Bush replacing government with corporations


Richard Moore

Original source URL:

February 4, 2007

In Washington, Contractors Take On Biggest Role Ever

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 government¹s 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 government¹s 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 government¹s 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 ³contract 
actions² ‹ 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 ³inherently governmental² 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 ³a 
government that¹s run by corporations.²

¶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 ³one of the side benefits of the contracting officers 
being so overwhelmed² 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. ³We¹ve created huge behemoths 
that are doing 90 or 95 percent of their business with the government,² said 
Peter W. Singer, who wrote a book on military outsourcing. ³They¹re not really 
companies, they¹re quasi agencies.² 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 ³poses a threat to the government¹s long-term 
ability to perform its mission² and could ³undermine the integrity of the 
government¹s decision making.²

The House Committee on Oversight and Government Reform, whose new Democratic 
chairman, Representative Henry A. Waxman of California, added the word 
³oversight² to signal his intentions, begins a series of investigative hearings 
on Tuesday focusing on contracts in Iraq and at the Department of Homeland 

³Billions of dollars are being squandered, and the taxpayer is being taken to 
the cleaners,² said Mr. Waxman, who got an ³F² 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 ³A.²

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 taxpayers¹ interests, he said.

³There¹s something civil servants have that the private sector doesn¹t,² Mr. 
Walker said in an interview. ³And 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.²

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 

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.

³I don¹t happen to think the system is fundamentally broken,² he said. ³It¹s 
remarkable how well it works, given the dollar volume.²

Blurring the Lines

Wariness of government contracting dates at least to 1941, when Harry S. Truman,
then a senator, declared, ³I have never yet found a contractor who, if not 
watched, would not leave the government holding the bag.²

But the recent contracting boom had its origins in the ³reinventing government² 
effort of the Clinton administration, which slashed the federal work force to 
the lowest level since 1960 and streamlined outsourcing. Limits on what is 
³inherently governmental² and therefore off-limits to contractors have grown 
fuzzy, as the General Services Administration¹s use of CACI International 
personnel shows.

³Hi Heinz,² 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 ³contract 
specialists² 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 ³proposed responses for review and signature,² she 

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 ³outrageous² 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 ³statements of 
work² 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 

Asked for comment, the G.S.A. said decisions on punishments for erring 
contractors ³is indeed inherently governmental.² But the agency said that while 
the CACI workers assisted for three months, ³all suspension/debarment decisions 
were made by federal employees.² 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 agency¹s inspector general over her proposal to remove
the job of auditing contractors¹ 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 

³This is an unusual invitation,² said Mr. Jackson, a contracting executive 
before joining the agency. ³We¹re asking you to come back and tell us how to do 
our business.²

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 department¹s inspector general, Richard L. Skinner, reported 
bluntly in November that ³the department does not have the capacity needed to 
effectively plan, oversee and execute the SBInet program.²

A ŒBlended Work Force¹

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 company¹s 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 ³blended work force.²

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 

³The younger generation is coming in on contracts,² said Ms. Endreny, who likes 
the arrangement. Today, only the ³Oak Management² on her ID badge distinguishes 
her from federal employees at the agency¹s headquarters.

She said her pay was ³a little higher² 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 ³ substantially 
undermine staff relations and morale.²

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.¹s 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 ³retirement tsunami² occurs over the next decade.

³This is the new face of government,² Mr. Soloway said. ³This isn¹t companies 
gouging the government. This is the marketplace.²

But Paul C. Light of New York University, who has long tracked the hidden 
contractor work force to assess what he calls the ³true size of government,² 
says the shift to contractors is driven in part by federal personnel ceilings. 
He calls such ceilings a ³sleight of hand² 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. ³We have no data to show that 
contractors are actually more efficient than the government,² 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. ³All the 
players with any power like it,² 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 ³Open for Business,² displays hundreds of 
open contracts, including ³working with selected cities to develop and exercise 
their catastrophic plans² ($500,000 to $1 million) and ³Conduct studies and 
analyses, systems engineering, or provide laboratory services to various 
organizations to support the DHS mission² ($20 to $50 million).

One crisp morning in an office building with a spectacular view of the Capitol, 
Alfonso Martinez-Fonts Jr., the agency¹s assistant secretary for the private 
sector, addressed a breakfast seminar on ³The Business of Homeland Security.² 
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 ³tips, hints and directions² to 
companies on the hunt.

Joe Haddock, a Sikorsky Helicopters executive, summed up the tone of the 
session. ³To us contractors,² Mr. Haddock said, ³money is always a good thing.²

Copyright 2007 The New York Times Company

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