AGA Today
Contractors Take
on Biggest Role Ever in Washington
By Scott Shane and
Ron Nixon
The New York Times
WASHINGTON,
Feb. 3 — In June, short of people to process cases of incompetence and
fraud by federal contractors, officials at the
General Services Administration
responded with what has become the government’s reflexive answer to
almost every problem.
They hired another contractor.
It did not matter that the company they
chose, CACI International, had itself recently avoided a suspension from
federal contracting; or that the work, delving into investigative files
on other contractors, appeared to pose a conflict of interest; or that
each person supplied by the company would cost taxpayers $104 an hour.
Six CACI workers soon joined hundreds of other private-sector workers at
the G.S.A., the government’s management agency.
Without a public debate or formal
policy decision, contractors have become a virtual fourth branch of
government. On the rise for decades, spending on federal contracts has
soared during the Bush administration, to about $400 billion last year
from $207 billion in 2000, fueled by the war in Iraq, domestic security
and Hurricane Katrina, but also by a philosophy that encourages
outsourcing almost everything government does.
Contractors still build ships and
satellites, but they also collect income taxes and work up agency
budgets, fly pilotless spy aircraft and take the minutes at policy
meetings on the war. They sit next to federal employees at nearly every
agency; far more people work under contracts than are directly employed
by the government. Even the government’s online database for tracking
contracts, the Federal Procurement Data System, has been outsourced (and
is famously difficult to use).
The contracting explosion raises
questions about propriety, cost and accountability that have long
troubled watchdog groups and are coming under scrutiny from the
Democratic majority in Congress. While flagrant cases of fraud and waste
make headlines, concerns go beyond outright wrongdoing. Among them:
Competition, intended to produce
savings, appears to have sharply eroded. An analysis by The New York
Times shows that fewer than half of all “contract actions” — new
contracts and payments against existing contracts — are now subject to
full and open competition. Just 48 percent were competitive in 2005,
down from 79 percent in 2001.
The most secret and politically
delicate government jobs, like intelligence collection and budget
preparation, are increasingly contracted out, despite regulations
forbidding the outsourcing of “inherently governmental” work. Scott Amey,
general counsel at the Project on Government Oversight, a watchdog
group, said allowing CACI workers to review other contractors captured
in microcosm “a government that’s run by corporations.”
Agencies are crippled in their ability
to seek low prices, supervise contractors and intervene when work goes
off course because the number of government workers overseeing contracts
has remained level as spending has shot up. One federal contractor
explained candidly in a conference call with industry analysts last May
that “one of the side benefits of the contracting officers being so
overwhelmed” was that existing contracts were extended rather than put
up for new competitive bidding.
The most successful contractors are not
necessarily those doing the best work, but those who have mastered the
special skill of selling to Uncle Sam. The top 20 service contractors
have spent nearly $300 million since 2000 on lobbying and have donated
$23 million to political campaigns. “We’ve created huge behemoths that
are doing 90 or 95 percent of their business with the government,” said
Peter W. Singer, who wrote a book on military outsourcing. “They’re not
really companies, they’re quasi agencies.” Indeed, the biggest federal
contractor, Lockheed Martin, which has spent $53 million on lobbying and
$6 million on donations since 2000, gets more federal money each year
than the Departments of Justice or Energy.
Contracting almost always leads to less
public scrutiny, as government programs are hidden behind closed
corporate doors. Companies, unlike agencies, are not subject to the
Freedom of Information Act. Members of Congress have sought
unsuccessfully for two years to get the Army to explain the contracts
for Blackwater USA security officers in Iraq, which involved several
costly layers of subcontractors.
Weighing the Limits
The contracting surge has raised bipartisan alarms. A just-completed
study by experts appointed by the White House and Congress, the
Acquisition Advisory Panel, found that the trend “poses a threat to the
government’s long-term ability to perform its mission” and could
“undermine the integrity of the government’s decision making.”
Polly Endreny, a contract employee,
likes the arrangement, which offers better pay and benefits.
The House Committee on Oversight and
Government Reform, whose new Democratic chairman,
Representative Henry A. Waxman
of California, added the word “oversight” to signal his intentions,
begins a series of investigative hearings on Tuesday focusing on
contracts in Iraq and at the
Department of Homeland Security.
"Billions of dollars are being
squandered, and the taxpayer is being taken to the cleaners,” said Mr.
Waxman, who got an “F” rating last year from the Contract Services
Association, an industry coalition. The chairman he succeeded,
Representative Thomas M. Davis III, Republican of Virginia, earned an
“A.”
David M. Walker, who as comptroller
general of the United States leads the
Government Accountability Office,
has urged Congress to take a hard look at the proper limits of
contracting. Mr. Walker has not taken a stand against contractors — his
agency is also dependent on them, he admits — but he says they often
fail to deliver the promised efficiency and savings. Private companies
cannot be expected to look out for taxpayers’ interests, he said.
"There’s something civil servants have
that the private sector doesn’t,” Mr. Walker said in an interview. “And
that is the duty of loyalty to the greater good — the duty of loyalty to
the collective best interest of all rather than the interest of a few.
Companies have duties of loyalty to their shareholders, not to the
country.”
Even the most outspoken critics
acknowledge that the government cannot operate without contractors,
which provide the surge capacity to handle crises without expanding the
permanent bureaucracy. Contractors provide specialized skills the
government does not have. And it is no secret that some government
executives favor contractors because they find the federal bureaucracy
slow, inflexible or incompetent.
Stan Soloway, president of the
Professional Services Council, which represents government contractors,
acknowledged occasional chicanery by contractors and too little
competition in some areas. But Mr. Soloway asserted that critics had
exaggerated the contracting problems.
“I don’t happen to think the system is
fundamentally broken,” he said. “It’s remarkable how well it works,
given the dollar volume.”
Blurring the Lines
Wariness of government contracting
dates at least to 1941, when
Harry S. Truman,
then a senator, declared, “I have never yet found a contractor who, if
not watched, would not leave the government holding the bag.”
But the recent contracting boom had its
origins in the “reinventing government” effort of the Clinton
administration, which slashed the federal work force to the lowest level
since 1960 and streamlined outsourcing. Limits on what is “inherently
governmental” and therefore off-limits to contractors have grown fuzzy,
as the General Services Administration’s use of CACI International
personnel shows.
“Hi Heinz,” Renee Ballard, a G.S.A.
official, wrote in an e-mail message to Heinz Ruppmann, a CACI official,
last June 12, asking for six “contract specialists” to help with a
backlog of 226 cases that could lead to companies being suspended or
barred from federal contracting. The CACI workers would review files and
prepare “proposed responses for review and signature,” she wrote.
Mr. Amey, of the Project on Government
Oversight, which obtained the contract documents under the Freedom of
Information Act, said such work was clearly inherently governmental and
called it “outrageous” to involve contractors in judging the misdeeds of
potential competitors. CACI had itself been reviewed in 2004 for
possible suspension in connection with supplying interrogators to the
Abu Ghraib prison in Iraq. The company was ultimately cleared, though
the G.S.A. found that CACI employees had improperly written parts of the
“statements of work” for its own Iraq contract.
The price of $104 an hour — well over
$200,000 per person annually — was roughly double the cost of pay and
benefits of a comparable federal worker, Mr. Amey said.
Asked for comment, the G.S.A. said
decisions on punishments for erring contractors “is indeed inherently
governmental.” But the agency said that while the CACI workers assisted
for three months, “all suspension/debarment decisions were made by
federal employees.” A CACI spokeswoman made the same point.
The G.S.A., like other agencies, said
it did not track the number or total cost of its contract workers. The
agency administrator, Lurita Doan, who previously ran a Virginia
contracting firm, has actively pushed contracting. Ms. Doan recently
clashed with her agency’s inspector general over her proposal to remove
the job of auditing contractors’ proposed prices from his office and to
hire contractors to do it instead.
On some of the biggest government
projects, Bush administration officials have sought to shift some
decision making to contractors. When Michael P. Jackson, deputy
secretary of the Department of Homeland Security, addressed potential
bidders on the huge Secure Border Initiative last year, he explained the
new approach.
“This is an unusual invitation,” said
Mr. Jackson, a contracting executive before joining the agency. “We’re
asking you to come back and tell us how to do our business.”
Boeing, which won the $80 million
first phase of the estimated $2 billion project, is assigned not only to
develop technology but also to propose how to use it, which includes
assigning roles to different government agencies and contractors.
Homeland Security officials insist that they will make all final
decisions, but the department’s inspector general, Richard L. Skinner,
reported bluntly in November that “the department does not have the
capacity needed to effectively plan, oversee and execute the SBInet
program.”
A ‘Blended Work Force’
If the government is exporting some traditional functions to
contractors, it is also inviting contractors into agencies to perform
delicate tasks. The State Department, for instance, pays more than $2
million a year to BearingPoint, the consulting giant, to provide support
for Iraq policy making, running software, preparing meeting agendas and
keeping minutes.
State Department officials insist that
the company’s workers, who hold security clearances, merely relieve
diplomats of administrative tasks and never influence policy. But the
presence of contractors inside closed discussions on war strategy is a
notable example of what officials call the “blended work force.”
That blending is taking place in
virtually every agency. When Polly Endreny, 29, sought work last year
with the National Oceanographic and Atmospheric Administration, she was
surprised to discover that most openings were with contractors.
“The younger generation is coming in
on contracts,” said Ms. Endreny, who likes the arrangement. Today, only
the “Oak Management” on her ID badge distinguishes her from federal
employees at the agency’s headquarters.
She said her pay was “a little higher”
than that of comparable federal workers, and she gets dental coverage
they do not. Such disparities can cause trouble. A recent study of one
NOAA program where two-thirds of the work force were contractors found
that differences in salary and benefits could “ substantially undermine
staff relations and morale.”
The shift away from open competition
affects more than morale. One example among many: with troops short in
Iraq, Congress in 2003 waived a ban on the use of private security
guards to protect military bases in the United States. The results for
the first $733 million were dismal, investigators at the Government
Accountability Office found.
The Army spent 25 percent more than it
had to because it used sole-source contracts at 46 of 57 sites, the
investigators concluded. And screening of guards was so lax that at one
base, 61 guards were hired despite criminal records, auditors reported.
Yet the Army gave the contractors more than $18 million in incentive
payments intended to reward good performance. (The Army did not contest
G.A.O.’s findings and has changed its methods.)
A Coalition for Contracting
Mr. Soloway, of the contracting industry group, argues that the
contracting boom has resulted from the collision of a high-technology
economy with an aging government work force — twice as many employees
are over 55 as under 30. To function, Mr. Soloway said, the government
must now turn to younger, skilled personnel in the private sector, a
phenomenon likely to grow when what demographers call a “retirement
tsunami” occurs over the next decade.
"This is the new face of government,”
Mr. Soloway said. “This isn’t companies gouging the government. This is
the marketplace.”
But Paul C. Light of
New York University,
who has long tracked the hidden contractor work force to assess what he
calls the “true size of government,” says the shift to contractors is
driven in part by federal personnel ceilings. He calls such ceilings a
“sleight of hand” intended to allow successive administrations to brag
about cutting the federal work force.
Yet Mr. Light said the government had
made no effort to count contractors and no assessment of the true costs
and benefits. “We have no data to show that contractors are actually
more efficient than the government,” he said.
Meanwhile, he said, a potent coalition
keeps contracting growing: the companies, their lobbyists and supporters
in Congress and many government managers, who do not mind building ties
to contractors who may hire them someday. “All the players with any
power like it,” he said.
That is evident wherever in Washington
contractors gather to scout new opportunities. There is no target richer
than the Homeland Security Department, whose Web site, in a section
called “Open for Business,” displays hundreds of open contracts,
including “working with selected cities to develop and exercise their
catastrophic plans” ($500,000 to $1 million) and “Conduct studies and
analyses, systems engineering, or provide laboratory services to various
organizations to support the DHS mission” ($20 to $50 million).
One crisp morning in an office
building with a spectacular view of the Capitol, Alfonso Martinez-Fonts
Jr., the agency’s assistant secretary for the private sector, addressed
a breakfast seminar on “The Business of Homeland Security.” The session
drew a standing-room crowd.
Mr. Martinez-Fonts, a banker before
joining the government, said he could not personally hand out contracts
but could offer “tips, hints and directions” to companies on the hunt.
Joe Haddock, a Sikorsky Helicopters
executive, summed up the tone of the session. “To us contractors,” Mr.
Haddock said, “money is always a good thing.”