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If Spending Is Swift, Oversight May Suffer
Plan's Pace Could Leave Billions Wasted

By Robert O'Harrow Jr.
Washington Post Staff Writer
Monday, February 9, 2009

The Obama administration's economic stimulus plan could end up wasting billions of dollars by attempting to spend money faster than an overburdened government acquisition system can manage and oversee it, according to documents and interviews with contracting specialists.

The $827 billion stimulus legislation under debate in Congress includes provisions aimed at ensuring oversight of the massive infusion of contracts, state grants and other measures. At the urging of the administration, those provisions call for transparency, bid competition, and new auditing resources and oversight boards.

But under the terms of the stimulus proposals, a depleted contracting workforce would be asked to spend more money more rapidly than ever before, while also improving competition and oversight. Auditors would be asked to track surges in spending on projects ranging from bridge construction and schools to research of "green" energy and the development of electronic health records -- a challenge made more difficult because many contracts would be awarded by state agencies.

The stimulus plan presents a stark choice: The government can spend unprecedented amounts of money quickly in an effort to jump-start the economy or it can move more deliberately to thwart the cost overruns common to federal contracts in recent years.

"You can't have both," said Eileen Norcross, a senior research fellow at George Mason University's Mercatus Center who studied crisis spending in the aftermath of Hurricane Katrina. "There is no way to get around having to make a choice."

The government's mounting procurement problems can be traced to the Clinton and Bush administrations. Both decided to rely far more on the private sector for technology, personnel and other services, greatly increasing the value and complexity of the contracts. At the same time, the personnel that awarded and oversaw that work was reduced in the 1990s in efforts to downsize the government.

Since 2000, procurement spending has soared about 155 percent to almost $532 billion while the growth in the acquisition workforce has fallen far short, rising about 10 percent.

Specialists say the raw numbers understate the challenges facing the 29,000 federal contracting personnel in civilian agencies across the government who will be asked to shoulder the burden of stimulus-related contracts. That's because much of the work they do now involves contracts for services, which are harder to issue and monitor than simply buying pencils and chairs.

The government's watchdog infrastructure, including inspectors general, also will face new challenges. The House and Senate bills each include about $200 million in additional funding for inspectors general. But some observers say that may be insufficient given the demands.

Some supporters of the stimulus in Congress acknowledge the problems. Sen. Claire McCaskill (D-Mo.) said she has no doubt the Obama administration desires accountability and transparency. To achieve that, she has proposed spending more on contracting workers, investigators and auditors -- including about $60 million to hire about 600 more acquisition workers.

"We have to beef up the acquisition personnel and the resources of the inspectors general or you cannot get to accountability," she said. "This bill isn't cheap, but it will cost us far more in the long run if we don't do this right."

White House spokeswoman Jennifer Psaki declined to answer specific questions about problems with the acquisition system.

"In working with the Hill, we are trying to make sure that there is sufficient program management staff to ensure that money gets out the door quickly and wisely, and to provide sufficient oversight of funding decisions," she said.

The Bush administration was plagued by allegations of fraud and abuse in billions of dollars worth of Homeland Security and wartime contracts, some of which were awarded in violation of federal regulations or failed to deliver.

After the 2001 terrorist attacks, the government allowed a contract to hire airport screeners to grow to $741 million from $104 million, while failing to follow federal regulations designed to prevent fraud and abuse. Government contractors interviewed job applicants at five-star resorts and hotels, where auditors found they paid $1,180 for 20 gallons of Starbucks coffee, $1,540 to rent extension cords at one hotel and $5.4 million for nine months salary to the head of the event-planning firm that ran the show.

After Homeland Security officials acknowledged that they boosted the contract by $343 million without the paperwork necessary to justify the increase, they blamed the lapse on the need to move quickly.

In the rush to respond to the devastation of Hurricane Katrina, federal authorities issued more than $10 billion in contracts, only about 30 percent through full-and-open competition, studies have found. The government ended up spending $2.7 billion on mostly no-bid contracts for 145,000 trailers and mobile homes, including 8,000 that were never used and 41,000 now being sold at 40 cents on the dollar.

"Overcharging has been frequent, and billions of dollars of taxpayer money have been squandered," a congressional study of federal contracting concluded two years ago. "Multiple causes -- including poor planning, noncompetitive awards, abuse of contract flexibilities, inadequate oversight and corruption -- have all played a part."

Only part of the stimulus money would be spent through federal contracts, though it remains unclear how much. Much would be awarded as grants to states, which could then issue contracts or spend the money in other ways.

Under the bill approved by the House, about $92 billion would be spent through the end of the current fiscal year. Some $225 billion would be spent next year and $159 billion would be spent in 2011, according to a review by the nonpartisan Congressional Budget Office. Including tax cuts, the total cost of the House-approved stimulus plan would be $816 billion.

To ensure the money is properly spent, lawmakers propose that contracts should be awarded under federal acquisition regulations, stressing that "fixed-price contracts" should be used.

Such contracts can hold down costs. But in recent years, officials have increasingly turned to contracts that offer more alternatives. Contractors now receive about 45 percent of their revenue from "cost reimbursable" deals, according to a survey by Grant Thornton, a consulting firm. Such arrangements allow the government and contractors more flexibility but can lead to cost overruns without sophisticated oversight.

To increase "transparency and oversight," the bill calls on local, state and federal agencies to announce the terms of certain contracts and grants on a new Web site called Recovery.gov. Oversight efforts would be guided by an "accountability and transparency board" composed of six members appointed by Obama, along with the president's "chief performance officer."

The nominee for the performance officer post, Nancy Killefer, withdrew last week after acknowledging she did not pay taxes for household help.

A CBO analysis last month concluded that federal agencies and states "would find it difficult to properly manage and oversee a rapid expansion of existing programs."

One problem, specialists say, is that the bill contains "use it or lose it" requirements mandating spending within 120 days.

Kent Goodger, a federal contracting official for four decades who teaches procurement classes for the government, said it typically takes 180 days to award a standard firm, fixed-price contract.

Advocates of the stimulus package say that much spending would occur through contracts that have already been awarded and projects already underway, or through "shovel-ready" efforts. The advocates say many of those projects have already been through the bid and vetting processes, and many, such as those relating to highway construction, will go through long-established funding channels between the federal government and the states.

The Council of Mayors has released a document detailing hundreds of municipal and public works projects it says fit that description. They include roadway projects, roof repairs, school renovations, playground equipment, Harley Davidson motorcycles for police, doorbells for housing and, for $600 million, an African American/ethnic heritage trail in Mississippi.

Some specialists said it appears the government is poised to make the same sorts of mistakes it made after the 2001 terrorist attacks. The specialists say there is no systematic way to know how much of the contracting work has been done, even on the shovel-ready projects.

"We don't have the means to make sure we don't blow through billions of dollars and give it to the wrong people," said Keith Ashdown, chief investigator at the nonpartisan Taxpayers for Common Sense. "We're on track to lose billions, if not tens of billions, to waste, fraud and abuse."

Goodger said the federal contracting system has been extremely troubled in recent years. He emphasized the lack of trained employees to manage contracts, which he called a "human capital crisis."

Stan Soloway, president of the Professional Services Council, a group that represents government contractors, does not oppose the stimulus package. But he said the government appears to lack the planning and the "infrastructure and architecture" upfront to manage the spending.

"Without it," he said, "we're going to have a repeat of what we've seen over and over and over, from major weapons systems to Katrina and Iraq."

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