This year the Project On Government Oversight is commemorating the 20th anniversary of our Federal Contractor Misconduct Database. As we do every year, we updated the database with new entities featured in the previous fiscal year’s top 100 federal contractor ranking and present our findings. But we’re also taking this opportunity to reflect on how federal contracting has changed in the past 20 years, and how systems for holding contractors accountable have improved and still need improvement.
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Fiscal Year 2021 Findings: Pandemic Continued to Shape Federal Contract Spending
The new top 100 contractors list (XLS) reflects another year the country was caught in the grip of the COVID-19 pandemic. For the second year in a row, the pandemic had a significant impact on the federal contracting landscape.
According to the Government Accountability Office, the federal government spent $637 billion on contracts in fiscal year 2021. It found that pandemic-related contracts accounted for $54 billion of the total, with more than $52 billion of that being spent on “drugs and biologicals” and “medical and surgical instruments, equipment, and supplies.”
Several big names in the pharmaceutical and biotechnology industries are among the 11 new companies in the top 100. Four major manufacturers landed in the top 50, receiving a collective total of $11.3 billion in contracts for COVID-19 vaccines and treatments: Regeneron Pharmaceuticals, Abbott Laboratories, Eli Lilly and Company, and AstraZeneca. Pharmacy and retail chain Walgreen Company made the list for the first time with nearly $900 million in contracts to establish COVID-19 testing centers and to administer vaccines.
Pharmaceutical companies that were already in the top 100 saw their contract revenues soar in fiscal year 2021. Pfizer jumped from number 60 to number six, with a twelve-fold increase in its contract total ($1.2 billion to $14.1 billion). Moderna climbed from number 38 to number nine ($2.2 billion to $7.3 billion).
All of the pharma and biotech contractors new to the ranking have track records replete with instances of proven or alleged misconduct. Common among them are instances of government health care program fraud, workplace discrimination and wage violations, misleading or unapproved marketing, and substandard manufacturing and distribution practices.
Walgreens stands out among the new entrants with an astounding 42 instances of proven or alleged misconduct. It has a total of 12 labor violations resulting in nearly $109 million in penalties. Walgreens, along with a handful of other companies in our database, has also faced a legal reckoning in recent years for the national opioid crisis. To date, it has paid at least $763 million to resolve its liability for the prescription painkiller epidemic. Altogether, Walgreens has amassed at least $1.4 billion in fines, judgments, and settlements. In many instances, Walgreens resolved the matter without admitting any liability or wrongdoing.
Abbott leads the new entrants in its misconduct penalty total with $3.1 billion in fines, judgements, and settlements. Abbott paid $1.5 billion in 2012 to resolve federal criminal and civil investigations into its promotion and marketing of the anti-epileptic drug Depakote. In the early 2000s, Abbott racked up nine-figure penalties for alleged fraudulent pricing and marketing of the cancer drug Lupron, and in a case in which a subsidiary pleaded guilty to obstructing a Medicare and Medicaid fraud probe. Abbott is currently embroiled in controversy for allegedly selling contaminated powdered baby formula, which resulted in an agreement in May 2022 to make improvements at the facility.
Eli Lilly and AstraZeneca have also incurred massive liabilities for marketing their products in ways unapproved by federal regulators. In the late 2000s, Eli Lilly paid a combined total of $1.47 billion to settle federal and state criminal and civil charges of misbranding and improperly promoting its antipsychotic drug Zyprexa. AstraZeneca entered into nine-figure settlements in cases involving the marketing of the antipsychotic drug Seroquel and prostate cancer drug Zoladex.
As with Walgreens, many of the instances involving Abbott, Eli Lilly, and AstraZeneca did not include an admission of fault or liability.
The COVID-19 pandemic dramatically changed federal contract spending patterns. What hasn’t changed in the two decades since POGO began systematically tracking contractor misconduct is that the government sometimes does business with companies with long rap sheets.
2002: Creation of the Federal Contractor Misconduct Database
When we created the Federal Contractor Misconduct Database in 2002, our intention was to provide “an overview of the business ethics of companies that receive the lion’s share of government contracts.”
The government is legally required to award taxpayer dollars only to “responsible” contractors; that is, contractors with “a satisfactory performance record” and “a satisfactory record of integrity and business ethics.” The trouble was, in 2002 there was no comprehensive, centralized resource providing an overview of contractors, which we thought was hampering the government’s ability to evaluate responsibility and make smart contracting decisions. At that time, the government only had the Excluded Parties List System, which identified suspended or debarred companies and individuals — entities that were already deemed non-responsible.
Since the government wasn’t compiling contractor misconduct data in an organized fashion, we decided to. We searched for instances of administrative, civil, and criminal violations and alleged violations involving the then-43 largest federal contractors and posted this information on a public website.
We discovered that many of the government’s largest suppliers of goods and services — who collectively receive billions of taxpayer dollars every year — had extensive records of misconduct: At that time, we found over 400 instances since 1990 involving actual or alleged lawbreaking; ripping off of the government, employees, or consumers; polluting the environment; and engaging in other unethical behavior. We also discovered that one-third of those 43 contractors had zero or only one resolved instance of actual or alleged misconduct, indicating that a track record of bad behavior need not be a cost of doing business.
The Growth of Contracting and POGO’s Database Since 2002
So what’s changed in the last 20 years?
For one thing, the size of the federal marketplace has substantially expanded. The government’s annual contracting budget has nearly tripled — from $235 billion in fiscal year 2001 to $637 billion in fiscal year 2021. This dramatic increase reflects the post-9/11 defense buildup, the accelerated outsourcing of government functions and services to the private sector, massive federal economic stimulus programs, responses to several major natural disasters, and, of course, the COVID-19 pandemic.
Our Federal Contractor Misconduct Database has expanded, too. In addition to several user interface upgrades and improvements, the database now contains 262 current and former federal contractors and 3,337 resolved and pending instances of misconduct. Our finding in 2002 that many contractors perform satisfactorily without being repeat offenders still holds true: 37% of the entities currently in our database — and five of the 11 new entrants — have only one resolved instance or none at all.
Improvements in Government Enforcement, Oversight, and Transparency Since 2002
The past 20 years have seen many reforms and improvements in three areas of federal contractor accountability: enforcement, oversight, and transparency. More robust use of the False Claims Act and whistleblower lawsuits regularly results in record-setting annual fraud recoveries. There has been an increase in the government’s use of the Foreign Corrupt Practices Act to combat foreign bribery, and greater use of suspension and debarment to keep taxpayer money out of the hands of non-responsible vendors. As we reported in 2002, only one of the top 43 contractors had faced any form of a federal contracting ban. As of today, a total of 13 contractors in the Federal Contractor Misconduct Database, or units of those contractors, have been suspended or debarred.
Also since 2002, the government has been more readily resolving cases of contractor misconduct through deferred prosecution and non-prosecution agreements. In a deferred prosecution agreement, the prosecutor agrees to dismiss charges if the company fulfills certain conditions, such as paying a fine, cooperating with investigators, or implementing corporate reforms. In a non-prosecution agreement, no charges are filed in exchange for the company agreeing to the conditions. There is ongoing debate as to whether such agreements strengthen or weaken accountability.
The government has improved contractor oversight in several ways. Special inspectors general have been robust watchdogs of U.S. reconstruction spending in Iraq and Afghanistan — often to the displeasure of the agencies they oversee. In 2008, the government implemented a rule requiring contractors to disclose criminal violations, violations of the False Claims Act, and contract overpayments. Unlike the previous voluntary disclosure system, contractors have been taking the mandatory disclosure rule seriously and are proactively reporting actual or potential wrongdoing to the government.
Public access to federal contracting information has been greatly expanded since 2002 thanks to the development of three key government data resources. USASpending.gov contains a trove of federal contract spending data. The System for Award Management (SAM) tracks contractor suspensions and debarments. The Federal Awardee Performance and Integrity Information System (FAPIIS), which is modeled on POGO’s Federal Contractor Misconduct Database, compiles contractors’ instances of civil, criminal, and administrative violations, and other responsibility information.
FAPIIS Has Been a Disappointment
The government’s three contractor accountability databases provide a wealth of useful information, although they are not without their shortcomings. Watchdogs like POGO are not shy about pointing that out and suggesting improvements.
Of the three databases, the one most in need of improvement is FAPIIS. POGO was a leading advocate for FAPIIS’s creation and has intently followed its evolution. For years, we have pushed for changes that would achieve the government’s goal of making FAPIIS the “one-stop resource” for federal contractor responsibility information. But in its current form, FAPIIS falls far short of this goal.
First, the site is extremely difficult to use. On-screen guidance is almost non-existent. There is almost no description or explanation of the site’s features and data content. Searches are confined to entity name and identification number, and the results are displayed in a haphazard manner. A search can return numerous records for a company, each containing different data or no data at all. Records are not cross-linked.
Second, the site is almost completely devoid of useful data, especially that which is supposed to be entered by contractors and grantees: civil, criminal, and administrative proceedings — the type of information we track in our database. When the site was created, the government estimated that about 5,000 contractors would enter data into FAPIIS each year. As of now, the site contains less than 300 vendor-entered records, many of which are duplicates.
Congress and the executive branch need to vastly improve the architecture and content of FAPIIS. The types of data it includes should be expanded. For example, POGO has long argued that contractor past performance and beneficial ownership information should be publicly posted. How contractors performed on past federal contracts gives a more complete picture of their responsibility — just as a report card gives parents better insight into their children’s scholastic abilities — and a public registry of contractors’ beneficial owners (the people who really control a company and pocket the profits) would help stem a wide range of global criminal activity. In addition, the data already in FAPIIS must be better organized and easier to find. And more plentiful: A stronger enforcement mechanism is needed to ensure contractors and grantees are reporting all required information and that the information is accurate, useful, and timely.
Finally, FAPIIS is long overdue for an audit and a congressional oversight hearing. Audits and hearings, which would hopefully garner media coverage, would raise public awareness of the database and put pressure on the government to fix and properly maintain it. The last hearing was over eight years ago, and the government has never conducted a comprehensive audit of FAPIIS. A review by an independent watchdog would provide a clearer picture of how the agencies and public are using the database and how it can be improved.
For 20 years, POGO’s Federal Contractor Misconduct Database has shown the government a relatively simple and inexpensive way to strengthen federal contractor accountability. Nevertheless, resources such as our database and corporate and government watchdog Good Jobs First’s excellent Violation Tracker spotlight only a tiny subset of the many thousands of federal contractors.
It has long been our hope that the federal government would create a contractor accountability portal that would make our database obsolete. After all, we’ve seen the government successfully develop other accountability tools based on protypes created by civil society organizations. For example, the government’s inspector general vacancy tracker rendered POGO’s own IG vacancy tracker redundant, and USASpending.gov eventually replaced the Center for Effective Government’s FedSpending.org.
The creation of FAPIIS 12 years ago was a promising development, but the site is still failing to live up to its promise. POGO will continue to monitor federal contracting and misconduct, but we plan to sunset our database at the end of this month (though the underlying data will be made available upon request to [email protected]).
It’s time for the government to make the necessary fixes to FAPIIS. Twenty years of having POGO point the way forward for them should be more than enough.