Tuesday, September 6, 2011

Windfalls of War: Pentagon's No-Bid Contracts Triple In 10 Years of War

Windfalls of War: Pentagon's No-Bid Contracts Triple In 10 Years of War

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As U.S. mil­i­tary deaths and in­juries from road­side bombs es­ca­lated after the in­va­sion of Iraq, the Pen­ta­gon rushed to find so­lu­tions.

Com­pe­ti­tion is nor­mally the cor­ner­stone of bet­ter prices and bet­ter prod­ucts, but the ur­gency of deal­ing with im­pro­vised ex­plo­sive de­vices, or IEDs, has been cited to jus­tify a num­ber of sole-source con­tracts to com­pa­nies promis­ing quick so­lu­tions over a decade of war.

One such com­pany was Tuc­son-based Ap­plied En­er­get­ics , which mar­kets a fu­tur­is­tic weapon that shoots beams of light­ning to det­o­nate road­side bombs. The com­pany won over $50 mil­lion in mil­i­tary con­tracts for their light­ning weapon, all with­out full and open com­pe­ti­tion, even though there was an­other com­pany mar­ket­ing sim­i­lar tech­nol­ogy. De­spite test fail­ures, the com­pany, in part thanks to con­gres­sional sup­port, con­tin­ued to get fund­ing.

In Au­gust, the Ma­rine Corps, which was on the verge of award­ing the com­pany yet an­other sole-source con­tract for the light­ning weapon, can­celled the lat­est $3 mil­lion deal after the com­man­der of the unit in Afghanistan de­cided it didn’t meet their needs.

In the mean­time, a com­peti­tor, called Xtreme Al­ter­na­tive De­fense Sys­tems , an In­di­ana-based firm with its own light­ning-based counter-bomb tech­nol­ogy, says it’s had good re­sults with only a frac­tion of the fed­eral fund­ing that Ap­plied En­er­get­ics has re­ceived—$1.5 mil­lion. The com­pany is prepar­ing to test its tech­nol­ogy at a mil­i­tary range. “We did our own de­vel­op­ment based on state grants” and fed­eral funds, says Pete Bitar, the head of the com­pany. “I cashed out my 401(k).”

The bomb fight­ing con­tract is a small ex­am­ple of a prob­lem that’s been ex­ac­er­bated by 10 years of war: award­ing con­tracts with­out com­pe­ti­tion. While the Pen­ta­gon says its over­all level of com­pe­ti­tion has re­mained steady over the past 10 years, pub­licly avail­able data shows that De­fense De­part­ment dol­lars flow­ing into non-com­pet­i­tive con­tracts have al­most tripled since the ter­ror­ist at­tacks of 9/11. Ac­cord­ing to analy­sis by the Cen­ter for Pub­lic In­tegrity’s iWatch News, the data shows that the value of Pen­ta­gon con­tracts awarded with­out com­pe­ti­tion topped $140 bil­lion in 2010, up from $50 bil­lion in 2001.

And de­spite re­peated pledges to re­form the process, non-com­pet­i­tive con­tracts are a hard habit to break. Ac­cord­ing to fed­eral data, the Pen­ta­gon’s com­peted con­tracts, based on dol­lar fig­ures, fell to 55 per­cent in the first two quar­ters of 2011, a num­ber lower than any point in the last 10 years since the ter­ror­ist at­tacks of 9/11.

There are a num­ber of legal loop­holes that allow the De­fense De­part­ment, as well as other fed­eral agen­cies, to avoid com­pe­ti­tion and to se­lect a sin­gle com­pany to pro­vide the de­sired goods and ser­vices. In some cases, there may be only one le­git­i­mate sup­plier of needed goods, or the gov­ern­ment can argue that it has “an un­usual and com­pelling ur­gency,” and that hold­ing a com­pe­ti­tion would have a detri­men­tal im­pact on gov­ern­ment op­er­a­tions or na­tional se­cu­rity.

But those ex­cep­tions have be­come in­creas­ingly abused, ac­cord­ing to nu­mer­ous stud­ies. In fact, an analy­sis of over a dozen gov­ern­ment re­ports and in­ves­ti­ga­tions, and in­ter­views with eight for­mer gov­ern­ment of­fi­cials and ex­perts, found a num­ber of con­cerns about DOD com­pe­ti­tion prac­tices — at­trib­ut­able in large part to the past 10 years of war. Those in­clude:

  • The use of large um­brella con­tracts to pur­chase goods and ser­vices that could be com­peted in­di­vid­u­ally, thus re­sult­ing in lower price;
  • Jus­ti­fy­ing sole source con­tracts by cit­ing an “ur­gent and com­pelling need,” when in fact the ur­gency stemmed from the agency’s lack of plan­ning for re­quire­ments that have been known for years.
  • Ex­tend­ing large con­tracts as a “bridge,” rather than re-com­pet­ing them.
  • An over­all fail­ure to uti­lize com­pe­ti­tion in cases that could re­sult in cost sav­ings and bet­ter per­for­mance.

These alarm­ing trends have not gone un­no­ticed. Sole-source and other non­com­pet­i­tive con­tract­ing prac­tices at the Pen­ta­gon have been the sub­ject of nu­mer­ous in­ves­ti­ga­tions by the Gov­ern­ment Ac­count­abil­ity Of­fice, the De­fense De­part­ment’s In­spec­tor Gen­eral, and the Com­mis­sion on Wartime Con­tract­ing, among other gov­ern­ment watch­dogs.

The con­se­quence, ac­cord­ing to those in­ves­tiga­tive agen­cies and com­mis­sions: wasted dol­lars, lower qual­ity goods and ser­vices, and in some cases, out­right fraud.

Re­ports of lim­ited and no-bid con­tract­ing, par­tic­u­larly in Iraq and Afghanistan, cap­tured head­lines in the early days of the Coali­tion Pro­vi­sional Au­thor­ity in Iraq, when com­pa­nies like Custer Bat­tles, later con­victed of fraud , were given sole-source se­cu­rity con­tracts for se­cu­rity and re­con­struc­tion, in­clud­ing one worth $16.5 mil­lion to pro­vide se­cu­rity at Bagh­dad In­ter­na­tional Air­port. Among the ac­cu­sa­tions even­tu­ally levied against the com­pany, which had no prior track record, was that it charged grossly in­flated prices, in part by using fic­ti­tious com­pa­nies to “lease” equip­ment to the gov­ern­ment.

In his 2008 pres­i­den­tial cam­paign, can­di­date Barack Obama railed against such con­tracts, ac­cus­ing them of wast­ing tax­payer dol­lars, and promised to rein in such spend­ing.

In 2009, Pres­i­dent Obama fol­lowed up those cam­paign promises with a memo di­rect­ing a broad over­haul of gov­ern­ment con­tract­ing, in­clud­ing lim­its to sole-source and non-com­pet­i­tive con­tract­ing. “Ex­ces­sive re­liance by ex­ec­u­tive agen­cies on sole-source con­tracts (or con­tracts with a lim­ited num­ber of sources) and cost-re­im­burse­ment con­tracts cre­ates a risk that tax­payer funds will be spent on con­tracts that are waste­ful, in­ef­fi­cient, sub­ject to mis­use, or oth­er­wise not well de­signed to serve the needs of the Fed­eral Gov­ern­ment or the in­ter­ests of the Amer­i­can tax­payer,” the pres­i­dent wrote in the 2009 mem­o­ran­dum , cit­ing re­ports by mul­ti­ple gov­ern­ment agen­cies. Mov­ing back to full and open com­pe­ti­tion, the memo con­tin­ued, could save the gov­ern­ment bil­lions of dol­lars. But in two-and-half years, the Obama ad­min­is­tra­tion has made no progress in com­pet­ing mil­i­tary con­tracts.

Even the Pen­ta­gon’s se­nior lead­er­ship has ac­knowl­edged the prob­lem: a 2010 memo by Un­der­sec­re­tary Ash­ton Carter, the Pen­ta­gon’s se­nior pro­cure­ment of­fi­cial, called for greater com­pe­ti­tion, along the lines of the ear­lier Obama memo, and promised the Pen­ta­gon would make its con­tract­ing process more open to com­pet­i­tive bid­ding. “Max­i­mize the use of mul­ti­ple-source, con­tin­u­ously com­pet­i­tive con­tracts,” a brief­ing ac­com­pa­ny­ing the memo states.

How­ever, cam­paign pledges and memos have made lit­tle head­way in com­bat­ing the prob­lem. “The lack of com­pe­ti­tion in the De­fense De­part­ment is a scan­dal,” said Charles Tiefer , a pro­fes­sor at the Uni­ver­sity of Bal­ti­more School of Law and a mem­ber of the con­gres­sion­ally man­dated Com­mis­sion on Wartime Con­tract­ing in Iraq and Afghanistan.

The ul­ti­mate ques­tion is whether non-com­pet­i­tive con­tracts are due to trends be­yond the Pen­ta­gon’s con­trol, such as the lack of qual­i­fied com­peti­tors and the ur­gency of wartime con­tract­ing, or whether they are the re­sult of poor poli­cies and pro­ce­dures. The Pen­ta­gon main­tains that its com­pe­ti­tion rates are lower be­cause of the na­ture of the things it buys: large weapons and major sys­tems that then have large fol­low-on con­tracts that must, by their na­ture, go to the orig­i­nal sup­plier. “These high-dol­lar non-com­pet­i­tive pro­cure­ments sig­nif­i­cantly im­pact the De­part­ment's over­all level of com­pe­ti­tion to pro­duce the 61.7 per­cent com­pe­ti­tion rate for FY2010,” says Cheryl Irwin, a Pen­ta­gon spokes­woman.

The GAO, in mul­ti­ple de­ci­sions, has said that “fail­ure to plan” for a pro­cure­ment that re­sults in an ur­gent need does not con­sti­tute a basis for a sole source com­pe­ti­tion, and has, on a num­ber of oc­ca­sions, sided with protest­ing com­pa­nies that argue the only ur­gency was an agency’s fail­ure to con­duct a timely com­pet­i­tive pro­cure­ment.

One re­port com­mis­sioned by the Pen­ta­gon’s Of­fice of In­dus­trial Pol­icy and con­ducted by the fed­er­ally-funded In­sti­tute for De­fense Analy­ses ap­pears to sug­gest it’s a sys­temic prob­lem. “We found that the use of short-term con­tracts and mod­i­fi­ca­tions to fill the gap in ser­vices be­tween the end of one con­tract and the be­gin­ning of the next is a sig­nif­i­cant source of sole source con­tracts,” the re­port con­cluded.

The study, which looked specif­i­cally at con­tracts for ser­vices, found that there wasn’t a lack of qual­i­fied com­pa­nies; rather, nearly a quar­ter of the sole-source awards were jus­ti­fied based on “bridge con­tracts” that ex­tended ex­ist­ing con­tracts with­out com­pe­ti­tion. “For sole source con­tracts there does ap­pear to be a prob­lem, not with the in­dus­trial base or with com­pe­ti­tion, but with DOD prac­tices and poli­cies,” the re­port con­cluded.

Non­com­pet­i­tive, sole-source con­tracts are by no means unique to the Pen­ta­gon. Other agen­cies have been ac­cused of giv­ing short shrift to com­pe­ti­tion, such as the Fed­eral Emer­gency Man­age­ment Agency, which awarded over half of its im­me­di­ate post-Hur­ri­cane Ka­t­rina con­tracts with­out full com­pe­ti­tion, ac­cord­ing to one con­gres­sional re­port. But based on total dol­lars, the Pen­ta­gon, ac­cord­ing to pub­licly avail­able data an­a­lyzed by iWatch News , lags be­hind all other major de­part­ments in com­pet­i­tive con­tract­ing. The Pen­ta­gon's com­pe­ti­tion rate of about 61 per­cent places it will below other agen­cies. The State De­part­ment in 2010 com­peted al­most 75 per­cent of its con­tract dol­lars, the De­part­ment of Home­land Se­cu­rity com­peted al­most 77 per­cent, and the En­ergy De­part­ment com­peted 94 per­cent.

Nev­er­the­less, sole source con­tracts, rang­ing from train­ing to equip­ment, con­tinue to be handed out on a near daily basis, often with lit­tle ex­pla­na­tion be­yond a stated “ur­gent re­quire­ment.” On July 18 of this year, DRS Tech­ni­cal Ser­vices of Hern­don, Va., re­ceived a con­tract worth nearly $20 mil­lion for train­ing and men­tor­ing Afghan police.​It was the only bid so­licited for the con­tract, ac­cord­ing to the Pen­ta­gon.

A spokesper­son for Army Con­tract­ing Com­mand said the sole source con­tract, which was ac­tu­ally for field­ing com­mu­ni­ca­tions equip­ment to Afghan po­lice, was due to an “ur­gent re­quire­ment that ne­ces­si­tated an award to the in­cum­bent DRS pend­ing com­pe­ti­tion.” That same con­tract was also the sub­ject of a 2009 DOD In­spec­tor Gen­eral in­ves­ti­ga­tion, which crit­i­cized the con­trac­tor’s and the Army’s in­ven­tory con­trols.

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