House to Consider New Rules for No-Bid Contracts
Wednesday, March 14, 2007
The House is scheduled to take up legislation this week aimed at putting new curbs on no-bid contracts and cost overruns, the first of several congressional initiatives seeking to place new limits on government contractors.
The legislation sponsored by Rep. Henry A. Waxman (D-Calif.) would limit no-bid contracts issued in times of emergency to one year. It would require government agencies to report to Congress within 14 days to explain why a competition wasn't held for any sole-source contracts. The measure would also order any cost overrun of $10 million or more to be reported to Congress, and it encourages agencies to use fixed-price contracts in which companies are paid a set amount for their work, instead of other contract structures that allow companies to pass on rising costs.
"This is an important first step towards fixing the broken government contracting system. By limiting the use of non-competitive contracts, increasing transparency . . . we can begin to restore accountability and integrity to federal contracting," said Waxman, chairman of the House Committee on Oversight and Government Reform.
Waxman's legislation follows controversies stemming from the award of no-bid deals in the wake of the Iraq war and Hurricane Katrina, and reports of sizeable cost overruns in some of the Pentagon's largest weapons programs. After nearly a decade in which the focus has been making contracting with the government easier, Congress and regulators are pursuing ways to tighten the reins, industry observers say.
Federal regulators, for example, are also proposing changes to acquisition rules that would require companies with deals worth more than $5 million to have a written code of conduct and a compliance plan that includes employee ethics training. Ken Krieg, the Pentagon's acquisition chief, is to discuss changes to the Defense Department's acquisition program today.
"Between the recent spate of reform legislation and this type of regulatory provision, it's a sign of the times of the enforcement environment that we're working in now," said David Nadler, an attorney for government contractors with the Dickstein Shapiro law firm. "The message out there is: 'Contractors beware.' "
Among other congressional proposals is one from Rep. Jan Schakowsky (D-Ill.) to require the Pentagon and other government agencies to provide Congress with copies of contracts worth more than $5 million for work in Iraq and Afghanistan and to report on disciplinary actions against contractors. Democratic Sens. Byron L. Dorgan (N.D.) and Patrick J. Leahy (Vt.) have targeted war profiteering in other legislation.
The bills have been protested by industry officials, who contend there is already enough regulation. They say Congress is reacting to isolated reports of contracting fraud and cost overruns, not a breakdown in the system.
"There was a lot of thinking and discussion and education to get to the system that we've got. It's not perfect, but it's pretty good, and if we're going to make changes to it we ought to be very careful," said Robert T. Marlow, a vice president with the Aerospace Industries Association, a large industry lobbying group. Before making changes, Congress should "make sure we end up with a better system and not a worse one," he said.
For example, industry analysts ask, how much profit would constitute war profiteering? Under Dorgan and Leahy's bills, war profiteers would be subject to up to 20 years in prison and fines of up to $1 billion. But "if you read the definition of what is defined as an excessive profits, it is absurdly vague," said Terry Albertson, a defense industry attorney.
War profiteering includes fraudulent schemes and material overcharges with the intent to excessively profit from war, said Barry Piatt, a spokesman for Dorgan. "There is no bright-line test for 'excessive profit,' but there is an 'intent' requirement, so the evidentiary bar would be rather high -- you'd need to have evidence of a scheme to rip off the government," he said.
Sen. Susan Collins (R-Maine) has introduced legislation similar to Waxman's that also would require a study of the government's increasing use of contractors to manage large programs, known as lead systems integrators. The Coast Guard's use of such a management structure for its massive modernization program, known as Deepwater, has been criticized by government auditors who concluded that the agency turned over too much power to the contractors, Lockheed Martin and Northrop Grumman.
Collins cited troubles in other programs, as well.
"Whether the problem is purchases of unusable trailers for hurricane victims, shoddy construction of schools and clinics in Iraq, or abuse of purchase cards by government employees, we must do a better job of protecting taxpayer dollars and delivering better acquisition outcomes," Collins said.