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Analysis

COVID and Contractor Misconduct

New Top 100 Ranking Shows the COVID-19 Pandemic’s Impact on the Federal Contracting Landscape
(Illustration: Leslie Garvey / POGO)

The COVID-19 pandemic posed unprecedented challenges to the country in fiscal year 2020, requiring massive federal investments in personal protective equipment, cleaning supplies and services, testing and vaccines, relief loan processing, and a host of other goods and services. Consequently, FY 2020 also saw some notable shifts in the top 100 federal contractor ranking, including a higher-than-usual number of new entrants. But while the pandemic significantly changed the federal contracting landscape, it didn’t change the government’s propensity to do business with companies with checkered performance histories and unethical track records. New research posted to the Project On Government Oversight’s Federal Contractor Misconduct Database reveals that several of the new top 100 contractors have extensive backgrounds of either proven or alleged misconduct.

While many federal contractors do play by the rules, the latest update to POGO’s misconduct database (now in its 20th year) shows that far too many cut corners, commit fraud, and violate tax, securities, labor, and environmental laws. Last year, just as it had before the pandemic and will likely continue to do even after the crisis has passed, the federal government looked the other way and rewarded bad actors with billions of dollars in business.

Annual Federal Contracting Totals Have Been on the Rise

The federal government awarded a total of $666 billion in contracts in fiscal year 2020, a 13% increase compared to the previous year. Over $389 billion of that total, or 59%, went to the top 100 contractors.

After a steady decline during the Obama administration, federal contract spending jumped in 2016 and continued to rise during the Trump administration. Between 2016 and 2020, government spending on contracts grew an astonishing 40%.

Between 2016 and 2020, government spending on contracts grew an astonishing 40%.

Back in 2000, the federal government’s total contract spending was roughly $277 billion.

More than two decades of ramped up military spending, outsourcing of government functions, natural disasters, economic stimulus packages, and, most recently, a pandemic have led to record-high spending on contractors.

POGO created the first misconduct database nearly 20 years ago to show that risky contractors, often with extensive histories of bad behavior, were getting billions of dollars in taxpayer funds to supply the federal government with goods and services. The original database tracked 43 entities and included 402 instances of misconduct and alleged misconduct for which the contractors paid $3.4 billion in fines, restitution, settlements, and Superfund cleanup costs. Today, our database contains 251 contractor entities and 2,921 misconduct instances (2,507 resolved and 414 pending) that have cost contractors $162 billion.

Notable Shifts Among Major Contractors

Fiscal year 2020 was a year of notable changes to the federal contracting landscape. Although contract spending grew overall, several major contractors dropped down, or even out, of the top 100, while other firms moved up to claim those spots.

Lockheed Martin maintained its hold on the number one spot with almost $77 billion in contracts in FY 2020 (12% of total spending). Lockheed’s contract revenue increased by a staggering 58% over the previous year. According to the federal government’s spending tracker USASpending.gov, most of Lockheed’s contracts were Department of Defense purchases of aircraft and guided missiles. The place of performance for most of Lockheed’s contracts was Texas, where the company manufactures the F-35 Joint Strike Fighter.

For the first time in many years, Boeing was not the second-largest federal contractor. Instead, the number two spot in FY 2020 was claimed by Raytheon, which in April 2020 merged with another contracting heavyweight, United Technologies. Boeing slipped to number four.

Two companies cracked the top 10 for the first time. Analytic Services (ANSER) rose to number six with a contract total ($10.7 billion) that more than tripled what they received the previous year, likely due to the Trump administration using ANSER subsidiary Advanced Technology International as an intermediary to distribute billions of dollars in contracts to COVID-19 vaccine manufacturers. Triwest Healthcare Alliance, which jumped from number 40 to number eight, saw its contract revenue increase nearly five-fold to $8.9 billion, due largely to winning a piece of the Department of Veterans Affairs’ eight-year, multibillion-dollar effort to create a new national healthcare provider network.

Among the companies that dropped out of the top 100 in FY 2020 but are still in our database: Austal USA, Royal Dutch Shell, and Cardinal Health.

Federal Contracting and the COVID-19 Pandemic

The federal government’s response to the COVID-19 pandemic propelled several new names — and one old one — into the top 100.

After a six-year absence, the University of Chicago returned to the top 100 as a result of the government awarding lucrative COVID-19 research work to the university’s Argonne National Laboratory. With just over $1 billion in awards, the university was the 71st largest federal contractor in FY2020.

As for the pandemic response contractors new to the top 100, several have a history of misconduct allegations.

Johnson & Johnson

Johnson & Johnson’s appearance in the top 100 is indicative of how the pandemic has impacted federal government spending. Johnson & Johnson’s coronavirus vaccine, developed through its subsidiary Janssen Pharmaceuticals, was given to millions of Americans. The company received over $800 million in federal contracts this past fiscal year, securing the 87th spot on the list. POGO’s database reveals that the company has been involved in 37 instances of misconduct since 1995, for which it has paid or will pay over $12 billion in fines, judgments, and settlements.

In July this year, several states reached a settlement with Johnson & Johnson and three major drug distributors, resolving claims that these corporations knowingly contributed to the opioid epidemic. The lawsuits were spearheaded by New York Attorney General Letitia James, who filed suit in 2019 seeking to hold numerous drug manufacturers and distributors accountable for the epidemic. Johnson & Johnson agreed to pay a total of $5 billion over the next nine years and stop the sale of their opioid products nationwide.

Additionally, in 2013, Johnson & Johnson and its Janssen Pharmaceuticals and Scios subsidiaries paid $2.2 billion in criminal and civil fines for offering kickbacks to physicians and promoting drugs for uses not approved by the Food and Drug Administration. The products at issue were antipsychotic drugs Risperdal and Invega, and heart medication Natrecor.

Philips

Dutch electronics conglomerate Philips was the 82nd largest federal contractor in FY 2020, with $906 million in contract awards. This total includes a controversial $647 million deal with the Department of Health and Human Services to supply hospitals with the ventilators needed to treat patients with COVID-19. The department cancelled the contract in the wake of allegations that Philips grossly overcharged the government for the ventilators.

Philips has 10 misconduct instances since 1995 and over $1 billion in penalties, most of which comes from a 2012 settlement with European regulators over an alleged price-fixing scheme involving cathode ray tubes (CRTs) used in televisions and computer monitors. (Six years later, Philips paid Washington state $7 million to settle similar price-fixing allegations.) Other notable instances in Philips’ background include a $34.8 million False Claims Act/Anti-Kickback Statute settlement, a $14 million criminal penalty for providing falsified testing data to the Department of Defense and NASA, and a $4.5 million fine to settle charges of making improper payments to government officials in Poland in order to boost sales in that country.

Thermo Fisher Scientific

Thermo Fisher Scientific was the 100th largest contractor in FY2020. Thermo Fisher received more than $700 million from the federal government, mainly for polymerase chain reaction (PCR) and antigen testing and research into the coronavirus. Thermo Fisher Scientific has two resolved misconduct instances and one pending. The contractor paid employees in California $4.7 million in 2019 to settle alleged wage and meal and rest break violations.

Firms without Histories of Misconduct

Not all of the new top 100 COVID relief contractors have a history of misconduct. For example, Moderna (number 38), a pharmaceutical and biotechnology company founded in 2010 that has received over $2 billion in federal contracts for the development of their COVID-19 vaccine, has no instances of misconduct.

Consulting firm RER Solutions (number 92), also has no documented allegations of misconduct. However, the company has been on Congress’s radar lately for possible irregularities on a contract to administer billions of dollars in Small Business Administration COVID-19 disaster relief loans. Some House Democrats have expressed concern that RER and its subcontractors, Rocket Loans and Rapid Finance, failed to install proper fraud protections. The lawmakers are also concerned that the contracting arrangement — RER Solutions is the prime contractor but the two subcontractors are apparently performing most of the work — may be in violation of federal contracting rules.

According to a report released last year by the Small Business Administration’s inspector general, more than $62 billion in loans went to multiple applicants who listed the same IP addresses, street addresses, email addresses, or bank accounts; $14.3 billion went to bank accounts that differed from those listed on the applications; and another $1 billion went to “potentially ineligible businesses.”

While the pandemic significantly changed the federal contracting landscape, it didn’t change the government’s propensity to do business with companies with checkered performance histories and unethical track records.

“No matter how implausible an applicant’s business profile, as long as the computerized checks were cleared, a grant would be issued,” Bloomberg reported in October 2020. “By the time a human loan officer reviewed the file, it was too late.”

In February 2021, House coronavirus subcommittee Chair Jim Clyburn (D-SC) and House Small Business Committee Chair Nydia Velázquez (D-NY) alleged that RER Solutions and its two subcontractors were refusing to comply with requests for documents relating to the contract. “Documents and information obtained by our Committees have heightened our concerns that RER failed to implement adequate fraud controls,” the pair wrote in a letter to RER. “The companies have refused to provide this basic information, asserting they did not track headcount or keep hourly records over the term of the project.”

Misconduct Involving New Entrants Is not Limited to COVID Relief Contractors

The COVID pandemic was not the only factor driving changes to the top 100 contractors list. Reflecting one of the Trump administration’s top priorities, several construction firms tasked with building sections of the U.S.-Mexico border wall were also among the new entrants in the FY 2020 top 100. POGO documented misconduct allegations against several of these firms. For example, Barnard Construction Company subsidiary BFBC has had two such instances and paid $752,000 in fines and settlements. But one new entrant in particular stands out for its checkered history of violations.

Fisher Sand & Gravel

Construction firm Fisher Sand & Gravel had the highest entry into the FY 2020 top 100, landing at number 30 with $2.5 billion in contracts, almost all of which were for the construction of the border wall and related infrastructure. Fisher reaped this bonanza after then-President Donald Trump “repeatedly urged” the U.S. Army Corps of Engineers to hire the firm, whose chief executive is a generous supporter of the Republican party.

Fisher has nine instances of misconduct since 1995 and $3.8 million in penalties, including multiple fines for state and federal environmental violations. In 2009, both the company and several executives were hit with criminal sanctions for federal tax fraud.

Not all border wall contractors have such extensive misconduct histories. For example, Southwest Valley Constructors and Sullivan Land Services, both of which first cracked the top 100 in FY 2019, have no documented allegations of misconduct.

Conclusion

The 12 new companies in the top 100 ranking are now a permanent addition to the Federal Contractor Misconduct Database. We will continue monitoring these companies and update their profiles as new information becomes available.

While eight of the FY 2020 entrants demonstrate a pattern of misconduct (by having two or more resolved instances), it’s critical to note the other four do not. Indeed, those four, and many others in POGO’s Federal Contractor Misconduct Database, offer a pointed reminder that contractors can deliver goods and services as promised and make a profit without breaking the law. A quick perusal of all 251 entities in our database reveals that nearly 40% have only one resolved misconduct instance or none.

We invite you to explore our database and encourage you to contact us if you have any comments, questions, or new information to share.