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Remarks by POGO's Danielle Brian at the Center for American Progress conference, "A Return to Competitive Contracting"

A Return to Competitive Contracting, May 14, 2007, Keynote Speaker: Congressman Henry Waxman, (D-CA), Featured Panelists: Angela Styles, Former Administrator for Federal Procurement Policy, Office of Management and Budget, Margaret Daum, Counsel, House Oversight and Government Reform Committee and Danielle Brian, Executive Director, Project on Government Oversight. Moderated by: Scott Lilly, Senior Fellow, Center for American Progress

Thank you for inviting me to speak today. I’m so pleased that the Center for American Progress has taken such an interest in an issue that has been near and dear to our work at POGO for over 25 years – federal contracting. Scott Lilly’s paper does a great job of laying out the need to fix the broken procurement system.

I’ve come to think of these issues as having three layers. At the core are the procurement laws and regulations themselves. We believe they are simply unacceptably lax and must be changed to protect the taxpayer’s interest, as well as the interests of those who are counting on the government’s system to work in time of crisis or war. The middle layer is the oversight systems that were designed to provide a check on the possibilities of corruption and other misconduct. These systems have been deeply frayed and are in need of rejuvenation. Finally, the outside layer is the government itself, which has transformed into an institution that is no longer calling the shots, but is rather beholden to the decisions made by its private contractors.

We at POGO have, for some time, been raising our concerns about the current procurement laws. We have watched the pendulum swing towards accountability in the 1980s and then back again in harsh reaction to those laws. The current system is plagued by inadequate competition, a lack of accountability, little transparency and is full of contracting vehicles such as interagency contracts and indefinite delivery/indefinite quantity contracts that put taxpayer dollars at risk. Chairman Waxman’s legislation, HR 1362, will move towards rectifying this problem, by limiting the length of time noncompetitive contracts can be held, as well as by minimizing the use of sole-source contracts.

We are also deeply concerned with the lack of accountability in contracts – largely because of the growth of what are called “commercial item” contracts. At the time of their inception, the idea made a lot of sense – remember when then-Vice President Al Gore smashed an ashtray on the David Letterman show, and declared an end to the red tape involved in government contracting. The concept was to buy items “off-the-shelf” and not require government unique specifications. When the government is buying ashtrays or t-shirts, buying commercial items makes sense. But this contracting technique, because it also prevents government negotiators and auditors from examining a contractor’s cost or pricing data has been perverted into being used to buy, for example, C-130J cargo planes for the Air Force. Believe me it would have been helpful if auditors were allowed to scrub those numbers – but because the C-130J was determined to be a commercial item, government auditors literally were not allowed to have access to Lockheed Martin’s cost and pricing data. Only after Senator McCain forced the Air Force to convert that contract back to a traditional contracting vehicle, the taxpayers saved $168 million.

We are also relying on a system where much of the basic information about -- who is getting paid to do what and for how much -- is not readily available, even to Members of Congress. This absolutely must change before the public can have faith in our procurement system. In the most recent issue of Federal Times, an extraordinary statistic was cited. What percent of government contracts are publicly announced? Only 7%!

And our final concern with government contracting rules is the growth of risky contracting vehicles that are currently the rage – in addition to those I mentioned before, there are also so-called “commercial item” time and material/labor hour contracts, which make it nearly impossible for the government to obtain adequate cost insight into a contractor’s prices. Another great piece of legislation that would help to correct many of the current abuses has been introduced by Senator Susan Collins, and would be a terrific companion to Chairman Waxman’s legislation, although her bill still awaits committee hearings.

The middle layer that surrounds the contracting rules is the system of oversight. Congressional oversight is clearly on an upswing, in large part because of the exceptional work of Chairman Waxman. It is important to recognize this is not a partisan effort though. Senator John McCain has been conducting groundbreaking investigations into contracting abuses, and Senators Barack Obama and Tom Coburn have joined forces in the Senate to conduct oversight over contracting abuses. The other elements in the oversight world, however, continue to be in need of repair.

For example, in the late 1990s the Defense Contract Audit Agency employed twice as many auditors as are there now, yet since that time contract dollars have doubled. In other words, we are asking our Pentagon auditors to handle four times the workload – and remember that now they no longer have access to the cost and pricing data that informed their audits.

You will hear defenders of the current mess saying, “Look, you don’t hear about the $436 hammer or $7600 coffee pot anymore – that means the system has been fixed.” My answer to them is that I have every reason to believe the equivalent or worse is happening, especially in the services sector, which is harder to quantify than hardware, but we just can’t see the evidence anymore – the numbers are no longer available.

The third overarching layer is the weakening of the institution of the federal government itself. Of course privatization can be good, and can create efficiencies, but not always. The trend, for example, towards large prime contractors and lead systems integrators -- in essence contract brokers who run massive federal contracts, is dangerous. That kind of control and oversight should remain with the government.

Another element of this layer is the phenomenon of the revolving door, which is a difficult topic to discuss in Washington . Back when I first came to Washington in the 80s, people would be slightly ashamed to “sell out,” yet now it has become so commonplace, many cannot imagine an alternative. The revolving door of government officials leaving the public sector to work for the contractors they have overseen, and back again, has muddied the water between the government and its contractors. No longer is there a healthy, arms-length relationship between the two. In fact, at many federal agencies, it is very difficult to detect who is a public servant and who is a private contractor. What is the impact?

Young people going to work for the government are now less likely to see it as an honorable lifetime career, but rather as a stepping stone to a higher paying job in the private sector where they can do the same work they were doing for the government. This phenomenon has made it less likely that the common good prevails when decisions are being made regarding how to spend our tax dollars. We are losing that Kennedyesque drive to ask what we can do for our country.

What is the cost to the government? I have yet to see persuasive evidence that the advent of beltway bandit body shops that are primarily skilled at getting government contracts are saving the government money or making it work better. But more and more, central policy decisions, arguably inherently governmental functions, are being turned over to the private sector.

POGO is not opposed to the private sector making a profit, nor do we oppose government employees having a right to move to the private sector. Our concern though is the blind eye to the institutional and personal conflicts-of-interest that are created in the current system.

Our goal at POGO is to see the underlying procurement laws and necessary oversight functions fixed in the short-term, and then engage in a larger dialogue regarding the impact of the transformation of the government to its current state of being a hapless handmaiden to its contractors.