Defense Contractors Running Government: A Recipe for Disaster

If you missed 60 Minutes this week, the good news is you can still watch their feature segment online. The topic is the Coast Guard's so-far disastrous Integrated Deepwater System program, and 60 Minutes interviews two of the whistleblowers, Michael DeKort and Captain Kevin Jarvis, who first exposed the program's failures. The situation began in 2002, when the Coast Guard awarded Lockheed Martin and Northrop Grumman a contract to manage Deepwater’s then-$17 billion program to modernize the Coast Guard’s aging fleet. And by "manage," we mean to literally manage.

In the 1990s, the government started placing contractors in charge of contracts due to a shortfall in the number of government employees who traditionally oversaw contract programs. The results have been disastrous. In Deepwater's case, the contract ballooned to $24 billion and has included problems such as failed encryption technologies, which jeopardizes classified government information, and boats rendered unusable due to buckling and cracking hulls.

Under the pressure cooker of Congressional and media scrutiny, the Coast Guard announced April 17 that it would take away management of the Deepwater contract from Lockheed Martin and Northrop Grumman. They also demanded last week that the contractors refund $100 million in federal money. Yet questions remain about whether the Coast Guard has enough skilled employees to oversee the project.

The moral of the Deepwater story is that the model of contractors executing programs on behalf of the federal government is a recipe for disaster. And why wouldn’t it be? Priority number one for major companies is to make a profit. That drive needs to be tempered by the demands of a vigilant and cost-conscious consumer. In the case of Deepwater, there are few incentives to control costs and deliver on promises.

Congress has heard the message loud and clear. Representative Duncan Hunter (R-CA), ranking member of the House Armed Services Committee (a Congressional member with a reputation for doling out goodies to defense contractors rather than holding them accountable), inserted language into the 2008 Defense Authorization bill which limits future contracts using the Deepwater contracting model, known as having a “lead system integrator.”

That provision is a step forward but will do nothing to reign in abuses on existing lead system integrator contracts including the Army’s Future Combat Systems program with costs skyrocketing by one estimate from $175 billion to $300 billion in just three years, Missile Defense with perennial cost overruns and a projected price tag of $247 billion from 2006 to 2024, and the Navy’s Littoral Combat Systems program with runaway cost overruns which even led to a two month stop-work order earlier this year.

Meanwhile, the government’s top contracting agency, the General Services Administration (GSA), announced a new initiative last week to dramatically expand the use of contractors in the hiring of contractors. Hello?!…Earth to GSA…is anybody home?