In Washington, Contractors Play Biggest Role Ever - New York Times
The New York Times

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February 4, 2007
In Washington, Contractors Play Biggest Role Ever
By
SCOTT SHANE
and RON NIXON

WASHINGTON
, Feb. 3 - In June, short of people to process cases of incompetence and
fraud by federal contractors, officials at the
General Services Administration
responded with what has become the government's reflexive answer to almost
every problem.

They hired another contractor.

It did not matter that the company they chose, CACI International, had
itself recently avoided a suspension from federal contracting; or that the
work,
delving into investigative files on other contractors, appeared to pose a
conflict of interest; or that each person supplied by the company would cost
taxpayers $104 an hour. Six CACI workers soon joined hundreds of other
private-sector workers at the G.S.A., the government's management agency.

Without a public debate or formal policy decision, contractors have become a
virtual fourth branch of government. On the rise for decades, spending on
federal
contracts has soared during the Bush administration, to about $400 billion
last year from $207 billion in 2000, fueled by the war in Iraq, domestic
security
and Hurricane Katrina, but also by a philosophy that encourages outsourcing
almost everything government does.

Contractors still build ships and satellites, but they also collect income
taxes and work up agency budgets, fly pilotless spy aircraft and take the
minutes
at policy meetings on the war. They sit next to federal employees at nearly
every agency; far more people work under contracts than are directly
employed
by the government. Even the government's online database for tracking
contracts, the Federal Procurement Data System, has been outsourced (and is
famously
difficult to use).

The contracting explosion raises questions about propriety, cost and
accountability that have long troubled watchdog groups and are coming under
scrutiny
from the Democratic majority in Congress. While flagrant cases of fraud and
waste make headlines, concerns go beyond outright wrongdoing. Among them:

¶Competition, intended to produce savings, appears to have sharply eroded.
An analysis by The New York Times shows that fewer than half of all
"contract
actions" - new contracts and payments against existing contracts - are now
subject to full and open competition. Just 48 percent were competitive in
2005,
down from 79 percent in 2001.

¶The most secret and politically delicate government jobs, like intelligence
collection and budget preparation, are increasingly contracted out, despite
regulations forbidding the outsourcing of "inherently governmental" work.
Scott Amey, general counsel at the Project on Government Oversight, a
watchdog
group, said allowing CACI workers to review other contractors captured in
microcosm "a government that's run by corporations."

¶Agencies are crippled in their ability to seek low prices, supervise
contractors and intervene when work goes off course because the number of
government
workers overseeing contracts has remained level as spending has shot up. One
federal contractor explained candidly in a conference call with industry
analysts
last May that "one of the side benefits of the contracting officers being so
overwhelmed" was that existing contracts were extended rather than put up
for new competitive bidding.

¶The most successful contractors are not necessarily those doing the best
work, but those who have mastered the special skill of selling to Uncle Sam.
The
top 20 service contractors have spent nearly $300 million since 2000 on
lobbying and have donated $23 million to political campaigns. "We've created
huge
behemoths that are doing 90 or 95 percent of their business with the
government," said Peter W. Singer, who wrote a book on military outsourcing.
"They're
not really companies, they're quasi agencies." Indeed, the biggest federal
contractor, Lockheed Martin, which has spent $53 million on lobbying and $6
million on donations since 2000, gets more federal money each year than the
Departments of Justice or Energy.

¶Contracting almost always leads to less public scrutiny, as government
programs are hidden behind closed corporate doors. Companies, unlike
agencies, are
not subject to the Freedom of Information Act. Members of Congress have
sought unsuccessfully for two years to get the Army to explain the contracts
for
Blackwater USA security officers in Iraq, which involved several costly
layers of subcontractors.

Weighing the Limits

The contracting surge has raised bipartisan alarms. A just-completed study
by experts appointed by the White House and Congress, the Acquisition
Advisory
Panel, found that the trend "poses a threat to the government's long-term
ability to perform its mission" and could "undermine the integrity of the
government's
decision making."

The House Committee on Oversight and Government Reform, whose new Democratic
chairman,
Representative Henry A. Waxman
of California, added the word "oversight" to signal his intentions, begins
a series of investigative hearings on Tuesday focusing on contracts in Iraq
and at the
Department of Homeland Security.

"Billions of dollars are being squandered, and the taxpayer is being taken
to the cleaners," said Mr. Waxman, who got an "F" rating last year from the
Contract
Services Association, an industry coalition. The chairman he succeeded,
Representative Thomas M. Davis III, Republican of Virginia, earned an "A."

David M. Walker, who as comptroller general of the United States leads the
Government Accountability Office
, has urged Congress to take a hard look at the proper limits of
contracting. Mr. Walker has not taken a stand against contractors - his
agency is also
dependent on them, he admits - but he says they often fail to deliver the
promised efficiency and savings. Private companies cannot be expected to
look
out for taxpayers' interests, he said.

"There's something civil servants have that the private sector doesn't," Mr.
Walker said in an interview. "And that is the duty of loyalty to the greater
good - the duty of loyalty to the collective best interest of all rather
than the interest of a few. Companies have duties of loyalty to their
shareholders,
not to the country."

Even the most outspoken critics acknowledge that the government cannot
operate without contractors, which provide the surge capacity to handle
crises without
expanding the permanent bureaucracy. Contractors provide specialized skills
the government does not have. And it is no secret that some government
executives
favor contractors because they find the federal bureaucracy slow, inflexible
or incompetent.

Stan Soloway, president of the Professional Services Council, which
represents government contractors, acknowledged occasional chicanery by
contractors
and too little competition in some areas. But Mr. Soloway asserted that
critics had exaggerated the contracting problems.

"I don't happen to think the system is fundamentally broken," he said. "It's
remarkable how well it works, given the dollar volume."

Blurring the Lines

Wariness of government contracting dates at least to 1941, when
Harry S. Truman
, then a senator, declared, "I have never yet found a contractor who, if not
watched, would not leave the government holding the bag."

But the recent contracting boom had its origins in the "reinventing
government" effort of the Clinton administration, which slashed the federal
work force
to the lowest level since 1960 and streamlined outsourcing. Limits on what
is "inherently governmental" and therefore off-limits to contractors have
grown
fuzzy, as the General Services Administration's use of CACI International
personnel shows.

"Hi Heinz," Renee Ballard, a G.S.A. official, wrote in an e-mail message to
Heinz Ruppmann, a CACI official, last June 12, asking for six "contract
specialists"
to help with a backlog of 226 cases that could lead to companies being
suspended or barred from federal contracting. The CACI workers would review
files
and prepare "proposed responses for review and signature," she wrote.

Mr. Amey, of the Project on Government Oversight, which obtained the
contract documents under the Freedom of Information Act, said such work was
clearly
inherently governmental and called it "outrageous" to involve contractors in
judging the misdeeds of potential competitors. CACI had itself been reviewed
in 2004 for possible suspension in connection with supplying interrogators
to the Abu Ghraib prison in Iraq. The company was ultimately cleared, though
the G.S.A. found that CACI employees had improperly written parts of the
"statements of work" for its own Iraq contract.

The price of $104 an hour - well over $200,000 per person annually - was
roughly double the cost of pay and benefits of a comparable federal worker,
Mr.
Amey said.

Asked for comment, the G.S.A. said decisions on punishments for erring
contractors "is indeed inherently governmental." But the agency said that
while the
CACI workers assisted for three months, "all suspension/debarment decisions
were made by federal employees." A CACI spokeswoman made the same point.

The G.S.A., like other agencies, said it did not track the number or total
cost of its contract workers. The agency administrator, Lurita Doan, who
previously
ran a Virginia contracting firm, has actively pushed contracting. Ms. Doan
recently clashed with her agency's inspector general over her proposal to
remove
the job of auditing contractors' proposed prices from his office and to hire
contractors to do it instead.

On some of the biggest government projects, Bush administration officials
have sought to shift some decision making to contractors. When Michael P.
Jackson,
deputy secretary of the Department of Homeland Security, addressed potential
bidders on the huge Secure Border Initiative last year, he explained the new
approach.

"This is an unusual invitation," said Mr. Jackson, a contracting executive
before joining the agency. "We're asking you to come back and tell us how to
do our business."

Boeing, which won the $80 million first phase of the estimated $2 billion
project, is assigned not only to develop technology but also to propose how
to
use it, which includes assigning roles to different government agencies and
contractors. Homeland Security officials insist that they will make all
final
decisions, but the department's inspector general, Richard L. Skinner,
reported bluntly in November that "the department does not have the capacity
needed
to effectively plan, oversee and execute the SBInet program."

A 'Blended Work Force'

If the government is exporting some traditional functions to contractors, it
is also inviting contractors into agencies to perform delicate tasks. The
State
Department, for instance, pays more than $2 million a year to BearingPoint,
the consulting giant, to provide support for Iraq policy making, running
software,
preparing meeting agendas and keeping minutes.

State Department officials insist that the company's workers, who hold
security clearances, merely relieve diplomats of administrative tasks and
never influence
policy. But the presence of contractors inside closed discussions on war
strategy is a notable example of what officials call the "blended work
force."

That blending is taking place in virtually every agency. When Polly Endreny,
29, sought work last year with the National Oceanographic and Atmospheric
Administration,
she was surprised to discover that most openings were with contractors.

"The younger generation is coming in on contracts," said Ms. Endreny, who
likes the arrangement. Today, only the "Oak Management" on her ID badge
distinguishes
her from federal employees at the agency's headquarters.

She said her pay was "a little higher" than that of comparable federal
workers, and she gets dental coverage they do not. Such disparities can
cause trouble.
A recent study of one NOAA program where two-thirds of the work force were
contractors found that differences in salary and benefits could "
substantially
undermine staff relations and morale."

The shift away from open competition affects more than morale. One example
among many: with troops short in Iraq, Congress in 2003 waived a ban on the
use
of private security guards to protect military bases in the United States.
The results for the first $733 million were dismal, investigators at the
Government
Accountability Office found.

The Army spent 25 percent more than it had to because it used sole-source
contracts at 46 of 57 sites, the investigators concluded. And screening of
guards
was so lax that at one base, 61 guards were hired despite criminal records,
auditors reported. Yet the Army gave the contractors more than $18 million
in incentive payments intended to reward good performance. (The Army did not
contest G.A.O.'s findings and has changed its methods.)

A Coalition for Contracting

Mr. Soloway, of the contracting industry group, argues that the contracting
boom has resulted from the collision of a high-technology economy with an
aging
government work force - twice as many employees are over 55 as under 30. To
function, Mr. Soloway said, the government must now turn to younger, skilled
personnel in the private sector, a phenomenon likely to grow when what
demographers call a "retirement tsunami" occurs over the next decade.

"This is the new face of government," Mr. Soloway said. "This isn't
companies gouging the government. This is the marketplace."

But Paul C. Light of
New York University
, who has long tracked the hidden contractor work force to assess what he
calls the "true size of government," says the shift to contractors is driven
in
part by federal personnel ceilings. He calls such ceilings a "sleight of
hand" intended to allow successive administrations to brag about cutting the
federal
work force.

Yet Mr. Light said the government had made no effort to count contractors
and no assessment of the true costs and benefits. "We have no data to show
that
contractors are actually more efficient than the government," he said.

Meanwhile, he said, a potent coalition keeps contracting growing: the
companies, their lobbyists and supporters in Congress and many government
managers,
who do not mind building ties to contractors who may hire them someday. "All
the players with any power like it," he said.

That is evident wherever in Washington contractors gather to scout new
opportunities. There is no target richer than the Homeland Security
Department, whose
Web site, in a section called "Open for Business," displays hundreds of open
contracts, including "working with selected cities to develop and exercise
their catastrophic plans" ($500,000 to $1 million) and "Conduct studies and
analyses, systems engineering, or provide laboratory services to various
organizations
to support the DHS mission" ($20 to $50 million).

One crisp morning in an office building with a spectacular view of the
Capitol, Alfonso Martinez-Fonts Jr., the agency's assistant secretary for
the private
sector, addressed a breakfast seminar on "The Business of Homeland
Security." The session drew a standing-room crowd.

Mr. Martinez-Fonts, a banker before joining the government, said he could
not personally hand out contracts but could offer "tips, hints and
directions"
to companies on the hunt.

Joe Haddock, a Sikorsky Helicopters executive, summed up the tone of the
session. "To us contractors," Mr. Haddock said, "money is always a good
thing."

Copyright 2007
The New York Times Company

Posted by Miriam V.