THE BLOG

CWC Says Put Your Oversight Where Your Contractors Are

03/01/2011 06:32 pm ET | Updated May 25, 2011

On Feb. 24 the Commission on Wartime Contracting released an interim report. The Commission does not issue reports lightly; this is only its second interim report issued since it was formed. So when it does we should listen.

Before I start quoting from the report it will be helpful to keep in mind one of the talking points that private contractor advocates always assert; namely, that they are more cost effective that the public sector. The truth is that even today nobody can be certain as no empirically rigorous, methodologically sound, studies have been undertaken that would compare apples to apples. But considering some of the problems the Commission details contractors will have to be marvels of productivity to compensate for other problems. The Commission states it plainly in its executive summary:

Federal reliance on contractors to support defense, diplomatic, and development missions during contingency operations stands at unprecedented levels. Over the course of the past nine years, contractors have at times exceeded the number of military personnel in Iraq and Afghanistan.

Total spending through contracts is correspondingly large. While there is no central federal source for definitive data on contracts and grants regarding contingency operations, the Commission's conservative estimate is that since October 2001, at least $177 billion has been obligated on contracts and grants to support U.S. operations in Iraq and Afghanistan.

Given the magnitude of mission and money at risk, losses from waste, fraud, and abuse represent a significant cost. While the impact on mission cannot be readily quantified, misspent dollars run into the tens of billions.

▪ The Special Inspector General for Afghanistan Reconstruction (SIGAR) warned at the Commission's January 2011 hearing that the entire $11.4 billion for contracts to build nearly 900 facilities for the Afghan National Security Forces is at risk due to inadequate planning. This estimate does not include the waste that has resulted from the host country's inability to sustain projects.

▪ The Association of Certified Fraud Examiners has reported a survey-based estimate that 7 percent of revenue is lost to fraud. Applying this metric to the $177 billion in contingency contracts and grants suggests the cost of federal failure to control the acquisition process could be as high as $12 billion for fraud, not including contract waste.

That $177 billion breaks down to $154 billion for the Department of Defense, $11 billion for the Department of State, and $7 billion for the U.S. Agency for International Development. The CWC notes that works out to 407 million per congressional district or $1505 per household

With that kind of money available for the taking, if Willie Sutton could be reincarnated he would undoubtedly be a contractor, not a bank robber.

How have contractors become the go to guys and gals of U.S. contingency operations?

The Commission found that as a result of workforce reductions, assignment of new missions, and time-critical decision making, the use of contractors has become the "default option." Individual decisions to contract out what were once core agency functions have been made without due consideration of the overall impact on an agency, its mission, or national strategy. Over time, the immediate need that is met by contracting becomes policy. And the use of contractors for a mission-essential need becomes a permanent rather than a temporary solution.

Another point to consider is that over the past couple of decades the debate over what functions of the government was appropriate to privatize and outsource has been fierce and contentious but never completely settled. If the trend has been noticeably in favor of contractors since the Clinton era the pendulum may start swinging the other way. The Obama administration came into office saying that it would review whether to in-source some functions back to government. Up to now that has been more talk than action but the Commission's recommendation on this point may well be a tipping point.

In the current setting of heavy reliance on contractors and clear weaknesses in federal planning and management, the Commission believes the United States has come to over-rely on contractors. This conclusion holds whether judged from the standpoint of preserving the government's core capabilities and institutional knowledge, protecting mission-critical functions, or balancing mission requirements against the ability to manage and oversee contracts. And the conclusion holds more strongly when all three factors are weighed together.
Reducing this over-reliance will take serious resolve, zealous attention, resource investments, and time.

► We recommend Congress direct relevant departments and agencies to:
1. Grow agencies' organic capacity
2. Develop a deployable contingency-acquisition cadre
3. Restrict reliance on contractors for security

By the way, that retching sound you hear in the background is the nausea on the part of firms like Xe Services, Blackwater, ArmorGroup, DynCorp International, Aegis Defence et cetera adjusting their future profit projections downward.

In all fairness, the Commission makes a sensible and obvious point, which is that not all the problems in the current situation are the fault of contractors. The primary client, the U.S. government, is a coequal partner in crime.

Contracting professionals do not bear the sole responsibility for contingency contracting. Responsibility for managing, overseeing, and evaluating contractors falls not only to contract specialists, but also to those who define mission requirements, allocate resources, plan tasks and operations, promulgate policies and programs, and use the contractors' services. For many senior officials, contractors appear to be a "free" source of labor with no direct impact on their resource budgets. Contractors are so integral to operational success that failing to plan for, manage, and evaluate them is simply irresponsible.

► We recommend Congress direct relevant departments and agencies to:
4. Designate officials with responsibility for cost consciousness
5. Measure senior military and civilian officials' efforts to manage contractors and control costs
6. Integrate operational contract support into plans, education, and exercises
7. Include operational contract support in readiness and performance
reporting
8. Establish a contingency-contracting directorate in the Office of the Joint
Chiefs of Staff
9. Establish Offices of Contingency Contracting at Defense, State, and U.S.
Agency for International Development
10. Direct the Army's Installation Management Command to manage bases
and base-support contractors in contingencies

Another point which throws a wrench into the conventional orthodoxy has to do with competition. Contractor advocates assert that when a company wins a contract, whether on the basis of having the lowest financial bottom line or offering the best value, reflect marketplace gospel, i.e., that it is the result of good of old fashioned free market competition. Ignore for the moment that in the military-industrial-congressional sector it is frequently easier to find a dodo bird than actual competition. After all, just how many companies can carry out the LOGCAP contract on their own? Instead let's just focus on what the CWC says:

Without effective competition and accurate assessment of contractor performance during contingency operations, money is wasted, and the likelihood of fraud and abuse increases.
Lack of proper evaluation of contingency contractors' performance and insufficient competition have contributed to an environment where the government often does not obtain acceptable contract performance.

► We recommend Congress direct relevant departments and agencies to:
15. Require competition reporting and goals for contingency contracts
16. Break out and compete major subcontract requirements from omnibus support contracts
17. Limit contingency task-order performance periods
18. Reduce one-offer competitions
19. Expand competition when only one task-order offer is received
20. Allow contractors to respond to, but not appeal, agency performance assessments
21. Align past-performance assessments with contractor proposals
22. Require agencies to certify use of the past-performance database

Point 16 above is particular worthy as that is where much of the outright fraud occurs.

It is a sad testament to the state of contracting oversight, where warnings about the deficient state of the government contracting workforce has been a staple of news reports on the subject for over a decade, that so little has changed. The CWC notes, "Agencies' failure to effectively use contract suspension and debarment tools, and the U.S. government's limited jurisdiction over criminal behavior and limited access to records, have contributed to an environment where contractors misbehave with limited accountability."

One does not have to be a PMC trade group to recognize that the use of private military and security contractors is not going away. Yet inexplicably the federal government which, ironically, is the largest user of their services has yet to get the message. The CWC finds that

An organization's culture embodies the tacit rules, values, expectations, and behaviors that shape how things are actually done. By this standard, the federal government's culture has not adequately valued or promoted contracting as a core function. Agencies' cultures have not yet recognized that success in contingency missions depends in large part on their decisions to use contractors at the right time, in the right place, in the right numbers, and for the right purposes. Nor have agencies made sufficient investments to ensure effective contract-cost management and performance outcomes.

As politicians like to say this is unacceptable.

The sheer magnitude of contractors' involvement demands adequate planning. ...Defense policy for more than two decades has recognized that contractors--along with military reservists, federal civilians, and host-nation support personnel--are part of the "total force" for contingency operations. But the declared total-force policy that includes contractors is at odds with agencies' failure to plan for their reliance on contractors.

Government personnel policies contribute to the problem.

The Commission is concerned that as the result of short-term rotations of government personnel in Iraq and Afghanistan, familiarity with local practice and institutional memory lies primarily with contractors. When federal personnel rotate in and out of theater too quickly, and when long-serving contractors become the local resident experts, reliance on contractor support becomes a detriment to effective government management and oversight of contractors.

None of the above should be taken as a blanket condemnation of contractors per se. Most contractors on the ground are decent men and women trying to do demanding jobs in challenging and frequently hazardous circumstances. Their sacrifices are usually unnoted, which the CWC thinks is something that should change.

While doing their jobs, contractors risk being killed, wounded, or captured. Between September 2001 and December 2010, over 2,200 contractor employees of all nationalities have died and over 49,800 were injured in Iraq and Afghanistan. These contractors' deaths and injuries should not be ignored, but should be a part of the public debate on the cost of war.

There is a lot more to the report, which I heartily recommend as required reading for anyone with even a passing interest in the subject. But for the CWC the choice is starkly simple as it lays out in its conclusion

Although U.S. reliance on contractors came about through default, contractors have become, in doctrine and in practice, a necessary part of the national resources that are mobilized and deployed in contingencies. And contractors have, in general, done a good job of providing services. Nevertheless, because the scope of current reliance on contractors entails huge costs, even fractional losses to misbehavior, mismanagement, and poor performance mount up quickly.
Widespread and repeated instances of waste, fraud, and abuse suggest that tens of billions of taxpayers' dollars have failed to reach their intended use in Iraq and Afghanistan.
Better planning for using contractors, more precise definition of requirements and statements of work, more concern for increased competition among contractors, tighter interagency coordination, improved government management and oversight, and stricter accountability for poor performance or misconduct--all these will help save money and promote better support for U.S. missions.
We recognize and support agency initiatives to address a number of topics that we raise in this report. Some are in policy. Some are in planning. But few are in practice. And time is of the essence.
If, on the other hand, the federal government cannot muster the resources and the will to strategically employ, manage, and oversee mission-critical contractors effectively, then it should reconsider using contractors, or reconsider the scope of its missions with a view to trimming them.