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Out of House, out of mind.

For Science Applications International Corporation, the deal was a sweet one. The Department of Defense had hired the company to evaluate weapons performance. Simultaneously, Science Applications (SAIC) had contracts or subcontracts to help make many of these same weapons, including the Patriot, Stinger, and Harpoon missiles. It was like letting a business school aspirant write her GMATs--and then grade them.

The perversity of this arrangement was not lost on Republican Senator William Roth of Delaware, who said at a June 1989 congressional hearing that the company was "being asked to support testing assessments for [the Strategic Defense Initiative]. At the same time SAIC is the 26th largest SDI contractor. Tell me that is not a conflict of interest." The senator had a point, and the Defense Department knew it. After the hearing, Defense canceled the contract, and the SAIC episode suddenly looked like an example of government actually working.

That impression lasted two years. On December 10, 1991, avid readers of the Federal Register saw an oblique two-page notice from the Department of Energy announcing it was hiring SAIC to evaluate programs even though there was "a potential conflict in that SAIC... could [be] reviewing its own work."

How did SAIC end up the sole bidder and winner of another lucrative deal, not to mention another conflict of interest in another agency? A glitch in bureaucratic communications? Sadly, it's more like business as usual in the free-wheeling, double-dealing realm of government contracting, where companies often straddle the public and private sectors to maximize profits from both, and fritter away taxpayers' money on expenses that would give even William Sessions pause.

In the past decade, more and more companies have elbowed in on the action as the amount of work farmed out to companies ballooned. Since 1981, for instance, Environmental Protection Agency dollars spent on contractors increased 237 percent. The Department of Energy (DOE), an early Reagan reduction target, lost more than 4,000 employees during the eighties. As of 1990, DOE's contract workers outnumbered staff seven to one.

None of this would be alarming if contractors had some real accountability to taxpayers and refrained from stunts like charging embossed chocolates and rent-a-clowns to the government. Instead, no one effectively oversees contract money, how wisely it is spent, and the value taxpayers get for their dollar. The results have been predictable: waste in Sagansized numbers ($35 billion, according to Arkansas Senator David Pryor) and government agencies that contract out so much of their brainpower that they are incapable of doing their own work, let alone supervising it adequately.

No interest in conflicts

For decades, contracting out has been common among agencies trying either to evade personnel ceilings or purchase outside expertise. But the Reagan and Bush administrations, promising victories against red tape and over-centralization, began to push agencies to let the private sector take over government functions. In theory, the idea has merit. It could bring the rules of the marketplace to the federal bureaucracy, breed new efficiency through competition, and allow result-oriented technocrats to deliver quality programs, services, and products.

Meanwhile, Congress continued to pass major new legislation--such as the Clean Air Act and new pesticide laws--that increased agency workloads. The combination of shrinking budgets, increased demands, employment ceilings, and the pressure created by the swelling deficit pressed agencies to turn over a multitude of responsibilities to contractors.

But while more and more work was farmed out, the government actually reduced the number of overseers. The Defense Audit Contract Agency, a division of the Pentagon charged with monitoring 99 percent of all agency contracts, has lost 1,200 of its 7,100 auditors since 1989, and the Bush administration would have cut more had Congress not intervened. With auditors so scarce, it's not shocking that agencies flunked another management task: They let contractors take over core policy work, despite government guidelines against this practice. Contractors drafted congressional testimony for agency higher-ups, ran public hearings, gave policy opinions over government hotline numbers, and even wrote foreign policy papers.

Self-policing by the agencies has been equally anemic. A recent report by the General Accounting Office (GAO) stated that the DOE's Albuquerque field office employed this novel oversight technique: They allowed contractors to make their own determinations on whether they had a conflict-of-interest on a given project. And this is true not just in Albuquerque but in most DOE programs. In 1990, a special DOE panel reviewed contract files to see how well it was looking out for conflicts of interest. Most firms told auditors they had no conflicts. But the companies told a different tale in their pitches to the private sector, where they positively crowed about all the "relevant" work they had done--work that agencies clearly should have explored for conflicts.

With companies eagerly flaunting their government work to clients and with no one to look over their shoulders, conflicts of interest aren't just inevitable, they're advertised. A recent Booz-Allen & Hamilton brochure gloats that "our focus on high technology for government and industry benefits both sectors... we offer commercial clients an unparalleled resource to wield technology for competitive advantage." If potential Booz-Allen clients liked the sound of that come-on, the saucier news is that "technical expertise" now includes providing "policy support" to the EPA Superfund program and at the same time helping companies figure out what to do with their toxic waste.

Then there are the horror stories about contractors going to town on the taxpayers' dime. One $1.4 billion contractor under EPA's Superfund program to clean up toxic waste dumps, CH2M Hill, Inc., charged the EPA for reindeer suits, a rent-a-clown, $7,700 worth of liquor, $4,100 worth of tickets to sporting events, and thousands of dollars of chocolates embossed with the company's 1ogo. The Martin Marietta Corporation, hired to help sell government-owned uranium, treated itself to half a million dollars in wine-tasting parties, dinners on chartered boats, golf fees, and other forms of the high life.

Agencies often accept such outrages because years of relying on contractors have made the agencies dependent on them. The EPA, for instance, was barely razed when Computer Sciences Corporation (CSC), a company that provides computer support for the agency, tinkered with its contract until it was charging another $5.3 million worth of work. An overseeing contract officer simply approved these changes verbally, barely reviewing them first. Firing Computer Sciences (and the overseeing officer) might have been the obvious next move, but not when the company's computers operate everything from the agency's payroll accounts to databases on toxics. EPA had become so dependent on the company that it has consistently renewed CSC's contracts despite cheaper bids from other companies.

For example, in 1990, CSC won a $347 million EPA contract even though its bid came in $56 million higher than the lowest. The EPA's stated reason for hiring CSC anyway was the "quality of the personnel." Yet nine weeks after the contract was awarded, CSC asked the EPA to waive experience and education requirements for 149 CSC employees and 16 subcontractor employees. The Inspector General's office found $66,000 worth of invoices charging the EPA for less than specialized courses, like WordPerfect classes.

The CSC case illustrates a grand irony of the present system: Privatization was supposed to bring market forces to bear on our portly bureaucracy, but because agencies are often hooked on certain companies, in many instances it's simply led to new monopolies. The EPA is finally cracking down on CSC--but only after intense criticism from its inspector general and a set of embarassing congressional hearings.

There's little mystery about what is needed to treat the multi-faceted ills of contracting. Without rigorous oversight no one should be stunned when contractors emboss chocolates instead of delivering top-notch work. That means agencies must, first, take the competitive bidding process seriously; and, second, make it part of their jobs to leave their offices on a regular basis to get a first-hand gander at what is actually being done, how well, and by whom.

And tougher contracts can go a long way to insure that private companies don't become agency barnacles. There's no reason, for instance, the EPA cannot clearly stipulate that its data-base be kept in a manner that makes it easily transferable, and keep at least the prospect of competition alive. Agencies should also have the good sense to keep essential policy making within its purview. It's imperative that staffs know when they are being conned by the experts.

An agency can contract out work without giving itself a lobotomy. Several agencies saved themselves a bundle--and did not compromise their intelligence-back in 1981 when they began to contract out their travel arrangements to travel agencies, work which for nearly a century had been done, expensively and incompetently, by in-house staff. Under the arrangement, the 40 commercial outfits charge nothing for their work and leave bureaucrats with more time for their real jobs. The deal is so sweet that it prompted the GAO to do something it rarely does: Declare a government program a success.

Far more often, however, assessments of contractors are quite the opposite. One of the more recent was lobbed from the Office of Management and Budget (OMB), which finally weighed in on the contracting mess in October 1992 recommending reforms as sane as they are overdue. (For example, it urged a policy on how agencies decide who audits what.) In January, incoming OMB director Leon Panetta told the Government Affairs Committee, "the whole contracting out issue scares me in terms of the kinds of operations that go on with people who don't follow up, who don't require certain objectives to be achieved, who don't oversee these contracts when they are implemented."

Congress, meanwhile, had little luck combatting these problems by limiting the amount agencies can spend on contracts. For two consecutive years in the mid-eighties, Pryor amended almost every appropriations bill with a cap on spending for consulting and contracting services. The cap, he later learned, had little effect on agency behavior. That's because spending caps are like employment ceilings: They force the hand of the agencies--but not necessarily to do what makes them more efficient. The problem is not how much is being spent on contracting (remember, done correctly this can save money) but how much is being wasted, and combatting waste takes nothing more elaborate than vigilant management. Scandalously few agencies are monitoring performance and rewarding the good or weeding out the bad.

Bureaucrats of the future are more likely to be managers--overseeing a data inputting contract rather than inputting data. (That's one reason this new bureaucracy could find it easier to attract talented people.) No doubt effecting change on this scale will take some getting used to, and agencies may need a few years before they get the hang of their new roles. But the grace period has gone on long enough. Minus some real change, the trend toward privatization won't have solved the troubles that have long been endemic to the bureaucracy; it will just have relocated the whole problem in the private sector and given it some fancy new names.
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Title Annotation:government contractors lack effective oversight
Author:Watzman, Nancy
Publication:Washington Monthly
Date:Apr 1, 1993
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