I came in this morning to find my inbox (well, it was actually my Google RSS Reader, but saying inbox sounds better) deluged with more stories about contractor malfesence. A quick rundown for our BudgetBlog readers:

The Wall Street Journal reports that MVM Inc., one of the largests security contractors used by the U.S. intelligence community, has lost a huge CIA contract - worth up to $1 billion over five years. Apparently they were not providing enough armed security guards, which is strange because that was, you know, what they were contracted to do.

Robert O'Harrow Jr. writing at Government Inc. shares some fascinating facts about the use of contractors in the U.S. intelligence community, including the fact we are paying over $3 billion more each year on average for private contractors to carry out intelligence work than if we just hired more government workers. Shocker! (O'Harrow also highlighted a new Government Accountability Office report on August 15 that detailed the 400 percent (yes, I said 400 percent) markup on a contract to provide the next generation of radios for the Defense Department.)

And the darling of the contracting community KBR Inc., was back in the news today in the Washington Post, again not for a good reason. A Washington law firm has filled suit in a federal court in California alleging that KBR and one of its Jordanian subcontractors were trafficing Nepali workers. From the Post article:

Agnieszka Fryszman, a partner at Cohen, Milstein, Hausfeld & Toll, said 13 Nepali men, between the ages of 18 and 27, were recruited in Nepal to work as kitchen staff in hotels and restaurants in Amman, Jordan. But once the men arrived in Jordan, their passports were seized and they were told they were being sent to a military facility in Iraq, Fryszman said.

As the men were driven in cars to Iraq, they were stopped by insurgents. Twelve were kidnapped and later executed, Fryszman said. The thirteenth man survived and worked in a warehouse in Iraq for 15 months before returning to Nepal.

My favorite part of that article is right at the end when a KBR spokeswoman says, "The company in no way condones or tolerates unethical or illegal behavior." Sure. And I've got a bridge to sell you.

Update:
The folks over at TPMMuckraker dove into the specifics of the lawsuit brought against KBR today and have posted more details.

If it weren't for its direct impact on national security, we could all enjoy a hardy guffaw at the $500 million mess that is supposed to tie the nation's intelligence data together. The anti-terror intelligence database, known as Terrorist Identities Datamart Environment (TIDE), is the subject of recent House Science and Technology Committee's Investigations and Oversight Subcommittee report. The report found that "Railhead," the $500 million project that was supposed to tie together the intelligence data of the nation's 16 separate intelligence agencies. Instead:

The Railhead program may actually degrade the ability to provide intelligence data for use in the consolidated terrorist watch list at the FBI's Terrorist Screening Center. It may cripple NCTC's [National Counterterroism Center] ability to share critical intelligence among U.S. government agencies. It will also potentially jeopardize the ability to provide vital search functions by counterterrorism analysts.

[...]

In fact, the new Railhead systems that NCTC hopes will replace the current TIDE~database by early next year may not provide critical search, access, sharing and other vital functions the current system does currently provide.

The issues that have put the system at risk are myriad, but the report describes two that totally dumfound me.

1) The new system's technology is incompatible with what the rest of federal government uses (indeed, with what most of the world's businesses use). Rather than use a technology known as a "database," the contractor hired to build the new system wants to use something not dissimilar from masses of Microsoft Word documents.

2) The system can't perform basic data searches using combinations of text. An analyst can, for instance, search for data containing the word "anthrax," but she wouldn't be able to search for data containing the words "anthrax" or "plague." In other words, this $500 million clunker is already technologically behind most free internet search engines, like Google.

The subcommittee are also incredulous, and wonder, as they directly ask in the report, if the contractor's close personal relationship with the government's project manager has anything to do with this cockamamie approach to fulfilling one of the key recommendations of the 9/11 Commission.

Wall Street Journal: Flaws Found In Watch List For Terrorists

Last week I wrote on the BudgetBlog about a new Taxpayers for Common Sense (TCS) analysis detailing the status of earmark in the FY 2009 House and Senate appropriations bills to date. I wrote at the end of the post that cutting earmarks does not save "any" money, which as it turns out, isn't exactly true.

Steve Ellis from TCS wrote a helpful email I'm republishing here with his permission. Steve helps to clarify where/when savings are possible from cuts in earmarks.

Hey Adam,

Hope you are well. Thanks for the plug of our interim earmark report on your blog. Not to be too niggling, but I wanted to make a friendly suggestion - your kicker comment about cutting earmarks doesn't save "any" money is not accurate. The FactCheck story you link to says it would save "little." Of course that depends on how you define little.

Our analysis found $18.3 billion congressional earmarks last year, and as we and others have indicated, in many cases these are just divvying up a spending pie that already exists. But not always. Large and small amounts of money are added to earmark pots and if the earmarks were eliminated that funding would go away. Particularly in defense you can see plus ups across [Research Development Test & Evaluation] — and that bill contained $7.9 billion worth of congressional earmarks last year.

And none of this gets to the indirect cost — money going to wasteful projects, less money going to worthy or critical projects, delaying completion and increasing costs, etc. And that doesn't touch the corruption aspects, opportunity costs, failed oversight, bad products (the most clear-cut example of bad products is the Rep. Wu (D-OR) earmark that got synthetic shirts for Marines that melted to their bodies in the heat when their armored vehicle was attacked).

Anyway, I just wanted to highlight that cutting earmarks can save money, it just isn't as simple as 1 to 1, but it's not 1 to 0 either.

I'm still not convinced that the actual savings Steve is talking about is more than a couple of billion a year, which in a $3 trillion budget is really nothing to get too excited about (I know, a billion here, a billion there, and pretty soon we're talking about real money). But Steve makes a great point about the indirect costs. Not only is there a monetary opportunity cost to an inefficient system that funds the wrong projects and services, but it also undermines the trust the public has in our government to provide for the common good.

In an otherwise thoughtful column on the role of government in society, the WaPo's Steven Pearlstein throws out a pair of claims that chap my hide. In commenting on the successful renovation of Central Park in NYC by a consortium of plutocrats, Pearlstein asserts that there's "something to both arguments" about the validation of conservatives' and liberals' claims on the effectiveness of government. Why there's "something to both arguments" is beyond me.

That a private enterprise could refurbish a park with hundreds of millions of dollars should not shock the conscience. Pearlstein's statement that "it took a private organization, relying primarily on private donations, to turn things around" for Central Park is vexing. It's vexing because, he contradicts himself (and rightly so) later when he writes, "there is no guarantee that private investment will always be wiser than public." Right. Given enough resources, public entities can be models of effectiveness (Federal Reserve, anyone? Provision of Medicare and Social Security benefits). Conservatives will moan and wail about how inept the government is, yet will have a kitten if someone suggests that the government should raise more revenue in order to have the resources necessary to accomplish accomplish its goals.

The second bone I have to pick with Pearlstein is over this:

Because of the power of special-interest groups and public employees, government spending priorities are too often misplaced and too many government agencies fail to use the money they have to deliver quality, efficient service. That's why outsourcing has become so prevalent, why charter schools have become so popular, and why so many state and local officials are turning to public-private partnerships and social entrepreneurs to tackle some of their toughest challenges.

Another way to write that passage is something like: "Outsourcing government is popular among elected officials because they've found a away to assuage their constituents' misguided mistrust of government -- a mistrust engendered by years of conservative yelping about welfare queens and lazy bureaucrats -- by enriching their friends through lucrative government contracts."

Nevertheless, the rest of Pearlstein's column is worth a read, because he draws out some critical points about the private provision of public goods and services.

Over the last few weeks, there have been a smattering of reports about a modern-day David vs. Goliath struggle in federal contracting. In this saga, large government contractors are winning bids for contracts that are designated by the government for small businesses. At the end of July, the Small Business Administration (SBA) Inspector General released a report that found Blackwater USA may have won numerous contracts (39 in fact) set aside for small businesses. This report is the result of a request and investigation of Blackwater launched by House Oversight and Government Reform Committee Chairman Henry Waxman (D-CA) back in March. What might be the worst part of this is the SBA has repeatedly tried to hide the fact that huge companies were winning small business contracts.

The Blackwater case is not an isolated incident either, nor is this restricted to the SBA. According to Chris Gunn with the American Small Business League (ASBL), there have been more than a dozen federal investigations since 2003, all of which have concluded that Fortune 500 companies and other large businesses are winning contracts designated for small businesses. News reports, government investigations, and additional evidence make a pretty convincing case that Goliath is winning this battle despite government's efforts to the contrary, and has been for a while.

That's why I was surprised today when I got a press release from the ASBL warning about a new Bush administration policy that would make the reporting of annual revenue and number of employees optional for contractors when they register with the Central Contracting Registration (CCR) system (see CCR notice). That's right - this change would make it more difficult for the government to award small business contracts to small businesses. Past investigations have concluded that even when required to report this information, contractors deliberately mislead government officials, information that was provided was poor, and worst of all, government employees did not consider the poor quality of the information in making contracting decisions.

Well, then, what makes the administration think that this situation will be improved by having less information about whether companies are small or not? Granted there is more than one problem with the current system, but having too much information is not one of them. Once this rule is implemented, it will be that much harder for the government to award small business contracts to the right entities - something it is already having a very difficult time doing. Doesn't President Bush know that David is supposed to win?

The Federal Diary column in the Washington Post this week asked each of the presidential candidates a series of questions related to the federal workforce. Both columns are worth a quick read if you want to learn more about the candidates (see McCain and Obama), but I wanted to highlight one question in particular. Joe Davidson asked each candidate, "Federal labor leaders complain that outside contractors perform jobs that should be done by government employees. Do you favor any suspension of contracting out activities? Do you favor legislation that would prohibit the IRS from using appropriated funds to hire private tax collectors?" Below are their responses.

McCain:

If programs have a good record, and serve a vital national purpose that the private sector can't, they will receive continued funding. But I will not subordinate my commitment to the American people to ensure their tax dollars are spent wisely to the demands of labor leaders looking to swell the ranks of federal government unions.

I will make every aspect of government purchases and performance transparent. Information on every step of contracts and grants will be posted on the Internet in plain and simple English. We're not going to hide anything behind accounting tricks and bureaucratic doubletalk. Nor will I allow other procurement tricks that divert funds from national priorities. I will expand the use of fixed-price contracts to enforce discipline in the procurement process and ensure that clearly defined requirements are fulfilled, realistic schedules are kept, and costs don't exceed the promised price.

Too often, contractors underbid to 'buy into' a market with little expectation of delivering on schedule and within budget. At the same time, the government's cost estimates are often unrealistic. Fixed-price contracts based on realistic cost estimates with clear, consistent requirements will ensure that the contractor pays for cost overruns, not the taxpayers. We must also limit sole-source contracting and make cost discipline a priority using market competition to keep costs down and innovation up.

Obama:

Sen. Obama is concerned by the rising number of government contractors that are often unaccountable and frequently less efficient than government workers. As president, Obama will restore effective oversight of the government-contracting process and reduce our nation's increasing dependence on private contractors in sensitive or inherently governmental functions. Obama will eliminate the Bush administration's ideological bias towards outsourcing of government services and abandon initiatives, like the inefficient use of private bill collectors to collect federal taxes, that are a demonstrated waste of taxpayer money.

OMB Watch is a 501(c)(3) and does not participate in activities that support or oppose candidates for public office. This information is presented solely for informational purposes.

I'm going to reproduce the following post by Think Progress's Matthew Ygelsias, because he's right on about the effectiveness of government per se: some agencies/departments carry out their mission better than others.

One of Megan McArdle's correspondents rants against the evils of the DC Department of Motor Vehicles before snarking " I can't wait for the government to take over our healthcare system."

A common enough sentiment. But look — the government already runs a fleet of air craft carriers. Worse! The government's taken over our national monetary policy — mistakes can plunge the country into recession or a destructive cycle of inflation. And as if that's not enough, they run a vast arsenal of nuclear warheads capable of destroying the entire planet. Which is just to say that if it's not conceivable that there could be a well-managed government agency, then we're all doomed irrespective of what happens with health care. But in fact if you look across the country or around the world, you see some highly effective public agencies and some highly dysfunctional ones. Obviously, you wouldn't want the health care system run like the worst of those agencies, but that's hardly to say that a highly effective government health care agency would be impossible to achieve.

Simply because an entity is a governmental entity guarantees neither success nor failure. However, one advantage that governmental entities do have over private entities is that the former, by definition, are subject to the demands of citizens for better execution.

The OMB Watch Fiscal Policy Program is looking for an intern for the fall of 2008. Yup, that's right. This is your chance to get in on the ground floor at one of the most dynamic nonprofit watchdog groups in Washington, DC. We're looking for energetic undergraduate or graduate students who have excellent writing, critical thinking, and communications skills, and who are dedicated to public policy and government accountability (see current intern Josh at right for example).

The internship is unpaid, but you'll have the chance to gain first hand experiences and take on significant responsibilities related to a number of different aspects of policy analysis in DC. Plus, you'll get a chance to write for the BudgetBlog - what could be better?

Interested? Learn more about the position and how to apply.

In response a requrest from the Senate Budget Committee, CBO has a issued a report on contractors working in Iraq. From 2003 to 2007, the federal government awarded over $85 billion in contracts, and with a burn rate of $17-21 billion per year, it's likely that $100 has been doled out to private contractors since the start of the war.

The report is thorough analysis of on what and by whom that money is being spent. CBO sliced the data by:

• Which federal agency is awarding contracts (The DoD has awarded $76 billion in contracts with the Army obligating 75 percent of that amount)
• Location of where contract was performed ($63 billion in Iraq, $14 billion in Kuwait, and $8 billion in other countries in the Iraq theater*)
• The types of products and services provided by contractors (about $25 for Professional, Administrative, and Management Support, $20 billion for Uncategorized or Miscellaneous, with the rest falling in some 97 other categories)

CBO's report also quantifies the extent to which contractor personnel are in theater. CBO estimates that there are some 190,000 people working for contractors in the Iraq theater, of which about 20 percent are U.S. citizens. In fact, the ratio of contract personnel to military is 1 to 1 -- a level some 3.9 times higher than the historical average.

Upon the release of the report Senate Budget Committee Chair Kent Conrad (D-ND) issued a press release summarizing the potential pitfalls of outsourcing on such a massive scale:

There are billions of taxpayer dollars being funneled to both American and foreign companies, often through no-bid contracts. Ongoing Pentagon audits have revealed that vast sums of this money have been misspent or improperly recorded. The American people deserve a better accounting from this Administration of who these contractors are, why they are being used instead of U.S. troops, how they are being monitored, and whether they represent a cost-effective use of American resources.

*A region in the Middle East including Iraq, Bahrain, Jordan, Kuwait, Oman, Qatar, Saudi Arabia, Turkey, and the United Arab Emirates

It's been a slow day here at the Budget Brigade, so I thought I'd bring your attention to the lastest round of quarterly "scores" agencies receive on the President's Management Agenda (PMA) scorecard. These scores measure the implementation of the PMA, or how well the major agencies are "executing the five government-wide management initiatives." Robert Brodsky from Government Executive Magazine has a rundown of the latest scores, which are not too good:

Many federal agencies have taken a step backward on the Bush administration's five major management initiatives, according to quarterly grades released on Thursday by the Office of Management and Budget.

There were 14 downgrades on the status section of OMB's management score card for the third quarter of 2008, which ended June 30. And there were only six instances in which grades improved.

The problems were limited to two areas of the President's Management Agenda: human capital and electronic government.

Clay Johnson, OMB's Deputy Director for Management, cautioned that the "scores" shouldn't be seen as "scores," but as opportunities for improvement.

"The score cards aren't about compliance or getting to a score -- it's about results that agencies are producing," Johnson said. "So, a dip in a score shouldn't always be viewed in the negative, but as a way to [make] progress and improve effectiveness."

Hmmmm...

P.S. For all you home-gamers out there, the administration's "competitive sourcing" initiative has been renamed to the new and improved Commercial Services Management initiative. Same waste of money, great new name.

OMB Watch released new federal spending data on contracts and assistance spending on FedSpending.org yesterday. The site now has full spending data for federal contracts from FY 2000 through the first two quarters of FY 2008 and federal assistance data (grants, loans, and related spending) from FY 2000 through the first three quarters of FY 2007. The FedSpending.org database currently contains over $18.7 trillion in federal spending dating back to FY 2000. This update also made minor site improvements, including added advanced search functionality and bugs fixes.

The data update also marks an important milestone for FedSpending.org - 10 million searches - which occured at some point around July 1. The site is a bit less than two years old, but in that time, FedSpending.org has grown to process more than 1 million searches from approximately 400,000 unique visitors each month. On July 1, Alexa.com ranked FedSpending.org 32,259 in traffic among websites on the Internet. Yowza!

The site has continued to surpass all of our expectations that we held when we created it. I hope we can continue to make the site useful and relevant for users in the years to come.

FedSpending.org Reaches 10 Millionth Search

Sens. Byron Dorgan (D-ND), Amy Klobuchar (D-MN), John Tester (D-MT), and Sheldon Whitehouse (D-RI) have sent a letter to Secretary of Defense Robert Gates to formally investigate why the Army relived the Defense Contract Audit Agency of its duty to audit the Army's largest Iraq reconstruction contract.

The request for inquiry comes after the Senate Democratic Policy Committee heard testimony from Charles M. Smith, the former official in charge of overseeing the multi billion-dollar contract with KBR. Smith testified that when he refused to OK $1 billion in unsubstantiated charges from KBR, the Army reassigned him (effectively ending his career) and, in an unprecedented move, hired an inexperienced private contractor to perform the audit work.

We are troubled that the Army Sustainment Command would transfer the review of questioned costs on the single largest contract in the Iraq war from its own auditors to a private contractor. We are particularly disturbed that this would be done as part of an apparent effort to excuse KBR's performance problems.

[...]

Given the seriousness of the allegations raised by Mr. Smith, we urge you to promptly investigate the circumstances of the Army Sustainment Command's hiring of contractor RCI to replace DCAA in the review ofKBR's questioned costs. If this was part of an effort to protect KBR and make sure the company was paid for questionable costs, we urge you to take appropriate disciplinary action.

• Letter to Secretary Gates
• DPC Press Release

The Special Inspector General for Iraqi Reconstruction (SIGIR) has released a new audit report today concerning the work (or lack thereof) of Parsons Delaware, Inc., a contractor who was doing design and construction work on Iraqi prisons and civil justice infrastructure. Parsons is a major U.S. contractor, having received over $4.1 billion in contracts since 2000, according to the latest data from FedSpending.org.

The SIGIR report was picked up by the Associated Press, so hopefully the disturbing findings will gain wide attention. Here's the breakdown of what the taxpayer received from the $333 million that Parsons and other subcontractors received through May 21, 2008 on the contract, according to the SIGIR report:

Far less was accomplished under this contract than originally planned; only about one-third of the planned projects were completed. Although the failure to complete some of the work is understandable because of its complex nature and the unstable security environment in Iraq, millions of dollars in waste are likely associated with incomplete, terminated and abandoned projects under this contract. However, precise amounts of funds expended for projects that have not been completed are not easily aggregated because of the uncertain future of incomplete projects. Some measure of the funds expended for which there was not a usable facility is suggested by the fact that slightly more than $142 million, or almost 43% of the contract's disbursed funds, were spent on projects that were either terminated or canceled, although a number of projects were subsequently completed. Contract management weaknesses also played a key role in the contract outcomes.

One particular project funded under this contract was the Kahn Bani Sa'ad Corrections Facility, in Diyala Province (pictured above). The U.S. government canceled Parsons' funding for this project after repeated delays in construction and then attempted to finish the prison by using two separate subcontractors in Iraq. When security became too difficult to complete construction in June, 2007, the government walked away, having spent $40 million on a half finished prison that the Iraqi government has no plans to use. The efficiencies of the free market at work.

SIGIR sums up the problems pretty succinctly - not enough oversight and management of the contractors:

The reconstruction projects under this contract were executed in unstable security conditions and were beset by insufficient contract management and oversight personnel. Because of poor security conditions and limited personnel resources, it was difficult for responsible government officials to visit project sites, plan and define project requirements, and oversee contractor performance once construction began. These conditions created a high-risk contracting environment and approaches that ultimately led to a high level of project failure and waste.

If signed into law, the FY 2009 Financial Services and General Government Appropriations bill approved by the Senate Appropriations Committee would stop the Executive from joining the race to the bottom for cheap labor.

The Senate panel passed the one-year moratorium on public-private job competitions on Thursday as part of the $44.8 billion fiscal 2009 Financial Services and General Government Appropriations bill. The provision essentially would leave it to the next presidential administration to continue the program, which opens jobs that traditionally have been performed by federal employees to bids from contractors.

The House Appropriations Committee passed an identical measure last month when it considered the spending bill. The House version of the fiscal 2009 Defense Department Authorization bill goes even further, banning all new public-private competitions conducted under the rules in the Office of Management and Budget's Circular A-76 for three years.

The fact is, the only "advantage" that competitive sourcing has over government provision of services is that private contractors create lower-paying paying jobs with no health care coverage or retirement benefits to carry out government functions. So, sure, the government could theoretically save a few bucks from competitive outsourcing, but the savings are extracted from the public it serves by shredding thousands of good jobs.

The Democratic Policy Committee held a hearing in which Charles M. Smith discussed the circumstances under which he was removed from his position as head of the Field Support Contracting Division of the Army Field Support Command. As the official in charge of overseeing a multi billion contract with KBR, he refused to sign off on some $1 billion in unsubstantiated charges by the contracting firm, and as a result, the Army reassigned him to a different post.

Calling the oversight of the KBR contract "irregular and highly out of the ordinary," Smith also told the committee about a number of other practices that substantially weakened the ability of the Army to ensure taxpayers were not getting fleeced by KBR. These practices include:

• The unusual waiving the standard practice of witholding 15 percent of unsubstantiated charges until those charges could be verified
• The hiring of a contractor -- RCI (now SERCO) to oversee the KBR contract
• The conversion of contract type such that some of KBR's contracts would not be audited after they had been completed
• Consistent classification of KBR contract performance as "exceptional," despite problems with the fulfillment of some contracts

And although Smith should be commended for putting taxpayers first at the expense of his own career, we cannot assume that all contracting overseers are of similar moral courage and dedication. As Smith warned, the message from the Army is clear: Effective oversight could be hazardous to contract officers' careers.

The video below is an excerpt from the hearing in which Smith tells Committee Chair Byron Dorgan (D-ND) how poor contract oversight impacts not only taxpayers, but also the troops in the field.

Video: entire hearing
Written statement: Charles M. Smith