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Project on Government Oversight

POGO Letter to Senator Collins (R-ME), Chair, Committee on Homeland Security & Governmental Affairs, detailing government contracting concerns and recommendations in the aftermath of Hurricane Katrina

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September 16, 2005

The Honorable Susan Collins, Chair
Committee on Homeland Security and Governmental Affairs
340 Dirksen Senate Office Building
Washington, D.C. 20510

Dear Madam Chairwoman:

As a result of Hurricane Katrina, increased attention has been paid to federal contracting, including emergency contracting issues and noncompetitive awards. As you may know, the Project On Government Oversight (POGO) has promoted transparency and oversight in government contracting since the 1980's. That need is greater than ever because we are beginning to witness misguided provisions attached to Katrina reconstruction efforts that are advancing pre-existing government contractor agendas.

POGO unequivocally supports getting relief quickly to the people who need help. The federal government must squeeze every penny it can to ensure that relief money reaches Hurricane Katrina victims and is not exploited by disaster profiteers. Currently, $62.3 billion has been set aside for Katrina relief efforts. Some government officials estimate that the final federal price tag could reach $200 billion to $300 billion. These vast sums of money go far beyond helping the people relocate, and will be spent on rebuilding the area – activities requiring careful planning and using the most competent and responsible federal contractors. We understand that mistakes will be made because of the urgency to conduct the relief effort. POGO's concern is that in an effort to provide emergency relief, "reforms" will slip into procurement laws that are irresponsible and will be nearly impossible to roll back when the rebuilding is well on its way.

The second supplemental bill increased the emergency "micro-purchase threshold" from $15,000 (generally $2,500 in non-emergency circumstances) to $250,000. That increase is problematic for two reasons. First, it eliminates competition in a large number of contracts. POGO is extremely concerned because the FAR already permits "contracting without providing for full and open competition" in specified circumstances, including when an agency needs goods or services when there is an "unusual and compelling urgency" and "when an agency head determines that [full and open competition] is not in the public interest."[1]  While full and open competition may not be possible in every circumstance considering the immediate needs, limited competitions (i.e., limited in solicitations or length of the bidding period) for less immediate purchases should be emphasized. By opening federal contracting to competition to all contractors (including small and minority businesses), the government will expand its opportunities beyond the currently closed club of federal contractors. In the reconstruction effort, the federal government should strive to give contracts to the best and brightest contractors and not rely on the familiar and convenient.

Second, the dramatic increase to the micro-purchase threshold will vastly increase government purchase card spending, which is "vulnerable to fraudulent, improper, and abusive use of the purchase card."[2] As you stated in your April 28, 2004 press release, "as much as $300 million could be saved annually through the purchase card program." In addition, there are nearly 400,000 purchase cards in use, and in many instances, by government employees, including administrative support staff, who are far removed from the government's trained procurement staff.

As a result of fears concerning purchase card abuse, the Office of Management and Budget issued a cautionary memorandum on September 13, 2005, detailing policies and procedures for the expected jump in purchase card use. Those policies and procedures constitute a modest step toward preventing waste, fraud, and abuse, but the government must further ensure via oversight and audits that the government has not created a monster with the dramatic increase in the micro-purchase threshold. Representative Tom Davis has stated: "Unfortunately, sometimes people misuse charge cards. It happens in my house, and it happens in government.... You got enough cards out there that someone's going to misuse it ... we are willing to trade off a few bad transactions for overall savings."[3] Given no clear evidence of savings from purchase cards, POGO does not accept such a cavalier attitude.

To add more transparency to the buying system, POGO recommends that all federal agencies awarding contracts, procuring goods or services through existing contracts or agreements, or disbursing grant money should create publicly available web sites with copies of all contracts, task/delivery orders, grants, and other disbursements so that Congress and the American public can track the billions of dollars that are being spent. USAID has created a web site that presents information about the sixteen contracts and six grants that it has awarded and the draft procurement actions that have been announced, but not yet awarded, for reconstruction work in Iraq. All federal agencies should follow USAID's lead, making all hurricane relief information publicly available.

In addition, POGO urges the government to use every available oversight tool to review, audit (including compliance and postaward audits), and investigate claims that general contracting laws had been circumvented and reconstruction dollars are being mismanaged. The victims and the American public are vulnerable to disaster profiteering without detailed oversight controls.

Because of the massive reconstruction undertaking that is imminent, Congress should pay close attention to 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. The Washington Post recently reported that $20-an-hour subcontract workers were billed by the prime contractors to the government at $48 per hour.[4] The industry's over billing of the government is nothing more that an attempt at increasing prime contractors' profit margins – a practice that should not be tolerated because it will prevent reconstruction money from reaching those in need.

Finally, POGO is concerned that the debate surrounding defining what jobs should remain a part of the federal workforce, rather than being outsourced, has been relegated to those with ideological privatization agendas, or a natural self-interest in preserving federal government jobs. The FEMA debacle highlights why policymakers need to give thoughtful consideration to these questions. A June 21, 2004 letter from Pleasant Mann, President of AFGE Local 4060, to Senator Hillary Rodham Clinton states that FEMA's "professional staff are being systematically replaced by politically-connected novices and contractors who have now 'burrowed in' to civil service jobs." The OMB policy guidance defining what is "inherently governmental" needs to be reviewed by Congress with the benefit of post-Katrina hindsight.

Thank you for leadership in these matters. I have enclosed "POGO's Government Contracting Concerns and Recommendations in the Aftermath of Hurricane Katrina" for your reference. If you have any questions or comments, please contact POGO's General Counsel Scott Amey or me at (202) 347-1122.

Sincerely,

Danielle Brian
Executive Director

enclosure

cc: Sen. Lieberman
Sen. Byrd
Sen. Coburn
Sen. Durbin
Sen. Grassley
Sen. Levin
Sen. McCain
Rep. Davis
Rep. Waxman

POGO'S GOVERNMENT CONTRACTING CONCERNS AND RECOMMENDATIONS
IN THE AFTERMATH OF HURRICANE KATRINA

1. LACK OF COMPETITION

POGO CONCERN

  • A vastly increased micro-purchase threshold eliminates competition for a large number of contracts and is susceptible to government purchase card fraud and abuse
  • Non-urgent purchases of goods and services may not be subject to competitive bids
  • The federal government is relying on familiar and convenient contractors

POGO RECOMMENDATION

  • Repeal the $250,000 micro-purchase threshold
  • Conduct full and open competition or at least limited competition for all non-urgent purchases
  • Add stronger audit provisions to existing laws
  • Do not create any additional provisions to allow for non-competitive contracting
  • Open competition to  all contractors (including small and minority businesses) rather than the current closed club of federal contractors

2. LACK OF TRANSPARENCY

POGO CONCERN

  • Basic information regarding government purchases of goods and services (e.g. contract type, award amount, summary of work) is inadequate
  • Government auditors do not have adequate access to cost or pricing data

POGO RECOMMENDATION

    • Congress should require agencies to create user friendly web sites showing all contracts, task and delivery orders, agreements, grants, or other disbursements of federal dollars to ensure the taxpayer dollars are being spent wisely
    • Allow government auditors access to cost or pricing data from contractors selling goods or services whose prices are not determined in the commercial marketplace

3. INADEQUATE OVERSIGHT

POGO CONCERN

  • Federal spending is outstripping the capacity of federal auditors and contracting personnel to ensure taxpayers and Katrina survivors are not being exploited

POGO RECOMMENDATION

  • Strengthen oversight and audit provisions for government contracts
  • Rebuild staff in federal contracting and audit offices that have been cut to the bone over the past decade

4. CONTRACTOR MISCONDUCT

POGO CONCERN

  • Large contracts are being awarded to contractors with histories of misconduct (Bechtel, Halliburton, Shaw and Fluor)

POGO RECOMMENDATION

  • The government must create a centralized database which lists instances of contractor misconduct so that government procurement officials can make contracting determinations prior to committing federal funds 

5. INHERENTLY GOVERNMENTAL FUNCTIONS

POGO CONCERN

  • Career civil servants are being replaced by appointees and contractor employees who place private sector goals above those of the public good

POGO RECOMMENDATION

  • Policymakers should review the current definition of federal government job positions to ensure that "inherently governmental" jobs are not outsourced to contractors who may have financial interests that pose conflicts of interest with public service

6. THE REVOLVING DOOR

POGO CONCERN

  • Some senior federal officials are exploiting their public service by going to work for the industries they had been overseeing, costing taxpayers through excessive contract prices, limiting or eliminating competition from businesses that may be the best for the job, and resulting in flawed policies and bad procurement decisions

  • The revolving door also exacerbates public distrust, which can result in a decline in civic participation and demoralizing career civil servants who see their supervisors and co-workers using their government positions as stepping stones for private gain

POGO RECOMMENDATION

  • Political appointees and Senior Executive Service policymakers (people who develop rules and determine requirements) should take an oath that they will not receive compensation from contractors who were regulated by or benefitted from the policies the official formulated while in public service

  • Close the loophole that allows former government employees to work for a different department or division of the same contractor they oversaw as a government employee

Endnotes

1. FAR 6.302-2 and 6.302-7.  See 10 U.S.C. 2304(c) and 41 U.S.C. 253(c). See also David A. Drabkin, Senior Procurement Executive, General Services Administration, "Memorandum for GSA Acquisition Associates: Emergency Procurement Authority," May 28, 2003, p. 2.

2. Gregory D. Kutz, Director, Financial Management and Assurance Team, testimony before the Senate Committee on Governmental Affairs, "Purchase Cards: Increased Management Oversight and Control Could Save Hundreds of Millions of Dollars," GAO-04-717T, April 28, 2004, p. 5.

3. Daniel Pulliam, "Lawmaker: Higher purchase card spending limit 'inevitable'", GovExec.com, May 6, 2005.  Available at http://www.govexec.com/dailyfed/0505/050605p2.htm.

4. Scott Highman and Robert O'Harrow Jr., "The High Cost of a Rush to Security," The Washington Post, June 30, 2005, p. A01.