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From indictments and prison terms for high-ranking officials to contracting blunders in the aftermath of Hurricane Katrina, the past two years have hit a low-water mark for federal contracting. The endless scandals have come with a significant price tag: Average citizens have a growing belief that federal contracts are reserved for large, politically well-connected companies. As public concern festers, the focus on procurement fraud and abuse by oversight authorities has noticeably increased. But the executive branch’s actions have not been emphatic enough. In the absence of stronger leadership pushing change from interested public and private parties, and tangible regulatory proposals to enhance objectivity and transparency in the procurement system, Congress will likely choose to intervene. And if the legislature is forced to act, we can expect a heavy-handed effort that will, unfortunately, threaten even reasonable flexibility. ROOTS OF SCANDAL A decade ago, the Federal Acquisition Streamlining Act of 1994 and the Federal Acquisition Reform Act of 1996 promised a new era in contracting, bringing the efficiency of the commercial marketplace to federal procurement. These laws transformed government contracting from an endless bureaucratic paperwork exercise to a speedy delivery system for products and services. To put it another way, a system of open, transparent, but unquestionably slow competition became more nimble, but also more subjective and less transparent. In implementing these two laws, the executive branch combined the creation of new statutory and regulatory contracting vehicles with a campaign encouraging the federal acquisition work force to engage in “commercial-like” contracting through “partnerships” with the private sector. The mantra was “faster, better, cheaper,” and the job of contracting personnel became satisfying their agency “customers” as quickly as possible with private-sector goods and services. Where once contracting personnel acted as a needed check on the legality and appropriateness of agency purchases, now they focused their energies on “transforming” the culture from bureaucracy to business. What this meant on the ground was that personnel were trained more in how to build relationships with private industries, and less in how to enforce fundamental contracting principles, statutes, and regulations. Perhaps most important, they weren’t being pushed to act as guardians of the public fisc by ensuring that the federal government pays only fair and reasonable prices. Also troubling was the government’s failure to undertake a serious examination of commercial buying practices before these practices were touted as the way to reform the procurement system. Because little, if any, guidance was given to the acquisition work force as to how a sound “business partnership” should work, contracting personnel relied heavily on industry to define the appropriate practices. Unfortunately, the push for commercialization came at a time when significant countervailing forces would undermine the government’s ability to evaluate commercialization’s true efficacy. First, the size of the acquisition work force was cut significantly in the 1990s. The cuts have been estimated at one half of the Defense Department’s contracting staff and one quarter of the contracting staff throughout the government. These reductions left a depleted and demoralized work force that had major difficulties with recruiting and retention. Second, the statutory and regulatory transformation took place during a time of tremendous advances in technology. Cutting-edge technological goods and services were and continue to be especially difficult to fairly price, purchase, and manage, even in the private sector. WAKE-UP CALL While there were warning signs along the way, the first definitive and very public indication of problems came in early 2004 when the nation and the world were shocked by images of abuses committed by U.S. servicemen and women at Abu Ghraib prison. Press coverage revealed that private companies had been hired by the Department of the Army to provide interpretation and prisoner interrogation services in Iraq. The mere fact that a private company was hired to perform such services was not the issue (although many Americans were surprised to learn that such tasks could be contracted out). The real problem was the contracting method. After several months of investigation, press accounts revealed that at least one of these companies was hired by the Department of the Interior for the Department of the Army using a contract vehicle originally executed by a third agency, the General Services Administration. The particular procurement vehicle was intended to be utilized only for the purchase of information technology equipment and services. Instead, it was used to purchase and manage highly sensitive military services. In the ensuing months, the general public came to learn what procurement insiders had known for several years: that the interagency method used to purchase interrogation services was the essence of routine. Billions of federal dollars have been committed using these less-than-transparent contracting vehicles with little or no competition and limited accountability. By January 2005, interagency contracting had landed in the Government Accountability Office’s yearly High-Risk Series, in which the GAO identifies federal programs that demonstrate “greater vulnerabilities to fraud, waste, abuse, and mismanagement.” While the federal procurement system was taking its lumps overseas, it was earning bad press and justified criticism for domestic problems too. Following the arrest and criminal plea of the Air Force’s former top procurement official, Darlene Druyun, for favoring a major aerospace company in a multitude of decisions, Paul McNulty, the U.S. attorney for the Eastern District of Virginia, created a procurement fraud task force to (as he told the Senate this past April) “detect, prosecute and deter those unscrupulous government contractors and corrupt government officials whose theft of critically needed resources threatens America’s safety and defense.” The task force was indicative of a growing concern that Druyun wasn’t one errant employee; she was a direct product of a procurement system that focused on efficiency and satisfaction of the agency customer to the detriment of any consistent rule of law. The recent arrest of the administration’s former top procurement official, David Safavian, has added another layer to concerns about favoritism. Following his indictment on charges of making false statements and obstructing investigation into his relationship with a now-infamous lobbyist, members of Congress asked the Office of Management and Budget (OMB) to review any specific contract actions in which Safavian may have participated. Even minor involvement in specific procurement actions by Safavian (and, it should be noted, no such involvement has been yet been shown) could be problematic because the statute creating Safavian’s old job rather clearly prohibits involvement in specific procurements. FUTURE SHOCK? McNulty has recently been nominated for the No. 2 position at the Department of Justice. If and when he is confirmed, we could reasonably anticipate a further spike in DOJ investigations of contracting fraud and abuse. These investigations will only add to the already significant public pressure for legislative change. Without a marked decline in fraud and abuse (which is hard to measure in the short term) or definitive action by both the executive branch and private industry, Congress will likely move to address real and perceived problems. But legislation may not be the best way to handle the current troubles. Congress is likely to micromanage by attaching significant constraints even to federal contracting practices that are efficient and effective. The future is not all bleak. In March 2005, the OMB announced the formation of a congressionally mandated Acquisition Advisory Panel to examine interagency contracting and the application of commercial practices in federal procurement. Recent discussion papers released by the panel have looked at the serious transparency, management, and competition weaknesses in interagency contracting. The panel also appears to be heading toward acknowledging the need to hire more contracting personnel and to refocus training efforts back onto basic contracting and pricing principles. The administration should also consider making regulatory changes to increase transparency. A series of minor fixes could force orders under interagency contracts into the daylight. Easy and inexpensive Internet access to orders and contract terms and conditions (to the extent they are not proprietary) would go a long way toward restoring confidence in the system. Those in a position to manipulate the system — for purposes of careless expediency or fraudulent abuse — would know they were being watched. If those who executed the Iraqi interrogation contract, for instance, had known that it could be easily seen by a skeptical press, they might have thought better of the idea. At the same time, the administration must provide the political leadership to insist on integrity in the contracting system. Federal employees need to know that they will be supported when they make the right, not the easy, decision on how to spend taxpayer money. PRIVATE RESPONSIBILITY A final, but critical, piece of the solution lies with government contractors themselves. The image of federal contractors (and not just Halliburton) has taken a significant hit in recent years. Industry must now present itself as a willing partner in reform, not simply as an obstacle that must be handled with overzealous statutory constraints. When business reflexively opposes any changes to make the system more transparent or competitive, the questions about its commitment are exacerbated. Instead, federal contractors need to publicly manifest their good-faith concern about these scandals by supporting reasonable regulatory change aimed at curbing fraud and abuse. At the most aggressive end, industry should give consideration to some form of self-policing. Initial steps could be as simple as a widespread agreement on model compliance and ethics rules for employees working on federal contracts, with a specific focus on identifying conflicts of interest before they arise. To the extent that companies already have robust compliance programs, these programs should be publicly shared as evidence of “best industry practices.” Business might also consider sponsoring scholarship programs to attract qualified people to the federal acquisition work force. Today, the federal procurement system is widely seen as too easily manipulated by powerful companies for their own profit at the expense of the American taxpayer. It is a simplistic charge, but there’s just enough truth there to inspire congressional action — unless the public and private parties who know federal contracting take bold action soon.
Angela B. Styles is a partner in D.C.’s Miller & Chevalier, specializing in federal procurement law and litigation. She previously served as head of the Office of Federal Procurement Policy in the Office of Management and Budget.

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