Accountable Strategies blog

A blog about accountability issues in the public, private, and nonprofit sectors

Archive for August, 2008

Will government become part of the private sector?

Posted by David Kassel on August 28, 2008

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.

Posted in Nonprofit, Oversight, Private, Public | Tagged: , , , | 1 Comment »

Following the economic development money

Posted by David Kassel on August 7, 2008

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.

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Are we letting our government watchdogs become toothless hounds?

Posted by David Kassel on August 4, 2008

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.

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