Spiraling Federal Contract Spending

Someone asked me how much of the US budget went to contractors.  It looks like about 1/3, it may have changed since 2012 though.

The total US Budget in 2012 was $3.54 Trillion, so
it looks like about 34% if this source is even close.

Those who advocate for reduced federal spending may be missing the notion that it would result in reduced contracting, reduced (federally funded) private sector jobs. Major employers in the US build weapon systems, fighter jets, cargo planes, warships, as well as IT and other service type companies that build government systems and provide support to government functions.

Some  miss the fact that some of the government 'failures' are also partly private industry failures.  It's government's failure not to detect and cut off the failing federally funded private industry projects, but those who clamor for running the government more like business..... they are placing too much faith and credibility in the private sector where money may trump mission.  The track record of contractors in government is littered with a sufficient history failures and fraud to suggest that contractors are no panacea in providing government services and functions any better than federal employees can, and do.

Privatizing Government Functions: Is it working?

In 1996, under the rubric of ‘reinventing government’, the Clinton-Gore Administration decided that some functions of government that were previously defined as “inherently governmental” were now appropriate to be outsourced to the private sector.  At that time The Office of Personnel Management (OPM) was responsible for conducting security clearance investigations for most Federal agencies.  This function was selected for privatizing.

According to Bloomberg.com:

….The unit, originally known as U.S. Investigations Services Inc., was privatized in 1996 as part of then-Vice President Al Gore’s effort to “reinvent” government by reducing the size of the civil service, according to a 2011 report by the Congressional Research Service.

Contracting out security reviews was designed to help save the government money and secure new work for about 700 investigators who would no longer be needed because of a declining security clearance workload due to the end of the Cold War.

USIS was given a non-competitive, three-year contract for investigative work with the government personnel office and granted free access to federal computer databases that weren’t available to other firms.

The Carlyle Group LP, a Washington-based private equity firm, and New York-based Welsh, Carson, Anderson & Stowe LP invested in USIS. They agreed in 2007 to sell USIS to Providence, Rhode Island-based Providence Equity Partners for about $1.5 billion. ¹

That was then.

Now, it appears that USIS may have been cheating on the investigations².  To meet the contract performance criteria (and to earn executive bonuses), it is alleged (by a whistleblower and the Department of Justice) that they engaged in practices that did not fully complete the work on investigations, perhaps on as many as 600,000 investigations.  They allegedly provided false information to OPM, and to the agencies that made the final decisions about granting clearances to candidates.

It appears that USIS conducted the clearance investigations for the Navy Yard shooter as well as for Snowden.  The Navy Yard murderer of 12 federal employees and contractors, had enough documented derogatory information about his military misconduct, arrests, and mental problems that should have been discovered through a THOROUGH investigation.  The same level of quality work may also have been true for Snowden.  At this point these specific allegations have not been proven, but it will be played out in court in the coming months.  However, there have been proven fraud cases involving USIS and other investigation contractors where employees filed false reports, including one that claimed to have interviewed a person who died 10 years earlier.

So, here we have ‘reinvented government’ using contractor employees and managers who earn bonuses, and investors who earn returns by ‘just’ doing the job that federal employees formerly did ‘just’ for their GS-salaries.  So, it isn’t necessarily CHEAPER. The lure of bonus money and returns on investment for this now - $1.5+ billion dollar industry doesn’t necessarily yield BETTER results either. It seems to me that the only thing that has been achieved are the political bragging rights for appearing to have “reduced the size of government”.

Before we fix or reinvent a dysfunctional thing, we should make sure we understand the root cause of the thing’s dysfunction, before we get on the Road to Abilene³.  Clinton-Gore put us on the road.  I’m not sure if you agreed to go.  I didn’t, but here I am, looking for a way to get back home from Abilene.

1 http://go.bloomberg.com/political-capital/2013-09-19/usis-navy-yard-shooters-background-check-wasnt-ours-others-silent/)

2 http://www.justice.gov/opa/pr/2013/October/13-civ-1158.html

3 http://en.wikipedia.org/wiki/Abilene_paradox

Federal Contractor Games Part 1: Can an IT contractor be the government's PARTNER ?

There is a school of thought that supports the notion that close “partnering” relationships between Federal IT shops and large experienced IT integrators would yield better, cheaper IT systems quicker.  The proponents point to any number of Federal IT failures and the image and reputations of IT integration companies in support of these notions.  These notions took hold during Clinton-Gore "reinventing government" initiatives.  The idea was to 'downsize' the bureaucracy (smaller government), lessen procurement and contracting 'barriers', and encourage and leverage relationships with the presumably more efficient and effective private sector "big boys' of systems building.

For Federal IT shops and CIOs, it was and is an alluring prospect.  Get these high flying top-tier systems development titans imbedded in the government’s IT shops so that they can ply their corporate resources, management experience, methodologies and current skill base to modernize the agencies’ lagging IT systems. Sounds great huh?

A few years ago, my team and I assisted a Federal organization in evaluating proposals from a group of well recognized, top flight systems engineering-integrator partners who were given access to the executives, managers strategic plans and other internal information.  The idea was to create an open relationship among executives and managers in exchange for decreased contracting burden, fair pricing, expert management, top-of-the-line tools, and expert, experienced IT strategists, engineers, and developers. 

Our job was to evaluate each task proposal for technical, business and cost realism.  In the next few posts, I will report on my observations after evaluating and reporting on almost 300 task proposals over a 2 year period.  Of course there were tasks that were ‘clean’ and carried out successfully, although their costs or schedules often exceeded those proposed, and the functions envisioned not always delivered in full.

There were a half dozen or so categories of partner’s practices that worked against the agency and for the partner.  The one covered in this post is:

Using procedural and administrative steps to confound managers

Procedural and administrative tactics that the partner used included tactics such as omitting required proposal information (e.g staffing plans including qualifications, cost detail breakdown, schedules with dates, or other administrative or contractual components).  This tactic put the burden on the agency to detect the missing components, and to spend the time and effort getting the partner to correct the deficiencies.  This stalling tactic bought the partner both more time to respond to schedules, and caused the agency much more effort to discover and launch correction procedure cycles into effect.  This in turn triggered an all-new submission-examine-accept/reject cycle. This often created schedule problems for the government’s technical and program managers as well as budget-spending problems due to fiscal year spending boundaries and limitations.

This happened too often to be error. After much to-and-fro with the partner, contracts shop, legal team, program managers and the partner, I concluded that it was part of the partner's strategy.

One must not forget that profit-seeking contractors are in the business of making profit.  Secondarily they’re in the business of solving the agency’s problem…. No matter what creative names executives and politicians want to call them. For me, there is no partnership where one party always pays and the other party always gets paid.  The contractor is rarely at risk for anything other than not getting paid as much as the contract's maximums; and the government is always at risk of not getting the things for which it paid. The general public (and politicians) seem to believe that a contractor doesn't get paid until the product is delivered.  That is rarely… if ever… how IT is paid for.

In the next few posts, I’ll expand on these other practices:

Obfuscating rather than clarifying task substance and schedule

Staffing and rate anomalies

Inflating effort for tasks

Transferring and avoiding risk

Manipulating travel and expenses

Overwhelming the government legal and contracting staff

Violating ‘best customer’ pricing guarantees and requirements

Leave your email above as a follower to be notified when new postings are published