Out of House, out of mind - government contractors lack effective oversight

Washington Monthly, April, 1993 by Nancy Watzman

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.