operation, and integration have led to the waste, fraud, and abuse — such as duplicate programs and payments — that SIGIR has been identifying for years.

Without going into more details, SIGIR is going the extra mile in providing a framework that can improve complex contingency operations — Iraq and Afghanistan come to mind, but the U.S. has also been involved in Somalia, Haiti, and Bosnia in the past 15 years. The work in those areas has been very difficult and extremely varied in scope and substance. I’m unsure if there is a one-size-fits-all solution, but SIGIR is doing its best to place options on the table and to force policy makers to look toward the future.

-- Scott Amey

A Pattern of Contract Oversight Problems at the State Department?

A new Inspector General (IG) audit has recommended that the Department of State (DoS) seek a $132 million rebate from a contractor for a host of construction deficiencies at the American embassy in Baghdad. The contractor, First Kuwaiti Trading and Contracting, received $470 million in no-bid contracts for construction of the embassy (referred to in the report as NEC Baghdad).  Specific flaws that figure into the $132 million sum include:

• "$4.6 million to repair safe areas, which are vital to protecting staff in emergency situations but which were not constructed according to con­tract specifications;"

• "$14 million to install seismic bracing, which is required for safeguard­ing fire protection lines and other critical mechanical systems that First Kuwaiti had not completed;"

• "$4.4 million to repair the NEC’s power distribution system because First Kuwaiti substituted a less reliable system, including using nonstandard wiring;"

• "$4.6 million to correct fire protection systems because the walls in the housing units were not compliant with code and fire protection water mains were improperly constructed;" and

• "$1.5 million to correct plumbing deficiencies at over 200 locations at the NEC."

This isn't the first time we've heard about First Kuwaiti's problems working on NEC Baghdad: back in July 2007, two whistleblowers accused the company of engaging in human trafficking, and in a letter to the State Department later that year, the House Committee on Oversight and Government Reform cataloged the numerous construction problems already manifesting themselves in the project, and even implicated a managing partner from the firm in an illegal kickback scheme. 

But the IG report does shed new light on a problem we've seen recently at another key American embassy: contract oversight deficiencies at the State Department.  In this case, DoS' Bureau of Overseas Buildings Operations created a special new group to administer the project: the Emergency Project Coordination Office (EPCO).  Unfortunately, as the IG reports, EPCO was rife with problems and was "managed by an individual who did not enforce contract provisions, most notably design and construction require­ments, which resulted in many of the construction deficiencies listed." Specifically, the IG found that: 

The Senate is Considering the Defense Appropriations Bill Today

Here's what we'll be rooting for:

• Amendment 2566: Introduced by Senator Tom Coburn (R-OK), this amendment will restore $165 million to operations and maintenance (O&M) accounts by prohibiting spending on congressionally directed spending items (aka earmarks) from these accounts. Our letter of support can be found here.

• Amendment 2580: Introduced by Senator John McCain (R-AZ), this amendment strikes funding for the unwanted and unneeded C-17 program. Our letter of support that we sent the Senate on this amendment can be found here.

As usual, POGO will be following the debate on the floor. Watch it on CSPAN2 or follow us on twitter.

-- Mandy Smithberger

U.S. Special Forces Need Helicopters to Dodge IEDs, but Congress Wants More C-17s

Today POGO sent letters to every Senator asking them to strike funding for unnecessary C-17 airlifter planes. Even though the Pentagon has said it does not need additional C-17s, the current FY 2010 Defense Appropriations bill has set aside $2.5 billion for them.  

Meanwhile, U.S. Special Forces in Afghanistan and Pakistan unnecessarily put their lives at risk in operations that should be used with helicopters, but because of a lack of resources, are instead used with land vehicles.  Unfortunately, the land vehicles are extremely vulnerable to improvised explosive devices (IEDs).  This is what it looks like when a land vehicle encounters an IED:

Special Forces use these vehicles in "white missions" to recruit and train local antiterrorist militias and engage the enemy in remote areas. Had there been sufficient resources, these operations would have been conducted with helicopters. Of the last eleven deaths among U.S. Special Forces in Afghanistan, eight have been caused by IEDs. 

In our letter, we urged each Senator to support an amendment by John McCain — which would strike the funding for the superfluous C-17s — and reallocate resources to equipment that our troops desperately need.  You may find our letter to the Senate here.  More photos of IED-ravaged land vehicles used in Special Forces operations after the jump.

C-17 Earmarks: Seeing Red

POGO and Taxpayers for Common Sense just sent a letter to members of the Senate Appropriations Committee urging them to support the Department of Defense's priorities and to stop earmarking funds for the C-17 Airlifter program. From the letter:

When it comes to the C-17 program, Congress has earmarked with reckless abandon. Perhaps the grossest example of Congress’s irresponsible wasting of taxpayer funds was in 2007, when conference committees more than tripled the number of additional C-17s requested by House and Senate authorizers and appropriators. We have attached a chart to illustrate how Congress has been the wind beneath the wings of this Airlifter program from that point forward.

-- Mandy Smithberger

Obama Reining in Contracting

Today, the White House issued two “good government” memos aimed at strengthening the federal acquisition system and improving the management of service contractors working for the government (i.e., work that might be better performed in-house). The new guidance follows the President's March 4, 2009 contracting memo and previous calls for public comments on how to improve these systems.

POGO is cautiously optimistic that the Administration and Congress are moving in the right direction. Any discussion of reducing non-competitive contracts and other contracts that are prone to waste, fraud, and abuse are great steps forward in improving the federal acquisition system. Altering the deeply rooted culture that exists within government and contractor facilities is going to take more than talk--we also need improved transparency (the IT Dashboard for monitoring agency and program performance is a nice start), decision-making, accountability, oversight, and enforcement. The devil will be in the contracting reform details, but considering that the government awarded over $530 billion in contracts in FY 2008 and is planning on spending an additional $580 billion on economic recovery initiatives (stimulus spending actually totals $787 billion over ten years, but that amount includes tax provisions), something has to be done to ensure that taxpayer dollars are spent wisely.

Moreover, the President's initial plans seem to go further than the timid opinion that enhancing the federal acquisition workforce will fix all contracting problems. The White House memos discuss workforce issues, but they also provide guidance on ending ineffective or wasteful contracts, leveraging the government's buying power, reducing the use of non-competitive, cost-reimbursement, and time-and-material and labor-hour contracts, as well as taking steps to reduce the government's over-reliance on contractors, which can be costly and detrimental to long-term government missions.

Stay tuned because more government guidance on these issues is schedule to be released in late September.

-- Scott Amey

Murtha Introduces Two Amendments to Appropriations Bill to Strike F-22 Funding

The House Rules Committee will meet today at 3:00 to consider amendments to the National Defense Appropriations Act for 2010, including two amendments proposed by Defense Appropriations Chairman John Murtha (D-PA) to strike funding for the F-22:

Murtha (PA) #601 - Would redirect funds otherwise available for advance procurement of additional F-22 aircraft, and provide for spare and repair parts including engines for the F-22 and C-17, aircraft defensive systems, and aircraft weapon systems.

Murtha (PA) #602 - Would (1) redirect funds otherwise available for advance procurement of additional F-22 aircraft, and provide for spare and repair parts including engines for the F-22 and C-17, aircraft defensive systems, and aircraft weapon systems; (2) include a technical revision in the Defense Health Program and shift $26,000,000 from operation and maintenance funding to research, development, test and evaluation; and (3) prohibit further outsourcing of utility functions at the US Military Academy at West Point.

It appears that continued procurement of the F-22 may be a more partisan issue on the House side than it was in the Senate: Defense Appropriations Ranking Member C.W. Bill Young's (R-FL) amendment asks for the money for the F-22 to stay in. POGO hopes that the Rules Committee supports the decision of two secretaries of Defense, two Presidents, three chairman of the Joint Chiefs of Staff, and the current secretary and chief of staff of the Air Force--and most recently the Senate in a 58-40 decision--to stop buying F-22s.

-- Mandy Smithberger

Experts, Contractors, and the F-35 Alternate Engine

After voting 58-40 to remove funding for additional F-22 fighter jets from the annual defense authorization bill, the Senate is turning its attention to the nation's other jet fighter program, the F-35 Joint Strike Fighter. An amendment filed by Senator Joe Lieberman and nine other Senators would remove $439 million in funding for the development of an alternate engine for the F-35.

Reasonable arguments can be made both for and against funding a second engine for the Joint Strike Fighter. Supporters of the alternate engine claim that competition between Pratt & Whitney, the manufacturer of the original F-35 engine, and the General Electric-Rolls Royce partnership developing the alternate engine would improve reliability and drive down costs over time. In a March 2007 report, the Government Accountability Office found that long-term cost savings generated by competition might exceed the cost of the second engine. Alternate engine opponents, including the Obama administration, argue that the program is unnecessary, unlikely to provide sufficient benefits over time to cover development costs, and likely to ultimately shrink America's fighter fleet as funds are diverted from F-35 production to engine development.

Among the many voices engaged in debate over the wisdom of the second engine are former military officials and think-tank experts. For example, former Air Combatant Command commander Gen. John Michael Loh has publicly argued against the second engine, while retired Air Force Gen. Chuck Horner has gone on record in favor of the alternate. However, the opinions of Loh, Horner, and some other analysts are not fully independent and impartial--Loh is a consultant for Pratt and Whitney, and Horner is a General Electric consultant.

Another expert with questionable impartiality involved in the F-35 engine debate is Loren Thompson from the Lexington Institute, who landed in hot water last June for his comments on the Air Force's aerial tanker contract competition. Thompson has recently been arguing against the second engine, but his staunch opposition contrasts with his public statements on the program in 2005 and 2006. For example, in 2006 he expressed concerns over a Pratt & Whitney “monopoly” but now criticizes use of this term and worries that a second engine would sacrifice economies of scale. This change in tone may be completely innocent, but the Lexington Institute's receipt of funds from Pratt & Whitney raises questions about Thompson's impartiality. Thompson admitted this funding relationship in 2008 but stated that Lexington Institute had received money from donors on both sides of the issue. He also characterized Pratt & Whitney's contributions as a “very small portion” of the Lexington Institute's revenues.

POGO doesn't have a strong position on the alternate engine debate. We just hope the government isn't traveling further down the military-industrial-congressional rabbit hole by relying on the analysis of experts from entities with a financial interest in the outcome. Didn't we learn anything from the F-22?

-- John Cappel

(H/t to POGO intern Ana O'Harrow for her invaluable research on this issue)

UPDATE: The Senate just voted to strike funding for the alternate engine.

Highlights from the SIGTARP Hearing

The media's coverage of the new quarterly report by the Special Inspector General for the Troubled Asset Relief Program (SIGTARP) has largely focused on one shocking number: $23.7 trillion. That's the total potential government support for programs aimed at stabilizing the financial system, spread out over 50 different initiatives run by the Treasury Department, Federal Reserve, Federal Deposit Insurance Corporation, and other agencies.

Treasury has disputed this number, pointing out that actual cash outlays so far have been less than $2 trillion. And it is highly unlikely that taxpayers will ever be on the hook for the full $23.7 trillion--for instance, some companies have already begun paying the government back for the loans and capital injections they received. Nonetheless, this is a truly staggering figure--nearly double our total economic output in 2008--and it's based on the government's own estimates (see p. 138 of the SIGTARP report to see how they arrived at $23.7 trillion).

But there's a lot more to explore in the SIGTARP report, and we're glad that Special IG Neil Barofsky got a chance to explain many of his findings and recommendations at a hearing yesterday before the House Oversight and Government Reform Committee.

Highlights from the hearing are below the jump: