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Federal Contracts and Corporate Accountability

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The federal government is the largest single consumer in the world, spending over $265 billion a year on goods and services. Despite Federal Acquisition Regulation requirements that federal agencies award contracts to "responsible sources," the suspension and debarment sanctions have been inconsistently applied.

Tracking Contractors' Track Record

The federal government maintains an Excluded Parties List System for companies that are suspended or debarred.

It does not maintain a publicly-accessible database on contractors' compliance record, however. Federal Acquisition Regulations require contracting officials to contract with "responsible" bidders only. But too often, a bidder's track record is not well known. That's why contracting agencies need a database they can use to perform a pre-contract audit of a potential contractor's track record.

POGO for example, maintains such a database for defense contractors. A similar database could be managed by the Pentagon (a proposal passed by the Senate in the 2006 Defense Appropriations bill on 10/5/05). The GSA could also maintain such a database for other contractors

Examples of Suspension/Debarment.

The General Services Administration suspended Enron and Arthur Anderson from federal contracts after the companies' obstruction of justice and accounting fraud were revealed and (in Andersen's case) the companies were indicted.

The U.S. Air Force suspended Boeing from space-related contracts in 2003 after company employees were caught with information improperly obtained from Lockheed Martin, a contract competitor.

According to the Code of Federal regulations, 48 CFR 9.406, government agencies "shall solicit offers from, award contracts to, and consent to subcontracts with responsible contractors only...Indictment...constitutes adequate evidence for suspension [of any government contract]." But there are numerous examples of how the suspension and debarment sanctions have been not been applied to companies that significantly or consistently break the law:

In May, Public Citizen called for the debarment of Reliant based on the company's indictment for its role in California's energy crisis after discovering that the Department of Defense had awarded the company a $35.9 million contract to provide electricity to several military installation, including Andrews Air Force base in Maryland and Walter Reed Army Medical Center in Washington, D.C. Reliant has contributed $539,000 to Bush and the RNC since the 2000 election.

Although the Los Angeles Times reported in late May that the government was considering barring Iraq reconstruction contractor CACI from future government contracts for its role in the Abu Ghraib prison scandal, it has not suggested it will do the same with Titan Corp. -- which was also linked to the abuse of Iraqi prisoners, and has been under investigation for allegations of bribery associated with its efforts to win contracts in Benin and Saudi Arabia.

Halliburton, the Vice President's old company -- has continuously been under investigation for accounting fraud since 2002, a period during which it has received billions of dollars worth of contracts in Iraq. The company is also under investigation for doing business with "axis of evil" countries like Iran (it settled charges associated with doing business in Libya), and is under investigation for bribery associated with its operations in Nigeria.

The U.S. controlled Coalition Provisional Authority recently awarded a $293 million contract to coordinate security for reconstructive contracts to Aegis Defense Services, a company led by a former SAS officer investigated for illegally smuggling arms, according to a recent report by Corpwatch.

On the same day that the SEC announced its settlement with WorldCom for the largest accounting fraud in history ($11 billion), the Pentagon announced a $45 million contract reconstruct the wireless system in Baghdad. (No one seemed to notice that WorldCom had no prior wireless experience.) After suspending the company for just five months, the GSA reinstated WorldCom as a federal contractor in January, despite unresolved allegations against the company.

According to the Project on Government Oversight (POGO), from 1990 through 2003 the top ten federal contractors had a total of 280 instances of misconduct and alleged misconduct and have paid over $2.97 billion dollars in fines, penalties, restitution, settlements and cleanup costs.

Although corporate spokesmen denounced a Clinton-era rule that clarified the FAR rules as a form of corporate "blacklisting" that would threaten significant numbers of jobs, the GAO reported in 2002 that a FAR rule enacted under Clinton and revoked by Bush would have impacted just 39 of the 16,819 contractors awarded new federal contracts worth $100,000 or more. See Government Contracting: Adjudicated Violations of Certain Laws by Federal Contractors. GAO-03-163, November 15, 2002.

Related Legislation:
H.R. 2767, The Contractors Accountability Act of 2003 (introduced by Rep. Carolyn Maloney), would require the GSA to maintain a database of information regarding integrity and performance of Federal contractors and provides "that an entity shall be presumed nonresponsible with respect to award of a Federal contract or assistance if the entity has rendered against it twice within any 3-year period a judgment or conviction for the same offense, or similar offenses, if each conviction constitutes a cause for debarment under the government-wide debarment system."

H.R. 4394, the "Accountability and Responsibility in Contracting Act" (introduced by Rep. Sherrod Brown) would ban companies that reincorporate offshore or conduct business with states that sponsor terrorism from federal contracts.

Another important contract-related reform is the U.S. Workers Protection Act, which would prevent federal agencies from awarding procurement contracts to contractors using foreign labor. It extends to subcontractors and to federal funds used by the states.

Other examples of federal and state license revocations or petitions:

Another sanction that can be applied to recidivist lawbreaking companies is to deny them specific operating licenses. This can be appropriate when it comes to disciplining specific divisions of a large corporation or when it comes to the abuse of publicly-owned assets, such as the nation's airwaves.

In June 2003, the Federal Energy Regulatory Commission (FERC) revoked Enron's right to trade electricity and natural gas after the company manipulated electricity prices during California's 2000-2001 electricity crisis.

In July, 2003, Ohio's Department of Agriculture ordered Buckeye Egg Farm Barns to close (revoking 12 permits and denying 11 others) based on the company's history of environmental violations.

Essential Information petitioned the FCC to deny Clear Channel license renewal based on the company's bad character record.

Related Links:

"The Government's Business" by Charlie Cray, Multinational Monitor, 2004.
AFSCME Responsible Contracting Legislation Page
Project on Government Oversight

Senate Committee on Homeland Security and Public Affairs hearings on DOD Contractors Who Cheat on Their Taxes
See "Some DOD Contractors Abuse the Tax System With Little Consequence," (GAO-04-95, 2/04)

The Federal Procurement Data System was established by an act of Congress in 1979 as a complete record of federal contracts.

This Mother Jones story by Michael Scherer explains how the Bush administration's General Services Administration decided to turn management of the FPDS itself over to a private contractor, Global Computer Enterprises, Inc.

For a state-by-state list of debarred contractors check out the Laborers International Union site.
For a list of federal contractors that have been suspended or debarred go here.

Committee on Education and Workforce 2002 Proposal for Accountability Standards.

Federal Acquisition Regulations web site.
List of Interagency Suspension and Debarment Coordinating Committee Members

Washington Technology Top 100 Federal Contractors Report (2003).
Top 100 Defense Contractors of 2004
GovExec.com Procurement Preview special issue (2001)
Eagle Eye has information about federal and state contractors.
Federal Times does good reporting on federal procurement questions. E.g. read this 3/04 "Too Big to Debar" article.

Organizations:

The Project on Government Oversight (POGO) has a useful Federal Contractor Misconduct Database
Contract Watch (Taxpayers for Common Sense)
Congresswoman Carolyn Maloney's announcement of the Contractor Accountability Act of 2002.
Essential Action's anti-scofflaw page.
The Community Environmental Legal Defense Fund drafted a model local ordinance adopted by Wayne Township, PA.

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