The outcome of our public records saga

[Cross-posted from Blue Mass Group.  Disclosure:  Written on behalf of The Fernald League for the Retarded, Inc.

The Massachusetts Public Records Division in the office of Secretary of the Commonwealth Bill Galvin has denied our appeal seeking records on the administration's plans to renovate the Wrentham Developmental Center.

Let me explain why we think this denial is both a very poor decision by Galvin's office and an indication that the Patrick administration's efforts to close the Fernald Developmental Center may well be in disarray.

The Fernald Center is the nation’s oldest state-run facility for persons with mental retardation.  I’ve been helping the Fernald League, a family-supported, nonprofit organization, in its battle to prevent the  administration from closing the Center, sending most of its residents to Wrentham, at least temporarily, and ultimately privatizing its services.   The League contends that the administration has not taken a number of costs, such as the Wrentham renovations, into account in concluding the state will save money in closing Fernald.

In a letter to me dated November 3, Public Records Supervisor Alan Cote said the Division of Capital Asset Management (DCAM) can withhold the Wrentham records because they relate to a "policy decision" that has still not been finalized.

NOT BEEN FINALIZED?  I thought the Patrick administration had finalized its policy of closing Fernald and transferring most of its residents to the Wrentham facility.  That, in fact, was what Nick D'Alusio, the director at Wrentham, thought as well, when I called him on November 6.

D'Alusio told me that his understanding was that DCAM and the Department of Developmental Services were both on track to renovate two buildings at Wrentham and have them ready to accept as many as 60 Fernald residents by May.  But he acknowleged that the project still hasn't gone out to bid.  The design is complete, he said.  But the bids were supposed to be solicited in September.  The cost of the renovations is reportedly $1.6 million.

As I noted in a previous post, I had filed a request with DCAM on July 9, seeking the feasibility study and a documented cost estimate for the Wrentham renovations.  Under the state's public building construction bidding statutes and policies, those feasibility documents should be completed and approved before the design is done.

But after first writing to tell me I should make an appointment to come in and review the records, Peter Wilson, DCAM deputy general counsel, wrote to me on August 21, denying my request.  Wilson's denial letter cited an exemption to the Public Records law relating to those ongoing policy deliberations.

The exemption, however, says that it does not apply to "resonably completed factual studies or reports."  The same day I received Wilson's denial letter, I also received a letter from DDS Commissioner Elin Howe, stating that bidding on the Wrentham project was scheduled for September, with a contract award scheduled for October.  If that was the case, any feasibility study on the project would have had to be completed by the time Wilson was denying my request.

The Public Records Divsion took more than two months to decide my appeal.  Yet, their attorney never talked to me about the case, never asked for Elin Howe's letter, which I had offered to provide him, and never called D'Alusio or apparently anyone else to verify DCAM's exemption claim.  The Public Records attorney also apparently never asked DCAM for a copy of the feasibility study for the renovations to decide for himself whether it was reasonably complete. 

In his letter to me on Tuesday, Public Records Supervisor Cote stated that Wilson had stated in an October 30 email to his office that there were "ongoing discussions...as to whether 'the building [slated for renovations at Wrentham] can be used’ for the contemplated purpose.”

“That’s totally new to me,” D’Alusio said, when I read him the passage above from Cote’s letter.  “I have no information that there are still discussions over the use of the buildings.”

So, here we are.  It’s already November, with seven months to go until DDS’s announced June deadline of closing Fernald, and six months to go until its announced deadline for having Wrentham ready to receive some 60 Fernald residents.  A design for the renovations is complete; yet, DDS and DCAM have apparently not even decided that the buildings in question at Wrentham can even be used for “the contemplated purpose.”

Meanwhile, DDS is laying off staff at Fernald and letting conditions deteriorate there — a situation which is putting pressure on remaining family members and guardians of the residents to get them out quickly.  No wonder those folks aren’t getting much sleep at night these days.

Following the AIG money

U.S. taxpayers have pumped more than $180 billion in bailout assistance to the American International Group (AIG) because, as we all know, the company was too big to fail.

It’s not surprising that the GAO reached a similar conclusion  in a comprehensive report released last month on why the bailout occurred.  The GAO also looked at where the money actually went and whether or not it actually helped the company.  After slogging through the GAO report, I’ve come to the conclusion that the GAO has concluded that:

• The company was indeed too big to fail.
• The money was provided to AIG in the form of loans and equity investments, contingent on the company’s winding down its AIG Financial Products Corporation and divesting itself of other businesses. 
• It’s too early to tell whether all of the bailout money will enable AIG to survive in the long term.

Not real comforting news to taxpayers.  But the report doesn’t really seem to take a position on a key criticism of the bailout, which was that the government shouldn’t have paid AIG to clean up the credit default swap mess.  Rather, it could have infused funds directly to the banks that bought the derivitives, letting them take haircuts.

Another question I’m now left with about AIG has to do with something that perhaps inadvertently stood out in the GAO report.   On pages 6 and 7 of the report, the company’s organizational chart is reproduced (it takes 2 pages to display the chart).   As the GAO notes, AIG comprises at least 223 companies and has operations in over 130 countries and jurisdictions worldwide.  In addition to its financial products division, the AIG organization includes the largest domestic life insurer and second largest domestic property and casualty insurance company in the U.S.

Couldn’t the Federal Reserve Bank of New York and the U.S. Treasury Department have ordered AIG to cut say 100 or 150 of those 223 divisions loose before pumping in all of that bailout money?

According to the organizational chart, AIG also owns the AIG Bulgaria Insurance Company, the American Fuji Fire and Marine Insurance Company, the New Hampshire Insurance Company, something called American General Finance Services of Alabama, the American General Consumer Discount Company,  and much much more.   AIG is a company that clearly spent years acquiring other companies all over the world until, yes, it finally achieved its goal — it became too big to fail.

Or did it?  Had the company begun shedding the AIG Bulgaria Insurance Company, the American General Consumer Discount Company and some of those other firms early on,  mightn’t it no longer have been too big to fail when the federal government began considering the bailouts? 

According to the GAO report, that divestment is only happening now.  The GAO stated that the Federal Reserve expects the disposition of assets to be the principal way by which AIG will repay the government loans and allow the Treasury to recoup equity investments.  The report added that AIG’s plan, according to its former chief executive officer, was to sell off about 65 percent of the company.  However, the current chief executive was reportedly re-evaluating that plan.

Meanwhile, until all of that debt is repaid and the equity interests repurchased or sold, U.S. taxpayers remain exposed to those credit and investment risks, according to the GAO.   The watchdog agency notes that “the sustainability of any positive trends of AIG’s operations and repayment efforts is not yet clear.” 
       

Compared to the scrutiny that Congress is now giving to efforts to finance the administration’s health care reform proposals, it seems the bailout of companies like AIG a few months back went through with few questions asked. 

Tracking the stimulus money

In the name of transparency and accountability, a lot of people are putting a lot of effort into tracking the federal economic stimulus money now flowing into cities and states.

The question is how effective and valuable are the results of those tracking efforts?  Are the federal government and the states getting a real handle on the funding under the economic stimulus bill, also known as the American Recovery and Reinvestment Act of 2009?

In May, the Washington Post reported that the White House supported tracking site, Recovery.gov, was providing little useful information about where the money was going under the program.  Moreover, the reporting requirements on public agencies didn’t extend to the contractor level, according to The Post.   The site now lists contractors, but the results, as noted below, may not always be accurate.

On the other hand, Recovery.org, a privately operated site by Onvia, posts stimulus-related, government bid solicitations, which identify specific stimulus projects in individual states.  This appears to involve much more detailed information than that available on the government site.  To be fair, Onvia, as the Post pointed out, has spent more than a decade developing its search technology.  Recovery.gov is only been around for a few months.

The first quarterly reports from the states are due October 1, and will be posted on the government site.  Under the Recovery Act, states and localities must report quarterly on the use of the funds and provide estimates of the number of jobs created and retained.

I went onto both the federal and the private-sector websites and tried to see for myself what was going on.  I chose my home state of Massachusetts.

As of September 18, 60 stimulus contracts in Massachusetts were displayed on the government’s Recovery.gov website.   I couldn’t find a total for the value of all of those contracts.  In at least one case, something seemed to be wrong.   According to the information displayed on the site, the Columbia Construction Company of Reading, MA, had recieved a $57 million contract from the General Services Administration for a roof replacement of a Veterans Affairs Center in Philadelphia, PA.  The project location was listed as Andover, MA.  Why would a roof replacement of a federal building in Philadelphia be listed as a Massachusetts project and why would it cost that much?

I went to the private-sector, Recovery.org site.

As of September 20, Recovery.org listed 537 projects totalling $1.8 billion in Massachusetts.  There was no listing here of the Philadelphia roof replacement project under Andover, Massachusetts.  However, this site did list a $57 million project to modernize the IRS Service Center in Andover, MA.  The Columbia Construction Company was listed there as the winner of the contract.  That made more sense.  

Recovery.org also lists projects voted by viewers as the most and least worthwhile, and most expensive.  For instance, the most expensive project listed on September 20 was a $270 million project to build a tunnel and building in Alameda and Contra Costa counties in California.  The most unnecessary project was a tiny $7,000 project to purchase solar bus stop signage in Weirton, W. VA.    The second most unnecessary project was a $100 million task order contract to pre-selected contractors to support construction activities in the National Park Service in New Mexico, Oklahoma, and Texas.

Meanwhile, there are other problems in tracking the federal stimulus money that have nothing to do with these two websites.   One of them is that the Single Audit mechanism for state and local governments doesn’t work well in assessing the economic stimulus program, according to the Government Accountability Office.

The Single Audit Act requires state and local governments and nonprofit organizations receiving more than $500,000 in federal awards in a year to obtain an audit.   The GAO reported that Single Audit reporting deadline is too late to provide audit results in time for the audited entity to take action on deficiencies noted in Recovery Act programs.  The GAO recommended that Congress put more money into Single Audit activities.

Clearly, close and accurate tracking of this funding is needed, not only to satisfy the public that the money is being used for the right things, but to help stem the inevitable waste, fraud and abuse.  As of September 2, according to the GAO, the agency had received 80 allegations of fraud and other ethics issues related to stimulus funding that were considered credible enough to warrant further review. 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dysfunctional oversight in Iraq and Afghanistan

The two wars we’re fighting in Iraq and Afghanistan are causing enough of a drain on our economy as it is.  We shouldn’t be making things worse by permitting billions of dollars to be lost due to waste and fraud over there.

Since 2001, according to the Commission on Wartime Contracting, a panel appointed by Congress, some $80 billion has been appropriated by Congress for reconstruction efforts in Iraq and more recently in Afghanistan.  That is only part of the work being done by hundreds of thousands of contract employees operating in those countries, who are also transporting supplies, guarding military bases, managing dining halls and more.

One key problem is that all of that contracting has been subject to little effective oversight.  In particular, there are too few government personnel who are qualified and in place in the region to oversee the contractors and subcontractors, both large and small, that are undertaking the work.

Moreover, the Commission alleges a dysfunctional relationship between the Defense Contract Management Agency (DCMA) and the Defense Contract Audit Agency (DCAA), two of the key oversight agencies involved.

DCAA is responsible for auditing contractors’ purchasing, cost estimation and other business systems.  But DCAA only has the authority to make recommendations for improvements based on its audits; and it is the DCMA that ultimately decides whether to withhold payments or disqualify contractors from contract awards based on shortcomings in their business systems.

In a hearing last week, members of the Commission accused the DCMA of ignoring recommendations from DCAA with regard to the business systems of logistical support contractors Fluor Corp., KBR Inc. and DynCorp International.

An interim report  issued in June by the Commission noted an inadequate number of qualified contract management personnel in Iraq and Afghanistan.  It also pointed out that there were only four DCAA auditors in Afghanistan.
 
The report stated that an “absence of continuing audit surveillance at high-risk remote locations is exacerbated by DCAA’s limited travel to  these locations.”   It’s a serious issue because of the large amounts of money incurred and billed on cost-reimbursement contracts.

The Commission report noted that federal regulations require contracting officers to consider withholding a percentage of future payments when it is determined that contractors’  business systems contain significant deficiencies.  The report stated that DCAA field auditors have been reluctant to recommend withholding those payments.  Given the lack of such recommendations, the report concluded that contracting officers often do not hold contractors accountable for the adequacy of their business systems.

In May, DCAA Director April Stephenson told the Commission that the DCMA sustains or upholds the DCAA  in about 65 percent of the amounts it questions.  A briefing by DCAA to the Commission, however, indicated that less than 40 percent ($1.3 billion of $3.4 billlion) of DCAA questioned amounts related to the contingency efforts in Iraq and Afghanistan were sustained through August 2008.  

The DCAA itself has been the subject of criticism of its own auditing practices.  As the GAO noted last year, DCAA’s auditing staff has been sharply cut in recent years.  In addition, the GAO reported instances in which DCAA auditors were allegedly intimidated or replaced by upper-level managers in the agency for including critical audit findings in reports about military contractors.

Unless we improve oversight of our nation-building efforts overseas, we will continue to waste billions of dollars that could have gone to productive uses.

Chipping away at the government-can’t-do-anything-right myth

Sometime ago on this site, I wrote about a battle  going on in Massachusetts over privatizing the Fernald Developmental Center, the nation’s oldest state-operated facility for persons with mental retardation.

This is a battle that has been playing out in state after state.   The argument for closing these Intermediate Care Facilities (ICFs) is that the private sector can provide this care better and cheaper.

This same myth that government can’t do anything right or efficiently is behind the opposition to President Obama’s public option in his health care reform package.  None other than Karl Rove has sounded the alarm that allowing government to complete with private health insurers will drive them all out of business and turn us into European socialists.

But shouldn’t competition from government simply bring down the rates the private insurers pay and, in turn, force the providers to cut their costs and generally operate more efficiently?  As efficiently as, perhaps, the public sector operates?

When it comes to the delivery of human services to some of our most vulnerable citizens, it is also often overlooked that government can in fact do the job as well or better than the private sector.  ICFs, for instance, must meet higher federal staffing and treatment standards than does the community-based group home system, which is primarily operated by private human service vendors.  So, while it’s true that many states want to eliminate ICF-level care because it tends to be expensive, it’s just not logical to assert that the care provided to the mentally retarded under lower standards will be better.

And as is the case in the management of health care, the public sector is capable of managing programs just as, if not more, efficiently than private-sector providers.  As the Truthdig blog noted, Medicare has far lower administrative overhead rates than private insurers (2 to 3 percent versus rates as high as 40 percent in the private sector).

And look at the CEO salaries of nonprofit human service and health care providers.   These salaries far outstrip their counterparts in the public sector.

Also, while we’re on the subject of efficiency, consider the lease-purchase plan that the Patrick administration is pursuing to develop group homes for persons with mental retardation in Massachusetts.  It will cost $257,000 per bed over 20 years to lease these group homes from developers.   The developers themselves can obtain low-cost state mortgages for the homes and then charge the state to pay back the loans.

Unfortunately, the folks who argue that government can’t do anything right and that the private sector should be running everything have had the upper hand in recent years.  Government administrators themselves are often hired for the sole purpose of fobbing off the functions and responsibilities of their agencies to the private sector.

And it’s not only state governments that are shedding their public responsibilities.  Consider federal public advocacy organizations such as the Disability Law Centers.   Our federal tax dollars fund these organzations, many of which have taken it upon themselves to file “class action suits” to close primarily state-run ICFs, whether the guardians of the residents want those facilities closed or not.

The National Voice of the Retarded, Inc. lists 28 lawsuits filed by protection and advoacy organizations in 19 states to close institutions.  The irony is that many, if not most, of the families and guardians of those facilities are involuntarily represented in these suits.  They cannot opt out of them even if they want to. 

In the name of their civil rights, facility residents are being evicted from their long-time homes under these lawsuits.  U.S. Rep. Barney Frank has proposed legislation which would give individuals and guardians the right to opt out of the suits.

All of this isn’t to say that private companies should get out of the business of providing human services or that private insurance companies should not be providing health coverage in America.  I’m not arguing here for a government-run single-payer plan. 

What I am arguing for is including government in the choice that prople have in obtaining human serivces and health care.  As President Obama said in reference to health care, the public option will keep the insurance companies honest.  It will force them to keep their premiums down and, in turn, will put pressure on hospitals and other health care providers to keep their costs down.

Similarly, in the delivery of human services, a public option is needed to provide a full range of choice in care to those most in need.  And, contrary to the long-standing myth, that public option may well be the most cost-effective one.

Why hasn’t Halliburton come up more in the presidential campaign?

John McCain has repeatedly sought to portray Barack Obama as a proponent of earmark and pork barrel spending, using the famous and inaccurate $3 million overhead projector example in the debates.

It would have been nice had Obama hit back on McCain’s apparently extensive ties to U.S. military contractors in Iraq.   Now, there’s some real pork to talk about.

A 2005 report by the Congressional Committee on Government Reform stated that government auditors had found that ”questioned and unsupported” costs by Halliburton alone exceeded $1.4 billion under just two Iraq reconstruction contracts.  As of 2007, there was more than $10 billion in questioned and unsupported costs relating to Iraq reconstruction and troop support contracts, according to a Government Reform Committee hearing transcript. 

The McCainSource blog, by the way, details McCain’s ties to military contractors, noting that the top 10 defense contractors alone funneled $216,259 in political contributions to him.  And McCain’s top advisers and fundraisers have been paid millions of dollars to lobby the Pentagon, the White House and Members of Congress.  As The McCain Source blog noted, McCain opposed several measures to hold contractors accountable, including this vote to create a Senate committee to investigate contractor payments in Iraq and Afghanistan.

Yet, Obama has made little mention on the campaign trail of the lack of oversight of contractors and the resulting drain of U.S. resources in contracts with them. The history in Iraq of Halliburton alone could have been a major campaign issue.

The Government Reform Committee report noted that Halliburton had three multi-billion dollar contracts in Iraq. One of them, a sole-source contract, was awarded in secret in March 2003 to Halliburton’s subsidiary, Kellogg Brown and Root.  The Government Accountability Office reported that the Defense Department paid more than $220 million in “questioned” costs under it.

According to the Committee, all three of Halliburton’s major contracts in Iraq have been “cost plus award fee,” or “cost-plus,” meaning that Halliburton is reimbursed for costs it incurs under the contracts and then receives its profit, or fee, as a percentage of those costs.

The Committee report stated that former Halliburton employees have provided information to Congress that the company charged $45 for cases of soda, billed $100 to clean 15-pound bags of laundry, and housed its executives at a five-star hotel in Kuwait.  Halliburton truck drivers have testified that the company “torched” brand new $85,000 trucks rather than perform relatively minor repairs and regular maintenance on them.  Halliburton procurement officials described the company’s motto in Iraq as “Don’t worry  about price. It’s cost-plus.”

Meanwhile, the Special Inspector General for Iraq Reconstruction reported that under another Iraq reconstruction contract, Halliburton-subsidiary KBR billed the government for $52 million in administrative costs during a nine-month period of inactivity, before it was issued a task order.

There’s clearly a lot of information out there from government sources about these examples of real pork.  It just isn’t getting talked about for some reason.

Will government become part of the private sector?

Much of of the current debate over whether government should operate more like private business fails to take into account the growing reality that government is increasingly merging with private business.

Allan Burman at George Mason University maintains that 80 to 85 percent of the federal Energy Department’s workload is done by contract.  As Burman puts it:

Whether it’s cleaning up a nuclear waste site in Washington state or designing a new multi-million dollar scientific device at Oak Ridge, Tennessee, the prime responsibility for getting the job done rests with contractors.

A Government Accountability Office forum report in 2006 noted that the acquisition of goods and services from private contractors consumed over one-fourth of discretionary spending government-wide.  The amount of that federal acquisition spending increased from $235 billion in 2001 to $388 billion in 2005–a 65 percent hike. 

Writer Naomi Klein describes “contract cities” in the U.S., such as Sandy Springs, GA, which has 100,000 residents, and is run by CH2M Hill, an engineering and construction company that received large oversight contracts in Iraq.  Klein maintains that when Sandy Springs was incorporated in 2005, “only four people worked directly for the municipality–everyone else was a contractor.”

Authors such as Elaine Kamark, a former Clinton administration official,  hail “the end of government as we know it” and the New Public Management’s (NPM) call since the early 1990s for the transfer of once governmental functions to private parties and the market.  Others, such as the late Larry Terry, have issued warnings about the dangers of the emergence of the “hollow state.”

Larry Terry, drawing on the work of Milward, Provan, and Else, describes the “hollow state” as a “transfer of power and decentralization of services from the central governments to subnational governments and by extension to third parties.”  He describes the NPM as having introduced “liberation management,” which has called for increased deregulation, and “market-driven management,”  which has called for increased privatization.  Says Terry:

The ideas embodied in both liberaton management and market-driven management, if swallowed whole, may not serve democracy well…There is a great deal at stake, namely the stability of U.S. constitutional democracy.

There’s nothing new about contracting out government services.  Federal policy regarding outsourcing was formalized in 1966 in the then Bureau of the Budget’s Circular A-76.  Among other things, the Circular requires government to classify its work as either “inherently governmental,” which means it cannot be contracted out or as “commercial,” which means it can.

In the July 2008 issue of PA Times (the monthly newspaper of the American Society for Public Administration), Larkin Dudley and Michael DeLor maintain that the definition of ”inherently governmental” remains a difficult question that has not been clarified much since 1966, either in revisions to the circular or the courts.

They note that the Circular states that tasks are inherently governmental if they bind the United States to take some action; determine economic, political, or territorial property by military or diplomatic action, judicial proceedings, or contract management, significantly affect the life, liberty, or property of private persons; or exert ultimate control over the disposition of United States property.

Dudley and DeLor maintain there is a need to think through what activities may significantly affect the life, liberty, or property of private persons.  They contend that government should not outsource when doing so would compromise the mission of an agency, when people are incarcerated, when armed law enforcement is done in public places, for military activities in active war zones, and when government requires taking away freedom or rights from citizens.

It’s not clear to me whether Dudley and DeLor are arguing against the private operation of prisons or even the privatizaton of prison-based services—something that has been done widely in the United States.  Also, do they oppose all use of security contractors in places like Iraq?

Federal regulations also have a lot to say out government outsourcing and when it is or is not appropriate.  Federal Acquisition Regulation subpart 7.5 states that functions considered to be “inherently governmental” include, among others, the command of military forces, the conduct of foreign relations, determining agency policy, determining federal program priorities for budget requests, determining what supplies or services are to be acquired by government, approving contractual documents defining requirements, and ordering changes in contract performance or quantities.

As Dudley and LeLor suggest, it is time for more comprehensive guidelines about the meaning of inherently governmental.  This discussion needs to take place before government slides entirely into the private sector.

Following the economic development money

CommonWealth magazine has an interesting article on economic development tax credits and the difficulty in finding out to whom hundreds of millions of dollars in those tax credits have gone in recent years in Massachusetts.

There is another aspect to this story—the hundreds of millions of dollars in funding, under some of the same legislation, for economic development loans and grants.   

By way of disclosure, I worked under contract with a number of people at the University of Massachusetts in what may have been the only comprehensive attempt so far to track that loan and grant money.  The Massachusetts Economic Assessment and Analysis Project (MEAAP) was, in fact, created under the same 2003 legislation that established some of the tax credits investigated by CommonWealth magazine.

Among other things, MEAAP produced MassEconomy.org, a website devoted, in part, to showing where the loan and grant money has gone under two major economic stimulus bills in 2003 and 2006.  However, there has been an apparent unwillingness by the Legislature to continue to fund the project at the same levels as in the past.  I’ve been told a decision has not yet been made by the project whether to maintain the website, which has not been updated for a few months now.  As of this writing, the website is still up.

The MassEconomy website attempts to track $82 million in funding for grants and loans provided under the 2003 legislation and an additional $151 million under a second major economic stimulus bill enacted in 2006.  As of April 2008, the state and quasi-public agencies that received this combined total of $233 million in state funding had approved grants totaling $56 million and loans totaling $34 million to a wide range of businesses and other applicants.  As of April, according to those figures, less than 40 percent of the loan and grant money had been approved for distribution by those agencies.

All of this is shown on the website’s Overview Page.  Viewers can link from the Overview Page to individual fact sheets for each grant and loan program.  The fact sheets show who has been approved for loans and grants, how much has been disbursed to them by the agencies, and other information such as how many jobs were created by the recipient of each grant or loan, if that information is applicable.

For instance, as of February 2008, the Board of Higher Education had approved $7.2 million in grants under its “Pipeline” program for instruction to students interested in math and science careers.  The Board of Higher Ed received $2.5 million under the 2003 stimulus legislation, an additional $4 million under the 2006 bill, and an additional $4 million in the FY 08 state budget.  As the Pipeline program Fact Sheet shows, that funding supported programs for 4,555 students and professional development for 521 teachers in 50 separate programs.

Many agencies receiving this stimulus funding were not as forthcoming as the Board of Higher Ed in providing up-to-date information about their grant and loan programs.  MEAAP had no power to compel this information from the agencies, so much of it remains incomplete.  Nevertheless, the MassEconomy website gives at least some idea as to where this money has gone.

It’s unfortunate that the Legislature, which has seen fit to provide hundreds of millions of dollars to state and quasi-public agencies to distribute as grants and loans for economic development, does not seem as interested in knowing where all the money is going.

Are we letting our government watchdogs become toothless hounds?

Continual downsizing in the federal government since the 1990s may have saved us money in federal salaries, but it has apparently also impaired our ability to track the taxpayer dollars feeding our military contractors.

Consider a July 2008 Government Accountability Office report about another key government watchdog agency, the Defense Contract Audit Agency , which has failed to do its job properly in auditing Defense Department contracts, apparently partly due to downsizing.  According to the detailed GAO report, downsizing has affected not only the DOD’s ability to manage its own growing universe of contractors, but audit staffing within the DCAA itself has been sharply cut in recent years. 

In its report to key members of Congress, the GAO noted that Department of Defense contract management continues to be vulnerable to fraud, waste, abuse, and mismanagement.  The report stated that downsizing of DOD contract oversight staff in the 1990s coupled with hundreds of billions of dollars in increased contract spending since 2000 “has exacerbated the risks associated with DOD contract management.”

The DCAA has a critical oversight mission regarding DOD contracting.  Despite that, auditing staff at DCAA dropped from almost 6,000 in 1989 to 3,500 in 2007, according to the GAO.  That is a 42 percent decline.   DCAA’s 3,500 auditors annually perform about 40,000 audits of approximately 10,000 contractors.

In one office, two DCAA supervisors, who approved and signed 62 of 113 audit reports, said they did not always have time to review audit working papers.  In 18 of those 62 cases, they assigned trainees  to complex forward pricing audits as their first assignments.  

DCAA contract audits are intended to be a key control to help assure that prices paid by the government for needed goods and services are fair and reasonable and that contractors are charging the government in accordance with applicable laws, regulations, and contract terms.   In performing its audits, DCAA states that it follows generally accepted government auditing standards (GAGAS).

GAO opened its investigation after receiving hotline complaints that DCAA was failing to comply with GAGAS on 14 agency audits.  The GAO found that in an audit involving a major areospace company, DCAA management threatened the senior auditor with personnel action if he did not delete findings from the report.  In addition, the management made an up-front agreement with the contractor to limit the scope of work and basis for the audit opinion. 

In another case involving a contractor that produces and supports military satellite sytems, a draft audit report identified six significant deficiencies, one of which led the contactor to overbill the government by $246,000 and another which may have led to $3.5 million in overbillings.  According to the GAO report, two auditors who wrote the draft report were replaced by other auditors who dropped the findings and changed the draft audit opinion from “inadequate,” to “adequate.”  In addition, DCAA managers took actions against staff at two locations, attempting to intimidate auditors, prevent them from speaking with investigators, and creating a generally abusive work environment.  Downsizing alone may not fully explain these issues at DCAA, but it may have been a necessary precondition for them.

The sad fact is that while the Bush adminstration may have hastened the downsizing process, it isn’t solely responsible for it.  One comment on the the Project on Government Oversight blog noted that much of the DOD’s contract management workforce downsizing took place during the Clinton Administration.  In a compelling paper in 2005, Larry Terry at the University of Texas at Dallas  linked government downsizing to the New Public Management (NPM)–a global public-sector reform movement that was embraced by the Clinton administration and implemented by then Vice President Al Gore.  The NPM’s zeal for downsizing was matched only by its enthusiasm for privatization and deregulation.  Terry argued that:

…NPM philosophy and practices have contributed to an increasingly hollow state with thinning administrative institutions.  …thin administrative institutions are fragile.  Fragile institutions lack the integrity and, in turn, the capacity to effectively serve the public good.

It shouldn’t be a surprise that we’ve now arrived at a state of affairs in which we can no longer adequately control the contractors who are increasingly running our government.

How not to undertake a public project

(Part 2 in a comparison of public projects)

In the previous post on this site, I described a successful project to design and construct a new public library in my hometown of Harvard, Massachusetts.  It’s interesting to compare some of the key managerial decisions and actions in that case with a public construction project in Iraq.

Clearly, the construction of the Basrah Children’s Hospital in Iraq, now three years behind schedule, is being done under much more difficult conditions than was the Harvard town library.  Yet, many of the basic management decisions involved in these two public projects are the same.  The Basrah Children’s Hospital project in Iraq is an example of a public project beset by managerial problems, and in many ways it seems to symbolize the overall U.S.-led reconstruction effort in Iraq.

In August 2004, the U.S. Agency for International Development issued a job order to Bechtel National, Inc. to construct the 50-bed pediatric facility in the city of Basrah. The construction of the hospital was to be part of the overall U.S.-led effort to rebuild the Iraqi infrastructure following the invasion of the country in 2003. Congress authorized $50 million in funding for the hospital project, which was intended to improve the quality of care and life expectancy for women and children in that war-torn country. 

The hospital project was apparently one of some 20 projects being undertaken by USAID under a single $1.4 billion contract with Bechtel.

The scope of work was expanded in July 2005 to increase the number of beds to 94 and to upgrade the faciity to be an oncology center, according to a 2006 report by the Special Inspector General for Iraq Reconstruction.  The schedule and projected cost of the project, however, remained the same.  The hospital was projected to be complete as of December 2005.

According to a July 2006 report by the Special Inspector General, USAID’s accounting systems and processes were inadequate, and the agency failed to identify and report project costs to the U.S. Chief of Mission in Iraq and to Congress.  The Special IG noted that the completion date of the hospital had slipped by nearly 270 days as of March 2006, and the projected construction cost had risen to between $150 and $170 million.

Corner view of Basrah Children's Hospital, March 2008 (SIGIR)

 Here are some highlights from the Special IG’s report on the construction of the hospital through July 2006:

• USAID did not establish an appropriate program management structure for the hospital or for its other reconstruction projects.  The agency relied on one “administrative contracting officer” and one “cognizant technical officer” to manage the entire $1.4 billion in projects under contract with Bechtel, and never appointed a program manager with sole responsibility for the hospital project.
• Even though Bechtel briefed USAID in March 2006 that the hospital project was 273 days behind schedule, USAID’s report to Congress the following month reported no problems with the project schedule.  In addition, the agency continued to report the project cost as $50 million, even though Bechtel was estimating the cost at $98 million by April 2006.
• USAID did not include the installation of medical equipment in its cost estimate for the hospital.
• A consultant to USAID recommended that the agency discontinue Bechtel as the prime contractor for the hospital project.  The consultant, Louis Berger Group, projected that discontinuing Bechtel would reduce costs by some $8 million, primarly from the reduction in contractor overhead.

In the wake of the Special IG’s report, the U.S. Mission in Iraq transferred the the hospital project from USAID to the U.S. Army Corps of Engineers.  In addition, the U.S. Mission ordered Bechtel to stop work on the project, at least until the Corps of Engineers could take over management.

As of now, the hospital is still not finished.  An April 2008 quarterly report by the Special IG listed the project as 85 percent complete.  The total cost of the project, now projected to be finished by February 2009, is pegged by the Special IG at $163.6 million–a roughly 227 percent increase over the original cost estimate.

To me, a key difference between the hospital project and the Harvard town library that jumps out is the level of involvement by public managers in each case.  It appears there was a higher actual number of public-sector managers overseeing the construction of the $7 million Harvard library than were overseeing the entire $1.4 billion USAID reconstruction effort in Iraq, including the $163.6 million Basrah Children’s Hospital.