Stimulus is boon for D.C. area contractors
Federal departments are paying firms to help spend the money

By Alec MacGillis
Washington Post Staff Writer
Thursday, December 3, 2009

As struggling communities throughout the country wait for more help from the $787 billion stimulus package, one region is already basking in its largess: the government-contractor nexus that is metropolitan Washington.

Reports from stimulus recipients show that a sizable sum has gone to federal contractors in the Washington area who are helping implement the initiative -- in effect, they are being paid a hefty slice of the money to help spend the rest of it.

The contractors' work hardly differs from the basic operations of the federal departments hiring them. The Energy Department is paying Technology & Management Services, a Gaithersburg firm, $6.9 million to review applications for renewable energy loan guarantees. The Department of Homeland Security awarded Deloitte Consulting's Arlington branch $8.6 million to provide "program management and support" for the stimulus plan's $1 billion airport security initiative, and gave McKing Consulting, a Fairfax firm, a $1.5 million contract to review applications for fire department construction funding.

Held against the total stimulus package, the contracts represent a relatively small portion of spending. But they help explain why the Washington area is weathering the recession so well. And, as President Obama convenes a jobs summit Thursday to discuss lagging employment, the contracts raise questions about whether enough funding is getting to areas suffering the most.

"The way it's set up, the money's largely going to places where it's always been going," said Karl Stauber, a former undersecretary for rural development in the Agriculture Department who is now director of the Danville Regional Foundation in struggling southern Virginia. "We need to invest stimulus dollars in ways that help create new competitive advantage in places that are now being left behind."

Of the stimulus grants and contracts awarded so far, the District has received nearly 10 times as much per capita as the national average, and Maryland has received more per capita than much harder-hit states, among them Florida, Michigan, Nevada and Ohio. Virginia's statewide average is relatively low, but of the 496 stimulus contracts the state has received, two-thirds of them, with a total value of $562 million, have gone to Northern Virginia, home to hundreds of contractors.

Virginia's unemployment rate is 6.6 percent, and Maryland's is 7.3 percent, well below the 10.2 percent national average. And data released Wednesday puts the Washington metro area's unemployment rate at 6.2 percent, an increase of two percentage points over last year, while the jobless rates in other metro regions has gone up much more -- to 9.3 percent in New York, and above 10 percent in Chicago, Atlanta and Los Angeles.

"Our region has fared dramatically better than other regions in this recession," said Rep. Gerald E. Connolly (D-Va.), who represents Fairfax County. "The presence of the federal government as a direct employer and . . . a significant source of outsourcing is no question a major reason for that."

It is only natural that a surge in government spending would benefit local contractors, said Dave Gallerizzo, a principal at Fig Leaf Software, which won a $1.1 million Interior Department contract to build a computer system for stimulus funding recipients to report back to the government. That enabled Fig Leaf to hire three more people at its office in the District.

"I look around the country at all the places that are hurting and the one place that has jobs is here," Gallerizzo said. "And I don't have a problem with it. If the money went to Michigan and employed three people there, what's the difference?"

Federal officials say that they do not have enough manpower to process the stimulus money, and that because the spending increase is temporary, it makes more sense to rely on contractors than hire new staff.

"The overwhelming majority of the department's work to oversee the Recovery Act is being done in-house," said Matt Rogers, a McKinsey consultant who was hired to oversee the Energy Department's $36.7 billion in stimulus spending. "But in some cases where we need additional help with administrative tasks -- temporary work on a temporary program -- the fastest, most economical option is often to engage a private company."

Reversing privatization?

The reliance on contractors runs counter to the Obama administration's vow to reverse the decades-long trend of privatizing government, which accelerated under President George W. Bush. The government is growing -- it has added 13,000 employees in the Washington area in the past year, the first increase since the 1970s. But it is still not prepared to handle the stimulus money, said John Irons of the Economic Policy Institute, a liberal think tank.

"The capacity of the government to do this in-house was eroded under Bush," he said. "You don't turn that around overnight."

The government has struggled to balance the competing pressures to get the money out quickly and to spend it carefully, avoiding scandals. Contractors are benefiting from both pressures -- the government is hiring them to help with purchasing as well as with spending oversight. In effect, it is paying a lot to ensure that money is not wasted.

The Transportation Department awarded Deloitte a $543,000 contract to scrutinize the stimulus grants going out for airport upgrades and $1.6 million to monitor grants for rail upgrades. The Interior Department granted a $496,000 contract to Carter & Burgess, a subsidiary of the conglomerate Jacobs Engineering, to "evaluate the progress on [spending] rates" and to monitor compliance with reporting regulations.

CGI Federal, a Fairfax firm, won a $4 million contract from the Environmental Protection Agency to set up a reporting system for stimulus spending. And the National Institute of Standards and Technology hired MacArthur & Baker International, of Bethesda, for $1.6 million to develop a "framework that . . . minimizes the risk of fraud, waste and abuse" in the agency's $610 million stimulus spending.

Contracting giant Booz Allen Hamilton, headquartered at Tysons Corner, won contracts worth more than $30 million to oversee two big new projects that government officials say they cannot handle alone: the expansion of broadband access and construction of high-speed rail.

Booz Allen, like several other firms, declined to comment, saying it does not discuss its work for clients, even when the client is the government.

Small firm's big windfall

Some smaller contractors were more effusive. Cynthia Simonson in 2002 started a one-person firm out of her Rockville house that offered technical assistance for the Energy Department program that weatherizes low-income residents' homes. Last year, she hired five people when Simonson Management Services' contracts expanded.

Then came the stimulus money: Her firm received $2.9 million, triple her normal amount, to expand her work for the program. She has hired half a dozen more people, some in other states, to help write a curriculum for weatherization training, among other tasks.

And this summer, she and her husband, who also works for the firm, bought a much bigger house farther out in Montgomery County -- a 6,000-square-foot $910,000 home with a pool and two-acre lot to replace the 1,900-square-foot townhouse they sold for $580,000, which she said was no longer big enough for the few employees who sometimes work out of her house.

She is grateful for the increase in money -- and feels little compunction about the money going to firms like hers, instead of being spread across the country.

"I'm not sure I've ever heard of a government support contractor in Michigan," she said.

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