Watchdog group calls for better oversight of contractors

The government awarded billions of dollars in fiscal 1999 to contractors who have broken the law or engaged in unethical conduct, according to a new report by a government watchdog group.

Since 1990, the government's 43 biggest contractors, including General Electric and Lockheed Martin, have paid about $3.4 billion in fines, restitution and settlements for breaking the law or engaging in unethical conduct, according to a report from the Project on Government Oversight (POGO), a nonprofit group based in Washington. Those government contractors won $185 billion in federal contracts in fiscal 1999, the latest date for which data was available.

The misconduct reviewed in POGO's report includes administrative, civil and criminal violations.

"The hard work of our nation's law enforcement officials is undermined by billions of dollars in federal contracts flowing to companies who repeatedly break the law and raid the U.S. Treasury," said Seth Morris, a research assistant at POGO and one of the project's investigators.

The government can suspend or debar contractors for misconduct and mismanagement.

Suspension is temporary, while debarment is for "a reasonable period," according to the Federal Acquisition Regulation (FAR). Contractors can be suspended for up to 18 months or until the end of litigation, while a debarment usually does not exceed three years. Contractors can be debarred for activities such as fraud, embezzlement and forgery.

Some violations committed by contractors are more egregious than others, according to Steven Schooner, a law professor at The George Washington University and a former associate administrator of the Office of Federal Procurement Policy.

"It's hard to call some of this stuff crime, but they are breaking the law," Schooner said, citing contractors' violations of environmental regulations and problems with the IRS. "At the end of the day, really all the large companies pay fines for all kinds of things, and bigger firms are more likely to settle issues than fight them in court."

Schooner said the government does not have the resources to fight most big contractors in court, and are reluctant to suspend or debar them for violations. "There are no incentives for individual agencies to debar or suspend contractors because it will be a big fight," he said. "The larger the firm, the bigger the lawsuit."

Agencies are also dependent on the services that big firms offer, Schooner said. "For example, there are two contractors [General Dynamics and Northrop Grumman Newport News] who make nuclear submarines," he said. "Hypothetically speaking, if one of them runs afoul of an agency, is the Navy going to debar the contractor in question?"

In addition, "agency heads don't want to feel like the cops for everybody else's regulatory issues," Schooner said. "They are trying to serve the public."

If an agency suspends or debars a contractor from future government contracts, the action also affects the contractor's potential business with all other agencies, under an executive order signed by President George H. W. Bush in 1989. When a contractor is suspended or debarred, they are automatically placed on the General Service Administration's list of groups barred from doing future business with the government. Government contracting officials must consult the list before awarding contracts.

Of the 43 contractors cited in the report, only General Electric was suspended from doing future business with the government. The suspension, which came after the company's aircraft division plead guilty to diverting millions of dollars from a government program to finance the sale of F-16 engines to Israel, lasted five days.

Schooner said GSA's decision in March to temporarily suspend Enron and Arthur Andersen from doing future business with the government was posturing on the part of the Bush administration. "Enron and Arthur Andersen are big companies, but they are not big players in government contracting and are not unique to government," he said. The Office of Management and Budget directed GSA to suspend Enron from receiving government contracts for one year, while Andersen's suspension lasts for the duration of its criminal indictment.

POGO recommended that GSA include contractors' past suspensions or debarments on its list, and called on the government to create a database of information on fines or settlements that contractors have paid.

GSA said that the purpose of the FAR is not to punish contractors for past transgressions, but to protect the government's interests. "The purpose of the suspension/debarment action under the FAR is to ensure that only responsible contractors do business with the government," a statement from the agency said. "Once the suspension/debarment period is over, the contractor is presumed responsible."

Schooner said most settlements are contingent on the parties entering into confidentiality agreements. "If POGO attempts to mandate that all settlements get reported, there won't be too many settlements, and the government doesn't have enough resources to win in court."

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