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When Will the Contractors Contract?

Chuck Hagel

Secretary of Defense Chuck Hagel

By Chuck Spinney

Neoliberal economics has been an ideological mantra of Republicans and Democrats alike since President Jimmy Carter began the wave of privatization that exploded during the succession of Republican and Democratic presidencies after 1980.

The central premise of the dogma is that the private sector can do just about anything more cheaply and more efficiently than the public sector (perhaps even the conduct of war, if the rise of mercenaries is any indicator).

Examples of neoliberal economics in action include: the giant job sucking sound of North American Free Trade Agreement, deregulation of the financial sector, the rise of a private prison industry, the intrusive use of contractor Transportation Security Administration inspectors at airports, mercenaries in Iraq and Afghanistan, and the contracting-out of intelligence analysis (where high school dropouts apparently can claim to earn $200,000 a year as intelligence analysts, although his employer begged his salary at “only” $122,000), etc.

Does privatization work as predicted by the neo-liberal ideologues?

The 2008 financial crisis was one shot across the bow. The National Security Agency may be having second thoughts, because the latest snooping scandal indirectly opens a window into another shot across the bow. But the privatization debacle in the nuts-and-bolts management of the Pentagon provides indisputable reasons to trash this theory. Consider this essay an introduction.

According to a report by Elaine Grossman at the Global Security Newswire, the Pentagon now employs about 700,000 service contractors, most of whom do work that was traditionally done by civil servants and military personnel. While contract service employees comprise 22% of the Defense Department’s workforce, they now account for 50% of the workforce cost, by the Pentagon’s own admission. That is because these contractor employees cost two to three times as much per year as the average civil-service employee.

This cost differential should not surprise anyone who remembers the spare parts horrors of the 1980s.

Think of these people as the 21st Century human equivalent of the $640 toilet seats or $436 hammers of the 1980s. That is because the reasons for these “costs” are the same: it is all about allocating overhead spending by contractors in an unaccountable financial system.

Just as a toilet seat did not really cost $640 at the margin, most of these contract employees are not making more than $150,000 to $200,000 per year in pay and benefits at the margin — the difference between market prices (including salaries) and government prices is hidden in the contractors’ overhead costs.

Although Grossman does not mention it, the Defense Department has even hired contractors to write statements of work to be used in awarding other contracts.

I was amazed to first learn about this practice during a trip to Ohio’s Wright-Patterson Air Force Base in the late 1980s. As was sheepishly explained to me by working-level pukes on the scene, the rate of contract spending had increased so rapidly, they could not write the contracts fast enough the spend the money they were assigned to spend.

So they hired contractors to write the contracts.

This was all approved by their management. When I worked at Wright-Patt as an Air Force officer in the late 1960s — during the Vietnam boom years — 1960s, for all our many mismanagement warts, we at least wrote our own statements of work for the new contracts we were charged with overseeing (to be sure, some individual government dirtbags would have their favorite contractor write a statement of work so that a contract would be tuned for that contractor — but if they got caught, they would have been fired. At least this was true in the Flight Dynamics Laboratory, when I worked there).

Also not mentioned in Grossman’s informative report is the fact that contractors are also deeply involved in the running of the Pentagon’s unauditable Planning, Programming, and Budgeting System, or PPBS. The PPBS is the central information system supporting the defense secretary’s decision-making. It is the insider’s score card for identifying the winners and losers by laying out where the defense chief wants the Pentagon’s money to be going.

So, not only are contractors doing mundane administrative lifting, they are privy to — and in some cases deeply involved in — shaping the detailed decisions concerning how the Pentagon intends to spend its money over the next five or six years. That means, to put it charitably, there are conflicts of interest between the buyer and the sellers.

Any readers who doubt this conflict of interest should pause to consider why the major weapons contractors maintain huge offices in Washington, D.C., and why there are hordes of Beltway consultants whose job is to learn what the secretary is up to. Their job is to prevent any nasty surprises for their bosses, and, more importantly, to influence resource-management decisions before they are made, either in the Pentagon and/or in Congress. Anyone who thinks the information does not spill out of the contractors involved in operating the PPBS, given their level of deep penetration, does not understand what the K Street Gucci-shoe crowd is all about.

But the most outrageous abuse of neo-liberal privatization is in auditing.  By its own admission, Grossman reminds us, the Pentagon is hiring contractors to audit its books — which are theoretically rolled up into the PPBS data base.

The Pentagon’s books have defied auditing for years and the PPBS has been a shambles since at least the 1970s (e.g., non believers are referred to my 1980 report Defense Facts of Life). Yet  Grossman reports that Pentagon Comptroller Robert Hale just told Congress, “I’m hiring a lot of contractors because they know how to do audits, we don’t yet.”

Don’t know how to audit the books yet?

Give me a break.

That Mr. Hagel allowed his comptroller to make such a lame excuse is preposterous. Hagel knows the audit requirement was levied on the Pentagon in 1990, when Congress passed the Chief Financial Officers Act. In the early 1990s, the Pentagon comptroller John Hamre promised Congress the books would be auditable in 1997 or so. Hagel, as a former senator and national-security expert, must know that the deadline has been shifted with nauseating repetitiveness. It now stands at 2017.

The fact that the Pentagon does not have an in-house capability to do audits is a reflection of its own priorities of delay and obfuscation. The Pentagon does not have a capability to make sense out of accounting systems after 20-plus years of failing to meet its legal obligations, because it has not assigned a high enough priority to the problem. Punt bluntly, the Pentagon does not want to have that capability.

The reason the Pentagon does not want auditable books is simple: the Military-Industrial-Congressional Complex benefits  from the money flows hidden in the perpetual chaos of the bookkeeping shambles. The chaos makes it easy to duck the hard decisions, as I explained in my last testimony before Congress in June 2002.

This management nightmare is not Hagel’s fault.

But the bureaucratic culture of delay and obfuscation is his problem.

Instead of tolerating lame excuses, he — and his senior staff — ought to be upfront about the depths of the mess.

But one of the beauties of Versailles on the Potomac is that nothing changes for the courtiers feeding at the public trough in the Hall of Mirrors. Once you have learned the requisite skill set of courtiership, you can leave, then return, learn a few new acronyms, and you are back in business.

Part of that skill set is the art of making lame excuses.

Chuck Spinney spent 33 years at the Department of Defense including 26 years as a staff analyst. Image from the Department of Defense.

By: POGO Guest Blogger
Guest Blogger, POGO

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Topics: National Security

Related Content: Budget, DOD Oversight, Government Privatization

Authors: POGO Guest Blogger

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