A Nov. 28 Business article about challenges facing government contractors incorrectly said that Lockheed Martin Corp. recently began giving presentations on the state of the defense industry. The company started doing so in June.
Contractors Face More Scrutiny, Pinched Purses
Tuesday, November 28, 2006
After riding high for five years, government contractors are bracing themselves for increased oversight, tighter budgets and stepped-up regulations as Democrats take over on Capitol Hill and vow to keep a closer eye on how companies spend taxpayer dollars.
Every company that does business with the government could feel the impact, but contractors that benefited most from work in Iraq and Afghanistan, from homeland security initiatives or from Hurricane Katrina are especially likely to be under the microscope. Big-ticket weapons programs are also expected to garner special attention, and it may become more difficult to get a no-bid contract, according to industry observers.
"The pendulum has clearly swung back in a hard way," said David Nadler, an attorney for government contractors with the Dickstein Shapiro law firm. "Everything contractors do is going to be subject to scrutiny. They need to understand that they're in a different environment."
Most incoming chairs of congressional committees have not said specifically which contracting areas they intend to scrutinize. But the Government Accountability Office, Congress's investigative arm, gave Hill leaders some ideas earlier this month.
In a 44-page look at areas in need of oversight, GAO investigators focused substantial attention on contractors. The government spent $388 billion on contracts last year, the GAO said, and much of that money is exposed to "potential waste and misuse" because of the way the government buys goods and services.
Meanwhile, congressional workers are getting ready. In September, the Project on Government Oversight, a watchdog group, began holding seminars for Hill workers of both parties on how to conduct investigations, including sessions on the anatomy of a government contract and skits in which oversight hearings were acted out. About 150 people have attended the sessions, said Jennifer Gore, the group's spokeswoman.
"Younger staff members were not quite sure what Congress's role is," she said. "We knew they needed to get a review on what congressional power really is, how it works, and why it's so important."
Richard Moorhouse, a contracting attorney with Greenberg Traurig, said he is advising clients with high-visibility contracts to be ready to testify on Capitol Hill at a moment's notice.
"They should be preparing themselves," Moorhouse said.
Increased oversight is not the only potential change. Analysts say spending priorities are likely to shift, especially at the Pentagon, where growth has already begun to slow.
During the past few years, the defense industry has been shielded from significant cuts by supplemental spending bills Congress passed to pay for the wars in Iraq and Afghanistan. But now, some of the military's largest weapons programs may be in danger of being scaled back.
"In general, Democrats prefer people to weapons in their military outlays," said Loren Thompson, a defense industry consultant and chief operating officer of the Lexington Institute, an Arlington think tank. "What that means is that when they are going to buy weapons, they think first of the Army. Those are the soldiers, those are the war fighters."