Posted by D. Cupples | Every tax dollar spent on contractor profits is one less dollar for things like armored vehicles and good hospitals for our troops. The U.S. Government Accountability Office (GAO) found that the military has used contractors in Iraq to a far greater extent than in prior operations.
A May 2007 GAO report addresses whether the Department of Defense (DoD) contractors cost the taxpayers more than if government employees were providing the same services. DoD officials said that contractors were a better deal, but the GAO found DoD's claim qeustionable because the DoD did not have a good system for tracking and assessing costs and the DoD's data "included inaccurate and unsupported costs."
A January 2007 GAO report found that DoD has trouble getting its money's worth from government contractors, partly because DoD does not adequately monitor contractors, due partly to lack of staff. Apparently, DoD had cut staff, hired contractors to do their work, then found itself without enough staff to watch over the contractors.
Failure to Monitor
Contractor overcharges, waste and fraud can be costly. For example, Halliburton subsidiary KBR hired a subcontractor to provide meals for troops in Kuwait: Army auditors found that dealing directly with the subcontractor could save the taxpayers $31 million a year. Translation: just for playing middleman, KBR added millions to the taxpayers' tab.
A Pentagon report found that Halliburton/KBR apparently tried to overcharge the taxpayers $108 million for importing fuel into Iraq. KBR asked the Pentagon to redact the report before publicizing it--and the Pentagon did. See the redacted report (to see what was redacted, click on the blackened text).
It's not just Halliburton. In January 2007, for example, Robert Stein -- the Comptroller and Funding Officer of Iraq's Coalition Provisional Authority (CPA) -- earned a 9-year prison sentence after accepting bribes from a contractor in exchange for rigging contract bids. Stein had been convicted of credit-card fraud in the 1990s, leading onlookers to wonder why the U.S. government hired Stein to handle Iraq-rebuilding funds. In February 2007, five other defendants were indicted on related charges, three of them former U.S. military officers.
It's not just contractors that need monitoring. In October 2006, a DoD employee was indicted after allegedly accepting bribes from an Iraqi contractor then getting that contractor three Army contracts.
Contractor Fraud: Old Hat
Contractor fraud is an old issue, which is why Congress passed the False Claims Act (FCA) in 1863. The FCA allows people to sue (on the government's behalf) contractors that defrauded the government. Under Qui Tam provisions, the person bringing suit gets a cut of the money the government recovers from the suit.
In the 1990s, Clinton's Justice Department started cracking down on contractor fraud. Between shoddy work and over-charging, defense contractors have seen their share of DoJ contractor-fraud lawsuits. Here are a few of many, many examples:
In 2006, General Electric (and 2 subcontractors) paid $11.5 million to settle a government suit alleging that GE had sold defective blades for the engines of U.S. military planes and helicopters.
In 2003, Northrop Grumman settled for $80 million government fraud suits alleging the following: 1) that a Northrop subsidiary had overcharged the government for research and design work, and 2) that Northrop knowingly sold the Navy unmanned aerial vehicles that had defective parts.
In 2000, Boeing settled a fraud suit for $54 million after allegedly putting defective gears in Chinook helicopters sold to the Army. One Chinook crashed during a 1988 mission in Honduras, killing five service men. Another crashed in Saudi Arabia during Operation Dessert Shield, injuring 2 people. In 2000, the Chinook fleet was partially grounded.
In 1998, the DoJ sued Hunt Building Corp. for $45 million after Hunt allegedly built uninhabitable housing at a South Dakota Air Force base. According to Texans for Public Justice, Hunt settled the case for $8.8 million.
In 1997, the Pratt & Whitney Group settled a government suit for $14.8 million after allegedly conspiring to funnel $10 million in U.S. military aid into an Israeli Air Force officer's personal slush fund.
Why the Privatization Frenzy?
The White House, through its Office of Management and Budget Circular A-76, has a policy of favoring privatization. Circular A-76 came out under President Reagan in 1983 and has been amended several times.
Supporters of massive privatization say that private companies are, by nature, more efficient than government agencies. That blanket generalization is questionable, given what we've learned about corporate norms since Enron fell -- and given the costly prevalence of contractor waste and fraud.
Privatization can save money in cases where the government's need is short term, but it seems unlikely that privatizing long-term services would be cheaper than paying government employees because contractors seek profits, which add to the government's costs. The debate will likely continue.
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