This article is reprinted with permission from Legal Times.
It is a fundamental principle of government contracting that the federal government will do business only with "responsible" contractors. A contracting officer must determine whether the potential contractor has a sound performance history; a satisfactory record of integrity and business ethics; and the necessary organization, experience, accounting and operational controls, and technical skills to fulfill the contract. Through enforcement of this responsibility standard, the government endeavors to serve as a good steward of the American taxpayers’ resources.
While one would not presume to reduce the government to the status of just another contractor, both contractors and taxpayers have the right to expect the government to act as a responsible partner in contracting. Such an expectation follows, at least partially, from the idea that it is (to quote Justice Hugo Black) "no less good morals and good law that the Government should turn square corners in dealing with the people than that the people should turn square corners in dealing with their government." Upon entering the commercial marketplace, it is reasonable that the government should shed much of the sovereign’s mantle and operate according to the standards applicable to those with whom it would do business.
Over the past two decades, government contracting has changed dramatically. Despite the numerous benefits that have flowed from these changes, Government Accountability Office studies, press reports, board and court decisions, and contractor anecdotes raise questions about whether or not the government has always lived up to the high standard of responsibility to which it holds its contracting partners.
The pendulum swings
Many of the government’s former contracting ways, viewed in retrospect, appear frustratingly cumbersome and ill-suited to an efficient marketplace. The response of most companies was simply to stay away. That all began to change with the Competition in Contracting Act of 1984, which established "full and open competition" as the standard, and set restrictions on noncompetitive procurement methods. Further legislation in the 1990s brought ever-increasing pressure to streamline and commercialize the procurement process, to make it friendlier to those in the commercial sector. Agencies were pushed to outsource noncore functions to the corporate world.
As a result, there has been a massive increase in new contractors and the outsourcing of significant portions of agency activities at a time when there has been a substantial decrease in contract administration and oversight personnel to guide and monitor these efforts.
There is little doubt that, like most contractors, the great majority of civil servants have continued to operate in a responsible manner. Yet scores of reports, cases, anecdotal experiences, seemingly more aggressive fraud prosecutions and suspension and debarment proceedings, and continued assertions of special treatment for government personnel in contract actions suggest something has gone awry.
Too far
The government demands that contractors possess the necessary organization, experience, accounting and operational controls, and financial resources to successfully perform a contract. But dozens of GAO reports and press reports suggest that the government fails to match contractor responsibility in a number of areas, particularly staffing and oversight.
Much attention is focused on the Defense Department. For example, the GAO reports that Defense Department contract management has been a high-risk area since 1992 because of a lack of sustained senior leadership, a capable acquisition work force, adequate pricing, appropriate contracting methods, and sufficient contract administration. This has adversely affected numerous procurements throughout the military. The GAO and the press have reported substantial cost overruns and delays in addressing Iraq reconstruction efforts. Contractors were mobilized and then compelled to sit around for months, at enormous cost. The GAO also questions numerous sole-source contracts that have had poor results and high costs.
Other reports focus upon the Homeland Security Department’s failure to manage the purchase-card system through weak controls, inadequate staffing, insufficient training, and ineffective monitoring. Similarly, Homeland Security stumbled in its emergency contracting after Hurricanes Katrina and Rita because of inadequate planning and preparation, lack of clearly defined responsibilities, and lack of oversight personnel. Cases and contractor anecdotes reveal that the Federal Protective Service has lacked funds to pay its contractors, forcing delays in compensation and, in some instances, lawsuits by contractors to recover what is unquestionably their due.
The Transportation Safety Administration is cited for poor handling of post-9/11 screener and other procurements. The Energy Department has suffered numerous delays in awarding major contracts, leading inevitably to substantial delays in commencing work and substantial cost increases.
The past decade also has seen a significant drift away from the ideals of full and open competition in the drive for greater efficiency. Much of the government’s procurement is now carried out in the virtual secrecy of task-and-delivery orders. There is little transparency into who is invited to participate, whether there is any competition, or whether the work falls within the scope of the overriding contract. With little government oversight, the system is further hamstrung by a lack of opportunity for industry policing through protests. As a result, insiders remain insiders, and new and potentially innovative entrants all too often remain shut out.
This had led to agencies’ overdependence upon their current contractors and the loss of effective contract control within agencies. Recent procurement-related scandals highlight these failings. At the extreme, the process has led to the view expressed in recent congressional testimony that certain contracts may be too important to the country to suffer a termination regardless of contractor conduct. It is unlikely that such a view would have been voiced a decade ago.
At the extremes
Even as the government is failing to meet its responsibilities as a good steward of taxpayer dollars, it is failing to consistently play fair with its contractors.
Of course, there are situations where the government must be afforded rights that are not mutual. For example, the government alone enjoys the right to assert the state-secrets privilege and to terminate a contract. But in the increasingly commercialized environment in which the government often finds itself, there is far less justification to assert special privileges.
For example, there is little reason or basis for the oft-made assertion that government officials, but not contractors, are presumed to carry out their duties in good faith, which "well nigh irrefragable proof" amounting to malice is required to overcome. (By contrast, in the commercial world, there is a mutual presumption of good faith that can be overcome by a preponderance of evidence.) Similarly, government contractors must continue performance while they resolve a dispute regardless of how burdensome that might be, even in situations that have no bearing upon the national defense or other critical areas.
Sometimes the government helps to create a problem by its lack of responsible oversight of new entrants—such that innocent errors are allowed to evolve unchecked into major issues— and then comes down hard on the offending contractor. There appears to be a trend toward increased civil and criminal prosecutions of what were once perceived as simple contract disputes, as well as increased suspension and debarment proceedings. What once might have been addressed at the contracting-officer level now becomes a company-threatening process in which the costs merely to clear one’s name are potentially ruinous.
Drifting toward the center?
Fortunately, Congress and the executive branch are starting to recognize that the system has swung too far and that it is time for the government to take some responsible steps back.
For example, the recently passed Federal Funding Accountability Transparency Act requires the Office of Management and Budget to publish online information about all federal contracts and awards of more than $25,000, and to work toward including subcontract information. As professor Christopher Yukins writes in the Sept. 20, 2006, issue of The Government Contractor, this searchable database will finally reveal who is receiving contracts, including those in the hidden world of task-and-delivery orders. Yukins suggests that the system could be improved by including even more information.
It is also encouraging that the Defense Authorization Act for Fiscal Year 2007 requires the formation of a panel on "contracting integrity." The panel will review whether the Defense Department is cleaning up its contracting vulnerability to fraud, waste, and abuse; report on any progress; and recommend needed changes in law, regulations, and policy.
The legislation also sheds light on the revolving door between the government and major contractors. Although an annual disclosure provision for major contractors was stripped from the final bill, it still directs the GAO to assess whether current legislation is sufficient to prevent former government employees from improperly influencing Defense Department programs. That report should require major contractors to reveal their revolving-door employees.
In addition, the Defense Authorization Act establishes a recruiting program for contracting personnel and a funding mechanism to train contracting staff, originally envisioned in the Services Acquisition and Reform Act of 2003.
More generally, the government has shown some willingness to at least talk about the government-only presumption of good faith in the claims dispute area. Similar dialogue might be appropriate regarding the obligation to continue performance while claims are resolved.
The task-and-delivery order process still needs greater transparency. Legislation is pending that would establish regulatory controls to ensure competition in this area and allow protests of task-and- delivery orders so that industry could help police the system.
The criminalization of contract actions and the heightened use of suspension and debarment proceedings remain a concern. Of similar concern are the anecdotal reports from contractors that they have been threatened with adverse consequences for using the bid protest and claims processes.
In the end, the government must realize that truly full and open competition, a transparent process, and even-handed contract administration are the best means—if not always the quickest or easiest—to ensure that Americans receive the best value for their tax dollars. Such an approach is also the right route for a government seeking to fulfill its role as a responsible contracting partner.
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