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FOR IMMEDIATE RELEASE
OCTOBER 27, 2003
1:39 PM
CONTACT:  Project On Government Oversight
Scott Amey or Beth Daley (202) 347-1122
Iraq Reconstruction Contracting Abuses: Expanded Loopholes Considered by Defense Authorization Conference Committee
 
WASHINGTON - October 27 - A new report released today by the Project On Government Oversight (POGO) addresses the unprecedented attention given to Iraq reconstruction contracts awarded by the federal government. “This Administration has taken full of advantage of gaping loopholes that make the federal government’s contracting ripe for abuse,” said POGO Senior Investigator Scott Amey.

The report summarizes how changes in federal procurement over the past decade have gradually weakened oversight of contracting and includes suggested reforms. The full text of the report is included below.

In recent months, POGO’s investigative spotlight has helped to defeat some proposals backed by hundreds of defense and technology contractors that would further weaken taxpayer protections. The proposals were included in the Services Acquisition Reform Act (SARA) legislation sponsored by Representative Tom Davis (R-VA). Some of that legislation’s harmful proposals were attached to the pending House Defense Authorization bill now in conference including:

--Contractors for Life, Section 1431. This would allow contracting officers to extend contracts indefinitely, even sole source contracts.

--Rewarding Overbudget and Behind-Schedule Contractors, Section 1442. This section expands use of high-risk time and material and Labor Hours contracts which would which allow contractors to engage in almost unlimited billing of the government without producing a product. This is like hiring a house painter, telling him no matter how long he takes or how much he spends on paint, his bill will be paid.

--Open Money Bags for Contractors, Section 1444. As long as a company sells any goods or services to the public, that company can overcharge on all of its business with the government without being held in check by taxpayer protections.

--Wolf in Sheep’s Clothing, Section 1451. Expands use of “Other Transactions,” a shady and questionable vehicle that is particularly abused to avoid compliance with federal contracting statutes and regulations that improve competition, transparency, and financial accounting. Touted as a way to attract nontraditional contractors, but traditional contractors such as Lockheed Martin and Boeing account for 95% of “other transactions.”

--Rewarding Anti-Competitive Contracting. Section 1454. This section would waive pro-taxpayer oversight on sole source contracts under $15 million. Sole source contracts are awarded without competition or transparency so are particularly ripe for abuse.

--Hiding Behind Homeland Security, Section 1456. This section would waive taxpayer protections on any goods or services purchased to respond to or defend against a terrorist attack.

For more on POGO’s investigations in this area, go to its Contract Oversight Investigations page http://www.pogo.org/p/contracts/consubmain.html. POGO’s historical interest in contracting goes back to its founding in the 1980’s when it drew attention to egregious military spending abuses such as the $7,600 coffee maker and the $436 hammer.

POGO investigates, exposes, and seeks to remedy systemic abuses of power, mismanagement, and subservience by the federal government to powerful special interests. Founded in 1981, POGO is a politically-independent, nonprofit watchdog that strives to promote a government that is accountable to the citizenry.

Federal Contracting and Iraq Reconstruction

October 27, 2003

In recent months, many policymakers have inquired about Iraq reconstruction contracts. What most people do not realize is that those contracts are not anomalies – in fact, they simply reflect the flawed federal contracting system that exists today. Favoritism, waste, abuse, and even fraud are far more likely today because of the systemic reduction of oversight and transparency in government contracting over the past decade. The Project On Government Oversight (POGO) has identified the following problems with the current procurement system and provides realistic recommendations that will assist the government in protecting the American taxpayer:

PROBLEMS IN THE CURRENT SYSTEM:

• Contracts or Hunting Licenses? Indefinite Delivery Indefinite Quantity Contracts (IDIQ) are not actual contracts for specific work. Rather, they are agreements by the government to award an unspecified amount of future work to approved contractors – the federal acquisition equivalent of a hunting license. Requirements for competition on such awards are extremely weak, effectively allowing billions of dollars worth of noncompetitive contracting. Most of the contracts awarded for Iraq reconstruction have been IDIQ contracts and therefore they are hollow contracts that merely provide a maximum value for the life of the contract. For example, the contract awarded to Bechtel is for up to $680 million for a period of 18 months, thereby granting Bechtel an effective monopoly over any future services up to $680 million.

Under the Radar. Under an IDIQ contract, task and delivery orders, which do not define a firm quantity of services or property, are not open for bidding or public scrutiny. The General Accounting Office stated that those types of contracts “were not attaining the level of competition Congress had initially envisioned.” For example, Kellogg Brown & Root, a subsidiary of Halliburton, has received task orders worth $1.22 billion under its oil infrastructure contract with the U.S. Army Corps of Engineers and $1 billion under its logistical support contract with the Army. Bechtel has received task orders totaling $920.5 million under its reconstruction contract with USAID. Those task orders fall below the procurement radar screen and are not open for bidding or available to the public.

• “Competitive” Contracting. The term “competition” has lost all meaning in federal contracting and various laws and regulations “permit contracting without providing full and open competition.” A contract can now be considered “competitively” bid when only a few favored contractors are offered the opportunity to compete for a contract, or even when there is no competition at all. Furthermore, open and full bidding can be suspended when a contracting agency is presented with an “unusual and compelling urgency,” a circumstance that would “compromise ... national security,” or when an “agency head determines that it is not in the public interest.” For example, the contract awarded to Halliburton’s subsidiary Kellogg Brown & Root, valued at $1.7 billion, was recently described by the new head of Iraq reconstruction contracting as “competed ... in a classified competition.” Additionally, the contract that was awarded to Bechtel was not open for full and open competition, but was sent secretly to seven American companies of which only 2 bidders were deemed “competitive.”

• No Public Oversight. The bidding and award process must be transparent to allow the American taxpayer to hold government agencies accountable for their actions and ensure integrity in the procurement system. For example, Halliburton’s contract was awarded on March 8, 2003, but was not announced until March 24, 2003. Its value was not revealed until April 8, 2003.

• Bundling. Contract bundling is the consolidation of two or more procurement requirements for goods or services previously provided or performed under separate smaller contracts, i.e., separate and distinct contracts become one super-sized contract. Because of the monstrosity of the bundled contract, only the largest contractors can bid on it, thereby preventing competition and squashing small businesses. The contracts awarded for the reconstruction of Iraq include distinguishable services that could have been segregated and opened for competitive bidding. Halliburton’s contract to extinguish oil well fires and repair Iraq’s petroleum infrastructure has been expanded to provide many other unrelated services, including managing military bases, delivering mail, and producing millions of hot meals.

• Lack of Contract Oversight. Oversight agencies have historically saved the taxpayer far more money than they cost – they prevent a great deal of contractor fraud and waste when properly funded and staffed. “Reforms” have cut most of these agencies’ oversight staff by up to 35% and their budgets by up to 41% in some offices. To continue to cut back staff levels and oversight budgets is to throw away money. An additional $20.3 billion has been earmarked for the reconstruction of Iraq, but who in the federal government will have the staff or resources to monitor that money?

• Suspension/Debarment. The federal government continues to conduct business with companies that repeatedly violate laws and regulations, despite rules specifying that “[p]urchases shall be made from, and contracts shall be awarded to, responsible contractors only.” Iraq reconstruction contracts that have been award to contractors with problematic contracting track records include: Lockheed (84 incidences of misconduct), Northrop Grumman (36 incidences of misconduct), Fluor (15 incidences of misconduct), Computer Sciences Corporation DynCorp (9 incidences of misconduct), Bechtel (6 incidences of misconduct), and SAIC (5 incidences of misconduct). By continuing to award contracts to unethical companies, the government is rendering its own laws, established for the protection of the taxpayers, toothless.

Recommendations

1. Full & Open Bidding. Establish a bidding process that is open to large and small contractors. Strict oversight should ensure that the lack of full and open competition was necessary under the circumstances, including instances when an agency awards a sole-source, limited bid, or classified contract or acquisition. Considering the emphasis on the war on terrorism and homeland security, which could shield contracts from open and full bidding and disclosure, the American taxpayer must be assured of the procurement system’s integrity. Additionally, Congress should eliminate loopholes in the Competition in Contracting Act of 1984 and restore 1980s-era procurement laws that ensured that as many contracts as possible were fully competed and therefore the government received the best deals.

2. Fairness. Notice provisions must be followed and contractor offers must be evaluated fairly, giving weight to the overall interest of the American taxpayer and not solely based on speed and ease of contracting.

3. Competitive Bidding. Congress should restore the definition of “competitive bidding” to require at least two bidders.

4. Modify Procurement Practices. Task or delivery orders should be made public if they exceed $100,000. Currently, task and delivery orders under IDIQ contracts for hundreds of millions of dollars are not publicly available.

5. Restore Funding for Contract Oversight. Contractors and their friends in Congress consider oversight as unnecessary “red tape,” but procurement oversight agencies have consistently proven themselves to be very effective, and indeed very necessary in exposing contracting improprieties and returning money to public coffers.

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