Congress Considers High Cost of Private Contractors

by D. Cupples & Damozel  |  A recent House-Senate conference report expresses, in part, concern over the cost of hiring private contractors for national intelligence services.  The report states that government employees cost, on average, $126,500 a year -- while contractors' employees cost about $250,000.

Translation: we taxpayers pay almost twice as much for private contractors as we would pay government employees to perform the same services. Unfortunately, it's not just intelligence contractors.  Examples are below.

In June, the Washington Post reported that homeland-security contractor Booz Allen charged us taxpayers $42 - $383 per hour for employees: the equivalent of $84,000 -  $766,000 per year.  President Bush's salary is only $400,000.  A December Washington Post article explains:

"After the attacks of Sept. 11, 2001, the growth in the number of contractors was justified because the government needed to rapidly increase its intelligence functions. Now the conferees believe the time has come for McConnell's office to determine "the appropriate balance of contractors and permanent employees."

Perhaps we did have an emergency need for contractors after 9/11 -- and they set their prices the way roofers did after Hurricane Andrew hit Florida.  Six years have passed since our need for rapid increases in intelligence services.

Another example is Blackwater, whose CEO told congressmen that about 10% of its $1 billion in federal contracts was profit. (See hearing video.)  That's $100 million we taxpayers transferred to Blackwater.

Blackwater paid its security guards about $600 a day and billed the government $1,200 in some cases. Even if the State Dept. directly hired those same security guards for $600 a day, the taxpayers' costs would drop. 

In 2000, Blackwater had less than $1 million in contracts.  Now, it has about $1 billion in contracts, and about  90% of its business came from us taxpayers. (See hearing video)  Thus, tax dollars paid for Blackwater's amazing growth, including inventory (e.g., helicopters, weapons, etc) and possibly mark-ups. Even worse, we taxpayers paid for Blackwater guards' military or law enforcement training before Blackwater hired them.

Adding waste, fraud and abuse to the mix makes it evident that we taxpayers are needlessly spending major money.

Health Care Contractors

The Department of Justice (DoJ) said that health care contractors paid the "lion's share" of fraud-suit settlements from 2000-2003: including hospitals, insurance companies, drug companies, and labs. Below are just a few examples:

In 2006, Tenet Healthcare (hospital chain) settled DoJ suits for $900 million after allegedly falsely billing Medicare and other programs. The alleged conduct included: "upcoding" patient diagnoses (billing for more expensive treatment than was done or called for) and illegal kickbacks to doctors.

In 2003, Abbott Laboratories settled DoJ suits for $382 million after getting snared in an undercover investigation. Apparently, a division of Abbot offered kickbacks to federal agents to buy the company’s products, then “advised them how to fraudulently bill the government for those items.”

In 2002, PacifiCare Health Systems agreed to pay $87 million to settle allegations that it (and predecessor companies) had inflated insurance claims while contracted to provide employee benefits under the Federal Health Benefits Program.

In 2003, AstraZeneca settled DoJ suits for $280 million after, among other things, allegedly conspiring with healthcare providers to charge federal insurance programs for free samples of a cancer drug.

Retail pharmacies Wal-Mart (2004) Rite Aid (2004), Eckerd (2002), and Walgreen (1999) settled separate DoJ suits for a combined $23.4 million after allegedly charging federal healthcare programs full price for partially filled prescriptions. Medicare, Medicaid and TRICARE (military health) were affected.

Defense Contractors

We've all heard of Halliburton/KBR, which reportedly overcharged us taxpayers $108 million for importing fuel into Iraq. (Pentagon report)  It goes beyond Iraq-war contractors, though.  For example:

In 2003, Northrop Grumman settled for $80 million fraud suits alleging: 1) that a Northrop subsidiary overcharged the government for research and design work, and 2) that Northrop knowingly sold the Navy unmanned vehicles with defective parts.

In 2000, Boeing settled a fraud suit for $54 million after allegedly putting defective gears in Army helicopters.  One chopper crashed during a 1988 mission in Honduras, killing five service men. Another crashed in Saudi Arabia during Operation Dessert Shield.

In 1998, the DoJ sued Hunt Building Corp. for $45 million after Hunt allegedly built uninhabitable housing at a South Dakota Air Force base. Hunt reportedly settled the case for $8.8 million.

Every dollar spent on waste, fraud or contractor profits is one less dollar for our nation's real needs: e.g., medical care for veterans, armored vehicles for soldiers, education for children....

We taxpayers should press Congress to examine and reveal the real costs of privatized services --  and be braced for a rude, long overdue, awakening.

Update:  Democracy Arsenal (via Memeorandum) points out that the 2008 Defense Authorization Bill includes $506.9 billion for the Defense Department and nuclear weapons activities of the Energy Department, plus $189.4 billion for military operations in Iraq and Afghanistan. 

Imagine how much of that money will go to contractor profits, waste, or fraud.

Thanks to Ideal Thoughts for linking to this post.

Related BN-Politics Posts:

* Revisiting the 1980s Privatization Myths

* Justice Dept. Official Turned Blind Eye to Contractor Fraud?

* Inspector General Blocked Investigations re: Waste & Fraud?

* Time for Pentagon to Get Serious About Contractor Fraud

* Iraq War Funding: How Much Goes to the Troops?

* "Billions over Baghdad": Poor Accounting Enabled Contractor Waste & Fraud 

* Contractor UNISYS in Trouble Again

* Blackwater Took Iraqi Airplanes, CEO Misled Congress?

* DoD Rewarded Bad Contractor Performance?

* DynCorp Joins Blackwater as Probe Target

* Yet Another Contractor Bilks Taxpayers

* U.S. Embassies: Still More Examples of Problems with Contractors

* $1 Billion (More) in Military Hardware Missing in Iraq

* Insurance Companies Get Away with Overbilling Medicare 

Comments

[miriam]

Unlike government employees, contract employees, even whole contracts, can be terminated when they are no longer performing a function.

Government employees, and agencies, are forever.

[D. Cupples]

Miriam,

Not necessarily: if the government can hire whole companies on a contract basis, why can't it hire individuals under contract?

As I mentioned in the Blackwater example, the State Department could hire the same security guards for the same $600 per day but do it directly and under contracts -- instead of paying Blackwater to act as a middleman.

[David Weller]

Thanks for the alert; it's apparent the federal government has not adjusted well to contractor services management. We can thank Taxpayers for Common Sense and Citizens Against Government Waste for constant vigilance against government fraud, waste and abuse.