[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]
RESPONSIBILITY IN FEDERAL HOMELAND SECURITY CONTRACTING
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FULL HEARING
of the
COMMITTEE ON HOMELAND SECURITY
HOUSE OF REPRESENTATIVES
ONE HUNDRED TENTH CONGRESS
FIRST SESSION
__________
APRIL 20, 2007
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Serial No. 110-27
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Printed for the use of the Committee on Homeland Security
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COMMITTEE ON HOMELAND SECURITY
BENNIE G. THOMPSON, Mississippi, Chairman
LORETTA SANCHEZ, California, PETER T. KING, New York
EDWARD J. MARKEY, Massachusetts LAMAR SMITH, Texas
NORMAN D. DICKS, Washington CHRISTOPHER SHAYS, Connecticut
JANE HARMAN, California MARK E. SOUDER, Indiana
PETER A. DeFAZIO, Oregon TOM DAVIS, Virginia
NITA M. LOWEY, New York DANIEL E. LUNGREN, California
ELEANOR HOLMES NORTON, District of MIKE ROGERS, Alabama
Columbia BOBBY JINDAL, Louisiana
ZOE LOFGREN, California DAVID G. REICHERT, Washington
SHEILA JACKSON-LEE, Texas MICHAEL T. McCAUL, Texas
DONNA M. CHRISTENSEN, U.S. Virgin CHARLES W. DENT, Pennsylvania
Islands GINNY BROWN-WAITE, Florida
BOB ETHERIDGE, North Carolina MARSHA BLACKBURN, Tennessee
JAMES R. LANGEVIN, Rhode Island GUS M. BILIRAKIS, Florida
HENRY CUELLAR, Texas DAVID DAVIS, Tennessee
CHRISTOPHER P. CARNEY, Pennsylvania
YVETTE D. CLARKE, New York
AL GREEN, Texas
ED PERLMUTTER, Colorado
VACANCY
Jessica Herrera-Flanigan, Staff Director & General Counsel
Rosaline Cohen, Chief Counsel
Michael Twinchek, Chief Clerk
Robert O'Connor, Minority Staff Director
(II)
C O N T E N T S
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Page
STATEMENTS
The Honorable Bennie G. Thompson, a Representative in Congress
From the State of Mississippi, and Chairman, Committee on
Homeland Security.............................................. 1
The Honorable Gus M. Bilirakis, a Representative in Congress From
the State of Florida........................................... 2
The Honorable Yvette Clarke, a Representative in Congress From
the State of New York.......................................... 10
The Honorable Al Green, a Representative in Congress From the
State of Texas................................................. 14
The Honorable Sheila Jackson Lee, a Representative in Congress
From the State of Texas........................................ 12
Witnesses
Panel I
Ms. Elaine Duke, Chief Procurement Officer, Department of
Homeland Security:
Oral Statement................................................. 3
Prepared Statement............................................. 4
Panel II
Mr. Scott H. Amey, General Counsel, Project on Government
Oversight (POGO):
Oral Statement................................................. 16
Prepared Statement............................................. 18
Mr. Alan Chvotkin, Senior Vice President and Counsel,
Professional Services Council:
Oral Statement................................................. 25
Prepared Statement............................................. 27
Professor Charles Tiefer, Private Citizen:
Oral Statement................................................. 30
Prepared Statement............................................. 31
Appendix
Questions and Responses:
Responses From Mr. Scott H. Amey............................... 51
RESPONSIBILITY IN FEDERAL HOMELAND SECURITY CONTRACTING
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Friday, April 20, 2007
U.S. House of Representatives,
Committee on Homeland Security,
Washington, D.C.
The committee met, pursuant to call, at 10:12 a.m., in Room
311, Cannon House Office Building, Hon. Bennie G. Thompson
[chairman of the committee] presiding.
Present: Representatives Thompson, Jackson Lee, Cuellar,
Carney, Clarke, Green, Rogers, McCaul, Dent, and Bilirakis.
Chairman Thompson. I would like to call the hearing to
order. We are scheduled to have a series of votes in the next
15 to 20 minutes. What we would like to do is get our first
witness out of--comments out so we can begin the questioning.
Ranking Member King is delayed a few minutes. But since it is a
hearing, we can begin since we have, according to the rules,
enough members to begin.
I want to thank our witnesses who are here today. Federal
contracting is an important issue. Every year, the Federal
Government spends billions of dollars in buying goods and
services from the private sector. There is a necessary
relationship between the government and the private sector. In
2006 alone, DHS spent about 40 percent of its $31 billion
budget on contracts for goods and services, making DHS the
third-largest purchaser in the Federal sector.
I have been told their responsibility in contracting is a
government-wide issue and shouldn't be the concern for this
committee. I have also been told that strengthening
responsibility rules must be a government-wide undertaking.
Yes, I agree that responsibility should permeate every
procurement shop in the Federal Government. But that will never
happen unless one agency steps forward and decides to reach for
a higher standard. Increasing contract accountability at DHS
will help transform the 6 slip shot contracting methods that
pervade the Federal Government.
As Members of Congress, we have a duty to ensure that
before the taxpayers' money is spent, DHS knows the company
receiving it will exercise sound business practices ethics and
integrity. Yet, I am told that responsibility in contracting is
a controversial topic. How could anyone be opposed to increase
standards of accountability? Assuring accountability before
contracts are awarded would reduce fraud, waste and abuse later
on down the line. Experience has proven that there is a direct
connection between an agency failing to adequately compete a
contract and poor performance on that contract.
The billions wasted in no-bid sole source contracts awarded
after Katrina stand as a testament to that fact. Traditionally,
full and open competition has been a government-wide standard.
However, in recent years, there has been a troubling shift
toward noncompetitive sole source contract.
In fiscal year 2005 alone, nearly 50 percent of DHS
contract awards was sole source, no-bid contracts. This
committee has established a robust record and a demonstrated
commitment to increased responsibility in contracting at the
Department of Homeland Security. In our authorization bill for
fiscal year 2008, we require each contractor to disclose any
role its company may have had in creating any part of the
contract vehicle that it is bidding on. We also require a
statement from each contractor that it is not in default or
delinquent on Federal tax obligations. This is a good start and
does not stop there. If a company wants a DHS contract, should
we expect at the very least that there is no conflict of
interest and they have paid their taxes?
Contractor responsibility is just this simple. Federal tax
dollars should not be used to support companies that are not
willing to comply with Federal law. I want to thank all our
witnesses who are here today and I look forward to our
testimony.
I understand Mr. Bilirakis will do the opening statement
for our Ranking Member, Mr. King. I yield to Mr. Bilirakis.
Mr. Bilirakis. Thank you, Mr. Chairman. I appreciate it
very much. It is an honor to be able to present the opening
statement on behalf of Mr. King. It is imperative that DHS work
with responsible contractors in procuring goods and services
from the private sector. Awarding contracts to responsible
bidders means decreasing the potential for waste, fraud and
abuse in the system. This is critical, given the limited number
of dollars DHS has to counter the many threats to the security
of the homeland. There already exists clear standards for
responsible bidders in government contracting. We must remember
that there already exists a substantive and well-founded
regulatory framework that pertains to government procurement,
the Federal Acquisition Regulations or FAR.
It is important to note that no agency, including the
Department of Homeland Security, can opt out or exempt itself
from the FAR. In all, DHS contractors are faced with nearly
1,500 pages of government procurement standards. Complying with
this voluminous and oftentimes burdensome set of regulations is
a challenge for many businesses. It has the potential to
discourage would-be government contractors, and the burden of
these complicated regulations often falls disproportionately on
small businesses which do not have the government procurement
expertise to navigate the rules of this complicated acquisition
system.
The Department of Homeland Security, due to its mission of
protecting the homeland, certainly has a high volume of
procurement contracts. However, the Department is only 4 years
old. While the Department has seen its share of procurement
problems and issues with Federal contractors, many of the DHS
procurement problems have more to do with the lack of
experience and training on the part of DHS acquisition
workforce than a lack of standards for contracts.
Additional or new procurement regulations are not the
answer. The answer lies with the Department in properly
following and complying with existing procurement standards,
vetting prospective contractors and conducting substantive due
diligence to the best of its ability. This committee also has a
responsibility in this process in carrying out our highly
important oversight responsibilities.
I thank the witnesses for appearing before the committee
today. And I look forward to your testimony. Thank you, Mr.
Chairman.
Chairman Thompson. Thank you very much. Ms. Duke, we are
going to try to get through your testimony, and we will come
back after that for questions. But in the interest of time,
please begin your testimony.
STATEMENT OF ELAINE DUKE, CHIEF PROCUREMENT OFFICER, DEPARTMENT
OF HOMELAND SECURITY
Ms. Duke. Thank you. Thank you, Mr. Chairman, members of
the committee for the opportunity to appear with you to discuss
the DHS contracting procedures on responsibility. In my written
testimony, I outlined the detail of the processes and systems
we rely on to ensure that we do business only with responsible
contractors. For today's purposes, let me very briefly touch on
the processes and systems and address your question, are the
current standards for responsibility sufficient? In accordance
with the regulations, contracting officers are required to
obtain acceptable evidence of the prospective contractor's
ability to obtain required resources and must be provided with
a satisfactory performance record.
At DHS, our acquisition regulations supplements make it
very clear that contracting officers are to perform
responsibility determinations before awarding a contract. Their
assessments are based on a number of inputs ranging from
information collected in response to a specific procurement to
centrally available information.
For example, contracting officers evaluate a company's
financial statements, consider how long it has been in business
or may review its bond rating. Prior to making an award,
contracting officers check the excluded parties list system to
determine if a contractor is debarred or suspended from
government contracting. A single agency's suspension or
debarment decision with limited exceptions precludes all other
agencies from doing business with that excluded party. Another
critical step in determining responsibility is considering past
performance. DHS contracting officers use the government-wide
Past Performance Information Retrieval System known as PPIRS to
obtain information Federalwide on contractor past performance.
Overall responsibility determinations are also dependent on
the contractor representations and certifications as they are
known. The contractor certifies, for instance, to the best of
its knowledge and belief, whether within 3 years of its offer,
the company or any of its principles have been convicted of or
had civil judgment rendered against them for a wide range of
offenses.
Now, in response to the central question of the hearing,
are the standards for determining responsibility sufficient?
Let me start by saying that people frequently use
responsibility and suspension and debarment almost
interchangeably. Yet, responsibility determinations and
suspension debarment are both for the purposes of protecting
the government's interest, the scopes and consequences of those
actions differ considerably. A responsibility determination is
made by the contracting officer and pertains to the specific
contact action.
Of course, in conducting responsibility determination, the
contracting officer may become aware of a series of problems
that may force them to recommend a contractor for suspension
and debarment. But generally the responsibility determination
is confined to a single award and focuses on answering the
question, does the contractor have the integrity past
performance and resources to meet the government's requirement?
Contracting officers use their discretion when evaluating
the information for responsibility determination. What I mean
by this is, acquisition professionals must make the decisions
based on the information available to them and the situation
before them so that in applying the rules there may be
different outcomes in different situations. On the other hand,
suspension and debarment are made by the head of the agency and
generally relate to patterns of behavior and violations of law
regulations.
Current regulations regarding responsibility and suspension
debarment reflect a philosophy that emphasizes that the
intended purpose of the action is to prevent poor performance,
waste, fraud and abuse in Federal procurement. The motivation
behind an action to suspend or debar a contractor or for the
contracting officer to make a negative responsibility
determination is not punitive in nature, but rather a measure
designated to protect the government's interests.
We strive to be fair and reasonable, to be aware of privacy
concerns and to ensure due process is afforded where
appropriate and to craft regulations that allow for those that
may not have been model citizens in the past to be
rehabilitated so that they are eligible for government
contracts.
Mr. Chairman, I know the committee is concerned with the
contracts that are being awarded to unethical contractors. The
civilian agency acquisition council recently published two FAR
cases related to responsibility. One rule entitled Contractor
Code of Ethics and Business Conduct was initiated by members of
my staff and proposes as establishing clear and consistent
policy on contractor code of ethics and business conduct. The
second rule, Representations and Certifications on Tax
Delinquency, proposes to specifically address delinquent
Federal or State tax obligations within 3 years of an offer and
contractors' representations and certifications.
I appreciate the opportunity to testify before this
committee about DHS contracting and I would be happy to answer
questions of the committee after your vote.
[The statement of Ms. Duke follows:]
Prepared Statement of Elaine Duke
Chairman Thompson, Congressman King, and Members of the Committee,
thank you for this opportunity to appear before you to discuss the
Department of Homeland Security (DHS) acquisition program and our
contracting procedures as they relate to responsibility determinations.
I am the Chief Procurement Officer (OCPO) for the Department of
Homeland Security (DHS). I am a career executive and I have spent most
of my 23 years of public service in the procurement profession.
Before addressing responsibility determinations, I'd like to convey
my top three priorities, which are essential elements to enhancing our
ability to procure from responsible contractors.
First, to build the DHS acquisition workforce.
Second, to make good business deals.
Third, to do effective contract administration.
As the CPO, I provide oversight and support to eight procurement
offices within DHS--Customs and Border Protection (CBP), Federal
Emergency Management Agency (FEMA), Immigration and Customs Enforcement
(ICE), Transportation Security Administration (TSA), United States
Coast Guard (USCG), United States Secret Service (USSS), Federal Law
Enforcement Training Center (FLETC), and the Office of Procurement
Operations (OPO). As the CPO, my primary responsibility is to manage
and oversee the DHS acquisition program. I provide the acquisition
infrastructure by instituting acquisition policies and procedure that
allow DHS contracting offices to operate in a uniform and consistent
manner.
Mr. Chairman, I know that you are very concerned about ensuring
that DHS and its Components procure goods and services on behalf of the
American taxpayer from responsible contractors. I can assure you that
we share your interest.
Not just at DHS, but throughout Federal agencies, there is an
emphasis on conducting business with responsible contractors. The
Federal Acquisition Regulation (FAR) requires all Federal agencies to
procure goods and services only from responsible contractors. Prior to
entering into a contract, the Contracting Officer is required to obtain
acceptable evidence of the prospective contractor's ability to obtain
required resources, and also must be provided with a satisfactory
performance record. When a Contracting Officer awards a Federal
contract, he or she is making an affirmative determination that the
recipient of the contract is a responsible contractor with respect to
that contract. If there are concerns about the responsibility of
responsive small businesses, the Small Business Administration is the
sole authority for these determinations.
The FAR provides the guiding principles and the processes and
procedures the acquisition community uses to ensure that the Government
does business only with responsible contractors. The process for
reaching a conclusion that a contractor is responsible is governed by
FAR Subsection 9.104-1(a), which requires that in order to be deemed
responsible, a prospective contractor must
Have adequate financial resources;
Be able to comply with the delivery or performance
schedule;
Have a satisfactory performance record;
Possess a satisfactory record on integrity and
business ethics;
Possess the necessary organization, experience,
technical skills, accounting and operations oversight;
Have the production, construction and/or technical
equipment and facilities to perform the work required; and
Otherwise be qualified and eligible.
At DHS, our Homeland Security Acquisition Regulation, the HSAR, and
our Homeland Security Acquisition Manual, the HSAM, supplement the FAR
guidance and make it very clear that our Contracting Officers are to
perform responsibility determinations prior to making a new contract
award. In fact, DHS has even developed a form, DHS Form 700-12, to
guide the responsibility determination process. The list of factors
required by the form expands upon those required by FAR 9.104 and
includes drug free workplace, small business subcontracting compliance,
equal employment opportunity, and environmental/energy considerations.
Our Contracting Officer's assessments with respect to a
contractor's responsibility are based on a number of inputs, ranging
from information collected in response to a specific procurement to
centrally available information. For example, when assessing financial
responsibility, a DHS Contracting Officer may review and evaluate the
latest company financial statements. Other considerations may include
how long the company has been in business, any bankruptcies declared by
the company, bond rating by Moody's or Standard and Poor's, etc.
Additionally, since April of 2003, DHS has had a memorandum of
understanding in place with the Defense Contract Audit Agency (DCAA)
that makes available their expertise in determining financial
responsibility of prospective contactors.
Prior to making an award, the Contracting Officer reviews the web-
based Excluded Parties List System (EPLS) operated by the General
Services Administration to ascertain whether the contractor is debarred
or suspended from Government contracting; those on the list are
excluded from doing business with the Government. The focus of
debarment and suspension is to exclude companies that are not presently
deemed responsible. A contractor may be suspended or debarred for broad
range of conduct--commission of fraud or a criminal offense in
connection with obtaining, attempting to obtain, or performing a public
contract or subcontract; violation of Federal or State antitrust
statutes relating to the submission of offers; commission of
embezzlement, theft, forgery, bribery, falsification, or destruction of
records, making false statements, tax evasion, or receiving stolen
property. However, it should be noted that convictions or civil
judgments are not required; a debarment may use a preponderance of
evidence standard when making decisions. The standard for suspension is
adequate evidence and often is imposed when there is an indictment, but
not a current conviction or judgment. Additionally, suspension and
debarment may occur as a result of any other offense indicating a lack
of integrity or business honesty that seriously and directly affects
the present responsibility of a Government contractor or subcontractor.
But, that said, it is important to note the existence of a cause for
suspension or debarment does not necessarily require that the
contractor be suspended or debarred; the seriousness of the
contractor's acts or omissions and any remedial measures or mitigating
factors are considered.
The Excluded Parties List System (EPLS) and the Government's
debarment and suspension procedures are well-established and well-
understood within the Government and by companies who do business with
the Government. EPLS is a tool integral to the way we do business. It
provides the single comprehensive list of individuals and firms
excluded by Federal Government agencies from receiving Federal
contracts or federally approved subcontracts. A single agency's
suspension or debarment decision, with limited exceptions, precludes
all other agencies from doing business with an excluded party.
Another critical step in determining contractor responsibility is
consideration of contractor Past Performance. DHS Contracting Officers
are also required to use the Past Performance Information Retrieval
System, known as ``PPIRS'', to obtain information on contractor past
performance to assist with source selections. PPIRS is a government-
wide data warehouse which contains information on past performance of
contractors with whom the Government does business. DHS Contracting
Officers and Contracting Officer Representatives (CORs) use a feeder
system to input information on DHS contractor performance into PPIRS.
The Contractor Performance System (CPS) managed by NIH allows us to
input performance information on our DHS contract actions. This data
then feeds into the PPIRS data warehouse.
An overall responsibility determination also is dependent on
contractor representations and certifications--``reps & certs'' as they
are known. Contractors provide these FAR--required statements by using
the Online Representations and Certifications (ORCA) system. As part of
the submission, the contractor certifies, to the best of its knowledge
and belief, whether it and/or any of its principals, within a three-
year period preceding the offer, have been convicted of or had a civil
judgment rendered against them for the following: commission of fraud
or a criminal offense in connection with obtaining, attempting to
obtain, or performing a Federal, State or local Government contract or
subcontract; violation of Federal or State antitrust statutes relating
to the submission of offers; or commission of embezzlement, theft,
forgery, bribery, falsification or destruction of records, making false
statements, tax evasion, or receiving stolen property. The Contracting
Officer is responsible for reviewing the ``reps and certs'' prior to
award to ensure that the company does not present information that
would prevent an affirmative finding of contractor responsibility.
A more expanded pre-award survey may be conducted if the
Contracting Officer has reason to believe that one or more of the
responsibility standards I mentioned earlier is in doubt, or if
information is not readily available.
In response to the central question of this hearing is--Are the
standards for determining responsibility sufficient?--Let me start by
saying that people frequently use the terms ``responsibility'' and
``suspension and debarment'' almost interchangeably. Yes,
responsibility determination and suspension and debarment are both for
the purpose of protecting the interests of the Government, but the
scope, the consequences of an action, as well as the decision makers
involved, differ considerably. A responsibility determination is made
by the Contracting Officer and pertains to a specific contract action.
Of course, there are instances where during the course of a
responsibility determination, the Contracting Officer becomes aware of
serious systemic problems or a single serious breach that warrants
suspension and debarment based on actions under a single contract; but,
generally, responsibility determinations are confined to a single award
scenario and focus on answering the question: Does the contractor have
the integrity, past performance and resources to meet the Government's
requirement? Very importantly, the consequences of that determination
are limited to that contract action. On the other hand, suspension and
debarment actions are made by the Head of the Agency, or designee, and
frequently relate to patterns of behavior and violations of law. Once
the offending contractor is entered into the EPLS, the government-wide
suspension and debarment system, Contracting Officers are, almost
without exception, precluded from making any contract award to that
contractor.
To get back to your central question, are standards for determining
responsibility sufficient? I am among those across the Government who
believe that problems surrounding contractor responsibility assessment
are a training and implementation issue, not a policy issue. Concerns
about DHS doing business with contractors that may not be complying
with laws or regulations should be handled by agency suspension and
debarment officials in accordance with FAR government-wide suspension
and debarment procedures at FAR Subpart 9.4, not handled by Contracting
Officers under FAR contracting responsibility determination procedures
leading to award of individual contracts.
Let me expand on a point I made earlier. It is important to
recognize that the current regulations regarding responsibility,
suspension and debarment reflect a philosophy that emphasizes that the
intended purpose is to prevent poor performance, waste, fraud and abuse
in Federal procurement. The motivation behind an action to suspend or
debar a contractor from Federal Government contracts or for a
Contracting Officer to make a negative responsibility determination is
not punitive in nature. These actions are not intended as punishment,
but rather a measure designed to protect the Government's interests.
A responsibility determination is required for each contract award;
however, Contracting Officers use their discretion when evaluating the
information before them. What I mean by this is, our acquisition
professionals must make decisions based on the information available to
them and the situation before them so that when applying the rules,
there may be a different outcome in different situations. I believe
that as you consider whether additional guidance, tools and government-
wide processes should be added to our existing approach to determining
responsibility, it is important to maintain this discretion. Our
contracting professionals are able to make appropriate business
decisions based on the particular facts of a given situation.
I would also like to address certain important presumptions and
considerations that are built into our current processes and procedures
for responsibility. We strive to be fair, to be reasonable, to be aware
of privacy concerns, to ensure due process is afforded where
appropriate, and to craft regulations that allow for those that may not
have been model citizens in the past to be rehabilitated such that they
are eligible for Government contracts. To be sure there are competing
interests at play when we are making our determinations, but in the
end, we should be mindful that we have a very real responsibility to
balance these competing interests. After all, the consequences of our
actions with regard to responsibility determinations ultimately may
mean that we are depriving an individual of their livelihood.
Mr. Chairman, I know that you and the Members of the Committee are
concerned that contracts are being awarded to non-responsible and
unethical contractors. To that end, the Civilian Agency Acquisition
Council (CAAC) has initiated several FAR cases related to
responsibility.
In the past two months, the FAR Secretariat published two proposed
rules dealing with contractor responsibility matters. A proposed FAR
rule, entitled Contractor Code of Ethics and Business Conduct, was
published in the Federal Register on February 16, 2007. The rule,
initiated by members of my OCPO staff, establishes a clear and
consistent policy regarding contractor code of ethics and business
conduct, and responsibility to avoid improper business practices.
Additionally, the proposed rule requires contractors to provide their
employees with information on contacting the appropriate Inspector
General to report potential wrongdoing to include posting this
information on company internal websites and prominently displaying
hotline posters. The second proposed FAR rule, Representations and
Certifications-Tax Delinquency, published in the Federal Register for
public comment on March 30, 2007, proposes to amend the FAR clause
governing offerors' representations and certifications to specifically
address delinquent Federal or State tax obligations within a three year
period.
Another new FAR case, currently under consideration and not yet
published, would amend Federal regulations to address updates to Past
Performance procedures. The Office of Federal Procurement Policy's
(OFPP) Best Practices Guide, last published in May of 2000, is also
presently being updated as directed by OFPP through the Chief
Acquisition Officers' Acquisition Committee for E-Gov (ACE), which has
established an interagency working group to review regulations,
policies, and guidance associated with contractor performance
information.
In keeping with my top three objectives I iterated earlier in my
testimony, I have been growing both the size and capability of my
staff, both in operations and in my policy, training, and oversight
cadre. This is allowing us to approach our oversight responsibilities
both on the front end of the procurement cycle and the post-award back
end. We are developing a robust training program for acquisition
professional. Our Excellence in Contracting Training Series for DHS
Headquarters and Component personnel is designed to enhance the
acquisition workforce's understanding of contracting regulations and
policies. Recent topics have included Contracting by Negotiations,
Contract Financing, the SAFETY Act, and Strategic Sourcing. We are also
planning additional in-depth training in targeted areas such as Buy
American Act procedures and Performance-Based Acquisition. The growth
in the number of talented and experienced acquisition professionals in
OCPO to serve as Desk Officers enhances our ability to work closely
with the Components on their specific acquisition issues, and the
growth in the size of my Oversight group will enable OCPO to perform
more structured procurement management reviews of the Components'
acquisition programs.
Ethical behavior is a core DHS value. OCPO has developed additional
on-line ethics training, beyond what is required, which highlights
ethical acquisition practices for our Government acquisition
professionals department-wide. The training is expected to be launched
by the end of the month to our contracting personnel and all within the
Department who participate in DHS acquisitions.
Mr. Chairman, thank you for the opportunity to testify before the
Committee about DHS contracting procedures. I am glad to answer any
questions you or the Members of the Committee may have for me.
Chairman Thompson. Thank you very much. As previously
announced, we will recess the hearing. It appears that it might
be about 45 minutes before we reconvene. We have about nine
votes to take. And shortly after taking those votes, we will
reconvene.
Ms. Duke. Thank you, Mr. Chairman.
Chairman Thompson. The committee is recessed.
[Recess.]
Chairman Thompson. We will start the questioning since I
have the first opportunity.
Ms. Duke, relative to procurement, I am not certain--I know
you were not here when the Shirlington contract was authorized.
But as you know, we held some hearings on that procurement. We
shared a lot of concern from this committee on that contract.
And we have subsequently requested an Inspector Generals report
on that entire procurement, and I am told that it will be
publicly available next week.
For the record, I was briefed on it earlier this morning.
And many items that we raised in those hearings based on that
briefing I think will be found to be true. But since you have
been on board, what have you done to assure us that
procurements like Shirlington will not occur on your watch.
Ms. Duke. I think the biggest thing we have done is public
policy on how responsibility determinations are to be done. So
we have a directive on responsibility determinations and
policy. It has a checklist with it. And we, by our DHS policy,
have the form in each contract file that shows that the
contractor made an affirmative determination of responsibility
before awarding the contract. And when we do our oversight from
my office, we check to see if that determination of
responsibility has been done.
Chairman Thompson. For the record, can you provide this
committee with information on how many procurements have been
denied because contractors did not meet the nonresponsible
contractor clause?
Ms. Duke. I will gather that information for you.
Chairman Thompson. One of the things we are trying to do is
just establish those situations. Apart from that, one of the
issues I think you are aware of, also, is the number of the
private contractors and consultants that are used in
procurement. Have you been able to employ full-time procurement
personnel since your tenure at the Department and less a
reliance on contractor consultant expertise?
Ms. Duke. Within the contracting offices, we have increased
the number of people that we have, Federal employees in the
contracting offices.
We have gone up actually about 42 percent in the number of
people over the last year and a half. We still need to hire
more people in the contracting offices. Our workload is
growing, in addition. So we were behind, when we started a
number of people and then our workload is growing. So we still
are working on the hiring efforts. But we are being able to
attract people to the Department.
Chairman Thompson. How do you go about attracting people to
your department?
Ms. Duke. What we are trying to do is market the mission
that we have in the Department. We are trying to get existing
Federal employees. We are trying to get people from industry to
come in to work with the Federal workforce, and we are building
an intern program. As you know, in the President's budget, we
have enough funding to have about 70 interns, which we will
centrally manage out of my office, rotate them through the
components of the Department, and they will gradually be placed
permanently. That is a growth revitalization effort.
In terms of current, we are trying to--we put an add in The
Washington Post to attract people. We are trying to make the
human resource process a little more streamlined so that people
will come and not be deterred by the bureaucracy of getting a
Federal job. And we are working with the Federal capital
officer with that to get people more quickly from the time they
apply to the time they can be put in a Federal position, and I
think that is going to be key to our success.
Chairman Thompson. Well, a good point. We had the human
capital person before us yesterday. Can you tell me how many
positions you have authorized in your department versus how
many are out in the field to date?
Ms. Duke. We have about 1,100 positions authorized, and we
have a little under 900 filled. So we have a 24 percent vacancy
rate in the contracting field.
Chairman Thompson. Have you put together a time line where
you would like to have all 1,100 filled?
Ms. Duke. We would like to have them all filled by the end
of fiscal year 2007. But that is--we have an attrition rate
that is making it very difficult to reach that.
Chairman Thompson. If I told you that Members of Congress
are bombarded quite a bit by people who are pursuing employment
opportunities, but they very rarely hear of situations like
yours, and I am from Mississippi, and a constituent from
Mississippi probably is not reading The Washington Post, I
would like to see enhanced recruitment on your part working
with the Human Capital Operation to not only expand it, but
they are very good people who, I think, if we can touch, who
would look at Federal service as a career, and I would just
offer that as a suggestion for you to fill that void that you
have now in a faster period of time.
I will at this point yield my--any other time and I will
now call on the gentlelady from New York, Ms. Clarke.
Ms. Clarke. Thank you very much, Mr. Chairman. And thank
you for pursuing this area of expertise for oversight.
There is no doubt, Mr. Chairman, that DHS is the newest
department in our government, it is one of the government's
largest purchasers. This is why Congress must be extra vigilant
in its oversight of the department's procurement process. As
DHS continues to develop, the next few years will be vital in
determining DHS will have a legacy of wasteful spending or
makes good use of the nation's resources and protection of our
country.
I wanted to just ask you, Ms. Duke, you know, while every
agency occasionally needs to farm out certain operations that
the private sector can better handle, when it comes to the
protection of American people, our government cannot really
rely too heavily on private contractors over whom we have less
control. I am very concerned about that.
Could you tell me what DHS is doing to try to reduce the
amount of outside contractors and increase the amount of work
performed by DHS employees?
Ms. Duke. I think what we are doing is we are in the key
areas, the program offices, the offices that run the program,
we are doing our recruiting efforts to fill the majority of
those positions with Federal employees. And the recruiting
effort, I mentioned earlier, is not just for contracting
people. It is for testing, evaluation systems engineering,
program managers. And that is critical.
We feel that what happened was DHS's mission grew more
quickly than its workforce grew, and so we do have a
proportionally large reliance on contractors in key positions.
So we are systematically working through our major
programs, our major acquisition programs and making sure that
we have Federal employees running those offices.
Ms. Clarke. Can I ask you how--whether you have a plan to
really balance that out and a time frame in which, you know,
you would begin to, you know, transfer that type of
responsibility from private contractors to Federal employees?
And, you know, are we building out a situation where the
private sector becomes more preeminent in certain sensitive
areas that, indeed, the American public really needs to see us
having more control over.
Can you speak to that?
Ms. Duke. Sure.
In terms of the private sector's involvement, I think
relying on the private sector for the solution for delivering
it is acceptable as long as it is clear to both the contractor,
to the American people, that the government is the decision
making role. I think when we partner with contractors to have
good relations is a good, a good position, but we are
accountable, the funds of--that were appropriated to DHS, and
we are accountable to the expenditure of those funds. It is not
a partnership in the accountability of how we spend those
funds.
So that is a mindset and a culture that we believe in in
DHS.
In terms of the time frame for building this acquisition
office, our first step is by the end of this year, we want to
have a properly certified and qualified program manager running
each of our major programs. And that is our first step, and
that is our first level of recruiting in the Department. We
have about 25 of those major programs.
Ms. Clarke. I would like to sort of add my voice to that of
Mr. Chair in terms of your outreach around recruitment.
Again, I come from New York City, The Washington Post is
not necessarily the paper of the day there. And I know that the
talent and expertise that you are looking for has already been
cultivated around this nation. To the extent that we can look
at some more creative ways of casting a net for the talent that
DHS really requires, I think we should look at those areas
around the nation where procurement has become a way of life
and an expertise.
In New York City, for instance, we are constantly reaching
out for those within--to do contracting through our
governmental agencies. So we have a lot of folks there who are
already familiar with that process. So I would encourage you to
look at more of a creative means of casting a wider net to
drawing the expertise that is required for the Agency.
I wanted to refer to your testimony in which you state that
the problem surrounding contractor responsibility assessments
are a training and implementation issue and not a policy issue.
Since there are clearly problems with responsibility
assessments, has DHS management dropped the ball on
implementation, and how are you addressing this?
Ms. Duke. I think that we have done a lot to make sure that
contracting officers know what needs to be done on the
responsibility determination. We have had workshop-type
training on it. And we have the checklist that helps guide them
through it and the policy. And we do have, in our supplement to
the Federal Acquisition Regulation, discussion on it.
We have specifically addressed some unique positions with
DHS that deal with our provisions on foreign entities and
domestic inverted companies, and we also make sure that that
determination is done.
I think that with some of the implementation, it is an
issue of what should be done in a responsibility determination
versus what should be done in terms of debarment and access to
the information. Federal-wide, we have done a lot to make
access better in terms of how does a contracting officer know
if a contractor is performing well.
So there is a lot of Federal initiatives we work on to make
sure that the contracting officer has access to the good
information.
Ms. Clarke. And is there sort of an assessment tool that
looks at the standard by which, you know, that implementation
is regarded, you know. You want to make sure that the
consistencies are of a mega agency. But it becomes subjective
at a certain point. Is there an assessment tool that you all
are utilizing to make sure the implementation is of the highest
standard and it is somewhat uniform across the agency?
Ms. Duke. In terms of the process, we look at that in
oversight. But in terms of the actual determination, that is,
by regulation, by practice, the discretion of the contracting
officer.
So some of the indicators we can handle, whether that is
working well, was it done or not for oversight. Another thing
we look at is we look at our protests to the General
Accountability Office and whether we are prevailing on most
protests, which is an indicator that we are doing our pre-award
work well.
So we do have some indicators, but we do not go back and
look at--we do have the IG looking at and judging whether or
not they think the contracting officer used their discretion
effectively. But we are looking to see if it is done.
Ms. Clarke. Thank you very much, Mr. Chair.
Chairman Thompson. Thank you.
Thank you very much for your questions.
We now recognize the gentlelady from Texas for 5 minutes
for questions.
Ms. Jackson Lee. Thank you very much, Mr. Chairman. And
thank you for holding this hearing.
And thank you, Ms. Duke. Can you hear me?
Ms. Duke. Yes, I can.
Ms. Jackson Lee. Thank you very much for your testimony and
some of the work that we have begun together anew on focusing
on a more far reaching effort in procurement by the United
States Government, and in this instance, the Department of
Homeland Security.
I think it is important to make the point that these
contracts are funded by tax dollars. And many times, taxpayers
who are lacking in their individual lobbyist's connectedness
really get a back seat to doing work with the Federal
government. They do so because it is sometimes complex, it is
sometimes, unfortunately, about connection or bigness. And even
sometimes it is partisan. And I hope this hearing can help to
move us in a direction that we focus on good services, good
servants, public servants, and delivering the services to those
who are most in need.
So my interest is--interest is going to focus on the most
serious debacle, and that is Katrina, from the Federal
Government's perspective. And I would argue that we saw one of
the largest abuses, and I cite an opening paragraph of a letter
dated August 24th, 2006, the government awarded 70 percent of
its contracts for Hurricane Katrina work without full
competition, wasting hundreds of millions of dollars--of
taxpayer dollars in the process. A Houston--a House study that
we did just about a year ago.
They report a comprehensive overview of government audits
on Katrina contracting that out found that out of 10.6 billion
in contracts awarded after the storm last year, more than 7.4
billion were handed out with limited or no competitive bidding.
Nineteen contracts worth 8.75 billion were found to have wasted
taxpayer money at least in part costing taxpayers hundreds of
millions of dollars according to the report.
The other problem, of course, is when we have that happen,
those who are victims and who are supposed to get the money
really don't. And spending a lot of time in New Orleans and
working with Katrina survivors in Houston, one of the major
components of their complaints was the inability to pick
themselves up by their bootstraps and get back to work based
upon doing the work that was needed in New Orleans.
Let me add one other point before I start my questions.
The existing program that is now called the Road Home
contract, another article from The Times Picayune, talks about
critics, a consortium of churches on Monday called for a
Federal investigation of the contract between the State and ICF
International. The company earned up to 756 million to parcel
out billions in Federal recovery, but the bad news is that the
Ninth Ward still looks the way it looks and nobody has anything
and the Road Home office that is in my Congressional district,
is like a ghost town because most people say it doesn't work.
Let me cite one other. ``A Screw on Blue Tarp Contract,''
another article. Now months later NOLA has looked into this,
specifically the ACE angle, the Army Corps of Engineers say
they did not overpay for the tens of thousands of blue roofs.
Of course we think otherwise.
So let me ask the question as to why these big contracts
were given, why we couldn't find small businesses, and I know
that the SBA is partly, greatly to blame in many instances. You
had to look for section 8(a). It would have been smart to waive
some of those. But what kind of outreach or collaboration was
with the SBA to say let us find some small businesses that can
haul trash, that could cut trees, that could help with power
lines, that would allow people to get more effectively back
into their homes.
But I specifically want to know about ICF. I would like to
know about SHAW. What we utilized there. Everywhere I went, it
was SHAW being ineffective.
And I yield for a moment to Ms. Duke.
Ms. Duke. In terms of SHAW and the other three large
contractors who did a lot of the work after Hurricane Katrina,
that was a result of not having the contingency contracts in
place when Katrina hit. So when the disaster hit, we
immediately entered into contracts. The cure to that is to have
the contracts in place before the disaster hits. And that is
what we have been working on with my office with FEMA. And we
have awarded over 70 contracts, just contingency planning-type
contracts, that are in place. Many of them have been set aside
for local businesses, small businesses.
So that in the gulf area, so that both the work and
continuing recovery in Katrina and from new disasters, the
contracts would be in place so we are not searching for those
small businesses in the midst of the chaos post disaster. And I
think that is the key to effectively having competition and
making sure that we use local businesses.
The second thing we are trying to do is work more
effectively with the States and planning to make sure that they
are ready to receive grant money so that we don't have as many
direct Federal contracts, and we can let the State and the
local governments receive Federal disaster grant money and
effectively spend it within their districts, and that is
something that we have been doing a lot with the State and
locals.
Your specific question about ICF, that sounds like it would
have been via a grant to the State of Louisiana, and I do not
have a specific information on ICF and can get back to that for
the record for you.
Ms. Jackson Lee. Let me make this point.
I see that we are preplanning, and I would really like the
percentages out of the 70 that are local, small minority and
women-owned businesses because I can assure you, they are very
much still up in arms. The sadness of it is that they had such
great experience, and they could have been enormously
effective, and I hate that we lost their expertise because of
the frustration in not knowing how to reach the power points of
procurement.
But was there any collaboration beforehand or as the crisis
was proceeding to get with SBA? We know they have been
dysfunctional. But was there any cross-pollenization to say
what section 8(a)s do you have already certified that we can
utilize? Even in the crisis, did anyone pick up the phone and
try to collaborate with them?
Ms. Duke. There was a lot of work with SBA early on. We did
a lot of conferences and outreach in the entire gulf region,
both DHS alone, we continue to do that. There is another one in
partnership with the local government next week.
The feedback we got from the local businesses was that it
didn't yield the results they were looking for. They had the
opportunity to meet with us and small business but weren't
satisfied that enough resulted from that contract.
One other program that will really be helpful in future
disasters is the GSA Federal supply schedules. By direction of
the Secretary, as part of our last year's appropriations bill,
was able to say what Federal supply schedules should be opened
up to State and local governments to be able to order from. And
there are many, many small disadvantaged businesses on the
supply schedules. The Secretary decided they should all be
opened up to State and--to State loan governments in a priority
order.
So GSA is in the process of doing that.
So in future disasters, State and local governments will
have the ability, if they choose, to look to Federal supply
schedules and target small minority businesses directly in
those prepriced, prenegotiated statutes, and I think that is a
huge step forward. And we are beginning an education program so
they understand how to use those.
Ms. Jackson Lee. Let me close by--
Chairman Thompson. Excuse me. The gentlelady's time has
expired.
Ms. Jackson Lee. May I say the final sentence?
Chairman Thompson. Final sentence.
Ms. Jackson Lee. Chairman, if I could, and I thank him, I
would like a full investigation of ICF, I guess it is ICF and
SHAW, and I do think the State process of distributing funds is
broken and we need legislation to fix it. It should go to local
governments.
And I thank the chairman for his indulgence.
I yield back.
Chairman Thompson. Thank you very much.
We now recognize the gentleman from Texas, Mr. Green from
Texas, for 5 minutes.
Mr. Green. Thank you.
Thank you for hosting this important meeting.
I, too, have had a number of persons from my district call
to my attention some concerns that they have. And many of these
concerns center around the inability to secure opportunities
notwithstanding a belief that they have met all of the
requirements necessary.
So my initial question to you is do you have an evaluation
program that allows you to review your process such that you
may make some decision based upon empirical data as to how well
you are doing?
Ms. Duke. We track our performance in terms of how many of
our dollars and contract actions went to the different
socioeconomic categories, and that is the primary tool we use
to see if we are meeting the Federal and DHS goals.
Mr. Green. I think that is a great way to do business, but
permit me to ask this, please. Do you have a means by which
those persons who would do business with you can have input
such that you will know what they think about the process?
Ms. Duke. We have conferences, those type of ad hoc. But
nothing systemic that I know of where they feed back to either
Small Business Administration or DHS.
Mr. Green. Would a tool of this type be helpful to you in
evaluating how efficacious you are?
Ms. Duke. I think feedback from industry is always good. It
is a good cross-check, and we need that information and we do
solicit it through our contacts. So I would have to say yes.
Mr. Green. Next question. With reference to your
contracting, assuming that you do have a business, doesn't
matter what size, that has, in the opinion of the persons who
work with the business, done everything appropriately but is
still not receiving any opportunities, what is then the next
step?
Ms. Duke. Generally, if they come to our attention, I have
a small business office within my office. And generally someone
from the contracting side of my office, someone from the small
business would meet with them and try--if it is a specific
problem where they think--where or if it is a general problem,
just meet with them one on one and try to find out why it is
they are not getting business, and we do that regularly. We
take some people--some people contact us directly. We get
referrals from different bodies. And even with the small
business offices, even if they are not a small business, we
meet with them and try to understand what their specific issue
was, whether they got a contract and it is not going well or
whether they are not getting contracts.
Mr. Green. And for my edification, what percentage of the
business is going to minority contractors, please. And if you
would, define ``minority contractors'' for me.
Ms. Duke. In terms of minority contractors, we track small
businesses and--small disadvantaged businesses and 8(a)
businesses. And small disadvantaged businesses are businesses
owned and controlled by a minority owner, and that is defined
by the small businesses. Those aren't the exact words. I can
get them for you.
And then 8(a) is another level of certification that a
small disadvantaged business can get. Once you are certified as
8(a), you can get direct award sole source up to $3 million,
and that is a way to allow the small disadvantaged minority
businesses to get the first opportunities. Those two combined,
we did--the Federal goal is 5 percent. I believe we did about 9
percent, and I can check that for you. But we track both those.
Mr. Green. And in the small business arena, and because
time is short, let me ask as concisely as I possibly can, can
we also have persons who are not minorities included in the
number?
Ms. Duke. Yes. We have a goal for small businesses in
general. The Federal goal is 23 percent.
Mr. Green. Excuse me, because my time is short. Would this
9 percent include persons who were not minorities?
Ms. Duke. Those would not.
Mr. Green. So this is an absolute in terms of minority
small business persons?
Ms. Duke. Yes. The goal was 5 percent Federalwide.
Mr. Green. Mr. Chairman, you have been very generous with
the time. Thank you very much. I yield back.
Chairman Thompson. Thank you very much.
If any Member would submit any additional questions they
might want Ms. Duke to answer, please feel free to do so, and I
am sure she will be very accommodating.
Ms. Duke, you have been most gracious and patient with the
Members because of the vote. We thank you, and we thank you for
the work we do. It is a hard job. And we appreciate your
outreach. And I speak for both sides. You have done a good job
with that. Please continue. Thank you very much.
We will now call our next panel of witnesses.
We would like to welcome our second panel of witnesses. Mr.
Scott Amey, general counsel and senior investigative officer of
Project on Governmental Oversight. Mr. Alan Chvotkin is senior
vice president and counsel for the Professional Services
Council. And professor Charles Tiefer is professor of
contracting law at the University of Baltimore School of Law.
Chairman Thompson. We would like to welcome the three of
you to this panel. And we will give each one of you 5 minutes
to give your presentation to the committee. And we will follow
with questions after. Mr. Amey.
STATEMENT OF SCOTT AMEY, GENERAL COUNSEL AND SENIOR
INVESTIGATIVE OFFICER, PROJECT ON GOVERNMENTAL OVERSIGHT
Mr. Amey. Good afternoon, Chairman Thompson, Ranking Member
King, and members of the committee. Thank you for inviting me
to testify today about the state of DHS contracting.
I am Scott Amey, the general counsel of the Public
Governmental Oversight, a nonpartisan public interest group. We
were founded in 1981 and we investigate and expose corruption
and other misconduct in order to achieve a more accountable
Federal Government.
I usually get this question, so I will just say that we
take no government money. We take no union money and no
corporate money to keep our independence.
POGO has created a niche in investigating and exposing and
remedying waste, fraud and abuse in government spending. In the
1990s, many acquisition forms were implemented. The problems
created by those reforms became startlingly apparent at the
beginning of the Afghan and Iraq wars and after Hurricane
Katrina devastated the gulf coast. The event showed that
contracting decisions were placing taxpayer dollars and
sometimes lives at risk. If the problems with the contracting
process are not corrected, POGO believes that the next
consulting or IT contract will mirror the misspending miss
characterized by the $436 hammer and the $7,600 coffee makers
that were procured in the 1980s.
As just a general reference point that we have seen so much
change in government contracting, I just want to present a few
numbers to the committee and Mr. Chairman.
The government currently spends $417 billion, and that was
from fiscal year 2006. No-bid contracts, a rarity in the
private sector, have become commonplace for the government.
One-bid offers account for now 20 percent of all competed
contracts spending. Bid protests sustain rates have increased
to nearly 30 percent.
DHS spending has increased from 3.4 billion in fiscal year
2003 to 15.8 billion in fiscal year 2006. That makes DHS, as
Mr. Chairman noted, the largest or the third largest agency
behind DOD and DOE.
DHS sole source spending is also fastly rising. It has
increased from 23 percent from fiscal year 2004 to 37 percent
in fiscal year 2005. There are a few encouraging trends with
DHS contracting. The use of fixed-price contracts has risen.
The use of risky contracting vehicles has decreased and DHS
awarded over 45 percent of contracting dollars to small
businesses.
Unfortunately, the questions you asked the last panel don't
reflect that, but these are regarding DHS's own numbers in the
Federal Procurement Data System. And that number greatly
exceeds the 23 percent goal for normal, general Federal
agencies.
Nevertheless, POGO has concerns about the state of DHS
contracting. This committee just recently put out a report that
graded procurement and emergency preparedness slash FEMA as C
minus. Those two grades indicate that DHS is experiencing
contracting problems and it is becoming--it needs to become
more responsible in spending taxpayer dollars. This committee
highlighted missteps in the Deep Water Program. Just this week,
we have seen that the Coast Guard has taken the lead as going
to be the lead systems integrator. We applaud that step, and we
also applaud the DOJ's investigation that they have started
into the program.
But there was a question yesterday on whether these
companies should be debarred. And I think it is a little too
early to take that step but it should be something that DHS is
seriously considering to protect future government contracts
and future taxpayer dollars that are going to those companies.
The GAO and the DHS IG have provided extensive documents
and reports to this committee on the lack of internal controls
within DHS, the financial systems, human capital and
contracting system, and all of those must be improved to
prevent future waste, fraud and abuse.
The most concerning thing that I see is DHS is kind of
hidden behind the fact that it is a new agency for 4 years. I
think its baby steps are kind of long over, and that it really
needs to improve its process. Some of the same problems we have
seen from Hurricane Katrina were problems that we originally
witnessed after Hurricane Andrew back in 1992. These aren't new
problems, but they need to be corrected.
There is one problem that I would like to document here. It
was discussed earlier about GSA schedules. But when DHS had the
opportunity and FEMA had the opportunity to use the schedule to
lease vehicles during Hurricane Katrina, it went off the
schedule. It didn't use it. It ended up using Enterprise Car
Rental to lease 18 vehicles at a price of $11,000 per vehicle.
That ends up being $936 a month. The vehicles on the schedule
were $600 a month. So even when they had systems in place, that
they could have utilized, they didn't use them.
I want to cut to a few different recommendations that POGO
has.
POGO hopes this committee will investigate the following
contracting problems: Cozy negotiations, inadequate
competition, lack of accountability, little transparency and
risky contracting vehicles.
Specifically, POGO respectfully requests that the committee
consider the following recommendations to improve DHS
contracting: Ensure full and open competition is the rule
rather than the exception, and ensure that the definition of
competitive bidding requires at least two bidders. Require that
risky contracting vehicles are used in limited circumstances,
and only when supported by proper justifications and oversight
protections, review DHS commercial item and service
acquisitions to ensure that genuine commercial market place
exists. Examine the use of IDIQ and GWAC contracts to ensure
that contractors are not are not receiving improper fees, and
investigate how prime contractors bill the government at their
own labor rates rather than at the rates this they pay their
subcontractors on time and material, labor hour contracts.
In addition, I recommend--I have other recommendations that
are in our written testimony that I hope the committee will
take a look at.
I do have one final comment. The fact that President Bush
just last week in talking about the No Child Left Behind Act
made the statement, It is important for all of us to make clear
that accountability is not a way to punish anyone.
Accountability to taxpayers isn't punishment. It is a way to
improve the way the government works.
Thank you again for this opportunity to share POGO's view
on the DHS contracting. It will be a pleasure to answer any
questions that you have.
Chairman Thompson. Thank you very much for your summarized
testimony.
[The statement of Scott Amey follows:]
Prepared Statement of Scott Amey
Good morning, Mr. Chairman Thompson, Ranking Member King, and
Members of the Committee.
Thank you for inviting me to testify today about the state of the
federal and DHS contracting systems. I am Scott Amey, General Counsel
and Senior Investigator with the Project On Government Oversight
(POGO), a nonpartisan public interest group. Founded in 1981, POGO
investigates and exposes corruption and other misconduct in order to
achieve a more accountable federal government.\1\
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\1\ For more information on POGO, please visit www.pogo.org.
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Throughout its twenty-six-year history, POGO has created a niche in
investigating, exposing, and helping to remedy waste, fraud, and abuse
in government spending. One of POGO's most celebrated investigations
uncovered outrageously overpriced military spare parts such as the
$7,600 coffee maker and the $436 hammer. Since that time, particularly
in the 1990s, many acquisition reforms have been implemented. The
reforms, however, were not all they were cracked up to be. The problems
created by the reforms became starkly apparent after the beginning of
the Afghanistan and Iraq Wars, and after Hurricane Katrina devastated
the Gulf Coast. These events showed that contracting decisions were
placing taxpayer dollars--and sometimes lives--at risk.
The war on terror and the post-hurricane recovery and
reconstruction effort also highlighted how drastically different the
federal government's contracting landscape is now from what it was in
past decades. Contracting dollars have increased, oversight has
decreased, the acquisition workforce is stretched thin, and spending on
services now outpaces spending on goods. (Because the return on
services is more difficult to quantify than on goods, contracting is
even more vulnerable to waste, fraud, and abuse.) If the problems with
the contracting process are not corrected now, POGO believes the next
consulting or information technology contract will mirror the
misspending characterized by the hammers and coffee makers in the mid-
1980s. We provide the following procurement history and recommendations
as a roadmap to assist Congress in better overseeing the use of
taxpayer dollars.
Contracting Past
The 1980s witnessed some of the strongest pro-taxpayer contracting
reforms implemented to date. During the decade, the Competition in
Contracting Act (CICA) was passed,\2\ the Cost Accounting Standards
(CAS) Board was reestablished,\3\ the False Claims Act was
strengthened,\4\ and there was a greater emphasis placed on the Truth
in Negotiations Act (TINA).\5\ Those actions increased competition in
contracting, provided uniformity in contractor accounting practices,
prevented fraud, and allowed the government to review contractor cost
or pricing data to ensure taxpayer dollars were being spent wisely.
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\2\ 10 U.S.C. Sec. 2304(a) (1) (applicable to DOD); 41 U.S.C.
Sec. 253(a) (1) (applicable to other executive agencies); 41 U.S.C.
Sec. 403(6) ``definition of ``full and open competition'').
\3\ The Board's regulations are codified at 48 CFR, Chapter 99. See
FAR Part 30 (Cost Accounting Standards Administration).
\4\ The False Claims Act (31 U.S.C. Sec. Sec. 3729-3733) was
originally passed in 1863 at the urging of President Abraham Lincoln,
who was attempting to halt the Civil War profiteering that was
crippling the Union Army. Amendments to the Act in 1986, championed by
Senator Charles Grassley (R-IA), increased the penalties for fraud and
encouraged private citizens to come forward if they were aware of
corporations defrauding the government.
\5\ 10 U.S.C. Sec. 2306a, 41 U.S.C. Sec. 254b.
---------------------------------------------------------------------------
In the 1990s the Clinton-Gore Administration's effort to reinvent
government so that it operated more like the private sector and
decreased contracting red-tape succeeded to a point. But acquisition
reform--which was part of reinventing government--resulted in several
laws that made government contracts more susceptible to misconduct,
cost more, and get results contractors care about rather than making
the government (work better, cost less, and get results Americans care
about,'' \6\ as was its intent. Those laws reduced contract oversight,
making it difficult for government investigators and auditors to find
waste, fraud, and abuse,\7\ and created risky contracting vehicles that
often place public funds at risk.
---------------------------------------------------------------------------
\6\ The Clinton-Gore initiative was known as the ``National
Performance Review'' and the ``National Partnership For Reinventing
Government.'' Available at http://govinfo.library.unt.edu/npr/
index.htm.
\7\ The Federal Acquisition Streamlining Act of 1994 (FASA) (Public
Law 103-355), the Federal Acquisition Reform Act of 1996 (FARA) (Public
Law 104-106), and the Services Acquisition Reform Act of 2003 (SARA)
(Public Law 108-136).
---------------------------------------------------------------------------
Finally, ``best value contracting'' \8\ further swung the pendulum
away from protecting taxpayers and allowed contracts to be steered to
well-connected, influential, and sometimes undeserving contractors.
---------------------------------------------------------------------------
\8\ ``Best value'' contracting had been used in certain instances,
but was added to the Federal Acquisition Regulation (FAR) in August
1997. A policy debate continues pitting ``low price'' against ``best
value'' as the preferred method for buying goods and services. Buying
goods and services at the ``lowest practical cost'' would allow for
some buying flexibility and provide a more objective criteria that
would prevent the unjustified steering of contracts to non-responsible,
questionable, or politically-connected companies.
Contracting Present
Simply stated, the contracting landscape has drastically changed in
recent years and the government must do a better job to ensure that
taxpayer dollars get spent wisely. Federal contract spending has
dramatically increased while government control, competition, and
oversight has been reduced. This bodes ill for taxpayers, as can be
seen by the problems below.
The Big Picture
Contract spending for goods and services has nearly
doubled in recent years, increasing from $219 billion in fiscal
year 2000 to nearly $417 billion in fiscal year 2006.\9\
---------------------------------------------------------------------------
\9\ Federal Procurement Data Service--Next Generation, ``Trending
Analysis Report for the Last 5 Years,'' and ``List of Agencies
Submitting,'' as of April 17, 2007. Available at http://www.fpdsng.com/
downloads/top_requests/FPDSNG5YearViewOnTotals.xls and http://
www.fpdsng.com/downloads/agency_data_submit_list.htm.
---------------------------------------------------------------------------
The federal government is spending more on services
than goods.\10\
---------------------------------------------------------------------------
\10\ Acquisition Advisory Panel, ``Report of the Acquisition
Advisory Panel to the Office of Federal Procurement Policy and the
United States Congress,'' December 2006, p. 2-3. Available at http://
www.acqnet.gov/comp/aap/documents/DraftFinalReport.pdf. Hereinafter
``1423 Panel Report.''
---------------------------------------------------------------------------
No-bid contracts, a rarity in the private sector,\11\
have become commonplace in the government. Nearly 40 percent of
all contract spending is awarded without competition.\12\
---------------------------------------------------------------------------
\11\ 1423 Panel Report, p. 2.
\12\ 1423 Panel, ``Findings and Recommendations on Data,'' August
10, 2006, p. 3-4. Hereinafter ``1423 Panel Data.'' Available at http://
www.acqnet.gov/comp/aap/documents/
Data%20Findings%20and%20Recommendations%20Charts%2008%2010%2006.pdf.
---------------------------------------------------------------------------
In addition, one-bid offers account for 20 percent of
``competed'' contract spending.\13\
---------------------------------------------------------------------------
\13\ 1423 Panel Data, at p. 7.
---------------------------------------------------------------------------
The government is relying on contractors to execute
jobs once performed by civil servants, including policy-making
and budgetary decisions.\14\ The federal contracting workforce,
depending on the definition that you use, has leveled-off since
the mid-1990s.\15\
---------------------------------------------------------------------------
\14\ See FAR Subpart 7.503.
\15\ 1423 Panel Report, p. 3.
---------------------------------------------------------------------------
The vastly expanded definition of ``commercial item''
has resulted in decreased oversight of and accountability for
contractors because they no longer have to provide certified
cost or pricing data for the ``commercial'' goods or services.
Interagency contracting continues to increase--GSA
schedule sales totaled $35.1 billion in fiscal year 2006.\16\
Although interagency contracts provide agencies flexibility to
purchase commonly required goods and services, which can save
taxpayers money, they are also risky and prone to abuse.
Monitoring and oversight have been very poor and competition
has been lacking.\17\
---------------------------------------------------------------------------
\16\ GAO Report (GAO-07-310), High-Risk Series: An Update, January
2007, p. 77. Available at http://www.gao.gov/new.items/d07310.pdf.
\17\ Id.
---------------------------------------------------------------------------
The government recovered a record $3.1 billion in
settlements and judgments in cases involving allegations of
fraud against the government in fiscal year 2006 and has
recovered $18 billion since 1986.\18\
---------------------------------------------------------------------------
\18\ DOJ Press Release (06-783), ``Justice Department Recovers
Record $3.1 Billion in Fraud and False Claims in Fiscal Year 2006,''
November, 21, 2006. Available at http://www.usdoj.gov/opa/pr/2006/
November/06_civ_783.html.
---------------------------------------------------------------------------
Bid protest sustain rates (when GAO agrees that a
contract was awarded improperly) have increased to nearly 30
percent,\19\ which illustrates that flawed contract award
decisions--both honest and egregious--are being made at a
higher rate than in the past.
---------------------------------------------------------------------------
\19\ GAO Report (GAO-07-155R), Letter to The Honorable J. Dennis
Hastert, Speaker of the House of Representatives, November 15, 2006, p.
2. Available at http://www.gao.gov/special.pubs/bidpro06.pdf.
---------------------------------------------------------------------------
Homeland Security
DHS contract spending has increased from $3.4 billion
in fiscal year 2003 to $15.8 billion in fiscal year 2006.\20\
That total makes DHS the third largest agency, after DOD ($296
billion) and DOE ($22 billion).
---------------------------------------------------------------------------
\20\ Federal Procurement Data Service--Next Generation, ``FY 2003,
Section III, Agency Views,'' p. 90 and ``List of Agencies Submitting,''
as of April 12, 2007, p. 1. Available at http://www.fpdsng.com/
downloads/FPR_Reports/FPR2003c.pdf and http://www.fpdsng.com/downloads/
agency_data_submit_list.htm.
---------------------------------------------------------------------------
Nearly $5.2 billion of the $10.3 billion--or 50
percent--in contract awards during fiscal year 2005 were non-
competitive.\21\ The use of no-bid contracts increased from 23
percent in fiscal year 2004 to 37 percent in fiscal year
2005.\22\
---------------------------------------------------------------------------
\21\ POGO's estimate combines contracts designated as ``Not
Competed,'' ``Not Available for Competition,'' ``Not Competed under
SAT,'' ``Follow On to Competed Action,'' and ``non-Competitive Delivery
Order.'' Federal Procurement Data Service--Next Generation, ``FPDS-NG
Federal Procurement Reportfiscal year 2005, Section III, Agency
Views,'' as of April 17, 2007, p. 86. Available at http://
www.fpdsng.com/downloads/FPR_Reports/
2005_fpr_section_III_agency_views.pdf.
\22\ Fiscal year 2005 listed $3.8 billion out of $10.3 billion as
(Not competed.( Available at http://www.fpdsng.com/downloads/FPR--
Reports/2005--fpr--section--III--agency--views.pdf. fiscal year 2004
listed $1.4 billion out of $6.1 billion as (Not competed.( Available at
http://www.fpdsng.com/downloads/FPR_Reports/
fpr_section_III_agency_views.pdf.
---------------------------------------------------------------------------
Approximately 65 percent ($6.8 billion) of DHS
contract dollars were awarded in fixed-price contracts in
fiscal year 2005.\23\
---------------------------------------------------------------------------
\23\ Id., at p. 87.
---------------------------------------------------------------------------
Commercial item acquisitions accounted for $467
million in fiscal year 2005--down 13 percent from fiscal year
2004.\24\
---------------------------------------------------------------------------
\24\ Id., at p. 88.
---------------------------------------------------------------------------
Performance-based service acquisitions accounted for
nearly $1.5 billion in fiscal year 2005--down 6 percent from
fiscal year 2004.\25\
---------------------------------------------------------------------------
\25\ Id.
---------------------------------------------------------------------------
DHS awarded 46.6 percent of its contract dollars to
small businesses--greatly exceeding the general 23 percent
small business goal.\26\
---------------------------------------------------------------------------
\26\ Federal Procurement Data System--Next Generation, ``Small
Business Goaling Report Actions Reported Between Fiscal Year 2005 (Q1)
and Fiscal Year 2005 (Q4).'' As of April 17, 2007. Available at http://
www.sba.gov/GC/goals/SmallBusinessGoalingReport_2005.pdf.
---------------------------------------------------------------------------
As the above information shows, DHS is doing some things well. For
instance, DHS's use of risky contract vehicles decreased in fiscal year
2005 and the agency contracted with a large percentage of small
businesses. Additionally, DHS's use of fixed-price contracts helps DHS
eliminate some contracting problems. That stated, however, POGO has a
number of concerns about the state of DHS contracting.
DHS Responsibility
DHS's mission is to prevent terrorist attacks in the U.S., reduce
America's vulnerability to terrorism, and minimize damage from
terrorism and natural disasters. To fulfill this mission, DHS has a
vast organizational mandate that ranges from protecting the President
(U.S. Secret Service), to protecting our oceans (U.S. Coast Guard), to
protecting our borders (Customs & Border Protection and Immigration &
Customs Enforcement), to protecting our airports (Transportation
Security Administration), and to helping every town, city, county, and
state in relief, recovery, and reconstruction efforts (Federal
Emergency Management Agency). As a result, DHS has to be on the cutting
edge of innovation, technology, and service to stay at least one step
ahead of threats to our nation. Yet, it still must protect the U.S.
taxpayers.
It is difficult to tell if DHS is succeeding in contracting to meet
its mission--especially considering the emergency contracting
environment in which the agency often works. Last week, however, this
Committee released a reported on ``The State of Homeland Security,''
which rated DHS in light of how it performed on seventeen homeland
security issue areas.\27\ POGO was disappointed to learn that no DHS
component received a grade higher than a ``B,'' and that four
components received a ``C-'' or lower. The two functions at the heart
of today's hearing--``Emergency Preparedness/FEMA'' and
``Procurement''--each received a ``C-.'' The fact that DHS received a
C- is indicative of the large problems that DHS is experiencing in
contracting and that it must become more responsible when spending
taxpayer dollars.
---------------------------------------------------------------------------
\27\ U.S. House of Representatives Committee on Homeland Security,
``The State of Homeland Security: The 2007 Annual Report Card on the
Department of Homeland Security,'' April 13, 2007, p. 5. Hereinafter
``DHS Report Card.'' Available at http://homeland.house.gov/
SiteDocuments/20070413143439-12273.pdf.
---------------------------------------------------------------------------
While the Committee's report card stated that DHS succeeded in
awarding some contracts, it also found for the most part that the
agency failed in three key procurement measures--``cost, performance/
meeting requirements, and schedule. Unfortunately, the Department's
[DHS's] track record in all three is poor.'' \28\ The Committee further
stated that ``oversight and management of basic procurement processes
[have] been weak.'' \29\ The report highlighted procurement missteps in
the Deepwater program,\30\ the Integrated Surveillance Intelligence
System (ISIS), and eMerge2. Those contracting missteps compound the
many mistakes made prior to and after Hurricane Katrina--some of the
same contracting problems that occurred in the ``aftermath of Hurricane
Andrew in 1992, which leveled much of South Florida.'' \31\
---------------------------------------------------------------------------
\28\ DHS Report Card, at p. 66.
\29\ Id.
\30\ POGO applauds the Coast Guard's recent decision to take over
the role of lead systems integrator for the $24 billion Deepwater
acquisition program. That shift in management and control of the
program should enhance oversight of and accountability in the Deepwater
program.
\31\ GAO Report (GAO-06-442T), ``Hurricane Katrina: GAO's
Preliminary Observations Regarding Preparedness, Response, and
Recovery,'' March 8, 2006, p. 2. Available at http://www.gao.gov/
new.items/d06442t.pdf.
---------------------------------------------------------------------------
This Committee's findings confirmed those of a 2007 GAO
investigation into the problems facing DHS. The GAO stated:
The auditors continue to report 10 material internal control
weaknesses and that DHS's financial systems do not
substantially comply with federal requirements. These
weaknesses highlight the concern that DHS, the second-largest
government agency, may not be able to account for all of its
funding and resources or have reliable financial information
for management and budget purposes.
DHS has not institutionalized an effective strategic framework for
information management to, among other things, guide technology
investments, and despite some progress, DHS's human capital--the
centerpiece of its transformation efforts--and acquisition systems will
require continued attention to help prevent waste and to ensure that
DHS can allocate its resources efficiently and effectively.
* * *
To help ensure its missions are achieved, DHS must overcome
continued challenges related to. . .clearly defining leadership
roles and responsibilities, developing necessary disaster
response capabilities, and establishing accountability systems
to provide effective services while protecting against waste,
fraud, and abuse at the Federal Emergency Management Agency
(FEMA).\32\
---------------------------------------------------------------------------
\32\ GAO Report (GAO-07-452T), ``Homeland Security: Management and
Programmatic Challenges Facing the Department of Homeland Security,''
February 7, 2007, p. 2-3. Available at http://frwebgate.access.gpo.gov/
cgi-bin/getdoc.cgi?dbname=gao&docid=f:d07452t.pdf.
---------------------------------------------------------------------------
Many of the Committee's and the GAO's concerns were confirmed in
Inspector General Richard Skinner's testimony before this Committee on
February 7, 2007. Inspector General Skinner testified that DHS
``identified significant risks and vulnerabilities that might threaten
the integrity of DHS' acquisition management program. In general, DHS
needs to improve its major acquisitions planning, operational
requirements definition, and implementation oversight.'' \33\
Unfortunately, Mr. Skinner places too much blame on acquisition
workforce shortages and doesn't look hard enough at DHS's overall
contracting system to determine if that system is working in the best
interests of both DHS and taxpayers.
---------------------------------------------------------------------------
\33\ Statement of Richard L. Skinner, Inspector General, U.S.
Department of Homeland Security, Before The Committee on Homeland
Security, U.S. House of Representatives, (An Overview of Issues and
Challenges Facing the Department of Homeland Security,( February 7,
2007, p. 7. Available at http://www.dhs.gov/xoig/assets/testimony/
OIGtm_RLS_020707.pdf.
---------------------------------------------------------------------------
For example, DHS was in a position to use pre-negotiated contracts
for the Hurricane Katrina response, but failed to do so. GSA Schedules
offer government buyers goods and services at pre-negotiated rates from
approved vendors. Even though one vehicle leasing company on the GSA
Schedule could have provided FEMA with vehicles for under $600 per
month,\34\ the agency instead leased 18 vehicles from Enterprise Rent-
A-Car at the annual price of $11,232 a vehicle ($936 per month).\35\
---------------------------------------------------------------------------
\34\ GSA, ``GSA Schedule e-Library Schedule Details.'' Available at
http://www.gsaelibrary.gsa.gov/ElibMain/
SinDetails;jsessionid=www.gsaelibrary.gsa.gov-
50c9%3A43f09ea8%3A34ac18eed43496?executeQuery=YES&scheduleNumber=751&fla
g=&filter=&specialItemNumber=751+1.
\35\ Chris Joyner, Clarion Ledger, ``FEMA car rentals draw
criticism,'' February 10, 2006.
---------------------------------------------------------------------------
At the same time that DHS is struggling with its contracting
procedures, its contractors are lining up to learn the tricks to
receiving more contract dollars. Fedmarket.com held a seminar on May
26, 2006, with topics including: (The advantage and disadvantages of
selling to DHS,'' ``Ways to keep your investment in the DHS market
reasonable and your sales costs down,'' ``Locating DHS sales
opportunities,'' ``Identifying DHS procurement decisions makers,'' and
``Simplified Acquisition Procedures.'' \36\ Although this is common in
and around the Beltway, it emphasizes the fact that contractors are
jumping at the opportunity to learn how to maximize some, if not all,
of the agency's contracting vulnerabilities.
---------------------------------------------------------------------------
\36\ Fedmarket.com, ``Selling to the Department of Homeland
Security Seminar,'' May 26, 2006.
---------------------------------------------------------------------------
Although many Members of Congress, media outlets, and public
interest groups point fingers at the contractors, the problem is much
deeper. DHS is in a vulnerable position: the agency has poor contract
management policies and procedures, while at the same time it is buying
infant technologies, and buying under emergency circumstances where
competition is, by necessity, limited or non-existent. As a result, DHS
is frequently placing all of its contracting eggs in one basket. In
cases when competition is limited or non-existent, Congress, DHS
contract and program officers, and agency oversight officials must
place a greater emphasis on pre-award decisions and on post-award
monitoring and administration. DHS must establish integrity in its
buying system: its current system is plagued with improperly awarded,
out-of-scope, overpriced contracts, and with contracts that produce
little or no results.
Awards to Responsible Contractors
Government contracts are predicated on a basic principle--taxpayer
dollars should be awarded to responsible contractors only. FAR Subpart
9.103 states:
(a) Purchases shall be made from, and contracts shall be
awarded to, responsible prospective contractors only.
(b) No purchase or award shall be made unless the contracting
officer makes an affirmative determination of responsibility.
In the absence of information clearly indicating that the
prospective contractor is responsible, the contracting officer
shall make a determination of nonresponsibility. (Emphasis
added.)
To be determined responsible, a prospective contractor must:
(a) Have adequate financial resources to perform the contract,
or the ability to obtain them (see 9.104-3(a));
(b) Be able to comply with the required or proposed delivery or
performance schedule, taking into consideration all existing
commercial and governmental business commitments;
(c) Have a satisfactory performance record (see 9.104-3(b) and
Subpart 42.15). A prospective contractor shall not be
determined responsible or nonresponsible solely on the basis of
a lack of relevant performance history, except as provided in
9.104-2;
(d) Have a satisfactory record of integrity and business
ethics.
(e) Have the necessary organization, experience, accounting and
operational controls, and technical skills, or the ability to
obtain them (including, as appropriate, such elements as
production control procedures, property control systems,
quality assurance measures, and safety programs applicable to
materials to be produced or services to be performed by the
prospective contractor and subcontractors). (See 9.104-3(a).)
(f) Have the necessary production, construction, and technical
equipment and facilities, or the ability to obtain them (see
9.104-3(a)); and
(g) Be otherwise qualified and eligible to receive an award
under applicable laws and regulations.\37\
---------------------------------------------------------------------------
\37\ FAR Subpart 9.104-1 (``General standards'').
---------------------------------------------------------------------------
Questions should be raised within DHS, and the government in
general, when contracts are awarded to risky contractors. These include
contractors that have defrauded the government or violated laws or
regulations,\38\ contractors that had poor work performance during a
contract, or contractors that had their contracts terminated for
default. Continuing to award contracts to such contractors undermines
the public's confidence in the fair-play process and exacerbates
distrust in our government. It also results in bad deals for the agency
and for the taxpayer.
---------------------------------------------------------------------------
\38\ POGO published a Federal Contractor Misconduct Database in
2002. Available at http://www.pogo.org/db/. A new and improved version
of that database, including misconduct involving the Top 100 federal
contractors will be released in 2007.
---------------------------------------------------------------------------
In an effort to prevent contracting with the ``usual suspects''
that have long rap sheets of misconduct, DHS should look for
responsible vendors during its planning and contingency contracting
phase. Some of the largest contractors hired to respond to the
hurricanes in 2005 have checkered histories of misconduct: CH2M Hill (5
instances); Bechtel (12 instances); Halliburton/KBR (11 instances); and
Fluor (20 instances). Instances of misconduct include: false claims
against the government, violations of the Anti-Kickback Act, fraud,
conspiracy to launder money, retaliation against workers' complaints,
and environmental violations.\39\ DHS is shirking its responsibility to
vet contractors and determine whether they are truly responsible. POGO
is concerned that pre-award contractor responsibility determinations
have fallen to the wayside. DHS and other federal agencies seem more
concerned with awarding contracts quickly rather than ensuring the
government gets the best goods or services at the best practical price.
---------------------------------------------------------------------------
\39\ Id.
---------------------------------------------------------------------------
Another problem that faces DHS is the under-utilization of the
suspension and debarment system as a tool to weed out risky
contractors. To be fair, the problem is not limited to DHS--all federal
agencies under-use suspension and debarment against large contractors
that supply the majority of the $417 billion worth of goods and
services to the federal government each year. Overall, the government
needs to reemphasize the importance of preventing risky contractors
from receiving future taxpayer dollars.
Contracting Future
While examining on systemic contracting issues, I request that the
Committee look at the report produced by the Acquisition Advisory Panel
(also known as the 1423 or the Services Acquisition Reform Act (SARA)
Panel).\40\ During the nearly two years after its initial meeting in
February 2005, the Panel held over 30 public meetings, interviewed
scores of government and private sector witnesses, reviewed thousands
of pages of testimony, studied numerous government reports, and
formulated hundreds of findings and recommendations that, if considered
and passed by Congress, could improve the government's system for
buying goods and services. Although some of the Panel's recommendations
do not go as far as POGO would like, the majority would still improve
competition, negotiations, oversight, transparency, and spending
decision-making.
---------------------------------------------------------------------------
\40\ 1423 Panel Report. Available at http://www.acqnet.gov/comp/
aap/documents/DraftFinalReport.pdf.
Conclusion
Acquisition reform and the changed contracting landscape have
placed taxpayer dollars at risk. POGO has witnessed the weakening or
bypassing of taxpayer protections, and the unraveling of free market
forces that protect government agencies. For years, IG and GAO reports
have exposed specific contracting missteps in individual cases of
waste, fraud, and abuse. But the findings and recommendations from the
individual cases are applicable to the larger systemic problems with
DHS's, and the rest of the federal government's, contracting laws and
regulations.
Recommendations
POGO has highlighted the following government-wide contracting
problems, which we hope will be considered by the Committee:
1. Cozy Negotiations--To make every effort to get the best
value for the taxpayer, the government must promote aggressive
arm's-length negotiations with contractors.
2. Inadequate Competition--To better evaluate goods and
services and get the best value, the government must encourage
genuine competition so that it can correct the current trend of
entering into non-competitive contracts in over 40 percent of
government purchases.
3. Lack of Accountability--To ensure that taxpayer dollars are
being spent responsibly, the government must regularly monitor
and audit contracts after they are awarded.
4. Little Transparency--To regain public faith in the
contracting system, the government must ensure that the
contracting process is open to the public, including contractor
data and contracting officers' decisions and justifications.
5. Risky Contracting Vehicles--To prevent abuse, the government
must ensure that risky contract types that have been abused in
the past (including performance-based contracts, interagency
contracts, ``task and delivery orders'' also known as
Indefinite Delivery/Indefinite Quantity (ID/IQ) contracts under
multiple award and government-wide acquisition contracts
(GWACs), time & material contracts, purchase card transactions,
commercial item purchases, and other transaction authority) are
only used in limited circumstances and are accompanied by audit
and oversight controls.
Specifically, POGO respectfully requests that this Committee
consider the following recommendations to improve DHS
contracting:
1. Ensure that full and open competition is the rule rather
than the exception and restore the definition of ``competitive
bidding'' to require at least two bidders.
2. Require that risky contract vehicles are used in limited
circumstances and only when supported by proper justifications
and oversight protections.
3. Review DHS commercial item and service acquisitions to
ensure that a commercial marketplace exists.
4. Examine the use of ID/IQ and GWAC contracts to ensure that
contractors are not receiving improper fees.
5. Investigate how prime contractors bill the government at
their own labor rate(s) rather than the rate that they pay
their subcontractors on Time and Material or Labor Hour (T&M/
LH) contracts.
6. Confirm that contractors are not performing inherently
governmental functions, which must be performed by civil
servants.
7. Reaffirm Congress's commitment to fund contract oversight
responsibilities.
8. Reestablish the taxpayer-protection checks and balances that
have been removed from the contracting system.
9. Review DHS's use of the suspension and debarment system,
especially as it has been applied to large contractors with
repeated histories of misconduct.
10. Provide a fair playing field for all DHS contractors by
requiring public posting of all task and delivery order
opportunities on FedBizOpps website, and require copies of
contracts and task and delivery orders awards be made publicly
available on the Federal Procurement Data System (FPDS)
website.
Chairman Thompson. The next witness is Mr. Chvotkin.
STATEMENT OF ALAN CHVOTKIN, SENIOR VICE PRESIDENT AND COUNSEL,
PROFESSIONAL SERVICES COUNCIL
Mr. Chvotkin. Thank you very much for the invitation to be
here today. I am the senior vice president counsel of the
Professional Services Council.
PSC is the leading national trade association representing
companies that provide services of almost every kind to
virtually every Federal agency of the Federal Government. We
believe that the taxpayer and the government are best served by
a vibrant partnership between the public and private sectors
through which the government is able to access the best
solutions and capabilities.
By any measure, the Federal Government has the largest and
most complex procurement system in the world, and since public
dollars are involved, it is imperative that the Federal
procurement system be underpinned by credibility, trust, and
competency. We share your commitment and that of the committee
to ensuring that the Federal Government generally, and the
Department of Homeland Security specifically, only does
business with responsible, ethical parties. After all,
contracting with the Federal Government is a privilege. It is
not a right.
Despite much of the current rhetoric however, it is
heartening and important to note that even with the size and
complexity, the bottom line is that this system as a whole does
serve the public well.
Clearly, it is also a system that faces many challenges and
areas where improvements are needed.
Real fraud and abuse. While deeply troubling wherever it is
uncovered is actually relatively rare, and the government has
in place a wide variety of statutes and standards to apply to
entities who are seeking to do business with it.
As you know, any organization wishing to do business with
the government must comply with all applicable laws whether
they be tax, environmental, or labor laws.
Each area of law or regulation is enforced and adjudicated
through its own experience and knowledgeable entities at the
Federal, State and local levels. This layering of statutes and
regulations across the government at all levels provides a
construct in which businesses in the nation must operate.
But for Federal Government contractors, there is much more.
There are numerous laws and regulations that only apply to
firms that want to do business with the Federal Government.
Most Federal agencies follow the uniform Federal Acquisition
Regulation that is maintained by DOD, GSA and NASA and policy
provided by the office of Federal Procurement Policy.
Mr. Chairman, this is the Federal Acquisition Regulation,
2000 pages, that govern the behaviors in Federal contracts.
Beyond these government-wide rules, there are also
specialized regulations.
I brought with me a copy of the Cost Accounting Standards
that companies must comply with when seeking to do business
with the Federal Government. And for the Department of Homeland
Security, this is the Department of Homeland Security
acquisition regulation laid on top. So we have roughly 2,000
pages of acquisition regulation, roughly another 500 pages of
standard regulations and an additional 150 pages, single-sided,
I might add, of the Department of Homeland Security. A complex
regime important to understand the complexity of doing business
in the Federal marketplace.
Beyond those government-wide rules, there are noted
specialized rules dealing with the Democrat of Homeland
Security. For example, as you have noted, DHS has a limitation
on the types of companies with which it can do business.
In addition, a myriad of other laws and regulations provide
authority and responsibility for government officials,
primarily contracting offices and grants officials to ask the
right questions and take the right action again those who fail
to follow the laws.
But there are important and appropriate constraints on the
government's flexibility. For instance, the government may not
act arbitrarily, and it must adhere to its own regulations.
There must be respect for due process. There are also long-
standing procedures to protect small business from arbitrary
agency decisions about the competency of these businesses to
perform Federal contracts.
I mention all of this because it is important to recognize
the many layers that do exist to protect the government's
interests. It is equally important to recognize that the rules
and regulations have evolved to strike a proper balance between
protecting the government's interest and maintaining an
effective and vibrant marketplace that can support the
government's complex missions.
Overly punitive measures unnecessarily increase costs for
the government or its suppliers all in the name of seeking to
achieve the unachievable. Nor is this a new debate. This dates
back to the Clinton administration so-called blacklisting
initiative, ostensibly to ensure the government did not award
contracts to unethical companies. At that time, many of the
government's own senior career contracting leaders opposed that
initiative. Then, as now, any such rule was both unnecessary
and unexecutable.
Mr. Chairman, as I said at the outset, we are strong
supporters of the government business compliance rules, and
routinely encourage our member companies to ensure that their
business conduct compliance programs are current and complete.
We recognize that, regrettably, individuals and organizations
violate the law and we have little sympathy for those that do.
But it would be a costly travesty if we were to impose new and
unnecessary rules, let alone ineffective and unexecutable ones,
based on a mistaken impression that the current system has
failed us.
We are ready and willing to work with you in ways to make
the system stronger even as we seek to maintain that critical
balance that I mentioned, but I would urge you to reject
precipitous proposals based on limited information and
dangerous assumptions.
Thank you again for the opportunity to be here. I look
forward to responding to any questions the committee may have.
Chairman Thompson. Thank you very much.
[The statement of Mr. Chvotkin follows:]
Prepared Statement of Alan Chvotkin
Introduction
Mr. Chairman and Members of the Committee, thank you for the
invitation to testify at today's hearing. I am Alan Chvotkin, the
senior vice president and counsel of the Professional Services Council
(PSC). PSC is the leading national trade association representing
companies that provide services of almost every kind to virtually every
agency of the federal government.
We believe that the taxpayer and the government are best served by
a vibrant partnership between the public and private sectors through
which the government is able to access the best solutions and
capabilities. By any measure, the federal government has the largest
and most complex procurement system in the world, and the Department of
Homeland Security is one of its many components. Since public dollars
are involved, it is imperative that the federal procurement system be
underpinned by credibility, trust, and competency. As such, we share
your commitment to ensuring that the Federal government generally, and
the Department of Homeland Security specifically, only does business
with responsible, ethical parties. After all, contracting with the
federal government is a privilege--not a right.
DHS Procurement Spending is Significant
In Fiscal Year 2006, the Federal government spent more than $400
billion on the purchase of goods and services, through over 30 million
individual contract transactions, with nearly two-thirds of the dollars
spent on services. The Department of Homeland Security spent more than
$14 billion through contracts, awarding business to almost 16,000
contractors through close to 67,000 individual contract transactions.
The vast majority of this DHS spending also was for the procurement of
services. To its credit, more than $4.5 billion of the DHS prime
contracting dollars went to small business.
Despite much of the current rhetoric, it is heartening and
important to note that, even with its size and complexity, the federal
acquisition system actually work quite well. Clearly, it is also a
system that faces many challenges and areas where improvements are
needed. But the bottom line is that this system, on the whole, serves
the public well. Real fraud and abuse, while deeply troubling whenever
it is uncovered, is actually relatively rare and the government has in
place a wide array of generally effective statutes and standards that
apply to entities seeking to do business with it.
Regulating Businesses
As you know, any organization wishing to do business with the
government must comply with all generally applicable laws and
regulations for maintaining a business, including all relevant tax,
environmental, and labor provisions. Each area of law or regulation is
enforced and adjudicated through its own experienced and knowledgeable
entities at the federal, state, and local levels. For example, Congress
has given responsibility to the Internal Revenue Service to write
regulations to implement tax laws. The Environmental Protection Agency
has similar primary responsibility for environmental laws, the Labor
Department for labor matters, and so on. Many of these agencies also
have internal administrative enforcement authority, while the Justice
Department is generally charged with civil and criminal enforcement at
the Federal level.
Taken together, this layering of statutes and regulations across
the government, at all levels, provides a construct under which all
businesses in the nation must operate. But for government contractors,
there is much more.
Regulating Government Contractors
There are numerous laws and regulations that only apply to firms
that want to do business with any agency of the federal government--
such as registering in the government's central contractor registration
(CCR) system, agreeing to unique audit and/or competition rules,
meeting the government's unique accounting and billing standards, or
agreeing to utilize small business for a certain percentage of
subcontracting opportunities. For these government-wide procurement
requirements, most federal agencies follow the uniform Federal
Acquisition Regulation (FAR) requirements. The FAR is maintained by
three lead agencies--DoD, GSA and NASA--and policy is provided by those
agencies under the leadership of the Administrator of the Office of
Federal Procurement Policy in the Office of Management and Budget.
Beyond those general rules, frequently there are also specialized
laws and regulations that apply when doing business with specific
agencies of the federal government or for specific types of activities.
For example, DHS has a restriction on the types of companies with which
it can do business. The Defense Department has an entirely separate set
of specialized rules to guide its procurements for major weapons
systems. In those specialized areas, each federal agency is responsible
for developing, publishing and maintaining separate acquisition
regulations that supplement the government-wide regulations. For the
Department of Homeland Security, this supplemental regulation is called
the Homeland Security Acquisition Regulation (HSAR). Each agency is
also responsible for writing its own contracts and monitoring
compliance with agency-specific requirements.
In addition, a myriad of laws and regulations provide the authority
and responsibility for government officials--primarily contracting
officers and grants officers--to ask the right questions and take the
right action against those who fail to follow the laws and regulations.
If a contracting officer is concerned about putting the federal
government at risk by doing business with inappropriate entities--
whether it is an individual, a company, a university or a non-profit
organization--he or she has wide latitude with regard to information
that can be sought from that concern. These procedures apply to both
contracts and grants.
But there are appropriate and important constraints on the
government's flexibility. For instance, the government may not act
arbitrarily and it must adhere to its own regulations and procedures.
One of these is respect for due process before denying work to an
individual or a contractor, unless the government has an urgent need to
protect its interest. There are also long-standing procedures to
protect small business from arbitrary agency decisions about the
competency of these businesses to perform federal contracts.
On February 16, 2007, the FAR agencies issued a proposed rule to
require all government contractors receiving awards in excess of $5
million to have a formal ethics and compliance program. The vast
majority, if not all, of PSC's more than 210 member companies have
formal ethics and complianceprograms and place a high premium on
corporate and individual responsibility. We support the direction taken
in this proposed rule, although in our April 17 detailed comments we
raised a number of concerns with its operational aspects.*
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* The full PSC comments are available http://www.pscounsel.org/
pdfs/PSCFARCodeOfConduct104-17-07.pdf.
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I mention all of this because it is important to recognize the many
layers that exist to protect the government's interests and equities.
It is equally important to recognize that this extensive regime of
rules and regulations has evolved over many years in an effort to
strike the proper balance between protecting the government's interests
and maintaining a vibrant and effective marketplace that can support
the government's diverse and increasingly complex missions. The
government marketplace is vastly different and far more regulated than
the commercial marketplace and we would not suggest that the two can be
or should be identical. However, a balance is vital to ensure that the
government has access to the widest possible array of suppliers and
solutions.
Unfortunately, no matter what laws or regulations are in place, a
system this large and complex will have problems. With so many dollars
spent, unethical government and contractor employees will seek to
enrich themselves at the expense of the taxpayer and the mission. Just
a few weeks ago, five individuals were arrested for conspiring to
embezzle funds intended for Iraq reconstruction--the five included two
Army reservists, a government civilian, and a contractor. While the
arrest is not an indicator of final guilt or innocence, such activities
are never acceptable and those responsible should be dealt with
aggressively.
But because these cases are a distinct minority, policymakers
should focus on how to appropriately punish such behavior while still
guarding against imposing new and often untenable burdens on the entire
federal procurement system. Overly punitive measures unnecessarily
increase costs for the government or its suppliers, all in the name of
achieving the unachievable. In the end, this is a delicate balancing
act. This hearing offers an important opportunity to make progress
toward that balance.
POGO Hysteria
I have reviewed the POGO ``Federal Contractor Misconduct Database''
as well as its 2002 ``Pick-pocketing'' report. Taken at face value,
without understanding how the federal acquisition system works or even
digging just a little bit beneath the surface, it is easy to mistakenly
conclude that the acquisition system has failed.
Yet none of that information really tells us what we need to know
and thus, what, if anything, we need to change. For example, the POGO
website cites only 639 cases for the past nineteen plus years (from 1/
8/88 through 4/17/07); of those, scores involve settlements of civil
actions--with no indication of any admission of guilt. Under our system
of laws, a settlement, particularly one without any finding or
admission of guilt, cannot be equated with a guilty verdict. Yet the
POGO database makes no such distinctions. Nor does the information
separate out scores of relatively common legal actions, such as
disputes between employees and employers which were settled, again,
without any specific findings. Instead, the list simply presumes guilt.
Each of these cases are fact-specific but the report fails to account
for critical differences in the activities, such as whether the company
identified the problem, whether any senior officials were involved, and
whether and when corrective action was taken. Even the 2002 POGO report
is fraught with a remarkable number of mistakes and misstatements.
If we are to remain a government of laws under which due process is
a sacrosanct privilege afforded all citizens and entities, then we must
look at their ``Federal Contractor Misconduct Database'' through a very
different lens. To understand the real implications of the report and
the degree to which the rhetoric surrounding the database matches the
realities, real scrutiny is needed. That scrutiny must assess the
degrees to which violations of any kind have been proven to have
occurred, whether restitution was paid, how old the allegation is, and,
of course, how serious the violation is. These are essential elements
but, unfortunately, the database is of little help.
Similar rhetoric surrounds allegations that government contractors
have reputedly violated tax laws but continue to receive contracts.
However, if one carefully reads the Government Accountability Office
(GAO) and other objective reports on the subject, very few contractors
are actually accused of, let alone proven to have committed, tax fraud.
In fact, the main point of the GAO report was that the systems to link
IRS tax collection procedures with agency payment processes were not
working as planned. Since those reports were prepared, regulatory and
corrective administrative actions have already been taken and more are
in process.
Indeed, each of these topical area assertions raises complex and
difficult questions of compliance with highly regulated areas, yet none
of them have been adequately answered. Nor is this a new debate; it
dates back to the Clinton Administration's so-called ``blacklisting''
initiative, ostensibly developed to ensure that the government did not
award contracts to unethical companies or individuals. At that time,
many of the government's own senior career contracting leaders opposed
that initiative. Then, as now, any such rule is both unnecessary and
unexecutable.
Role of the Government Contracting Officer
Some have suggested that contracting officers be required to deny
federal contracts to companies that have demonstrated a ``consistent
pattern'' of abusing federal laws and/or regulations. How is a GS-9 or
GS-11 contracting officer supposed to make these determinations? On
what information, advice, counsel, or assurances is the determination
certified to be objective and fair? This proposal neither includes nor
contemplates any guidelines or definitions as to what constitutes a
consistent pattern or what types of violations are considered serious
enough to merit the exclusion of a company from government contracting
and these would be difficult to draft comprehensively and fairly.
The proposal places on the government's contracting officers the
entire burden of making complex legal determinations about a company's
compliance with tax, environmental, labor, and other federal statutes
that would warrant being denied the opportunity to compete for
government work. These are fields for which entire legal communities
are created and mastery can take years of training and practice.
Moreover, are we now going to change the fundamental construct of
our federal procurement system so that, with no guidelines relating to
the severity of a charge and its ultimate impact on the government, and
even after a company or individual pays restitution, an individual or
company continues to be punished through the denial of access to
government contracts? Do we simply ignore the overlay of the numerous
statutes and adjudicative processes?
Answers to these questions are central in determining how this
issue should be addressed. In short, in too many of these discussions,
the concept of due process appears to be largely ignored!
Conclusion
In our view, the current mix of laws and regulations does a very
good job of enabling the government to ensure it only does business
with responsible parties, and provides numerous, appropriate means that
enable the government to fully and adequately ``protect its
interests.''
Mr. Chairman, as I said at the outset, we are strong supporters of
the government's business compliance rules and routinely encourage our
member companies to ensure that their business conduct and compliance
programs are current and complete. We recognize that, regrettably,
individuals and organizations violate the law and we have little
sympathy for those that do. But it would be a costly travesty if we
were to impose new and unnecessary rules, let alone ineffective and
unexecutable ones, based on the mistaken impression that the current
system has failed us. By and large, it hasn't.
We are always ready and willing to work with you on ways to make
the system stronger even as we seek to maintain that critical balance I
mentioned earlier. But I would urge you to reject precipitous proposals
based on limited information and dangerous assumptions.
Mr. Chairman, thank you again for the opportunity to testify here
today. I look forward to answering any questions you might have.
Chairman Thompson. We will now listen to Professor Tiefer's
testimony.
Welcome.
STATEMENT OF PROFESSOR CHARLES TIEFER, PROFESSOR OF CONTRACTING
LAW, UNIVERSITY OF BALTIMORE SCHOOL OF LAW.
Mr. Tiefer. Thank you, Chairman Thompson and
Representatives Clarke and Green. Your presence here shows the
importance of the issues we are talking about.
I am a professor of government contractor law at the
University of Baltimore Law School and the author of a case
book on government contracting law.
Responsibility is a key criterion for perspective
government contractors which DHS should be considering much
more broadly and carefully.
Under current law and procedures, which Ms. Duke described
earlier when she was saying what the checklist was that the
contracting officers go through at DHS, they do a pre-award
survey and in the course of it, they look at who has been
debarred and they look at a very narrow form of past
performance information. The information that is kept on what
she called PPIRS, the past performance information retrieval
system.
To take an example so one understands just how narrow this
look is, a large juicy contract was given to Halliburton KBR to
build emergency detention facilities. One would think if one
looked at the past performance of Halliburton, one would get a
great big pile of information about allegations of waste, fraud
and abuse in Iraq. But I will wager that if you look at it, you
will find a very benign record, and for that matter, I think a
good thing to do would be to task the GAO to look at how little
there is in the PPIR system for Halliburton.
Why is that? Well, as the GAO has said in a January 2007
report called Select Agencies Use of Criminal Background Checks
For Determining Responsibility, which explains they looked at
the DHS system and other departments, that their routine does
not include looking at past criminal records. What else don't
they look at? Well, information from inspectors general and
from auditors and from the General Accounting Office is
typically not to be found in these databases because it is, as
the GAO says in that report, narrative in nature. It is not
sort of machine readable, and the contracting officers who put
information in that database aren't interested in going through
IG reports, auditors reports, whose questioning they may not
have accepted.
So in the case of Halliburton, which had a billion dollars
in questioned costs, but which the high command in the DOD
contracting offices decided to let Halliburton walk away with,
that billion dollars is not going to be in the database as it
is simply things that the auditors questioned.
What are other examples of contractors who have a more
broad survey of their past performance would lead to
questioning about their ability to contract with DHS? Well, we
have SAIC, which has a history of having badly botched a
contract to buy cargo screening equipment so the Department had
to say we don't want to buy any more from SAIC and which in the
past month or two had a full-length article, magazine article,
which I summarize in my testimony, showing how it has obtained
DHS contracts by--and contracts throughout the government--by
having high level lobbying partners who have great influence in
the government while it has a history of, as I describe in my
testimony, the GAO, the DOD IG, and the press, showing that its
performance has been highly questionable.
We have the Bearing Point KPMG which bungled the eMerge2, a
financial software system at DHS. This committee held hearings
about this very subject. Those hearings aren't going to be
found in the past performance system. So that when each of
these come up for new contract, is the responsibility
questioned? No.
Now it has been suggested well, we have the general
government-wide regulations. What would we need anything
stronger at DHS for. Ms. Duke pointed out the example that we
already know we need more at DHS. She said their checklist
includes their own provisions concerning what she called
inverted entities. These are the companies that have gone and
switched their headquarters to Bermuda so they can cheat the
U.S. government out of the taxes that it should be paid.
The Congress decided that that was not to happen at DHS,
and so DHS, in its own regulation, has a strong provision that
it is checked. You could reach out further and say that
companies like Halliburton, where the CEO is going to go to
Dubai, that kind of thing ought to be checked for
responsibility. It won't be under the government-wide
regulation. It should be under the HSAR.
Thank you, Mr. Chairman.
[The statement of Mr. Tiefer follows:]
Hearing on
Responsibility in Federal Homeland Security Contracting
April 20, 2007
by Professor Charles Tiefer
NON-RESPONSIBLITY IN DHS CONTRACTORS:
WHO'S RESPONSIBLE? WHAT CAN BE DONE?
Thank you for the opportunity to testify on the subject of
responsibility among contractors at the Department of Homeland Security
(DHS). I am Professor of Law at the University of Baltimore Law School
since 1995, and the author of a book, and of pertinent law review and
journal studies, on federal procurement policy.\1\
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\1\ These include GOVERNMENT CONTRACT LAW: CASES AND MATERIALS
(Carolina Academic Press 2d edition 2004)(co-authored with William A.
Shook). In 1984--1995 I was Solicitor and General Counsel (Acting) of
the U.S. House of Representatives, and participated in numerous
oversight investigations of federal procurement policy.
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I. Executive Summary
II. The Narrow Current DHS Approach to Contractor
Responsibility.
III. Broader Consideration of Past Contracting Waste, Fraud and
Abuse
IV. Broader Contractor Responsibility--Civil Rights,
Expatriates, and Other Issues
I. Executive Summary
``Responsibility'' is a key criterion for prospective government
contractors, which DHS should consider more broadly, in several
respects. Under current law, after DHS selects a contractor for award,
it conducts a pre-award survey to determine responsibility. This
existing ``responsibility'' determination consists mostly just of
checking that the awardee is not on the list of suspended or debarred
contractors (``excluded persons''); has adequate finances (from Dun &
Bradstreet); and has satisfactory ``past performance'' in a narrow
sense.
Whether and how DHS should consider ``responsibility'' more broadly
involves several issues.
For one issue--upon which this testimony focuses--DHS's methods
examine only a narrow version of the ``past performance'' record of the
contractor. DHS makes little effort to gather up broadly the whole of
the government contractor's record of fraud, waste, abuse, and other
violations, which may not get into the narrow ``past performance''
database. The revelations by Inspectors General, auditors, qui tam
False Claims Act plaintiffs, and the press often do not go into the
databases primarily maintained by contracting officers of solely their
own experiences with the contractor.
To make this concrete, this testimony looks at the past record of
some of DHS's biggest and best-known contractors with irregularities in
their past performance, drawn from those public record sources
sometimes not included in the DHS past performance review. It starts
with SAIC, which has botched DHS work, and has a full-length recent
article in Vanity Fair about its many questionable episodes. This part
continues with Boeing, for which a 20-month partial debarment can, and
did, work. It discusses BearingPoint (KPMG), which bungled eMerge2.
For another issue, responsibility could be expanded to include
significant federal law deviations or transgressions besides poor past
performance. American contractors that move abroad--technical
``expatriates'' or those like Halliburton that move their CEO to
Dubai--raise a potential responsibility subject. More generally, the
``contractor responsibility'' rule, promulgated during that Clinton
Administration and rescinded in the Bush Administration, raised
subjects such as compliance with civil rights, tax, environmental, and
labor laws. DHS may be the right department for a version of the
contractor responsibility rule.
II. The Narrow Current DHS Approach to Contractor Responsibility.
Agencies may award contracts only to ``responsible'' offerors--in
other words, only after their contractor officers determine that the
potential awardee is ``responsible.'' The law about contractor
responsibility for all government departments, including DHS, comes
from Federal Acquisition Regulation (FAR) 9.104 (emphasis added and
details omitted):
Subpart 9.1 Responsible Prospective Contractors
9.104 Standards
9.104-1 General standards.
To be determined responsible, a prospective contractor must--
(a) Have adequate financial resources to perform the contract,
or the ability to obtain them (see 9.104-3(a));
(b) Be able to comply with the required or proposed delivery or
performance schedule . . . .
(c) Have a satisfactory performance record. . . . .
(d) Have a satisfactory record of integrity and business
ethics;
(e) Have the necessary organization, experience, accounting and
operational controls, and technical skills. . . .;
(f) Have the necessary production, construction, and technical
equipment and facilities. . . .; and
(g) Be otherwise qualified and eligible to receive an award
under applicable laws and regulations.
Government contracting law has long-standing and elaborate
provisions for finding contractor responsibility--discussed in own
book, and written about by others in detail.\2\
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\2\ David Z. Bodenheimer, Responsibility of Prospective
Contractors, 97-09 Briefing Papers 1 (available in Westlaw); Steven W.
Feldman, 2 Government Contract Awards: Negotiation and Sealed Bidding,
ch. 18, sec. I, ``Performance Responsibility'' (2006 ed.)(available in
Westlaw).
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These criteria have great potential for flexibility--in particular,
the notion that a contractor must have a ``satisfactory record of
integrity and business ethics'' and a ``satisfactory performance
record'' have wide potential. Under current law, after DHS selects a
contractor for a large award, it conducts a ``pre-award'' survey to
determine responsibility. But, this is relatively narrow. This existing
``responsibility'' determination consists mostly just of checking that
it is not on the list of suspended or debarred contractors (``excluded
persons''); is financially responsible (from Dun & Bradstreet); and has
acceptable ``past performance'' in a narrow sense.
Two GAO reports, one of them a quite recent and relatively
overlooked study released in January 2007, investigated just how narrow
the pre-award survey of contractor responsibility can be. GAO, Selected
Agencies Use of Criminal Background Checks for Determining
Responsibility, GAO-07-215R (Jan. 12, 2007); GAO, Federal Procurement:
Additional Data Reporting Could Improve the Suspension and Debarment
Process, GAO-05-479 (July 2005). The January 2007 GAO study disclosed
that contracting officers these day often depend upon rather narrow
pre-award surveys (conducted for them by, e.g., the Defense Contract
Management Agency). The surveys use two important tools, tracked by a
contractor's Data Universal Numbering System (DUNS) number: the data in
the Excluded Parties List System (EPLS) about suspensions or
debarments; and, the data in the Central Contractor Registration System
(CCR) about contract awards.
The government has a standard arrangement to obtain Dun &
Bradstreet data on potential awardees to check their financial
resources.
What is left out by surveys of suspensions or debarments, financial
solvency, and past performance? A striking example is that the GAO
found that there is no particular reason that the ordinary pre-award
survey would turn up whether the principals on an awarded contract had
prior criminal records. In general, criminal background checks are not
required and may well not have occurred.\3\
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\3\ Criminal records might come out if DHS is implementing Homeland
Security Presidential Directive 12, about the standards for issuing
identification to employees and contractors. Criminal records also
might come out if there has been the kind of criminal investigation of
the awardee in which part of the standard procedure is to run a
criminal record check.
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Presumably the survey also picks up, if the contracting office has
not already tapped this in evaluating the offer, the relevant past
performance database. For the Defense Department, NASA, and NIH, that
is the Past Performance Information Retrieval System (PPIRS). Many
expect a trend toward a single federal database on past performance
information for all agencies.
To step back, the agency systems for past performance derive from
one of the most highly regarded procurement initiatives of the 1990s--
the expanded importance of past performance as a source selection
factor.\4\ This works by a process starting when agency contracting
officers do evaluations of the contractors' performance of contracts at
the time of performance. (The contractor's awareness of this evaluation
and its importance is expected to ``motivate'' the contractor to
perform well.) This evaluation goes into the aforementioned databases.
Then, when contractors compete for subsequent awards, the agency source
selection personnel consider each offeror's past performance as a
factor in selecting the awardee.\5\
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\4\ Nathanael Causey, Past Performance Information, De Facto
Debarments, and Due Process: Debunking the Myth of Pandora's Box, 29
Pub. Cont. L.J. 637 (2000).
\5\ Steven W. Feldman, supra, sec. 6:12 (``Past Performance'') and
10:28 (``Organizational experience/past performance''); Richard White,
Overall Government Contract Evaluation process--Past Performances,
FedMarket.com, May 19, 2005.
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One DHS example, among countless others, reflects how big a factor
past performance can be. When DHS awarded a task order to Security
Consultants Group Inc for security guard services, it weighted past
performance 60% of the technical factors--an impressively decisive
weight.\6\
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\6\ Government Contractor, April 14, 2004, p.166, discussing Comp.
Gen. Dec. B-293344.2. The 60%, although impressive, is not so
surprising. DHS is much more involved in purchasing of services, than
of commodities, and for these services, past performance is a uniquely
indicative factor in a way that mechanical tests on the physical
characteristics of the ``product'' cannot be.
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However, there is no particular reason that the ordinary pre-award
survey would turn up the allegations of prior fraud or other
irregularities, that an agency may receive from many sources apart from
contracting officers. In its section, ``Data on Instances of Previous
Fraud by Contractor Principals Not Readily Available,'' the January
2007 GAO report noted that ``investigations of fraud'' are assigned to
investigative units ``such as the office of Inspector General.'' Those
units keep their case files in ``narrative'' form--not entered in the
aforementioned databases--so there is no particular reason a pre-award
survey must pull up what Inspector Generals have found out about the
contractor.
Besides the Inspector General, there are other sources of
information about contractor fraud, waste, and abuse. The Project on
Government Oversight website on contractors provides a survey of such
sources. For example, private relators may bring qui tam False Claims
Act lawsuits against contractors. Such qui tam cases may win in court,
or, the contractor may settle them. The success of a suit reveals a
false claim, that is, statutory fraud.
Yet, contracting officers may very well, for a number of reasons,
put nothing about such a successful suit in their database. The suit,
and especially its eventual outcome, may post-date the contract; the
contracting officer may not agree with the suit, regardless of the
outcome, from partiality to the contractor or a desire to minimize what
might seem a blemish on the C.O.'s own record; or, the contracting
officer may just decide against taking on the argument with the
contractor ensuing from penalizing it by making a big record of the
false claim suit's allegations and outcome. The example of SAIC below
draws on a False Claims Act case settled by SAIC, that reflects
negatively on SAIC, yet may not be found in the kinds of records
checked when SAIC is a potential awardee.
III. Broader Consideration of Past Contracting Involving Waste,
Fraud and Abuse
As discussed above, the current DHS approach to responsibility
draws too narrowly on what contractors have done on past contracts, in
assessing ``past performance.'' Specifically, it does not even draw on
the investigations of the Inspector General of DHS, let alone the
auditing agencies of other departments (such as DCAA). And, it does not
draw on private suits--qui tam False Claims Act cases. All this results
from a narrow approach to past performance which uses databases filled
out by contracting officers--not inspectors general, not auditors, and
not information from qui tam lawsuits about government contract fraud.
DHS could remedy this by tasking its Inspector General, or, its
central procurement office, with two steps as to its records for past
performance. (Any excess burden from these could be handled by
restricting this, at least at first, to matters and contracts with some
high minimum, such as $1 million.
First, the IG (or procurement office) should enter, in the past
performance records, its conclusions from its investigative work. This
should not be left to contracting officers, particularly when they may
not be familiar with, or may not want to follow up, the investigation.
Moreover, the IG could enter information from matters that fall
naturally to it, such as private qui tam False Claims Act suits, as to
which the IG office is routinely tasked to become familiar when the
government is deciding on joining the suit.
Second, the IG (or procurement office) should consult certain kinds
of public databases for a larger sweep of information about important
offerors or awardees. These include criminal record databases; the
press databases of Lexis-Nexis; and those public databases (notably,
that of the Project on Government Oversight) that systematically
collect government contractor information.
Of course, as with other past performance information, the
government contractor should have the opportunity to enter its own
response to correct or to clarify anything with which it takes issue.
Example: SAIC
To see what is not put together by current DHS responsibility
practice, let us take as an example of a very important DHS contractor
with negative episodes in its background: SAIC. Helpfully, a
comprehensive investigative treatment of SAIC's contracting has
appeared recently--Donald L. Barlett, Washington's $8 Billion Shadow,
Vanity Fair, March 2007, at 342--supplementing similar prior
accounts.\7\
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\7\ A prior description of SAIC is in ``Windfalls of War--The
Center for Public Integrity,'' http://www.publicintegrity.org.
---------------------------------------------------------------------------
SAIC has sold a great deal to departments such as the Defense
Department and intelligence agencies. With DHS as well it has a
particular important contract. In 2003, TSA awarded it a contract with
a billion-dollar potential, pursuant to which SAIC provided about 400
cargo-screening monitors for border crossings and ports. As U.S. News &
World Report reported in 2005, ``[T]he government awarded a contract to
San Diego-based Science Applications International Corp. . . . The
machines were plagued by performance problems.'' \8\
---------------------------------------------------------------------------
\8\ ``A Radioactive Contract,'' USNews.com, May 22, 2005.
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This committee is familiar with the problem, having held hearings
on that failure,\9\ but, it warrants noting. ``What's the problem?
Well, for starters, the monitors can't distinguish between a nuclear
bomb and radiation that occurs naturally in a variety of materials,
including ceramic tiles, quarry tile, cat litter, fertilizer, and
bananas . . . .'' Id.\10\
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\9\ Hearings on Detecting Nuclear Weapons and Radiological
Materials, House Homeland Security Committee (June 21, 2005).
\10\ A similar story is Eric Lipton, ``U.S. to Spend Billions More
to Alter Security Systems,'' New York Times, May 7, 2005.
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Suppose DHS's experience with that large, sensitive contract with
SAIC caused it to look broadly at questions of SAIC's past negative
performance, as part of SAIC's responsibility. It would find these
specific legal and ethical controversies:
--SAIC is organized primarily for a revolving-door approach to
Washington lobbying. It rotates, on and off its payroll, officials at
the very top level, which includes former Secretaries of Defense and
heads of the CIA and NSA. It has a pattern of obtaining highly
profitable contracts from such officials while they are in office, and
providing them lucrative rewards, particularly stock options, when they
are on its payroll.\11\
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\11\ As the Vanity Fair article commented, ``Civilians at SAIC used
to joke that the company had so many admirals and generals in its ranks
it could start its own war. Some might argue that, in the case of Iraq,
it did.'' The existence of SAIC's company-wide pattern of obtaining
contracts by revolving-door methods puts each individual controversy
into a larger framework.
---------------------------------------------------------------------------
--SAIC had to settle a federal fraud (False Claims Act) case in
April 2005. Those widely reported allegations might involve gross
understatement of excess profits on extensive national SAIC
contracting. I discussed this in the NBC-TV segment, ``The Fleecing of
America,'' on May 5, 2005. As Vanity Fair says about SAIC's formula for
understating its excess profits uncovered in that case, ``the principle
involved was large, and it had potentially national implications. Was
SAIC using the same formula in thousands upon thousands of other
contracts it had with the government?'' Yet, it does not appear that
current DHS methods for checking ``past performance'' would even put
this on the table in front of a contracting officer.
--SAIC had a major contract terminated after revelations of a
spectacular conflict of interest. It had the NRC's contract to
formulate safety guidelines for radiation-contaminated waste. Then, it
became a subcontractor on a major DOE contract for recycling
radioactive scrap metal. When the SAIC conflict of interest came out,
the NRC not only terminated its contract with SAIC, it filed suit
against SAIC alleging false representations.\12\
---------------------------------------------------------------------------
\12\ This is discussed in the Vanity Fair article.
---------------------------------------------------------------------------
--SAIC was involved in several of the most questionable contracts
by which Defense Department funds have been paid for untoward
``support'' in Iraq. SAIC was the contractor for paying the ``Iraqi
Reconstruction and Development Council'' exiles including Ahmed
Chalabi. As the Vanity Fair article comments, a typical exile on this
SAIC payroll was ``a onetime atomic-energy official in Iraq, who
insisted that Saddam posed an imminent nuclear danger to the United
States. . . .'' SAIC's obtaining this contract has been criticized by
the GAO on pure contracting grounds,\13\ the DoD IG also criticized
SAIC on it,\14\ and I have discussed it critically in the Washington
Post.\15\ From what the GAO, the DoD IG, and the Washington Post laid
out, this was not some small matter. At the most critical of all times,
SAIC was doing a very wrong thing.\16\
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\13\ The Government Account Office received and upheld a protest
against the award of that contract, from commercial companies that
wished to compete to provide such services legitimately. Matter of
Worldwide Language Resources, Inc, B-296693.2 (Nov. 14, 2005).
\14\ Demetri Sevastopulo, US Military ``Cut Corners'' on Iraq
Contracts, Fin. Times, March 26, 2004, at 4; Bruce V. Bigelow, Report
Rips SAIC Over Iraq Contracts, San Diego Union-Tribune, March 25, 2004,
at C-1.
\15\ Renae Merle, Air Force Erred with No-Bid Iraq Contract, GAO
Says, Wash. Post, Nov. 29, 2005, at A17.
\16\ The GAO and DoD-IG criticisms are important. This is not just
some reporters' lack of appreciation of a contractor with whom the
reporters disagree. Rather, SAIC was found to be acting to obtain
greater profit, without competition, but in ways--such as sole-source
providing of personnel services that were being manipulated to pay off
specific Iraqi exiles providing false intelligence.
---------------------------------------------------------------------------
Also, this includes hiring SAIC for establishing the Iraq Media
Network, which the press found initially to be a disseminator of DoD
disinformation contrary to the official United States policy
(particularly for a department, such as DoD, and its contractors, which
are not part of the intelligence agencies tasked with such covert
actions); SAIC's network has since become, with painful irony, an Iraqi
government disseminator of virulent anti-American messages.\17\
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\17\ Barlett, supra.
Lessons from SAIC
SAIC illustrates a number of points about the need for greater
attention to contractor responsibility.
First, it would help if, at the time contractors engage, and are
caught, in waste, fraud, and abuse, the agencies made a strenuous
effort to create a ``past performance'' record of this--not just have
it occur only if a contracting officer would ordinarily mention the
matter in filling out the performance paperwork. Without pushing, low-
ranking DHS officials may not be expected to stand up to contractors
with the demonstrated clout and connections of SAIC. But, if the
prospect of a record that would block future awards forced it, SAIC may
be obliged to either clean up its act or cease to drain DHS's funds.
Second, a good way for DHS to address and to change a company-wide
pattern like this with an important vendor (like SAIC) is via the issue
of responsibility. A company which faces a broad loss of contracts may
change its culture to rein in the abuses. Without that prospect, a
company like SAIC will simply settle the consequences of each
individual abuse that is caught, and continue its pattern with the
expectation that what it does that is not caught, will more than make
up in revenues for what it does that is caught.
Third, DHS must stand ready to impose formal sanctions, like
terminations for default, upon the particular contracts of a contractor
like SAIC when its performance of a contract involves waste, fraud, or
abuse meeting the standards for formal sanctions. DHS may have been
able to terminated for default SAIC's contract for radiation monitors
on the ground that the monitors materially failed to perform as
promised (there is insufficient information available on the public
record to tell this for certain), rather than simply not continuing to
order more units. Doing so lays the groundwork to consider findings of
poor past performance the next time around.
Responsibility is a Properly Tough Criterion Even for (Perhaps,
Especially for) the Biggest DHS Contractors
Boeing at DHS and Boeing's Billion-Dollar Suspension
Boeing is by no means the worst DHS contractor, but, reviewing
Boeing provides important lessons about responsibility. The TSA awarded
Boeing a contract that included the delivery and installation of 1100
explosive detection (baggage screening) systems. A 2004 IG report found
wasteful spending and mismanagement.\18\ Boeing's bid was the highest.
Boeing insisted on a ``cost plus a percentage of cost'' arrangement,
which is about as close to per se abuse as procurement can get. Then,
Boeing turned around and subcontracted 92 percent of the work to L-3
and another company--which is the way to most abuse such a contract.
And so it proved: Boeing received a 210 percent return on investment,
and the IG deemed more than half of that profit to be ``excessive.''
\19\
---------------------------------------------------------------------------
\18\ DHS IG, Evaluation of TSA's Contract for the Installation and
Maintenance of Explosive Detection Equipment at United States Airports
(Sept. 2004).
\19\ Contracting Rush for Security Led to Waste, Abuse,
WashingtonPost.com., May 21, 2005.
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Boeing is, of course, one of the biggest government contractors,
but it is not alone in abuses both at DHS and elsewhere. Just two
months ago, DHS's Inspector General criticized a multibillion-dollar
program run by Lockheed Martin and Northrop Grumman, which, together
with Boeing, make up the ``Big 3'' of defense contracting. The Coast
Guard awarded its Deepwater contract to a joint venture of Lockheed and
Northrop. The DHS IG found design flaws for the Coast Guard cutters
that led to spiraling maintenance costs and, without a fix, could
reduce the ships' longevity. Deepwater is a $24 billion, 25-year
program. So this could be a waste problem on a gargantuan scale--as a
hearing by the House Oversight and Government Reform Committee on
February 13, 2007, discussed.\20\
---------------------------------------------------------------------------
\20\ Deborah Billings, DHS: Waxman Blasts DHS for Outsourcing Too
Much Authority Under Major Contracts, BNA Fed. Cont. Rep., Feb. 13,
2007, at 160.
---------------------------------------------------------------------------
It need hardly be said that a check of the background of Boeing or
Lockheed would readily display a very large set of prior matters
reflecting adversely on responsibility. Boeing has been responsible for
the Darleen Druyun scandal, with high-level criminal convictions
(Druyun and former Boeing CFO Michael Sears) and the resignation of
Boeing's CEO \21\--the single most dramatic criminal procurement
scandal (leaving aside the Iraq and post-Katrina scandals) of this
Administration. Lockheed has the highest number by far (92) of issues
on the POGO website for any government contractor.\22\
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\21\ Druyun Scandal Prompts DOD-wide Review of Procurements, Wynne
Says, BNA-FCR, Nov. 23, 2004, at 549.
\22\ Lockheed's reputation goes back to when Lockheed's worldwide
payoff scandals dominated the inquiries of an entire Senate special
committee's existence (the Church Subcommittee on Multinationals) and
led to the enactment of the Foreign Corrupt Practices Act.
---------------------------------------------------------------------------
What lessons can be learned about responsibility from the abuses in
the contracts of Boeing (or, for that matter, Lockheed)? Most
important: DHS can, as a viable and practical matter, treat even the
very biggest contracts and contractors with toughness on
responsibility.
On many grounds, the contracting industry, and even this
Administration, might dispute this. They might say that DHS
nonresponsibility determinations cannot occur against giant companies
because the government needs them too much both when they are the sole
source, and when they are among the few competitors, for important
contracts. And, they might say that DHS nonresponsibility
determinations are unfair or ineffective as to the very biggest
contracts and contractors, because such contractors operate on so large
a scale, with so many units and such decentralization, that it is
unfair or ineffective to sanction the whole company for the faults of
``the one rotten apple in the whole barrel.'' After all, they are the
biggest government contractors, and some of the extent of their record
simply owes to their contracts' scale.
There is a very concrete example that supports DHS treating even
the very biggest contractors like Boeing with toughness: the Defense
Department did treat Boeing that way as recently as 2003-2005. The Air
Force awarded Boeing 19 of 28 contracts for upcoming launching
satellites, a multi-billion dollar contract. Then, the government
investigated Boeing's having improperly and obtained Lockheed
proprietary information to compete for those contracts, with criminal
charges against Boeing officials on the satellite proposal team. From
2003-2005, the Air Force suspended three Boeing units from eligibility
for future government contracts, for twenty months; and, it reallocated
Boeing's number of launches from 19 to 12--$1 billion in work.\23\
---------------------------------------------------------------------------
\23\ Air Force Lifts Suspension of Boeing From Eligibility for
Federal Contracts, BNA-FCR, March 8, 2005, at 226.
---------------------------------------------------------------------------
The 20 month Boeing suspension also illustrated the doubly
effective lesson of such a sanction, even in (indeed, especially in)
spheres of contracting where there are only a few sufficiently large or
specialized contractors available to perform major specialized
contracts.\24\ By reallocating $1 billion in work from Boeing to its
``victim'' (Lockheed), the suspension taught the whole industry two
lessons. One was that ``crime doesn't pay.'' The other is that
``honesty DOES pay.'' The lesson is taught by giving the work that
would otherwise go to the nonresponsible contractor to other,
responsible contractors. And, contractors are not being held to
impossibly high standards--Lockheed is itself no angel, as just
explained above--just to the workable standard that those who go beyond
the pale see a large quantity of their work go to those who stay within
the pale.
---------------------------------------------------------------------------
\24\ As much as any other suspension or nonresponsibility
determination, the 20 month suspension of Boeing involved the issues
that the industry raises to argue against nonresponsibility
determinations by DHS or other agencies. The government had very few
choices, but must reallocate work to Lockheed, and must forego needed
competition in the field. And, it could be argued that the suspension
harshly penalized a substantial contingent in the Boeing workforce, who
suffered loss of work for the misconduct of a few officials.
---------------------------------------------------------------------------
Moreover, limited exceptions, by waiver, can occur in the course of
a suspension.\25\ Similarly, DHS could make nonresponsibility
determinations about particular contractors, and reserve the right to
make limited exceptions by waiver.
---------------------------------------------------------------------------
\25\ The Air Force twice waived the suspension, letting Boeing
launch one rocket in 2003 for ``compelling need'' and another in 2004
for ``national security.'' These amounted together to about a $100
million in work--nothing to sneeze at, but a small fraction of what
Boeing lost overall. Air ForceLifts Suspension of Boeing From
Eligibility for Federal Contracts, BNA-FCR, March 8, 2005, at 226.
Bearing Point/KPMG and eMerge2
A detailed press article in 2006 entitled ``Security for Sale,''
had the subheading: ``The Department of Homeland Security has a Section
on Its Web Site Labeled `Open for Business.' It Certainly Is.'' \26\
The article assembled many examples, some well-known within the
procurement community, of contractor exploitation, often facilitated by
lobbyists, of lax standards at DHS. Security for Sale develops usefully
one particular example about which this Committee has recently held
important hearings.
---------------------------------------------------------------------------
\26\ By Sarah Posner, in The American Prospect (Jan. 2006).
---------------------------------------------------------------------------
It describes how the company BearingPoint, formerly known as KPMG
Consulting, obtained the eMerge2 contract. ``In 2004, after signing on
with Blank Rome, the company won three major DHS deals: a $229 million
contract for its `eMerge2' software, designed to integrate the
financial management of the department's 22 component agencies [and 2
other contracts].'' \27\ Blank Rome was a Philadelphia lawyer-lobbyist
firm extremely well connected to the DHS Secretary, Tom Ridge of
Pennsylvania.\28\
---------------------------------------------------------------------------
\27\ Id.
\28\ Id.
---------------------------------------------------------------------------
There was reason from the beginning to be skeptical of the
BearingPoint contract. At the very moment that DHS awarded the eMerge2
contract to BearingPoint, another federal agency, the Department of
Veterans Affairs, was canceling a computer systems integration contract
with BearingPoint for a Florida VA medical center after paying
BearingPoint $117 million, and the State of Florida was canceling a
similar $173 million with BearingPoint and Accenture.\29\ More broadly,
the technical procurement world grouped BearingPoint's eMerge2, as an
enterprise resource project (ERP), as one of the ``well-known ERP
implosions'' as to which ``the history of failed ERP projects [are]
dotting the federal landscape.'' \30\
---------------------------------------------------------------------------
\29\ Paul de law Garza, Critics Question Federal Contract, St.
Petersburg Times, Oct. 7, 2004
\30\ Wilson P. Dizard III & Mary Mosquera, ERP's Learning Curve,
TechNews (Feb. 16, 2006).
---------------------------------------------------------------------------
It seems rather blithe for DHS just to walk away from that failure
without asking some hard questions of BearingPoint and of its own
project workforce. DHS has a painful history of material weaknesses in
its component financial statements and financial management systems
precisely in the context that the BearingPoint contract was to fix, as
GAO reported to this Committee at its March 29, 2006 hearing.\31\ DHS
depended on that contract for a solution, having chosen the
BearingPoint proposal over a rival proposal by established solution-
provider IBM--and over simply implementing the internal solution of the
Coast Guard's much-praised system. It seems BearingPoint's failure was
apparent ``within weeks,'' \32\ yet DHS, having stayed several years
with BearingPoint, now finds itself having lost years in this key
effort.
---------------------------------------------------------------------------
\31\ Statement of McCoy Williams Before the Jt. Hearing of the
Subcomm. On Government Management, Finance and Accountability of the
House Government Reform Comm. and the Subcomm. On Management,
Integration, and Oversight of the House Homeland Security Comm. (March
29, 2006).
\32\ U.P.I., DHS Financial Management Plan Collapses (April 3,
2006).
---------------------------------------------------------------------------
There are important lessons for ``past performance'' and
responsibility of contractors at DHS. The contracting officers of the
department evidently face pressure to go lightly upon contractors who
engage in waste or abuse or simply fail badly. Moreover, the
contracting officers seem insensitive to organizational conflicts of
interest (OCI)--using a company during an early phase of a project,
then awarding a lucrative deal to the same company during a later
phase. That is why it would be beneficial for the IG or some other
separate office to make sure that contractor abuses at DHS were entered
in databases in appropriately serious terms, and, that contractor
abuses elsewhere were also entered so as not to be overlooked during
``past performance'' and responsibility determinations. eMerge2 might
have been avoided. In any event, its recurrence might be prevented. To
paraphrase an old saying,\33\ ``history repeats itself--because people
didn't put a record of it, the first time, in the `past performance'
database.''
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\33\ It is usually stated as: ``history repeats itself because
people weren't watching the first time.''
IV. Broader Contractor Responsibility--Civil Rights, Expatriates
and Other Issues
For another set of issues, subject matters for contractor
responsibility are suggested besides past performance involving waste,
fraud and abuse.
A. Expatriates and Other Contractors Making a Foreign Shift
One issue concerns American contractors that make moves abroad.
These may include business that are, technically, ``expatriates''--
American companies that reincorporate in foreign tax havens. A 2002 GAO
report found out the following about such expatriates, notably
including Accenture, which is a well-known contractor for DHS (notably
in relation to the $10 billion U.S.-VISIT contract)
On October 1 [2002], the General Accounting Office reported
that $2.7 billion in Government contracts were awarded to
expatriate companies during Fiscal Year 2001. Although only
four companies were named as being incorporated in
international ``tax haven'' countries, the total awarded to
them was about 2.6% of the $102 billion awarded to the top 100
federal contractors, according to GAO's report. GAO also
reported that the Department of Treasury has found a ``marked
increase'' in the frequency, size, and profile of ``inversion''
transactions, which occur when a U.S.-based multinational
company ``restructures its corporate group so that after the
transaction the ultimate parent of the corporate group is a
foreign corporation.'' The four companies incorporated overseas
were: (1) McDermott International, Inc., incorporated in
Panama; (2) Foster Wheeler, Ltd., incorporated in Bermuda; (3)
Accenture, Ltd., incorporated in Bermuda; and (4) Tyco
International, Ltd., also incorporated in Bermuda. All of these
contractors were on the top 100 publicly traded federal
contractors list. See 44 GC 61. McDermott International was
number 11 on the list, Foster Wheeler ranked 57, Accenture
ranked 58, and Tyco International ranked 68, according to the
report.
GAO Finds $2.7 Billion Awarded to Expatriate Companies in fiscal
year 2001, Gov't Cont., Oct. 9, 2002, at 387.
Of course, a series of enacted provisions, followed up by
provisions in DHS regulations (the HSAR), have dealt with expatriate
companies. As an article about DHS's regulations laid out:
Prohibition Against Contracts with Corporate Expatriates--Section
835 of the Homeland Security Act of 2002 (the Act) prohibits DHS from
contracting with ``a foreign incorporated entity which is treated as an
inverted domestic corporation.'' In short, the bar renders certain
otherwise ``domestic'' entities that incorporated overseas after the
Act's effective date (November 25, 2002) ineligible to receive DHS
contracts.
Treated as a matter of contractor responsibility, HSAR 3009.104-70
implements the prohibition and requires the clause at HSAR 3052.209-70
to be inserted in all DHS solicitations and contracts; however, the
exclusion is not mandatory. Requests for waivers submitted to DHS'
Chief Procurement Officer (CPO) may be granted by the Secretary of DHS
on a contract-by-contract basis if doing so would be ``required in the
interest of homeland security, or to prevent the loss of any jobs in
the United States or prevent the Government from incurring additional
costs that otherwise would not occur.'' See HSAR 3009.104-74(a). As
part of the Homeland Security Act Amendments of 2003, however, this
waiver authority was restricted so that the Secretary can only waive
the prohibition upon making a determination that the waiver is required
in the interest of homeland security (and for no other purpose). See
Pub. L. No. 108-7, Sec. 101(2), 117 Stat. 528 (2003). DHS will modify
the waiver authority to be consistent with this amendment.
The exclusion applies only to a narrow group of entities. To fall
within the exclusion, the entity must be incorporated overseas and
treated as a ``domestic inverted corporation'' as that term is defined
by the regulations (i.e., certain otherwise domestic entities whose
place of incorporation was transferred off-shore after November 25,
2002). The exclusion is entirely unique in Government procurement.
There is no analogous requirement in the FAR or any other agency-unique
acquisition regulations applicable to such ``corporate expatriates.''
Richard P. Rector & William J. Crowley, Homeland Security--The New
Acquisition Regulations and Guidelines, Gov't Cont., Feb. 25, 2004,
p.80 (emphasis added). Not that the mechanism by which the expatriate
provision works, is a DHS regulation (in the HSAR) as to contractor
responsibility.
Even so, such companies that are technically expatriates are only
one part of this issue. Without technically becoming expatriates by
reincorporating overseas, companies raise diverse issues by other kinds
of what might be called ``foreign shifts''--foreign takeovers, such as
the Dubai Ports issue; or, moving their headquarters or their CEO
abroad, such as Halliburton moving its CEO to Dubai. This testimony
need not delve into the concerns raised in this way. The foreign shift
suggests a diminished and even potentially conflicted commitment to
American security concerns, which may become attenuated as the
Halliburton CEO, for example, relocates away from America and learns to
identify less with his former country and more with his chosen locus in
Dubai (and close-at-hand customers there) and its regional perspective.
Moreover, in many ways, a foreign shift can lead to a changed, and
possibly diminished, commitment to the laws that contractors are
expected to carry out. For example, Title VII, and the related
proscriptions of sex and race discrimination, envisage a strong effort
by contractors to hire women and minorities at all levels, especially
at the top. It is not at all clear that Halliburton's new CEO
headquarters in Dubai is in a vicinity where he will vigorously recruit
American (or any) women for top posts. More likely, the Dubai-based CEO
may develop a version of the corporate glass ceiling.
B. The ``Contractor Responsibility'' Rule
The government-wide ``contractor responsibility'' rule, promulgated
during the Clinton Administration and rescinded in the Bush
Administration, cited noncompliance with civil rights, tax,
environmental, and labor laws as a basis for finding an awardee
nonresponsible. As for whether to have such a rule on a government-wide
basis, it is unnecessary to go back through all the arguments made in
the period of the late 1990s and early 2000s. Before the rule was
promulgated, the Administration made a strong record in its favor.
Moreover, while this was not so noticed in the din of debate, as the
consideration of the rule went along, a sound conception developed
about how best to draft and implement it, so that lawyers were able to
advise their contractor clients how the vast majority of them could
live quite easily with the rule:
The commentary emphasizes that the government is not so much
concerned by contractors who may have individual violations at
some point in their histories as it is by contractors who have
a recent history of ``repeated, pervasive and significant
violations.'' Moreover, the regulations encourage contractors
to institute ameliorative actions when violations are found,
instructing contracting officers to consider as positive
evidence of responsibility efforts by companies to comply with
administrative settlement agreements that reflect an effort to
ameliorate past violations.
Anthony H. Anikeeff, Avoiding the ``Blacklisting'' Minefield, Fed.
Law., April 2001, at 42 (emphasis added). In other words, a big company
which lost some limited number of race and sex discrimination cases by
individuals, some not even recent, would point out that this did not
show a recent history of ``repeated, pervasive and significant''
violations. Even if the company had resolved some large-scale issue
with the EEOC or other administrative body, it could point out its
successful effort to comply afterward, as positive evidence of
responsibility. In contrast, the systematic and hardened discriminator,
with a pattern of extensive recent discrimination and no sign of effort
at amelioration or improvement, would be challenged to explain its
responsibility.
Putting aside the issue not present here of a government-wide rule,
it is worth considering whether there is some greater reason to having
some version of a ``contractor responsibility'' rule just for the
Homeland Security Department. As just discussed, there is no
government-wide expatriate rule, but there is such a rule for DHS, in
the department's acquisition regulation, the HSAR. Among other factors,
the spirit of homeland security suggests a particular type of
idealistic patriotism, with which the notion of dropping American
corporate citizenship and reincorporating in a foreign tax haven seems
peculiarly at odds. Moreover, Americans are asked to undertake the
effort of creating a new department, and funding its large and growing
programs, to meet potentially great perils. Furthermore, DHS contracts
may well prove more lucrative than other contracts; they tend to be
less commercial in nature, less competitive in allocation, and lack the
longstanding cost controls of more established fields. All that seems
to warrant asking something of the contractors who received that large-
scale and especially lucrative funding, namely, to maintain an
identification with this country.
Similarly, the spirit of homeland security, and the demand upon
Americans to fund its large and growing programs, is at odds with a
business mentality that would consistently violate the laws embodying
national ideals--like civil rights, environmental, and labor laws.
Contractors ought not take, with one hand, DHS's especially lucrative
contracts, and, with the other hand, refuse to invest the relatively
modest sums needed to comply with federal laws. It is understandable
that the Congress more willingly enacts large and growing
appropriations for DHS if it provides that the money will not go into
the pockets of those systematically violating the civil rights laws and
similar laws.
Moreover, there may be some value in having one department--DHS--
serve as a test site for a version of the contractor responsibility
rule in its departmental regulations (the HSAR), rather than either
having no such rule or going to a government-wide rule. There has been
dispute over just how extensively any such rule would affect
contractors. Proponents have argued that a large majority of businesses
do, in fact, obey these federal laws and need have no concerns, and
that it is only a rather small handful of corporate ``outlaws'' with
exceptional records of scorning compliance with federal laws. Only
because that handful has taken over a disproportionate role, on this
issue, in the business lobby, is a corporate responsibility rule made
to seem problematic. By having a DHS rule, this debate would be
resolved by concrete experience. If the large majority of DHS
contractors do not experience particular difficulties with such a rule,
as the rule's proponents suggest, then that could be taken into
consideration as to expansion to other departments. On the other hand,
the expatriate rule did not immediately expand to other departments,
showing that a contractor responsibility rule may last, applying just
to DHS.
Chairman Thompson. Thank you very much, Professor.
I yield myself 5 minutes for questions.
Each one of you have talked about responsible contracting.
And you have heard the testimony of the representative from DHS
earlier.
In your own words, what steps should a contracting officer
take to ensure that a prospective contractor is a responsible
bidder? As you know, there are some questions about the
Shirlington contract, that was a limousine contract that was
questionable. The professor talked about some other contracts.
And I am aware of the Professional Services Council
representative talking about existing regulations. And I guess
the question is are the existing regulations tight enough to do
it? Is it just that they are not being followed in some
instances, or do you think there are some other measures that
could be put in to get us to that point. And I will start with
Mr. Amey.
Mr. Amey. Thank you, Mr. Chairman.
The regulations are on the books, but I do think they could
be tightened up. The examples that Professor Tiefer just walked
you through are the perfect examples of the government's narrow
interpretation of them that they are not going to step out of
that box. And, obviously, you know, the Professional Service
Council will say they shouldn't step outside of that box. They
are following the regulations and that is the argument at POGO
that we have with the contracting associations all the time is
that, you know, well they are following the rules but are they
following it as intended.
Ms. Duke testified that they have the policies and
procedures that they need, but I don't think they are working
as intended. When you have examples and POGO has a contractor
misconduct database for the specific examples of what Professor
Tiefer was testifying about. We have examples of false claims
against the government, violations of the Anti-Kick-Back Act,
outright fraud, conspiracy to launder money and retaliation
against workers and environmental violations. None of those are
being used in responsibility determination. So it really does
fall on DHS to do a better job in spending taxpayer money
wisely.
Chairman Thompson. Thank you very much.
Mr. Chvotkin. I am in the uncomfortable position of being
on Mr. Amey's left. I am really there. And I couldn't disagree
more with either of the two other colleagues on this panel.
The tools, the checklist that Ms. Duke talked about, the
standards that exist in the regulations are quite comprehensive
yet quite flexible. They are flexible because they address
individual circumstances. They address compliance, the
capability to execute an existing contract. That is what the
responsibility determinations are all about.
These are not about second-guessing auditors or Government
Accountability Office reports. They are trying to make the best
determination whether the contractor is likely to perform work.
Past performance is an indicator of future success. It is
unquestionable. We strongly support a robust past performance
information reporting system. The PPIR system is relatively
new, not as robust as it should be. It is not as comprehensive
as it needs to be. We have endorsed strongly on the executive
branch that they enhance that system. We have encouraged
agencies to make sure the contracting officers respond and
submit information to that past performance information
reporting system and other databases that track that
information.
We have endorsed strengthening the excluded parties list
that the General Services Administration maintains as executive
agent on a government-wide basis. To make sure that that data
is more readily available, we have now got that on line along
with other activities that are now coming on line.
So I think there are steps that are being taken. Much of it
is enforcement. Much of it goes to the workforce challenges
who, in addition to having the need to get the work out the
door, have a responsibility to go through the--this
determination as well as other determinations.
So a combination of workforce training and experience,
systems tools in place, and compliance with existing
regulations, I think will get to most of the circumstances that
have been raised.
Now are there bad actors? There are. Will they slip through
the cracks? They will. And that is where oversight and
responsibility on the government contracting officer and the
performance is designed to check.
And here again, the government has a lot of tools available
to them where they find that mistake to correct it through
terminations for convenience, through prosecutions.
So there is certainly no lack of capability of executing.
Chairman Thompson. Thank you.
Professor.
Mr. Tiefer. Well, there couldn't be a more important
question than what more should those contracting officers do
and whether the existing regulations need to be strengthened.
The first thing is that given the systematic inadequacy of
the database that is kept in that it is kept only by
contracting officers and it doesn't have all of these items we
mentioned previously, Inspector Generals and auditors and so
forth, that one should contracting officer should go to public
databases, which, for example, the one at POGO is one.
Databases that will inform them about key false claims action
cases which are very important, which develop a great deal of
information, which are otherwise are going to go right past the
contracting officer, won't be aware.
SAIC is an example of a company that settled a very
important False Claims Act case, in effect, though not
technically, in effect, admitting that it had jacked up its
cost and its prices.
Mr. Chvotkin. Not technically?
Chairman Thompson. Excuse me, sir. You have had your
chance.
Professor, continue.
Mr. Tiefer. The point is taken. They don't admit or deny,
but for purposes of checking their past performance, it should
be checked. It should be checked. It is like if you had someone
who had been charged with drunk driving and they pleaded no lo
contendere, that should be checked if one is deciding if they
should be out there behind the wheel again, especially if you
see further examples of them drinking and driving.
Anyway, we have--there are false claims--there are
databases that are kept, records that are kept about False
Claims Act things.
A specific example which is brought up of the instance of
Shirlington Limousine is of criminal records. When the GAO
asked these various departments do your people look at criminal
records, other departments said as a matter of fact--the
Department of Justice, GSA said as a matter of fact, we do. Our
procedures do lead us to know. DHS's answer was no. Could they
check it? Yes. They would simply have their contracting
officers ask the IG and the IG check to see whether the
principals on the contract had a criminal record.
I will say that the DHS does check if it is fallen on
Homeland Security directives and things are involved like
badges for admittance to sensitive facilities, so there is some
checking at DHS, but there is not a department-wide procedure
the way there is apparently at other places.
Last, there are things which under the current regulations
there is no push at all at contracting offices to look at.
These are the violations of Federal law apart from waste, fraud
and abuse. Violations like civil rights employment
discrimination violation, which the government has turned its
back on checking.
I think that regulation changes could be made and should be
made so that people--firms that have a record of systematic
discrimination which has been exposed by class action lawsuits,
this should be put in front of the contracting office.
Chairman Thompson. Thank you very much.
We now recognize the gentlelady from Texas, Ms. Jackson
Lee, for 5 minutes.
Ms. Jackson Lee. I am not sure if this mike is working but
am I heard. Thank you very much. Thank you.
I know that Ms. Duke is not at the witness table, but I
want to make the point that as we are learning today, the
procurement office is really moving with a breath of fresh air
in the right direction. And I think we can all learn today in
how we can make it better.
And so Mr. Amey, I am going to raise with you a forward
thinking question, because the government needs to learn and
Congress needs to write laws in the right manner.
And I note that you probably covered some areas, and I
thank you for your indulgence. There are two hearings that we
are attending to.
But this is a crucial hearing, because we are really
speaking of billions of taxpayer dollars. I mean, I think that
is--you know, that is what you call throw your hands up in
frustration, and then we add to it the insult to the burden of
victims who are already victimized and simply want something to
work.
And so I just have to go back again, and I know that you,
as I understand it, have mentioned some other debacles, and I
will mention them as well.
Ms. Jackson Lee. You know, I don't know why the government
feels that only huge conglomerates--and Halliburton is a
constituent, but there is not a crisis that occurs in America
that Halliburton is not there. Now this is the Department of
Defense I would imagine. We have to find a way to expand. I
will use the term ``fix that.'' But we have to find a way to
become more opportunity generating with competition. So I
wanted you to speak to this comfort level that we get with
large entities.
Then the next point is that, you know, as we do that, we
certainly shortchange procurement officers or staff, and maybe
that may be a question. It is much easier to go with what we
perceive to be comfort level but I think when we get comfort
level, then we get reckless spending by the entity that feels
that we are working hand in glove. That was certainly a point I
think that is evident with Halliburton in places like
Afghanistan, Iraq and also Haiti.
The second question is, with respect to I think a necessary
change in the law or administratively, and that is these large
contracts on crises going to the State government, not getting
to local entities. And when we went into New Orleans in the
parishes and we talked to the local officials, they said, you
know what, I am barred from hiring a local guy because there is
a big major contract generated because we have sent money to
the State. And therefore, the State goes into this either
noncompetitive, hand in glove situation. That is why, although
I know ICF and the Road Home Program is State, I believe there
should be a Federal investigation because billions of moneys
are still stymied.
So what about the idea--now, if you take that one first, of
restructuring how we send moneys in time of crisis, and so that
St. Bernard Parish, making it an argument or putting the
structure in place, would get the money directly. You send it
to the State, the State sits there for a period of time. There
may be--and I am not indicting any state-elected officials,
meaning the legislature, the Governor's office, but they sit
and boil for a long period of time in time of crisis and the
local dollars, they never give them.
Mr. Amey.
Mr. Amey. Well, I will handle your second question first.
But to me they all merge together, and it ends up being a very
connected answer. And that is the first thing that we need to
look at is the number of tiers we have. By using lead system
integrators, the system that we currently have with these large
prime contractors, we are really taking away business from
small and medium-sized businesses.
Ms. Jackson Lee. And minority, minority and women.
Mr. Amey. And minority and women as well. And the problem
is, you hit it on the head, and I think Mr. Chvotkin started
out his testimony with that in saying this is subpartnership.
Through the years, we have gotten away from arm's length
negotiations. I always use the example, when I buy a car, I am
not hand in hand with the person selling me the car. Somewhere
here the government has turned to this approach where we are in
the same business with these contractors, so at that point we
are working for the same goals. And I don't always see it that
way. I know Mr. Chvotkin is going to criticize that comment.
But that is where that comfort level with large contractors
comes from. At POGO, we call it the usual suspects. It is a lot
easier to turn to the usual suspects than going out and doing
it--trying to find another contractor, turning to somewhere
else where they are doing the same work. One of the terms that
they bat around is ``bundling.'' We need to start debundling
contracts. There is no reason Halliburton had to get laundry
services, food services, construction services. Why not break
those apart? But it was a lot more convenient. It was a lot
more efficient for the government to get that contract awarded
as a larger contract. So let's not break it apart. Let's get it
awarded and then we will allow Halliburton to then subcontract
out all the work to other people. And you end up with multiple
tiers.
So that gets to your second question you asked, was at one
point we end up with up with one, two, three--I have heard
four, five levels of subcontractors where everyone is taking
their piece of pie at that point. We have seen where--and this
is where I have talked about prime and material contracts,
where the prime contractor will bill out the government $100 an
hour to pay their contractor at $50 an hour, and then the
worker is actually only getting $15 an hour. There is risk
involved there, there is allocations of expenses I know in
Economics 101. But at the same time you have a prime contractor
getting $50 to do little or no work because the contractor is
already doing it. And that needs to end. That is where there is
a need for new regulations, there is a need to look at the
system and say, it isn't working as intended because there has
been so many changes with the War in Iraq, with Hurricane
Katrina.
Have we caught up to the system? I think it is the tail
wagging the dog at this point.
Thank you for your question.
Ms. Jackson Lee. Professor, did you want to--the gentleman
in the middle. I am sorry. Professor Teifer.
Mr. Chvotkin. I am Alan Chvotkin.
Ms. Jackson Lee. Where is the professor there? Yes. Sorry
we have you listed second but you are over here. Yes. Did you
want to comment?
Mr. Tiefer. Very much so. You are quite right that there is
a syndrome of large entities, of a greater comfort level with
contracting with large entities and as a result, reckless
spending. An example in DHS, which I discuss in my testimony,
is the famous Deepwater contract that the Coast Guard handles,
which is a $24 billion contract, which has received a lot of
critical attention from the oversight people and which is a
joint contract between Lockheed Martin and Northrop Grumman.
When one goes and looks at the Project on Government Oversight
database, Lockheed is the winner of the prize. But it is the
prize that people try not to win, it is the prize of the
largest number of past abuses recorded for any firm. Lockheed
wins the prize coming in by far the largest at 92. Is there a
better way to contract? You asked a good question. Is there a
way to contract so that we are dealing, for example, sometimes
directly with local governments rather than only through State
governments? And the same question can be asked, is there a
time where we are going not just to the Lockheeds but directly
to its subcontractors and eliminating? And the answer is, if
one has the requisite number of contracting officers, if one
hasn't purged the staff of the experienced contracting
officers, they will go more directly to the local governments,
to the subcontractors, to the small businesses, to the
minority-owned businesses.
Well, should DHS be doing this? I testified a year ago
about DHS personnel. DHS I think has one of the highest ratios
of amounts of money spent per contracting officer. This is
again a prize one tries not to win. This means there is the
smallest oversight, the least direct. Is this the history
there? No. The Federal Emergency Management Agency had an
excellent record on the disasters of the 1990s, the hurricanes
of the 1990s. It had more people ready to go directly to the
scene and directly to provide what is needed and that would
take the place of--depending upon large entities and only
States.
Ms. Jackson Lee. Thank you very much. Thank you, Mr.
Chairman.
Chairman Thompson. Thank you very much for your questions.
We now recognize the gentlelady from New York for 5 minutes for
her questions.
Ms. Clarke. Thank you very much, Mr. Chairman. I wanted to
direct my questions to Mr. Amey and to Professor Tiefer. I
wanted to get a sense of, you know, your opinions. Mr. Amey, in
your testimony you note that the government is relying on
contractors to perform jobs previously performed by civil
servants, including policy and budget decisions that impact the
direction of the Department. I want to ask whether you feel
that this goes to the ability of the agency to retain
personnel, the ability to establish an agency culture and what
impact you feel it has on the overall performance of the
Department.
Mr. Amey. Unfortunately, the first panel isn't here. But
that would be a perfect question for them because I am not
within DHS. But I will say that there is a syndrome that goes
along here that you have with outsourcing. Outsourcing isn't
new. Let's not make this up as something that just started.
This has been going on for 50, 60 years, even longer. The
question is, are we outsourcing jobs that should be performed
by government employees? The FAR, you know, as people are
talking about regulations and whether we need to add things or
not, there is a section in the FAR on inherently governmental
functions. And in section, I think, C of that provision, it has
18 or 19 things that are listed that says this is inherently
governmental, it should be or shall be performed by government
employees. Then you get to subsection D and it says these
things are closely related to inherently governmental functions
but they can be performed by contractors. Well, there are 20
things listed there. Some of them overlap. You have FOIA, for
example, is one where you have FOIA in both categories. The
question is, where is the bright line between the two? When
does the contractor cross that line and start performing
inherently governmental function? You need to look at this from
two different perspectives. In POGO my next investigation is
going to be on this issue, it is taking a look at it
financially.
And then second is a control issue, is the government
losing control of itself? Lead system integrators, there has
been just two great reports that have come out on lead system
integrators, and at that point they are really calling into
question, is the government giving too much control over
contractors to run the government? And their answer is yes. But
we don't have anyone inside the government to do that. And that
is a question Mr. Chvotkin may want to weigh in on this as
well. There is a morale issue. The revolving door creates a
morale issue as well. But I think that is something that you
want to pose to DHS and try to get a feel for what their
employees think about outsourcing and about the revolving door
and control of the government.
Mr. Tiefer. Thank you, Ms. Clark. DHS is unfortunately a
strong example of a place in which things that should be done
in house by civil servants, by the government are being
outsourced and being done by people whose firms, whose interest
itself of course is for them to make the most money. The
example of course of the extreme outsourcing that is going on
there is the current thing called the Secure Border Initiative,
which is a multi-multi-billion dollar throwing of money at the
border under the notion that this can solve our problems. And
it is famous in the procurement observing community that DHS
said when it was putting this out we are not going to tell you
firms what to do. You come to us with ideas about what we
should do, and we will be glad to take your ideas and thank you
for them, which is not letting the fox into the hen house, but
giving the deed to the hen house to the fox and saying it is
your house, what would you like to do here? There is a general
problem in DHS that it was built on give it to the contractor
notions and not extend the civil service notions. You have in
many of the subdivisions of DHS dedicated people who have been
doing the work of customs, the work of immigration, the work of
the Coast Guard all these years. And instead of being given the
tools, they are being told stand aside and let the contractors
do it.
Ms. Clarke. Mr. Chvotkin, did you want to comment on that?
Mr. Chvotkin. Yes, I would. I appreciate the opportunity to
do that. Last time I checked, and I believe from the
committee's standpoint there are no government employees who
have the ship build yard. There are no government employees who
are doing the debris removal. So the reliance on the
contracting community is absolutely appropriate. I agree
completely with Mr. Amey that the oversight responsibility, the
engineering capability, the design capability must be resident
in the government, and they simply don't have that talent
today. So it is not in the question of what we would like to
do. It is a question of what we are actually able to do.
The regulation is very clear. The agencies have the desire.
Ms. Duke talked about having 200 vacancies for the government
contracting job. We are strong supporters of the well-trained,
well-compensated Federal acquisition workforce. I use the
expression that you may have heard in another commercial, an
educated consumer is our best customer. That is how many of our
members feel. A smart buyer is the better customer for us. We
need to take steps, and this committee has already started down
that path in the authorization bill, to address some of these
workforce issues. We are a day late. We shouldn't be 2 days
late in getting that work done. But that is still work ahead of
us, and that doesn't mean that the responsibility, relying on
contractors for appropriate work should go out the door.
Ms. Clarke. My time is up. Thank you very much, Mr. Chair.
Mr. Green. [presiding.] Thank you very much. And the Chair
will now allocate 5 minutes of time. And I would like to start
with Mr. Amey. Mr. Amey, sir, will you kindly explain what
percentage of the no-bid contracts are sole source and what
percentage would be cost plus?
Mr. Amey. For DHS, their total number of--and what I
consider no-bid contracts, you know, and this get into what
definition are you going to use. I can provide pie charts that
come from the SRA panel, the acquisition advisory panel that
recently concluded its 18-month investigation on where the
government currently is with competition levels. There is three
or four different parts of that pie, competition and then
contracts that were not competed. But then there is also
follow-on contracts that weren't competed, task and delivery
orders that weren't competed. As far as POGO is concerned, we
add all those basic ideas of noncompetition together and get an
estimate. It is probably closer to 40 or 50 percent. And again,
those numbers are somewhat flawed because the government does
not have the best, most reliable data out there. So I will say,
take it with a grain of salt. That is not my problem. But it is
the way contracting officers are entering into the system.
Mr. Green. Let me intercede if I may. Do you have any
indication as to what percentage of the contracts are MBE, WBE
or SBE?
Mr. Amey. Not--I can provide that to the panel. But I don't
have that information with me.
Mr. Green. And I am talking about now your no-bid--the 40
percent that you say are going to no-bid contractors.
Mr. Amey. Right. I can provide that.
Mr. Green. Mr. Amey, you are with POGO.
Mr. Amey. Yes.
Mr. Green. Sir, you indicate that prime contractors--this
is in your testimony--are using their own labor rates as
opposed to subcontractor rates.
Mr. Amey. Yes.
Mr. Green. Could you kindly explain this, please?
Mr. Amey. Well, we have recently seen an example in which--
it is a Katrina example in which a prime contractor is billing
the State of Louisiana, but it is with FEMA grant money so it
ends up being Federal Government, ultimately $100 per hour for
work. That work they have subbed out to a contractor at $50 per
hour. So the invoices are coming in from the subcontractor.
They are going through the State. They are then going to FEMA.
They are then approving them. But the subcontract or the prime
is getting paid $50 an hour. So that means you have $50 of
every $100 that is going to the prime for work that the
subcontractor is doing. So the prime is doing nothing other
than--and they are even billing on top of that their own
administrative costs of running that subcontract. So it is not
even like those costs are included. So you have $50 for every
dollar being spend going to a prime contractor for little or no
work. That is purely wasteful as the questions to previous
panels indicated, that is money that is not going to the people
that need it. It is not just that the prime contractor is
making that money, but that is not trickling down to the people
in the parishes, in the States that need it, into the local
governments. So that is less money that they have for relief,
that is less money for reconstruction.
Mr. Green. Mr. Chvotkin, would you give a comment on this,
please? Is your experience similar?
Mr. Chvotkin. No, sir. But they are clearly examples. I
don't know Mr. Amey's specific example and I challenge that.
There are different kinds, types of contracts. The government
frequently enters into fixed price contracts where they
negotiate the rate, happy with the rate, and expect the
contractor to perform at that rate. If the contractor is
disclosing the use of subcontractors, there may be a great
differential. If it is a cost type contract, the answer may be
very different; that is, the costs are passed through to the
government, to the rate billed by the subcontractor. So
contract type is separate and apart from the execution issue.
The key for us--and we have been a strong proponent of
transparency. As long as the government knows the environment
in which that is going to take place, they should be able to
negotiate that responsibility.
Mr. Green. Let me intercede and ask this, if the example
given is correct, if it is correct, accepting this as a
premise, would you condone the example that was given?
Mr. Chvotkin. No.
Mr. Green. Why would you not condone it?
Mr. Chvotkin. If there was--if the agency was aware--if the
agency negotiated a cost type contract and the prime contractor
was subcontracting out and missed billing the government, those
billing errors we would not condone.
Mr. Green. Would you consider this fraud?
Mr. Chvotkin. If the government was not aware of it--fraud
is a legal term, and I don't want--it might be fraud.
Mr. Green. My time is about to expire. Let me ask Mr. Amey
to give us his opinion on it.
Mr. Amey. It is funny because this has been hotly debated
in the contracting circles for a few years here on these time
and material and labor hour contracts where this is occurring.
There was a proposal on the table in legislation, I think it
was about a year ago, in which they said as long as you
disclose what your billable rate will be for the subcontractor
then it will be allowed. And I agree with Mr. Chvotkin, there
anything that prevents this right now. So this is a step that
Congress really needs to take to make this change and improve
this. The real problem is even if you disclose it--
Mr. Green. I am going to have to ask you to summarize
quickly because my time is up.
Mr. Amey. It is just like putting us on notice that you are
taking $50 out of every $100. Even if you disclose it, it
doesn't make it right. That is not good government to me. That
is what needs to be corrected. Disclosure doesn't fix it,
transparency doesn't fix it. It is a matter of you should only
be allowed to bill out at a rate that is what you are actually
paying your subcontractors out. Why have that increased cost--
higher cost, you know, as part of the government's equation?
That is not good government.
Mr. Green. Thank you very much. The Chair appreciates the
testimony of all of the witnesses, and would like to announce
that the hearing record will be open for 10 days. There being
no further business, we are adjourned. Thank you.
[Whereupon, at 1:35 p.m. the committee was adjourned.]
APPENDIX
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Questions and Responses