Is Contracting All Bad? Posted by Michael Cohen

Thomas Frank had a piece last week in the Wall Street Journal about the supposed evils of government contracting that somehow in my gorging on turkey and other Thanksgiving delights I missed at the time. But it really deserves to be highlighted:

Some federal contracting, surely, is unobjectionable stuff. But over the past few years it has become almost impossible to open a newspaper and not read of some well-connected and obscenely compensated contractor foisting a colossal botch on the taxpayer. Contractors bungling the occupation of Iraq; contractors spinning the revolving door at the Department of Homeland Security; contractors reveling publicly in their good fortune after Hurricane Katrina.

First of all it's simply incorrect to argue that contractors bungled the occupation of Iraq. That actually would be the United States government. Indeed, for all the anecdotal examples of malfeasance there are many more examples of government contracting being "unobjectionable" and not wasteful.

Don't believe me: check out what the CBO has to say on this subject:

The costs of a private security contract are comparable with those of a U.S. military unit performing similar functions. During peacetime, however, the private security contract would not have to be renewed, whereas the military unit would remain in the force structure.

What this suggests is that the costs for using PSCs is, over the long-term, a cost savings for U.S. taxpayers because of the lack of legacy costs. But what's really objectionable, is that the person for failure in Iraq is placed on contractors and not where it really belongs - on the policymakers who sent them there in the first place.   

To make matters worse, Frank also argues that private companies who work with the government should turn over all pertinent financial information:

Government by contractor also makes government less accountable to the public. Recall, for example, the insolent response of Erik Prince, CEO of Blackwater, when asked about his company's profits during his celebrated 2007 encounter with the House Oversight Committee: "We're a private company," quoth he, "and there's a key word there -- private."

So you and I don't get to know. We don't get to know about Blackwater's profits, we don't get to know about the effects all this has had on the traditional federal workforce, and we don't really get to know about what goes on elsewhere in the vast private industries to which we have entrusted the people's business.

What possible relevance is there between Blackwater's profits and its effects on the traditional workforce? The pertinent information here is not how much money BW makes, but whether they are fulfilling the requirements of their contracts with the US government. Moreover, does Mr. Frank think that every government contractor -- including the legions of NGOs and non-profits that take government funds -- should turn their books over to the federal government for review?

Now I am not a contractor booster, as I recently wrote a report that called on the US government to transition away from the use of private security contractors; but it's crucial that we consider the use of contractors in a fact-based manner and not rely on anecdotal examples of supposed contractor excess.

Over the past eight years, the Bush Administration and Congress has done a terrible job managing contractors; they haven't supported the contractor work force, they haven't valued or emphasized the importance of contractor oversight, they've ignored and weakened accountability measures and they've used contractors without any sort of overall plan for how they can fulfill US government responsibilities and missions.

But for the most part contractors are not really to blame for these problems - indeed many of the same contractors blamed for their supposed failures in Iraq were praised for their success in the Balkans.

The key here is not to demonize contractors and contracting in general. The key is figuring out how to work with more effectively and how to ensure better oversight of their activities. Articles like this one that rely more on anecdotes rather than facts are not helping things. 

Comments

[Frank Naif]

Frank's assertion that contractors messed up Iraq is wrong. But contracting as a mainstay of the strategy in Iraq is most certainly a significant part of the problem with Iraq policy. Which gets us to the bigger, long term strategic question: Is the government is correct or prudent to rely so heavily on contractors?

Under existing rules, practices. traditions, expectations, etc., the worst tendencies of government bureaucracy tend to come forward in the day-to-day conduct of outsourced government operations. Specifically, that rule that says something to the effect of "a task passed on is a task accomplished" means in reality that contractors often take the rap for the government's slipshod practices (like lackadaisical nuts-and-bolts contract management) and ill-conceived policies (like relying on contractors for front-line combatant and intelligence tasks).

However, Frank is on to something when asserts that contractors deserve more scrutiny at all levels, including peering into contractor finances. The idea that Blackwater, for example, is some kind of highly competitive enterprise that lives by its capitalist wits on a free and open playing field is absurd. Blackwater's principal, if not only, clients are US and foreign government entities who are using public funds to buy Blackwater's services. The vast majority of Blackwater personnel, including CEO Erik Prince, obtained their unique expertise and training via US taxpayer-funded military training. Additionally, US Federal and local governments are the only customers who can legally buy Blackwater's services, or approve the sale of Blackwater services to foreign governments.

Economists who study third-world economies call publicly funded and subsidized enterprises whose main customers are the public sector--the government--parastatal organizations. If global peace broke out, most Federal contractors simply would not be competitive in an open marketplace--what would Blackwater do? Open karate studios?

As long as Blackwater, SAIC, Northrop Grumman, and all the other contractors have business models built on public largesse, they deserve the same scrutiny as any other public sector entity. And they deserve even more scrutiny if they are at the tip of the spear.

[c.l. ball]

The pertinent information here is not how much money BW makes, but whether they are fulfilling the requirements of their contracts with the US government.

Pertinent? Yes. But not known. BW's contract terms are classified, as are most military and national security contracts. Others that are not classified are considered for "official use only" and not provided to the public on request (unless an official and, in some cases, expensive, FOIA request is made). Some are still kept confidential on the grounds that "proprietary" information is in the contracts. Proprietary has included things like prices for goods and services and even what goods are being provided. For example, when NSN's chair, Rand Beers, was deposed as part of a lawsuit over herbicide spraying in Colombia during the Clinton admin., he was barred by DynCorp and DOJ counsels from identifying the herbicidal agent the contractor used due to the proprietary rules of the contract.

Do we need to see BW's books or NGOs and non-profits? No. Do we need to see the details of their contracts and prices they are charging the USG? Yes. And we don't get that in most cases.

And the CBO study shows the costs being roughly equal because they include the Army cost of maintaining 2 times the deployed force at home. In fact, it is only keeping 1.2 times that force at home now. At the 1.2 ratio, the military could increase its personnel compensation by 20% and still save money, based on the CBO figures. More is available here.

[Michael Cohen]

Frank, 100% agree that contractors need more scrutiny - but it needs to be scrutiny based on facts and not anecdotes. That's my main critique of Frank's piece and, to be honest, much of the reporting on contractor-related issues.