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Cracking Down on War Profiteering

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Cracking Down on War Profiteering
Contracting Free-for-All

Since September 11, the defense industry has enjoyed a contracting free-for-all with scant Congressional oversight. In 2005 alone, defense contracts totaled $269 billion, up from $143 billion in 2000. Despite public outrage over non-competitive contracting and evidence of widespread fraud, corruption and waste, Congress has done little to uphold its responsibility to oversee the massive funds it gives to the military each year.

Defense Department Contracts Graph

Congress did appoint a special inspector general for Iraq reconstruction who has identified billions in missing funds and nailed four people for bribery. However, the IG's mandate does not extend to the hundreds of billions of dollars in defense contracts that are unrelated to reconstruction. Moreover, the IG's office is set to expire in 2007, while the overall war on terrorism has no end in sight.

Learning from "Give 'em Hell" Harry

Harry S. Truman In 1941, Harry S. Truman, then a U.S. Senator, launched a special committee to investigate fraud and waste in WWII contracts. While today's lawmakers have held only a handful of hearings on Iraq war contracts, the Truman Committee held 432 hearings with 1,798 witnesses and issued 51 reports between 1941 and 1948.

The Truman Committee saved taxpayers some $15 billion (in 1940s dollars) and prevented hundreds, if not thousands of deaths by uncovering faulty military equipment. For example, the Committee revealed that the military helped aerospace firm Curtiss-Wright cover up defects in airplane motors it sold to the Air Force.

Similar investigative zeal is needed today. According to Keith Ashdown of Taxpayers for Common Sense, "If contractors knew that they could be called before a Congressional committee of some stature, be publicly embarrassed and have their career destroyed, it could be a powerful deterrent to corruption."

Unfortunately, bipartisan bills to create a modern-day Truman Committee on wartime contracts have languished in both the Senate and the House of Representatives.

It's Not Just About Halliburton

Promoters of stricter oversight of war-time contracts are often accused of partisanship because the biggest and most scandal-plagued Iraq contractor happens to be Vice President Richard Cheney's former firm, Halliburton. Through its Kellogg, Brown and Root subsidiary, the company has obtained the lion's share (52%) of Iraq contracts to perform a range of tasks, from oilfield services to feeding the troops.1 A steady stream of audits, employee testimony, and other evidence suggest that Halliburton has greatly abused its position. Accusations have included bribe-taking, abandoning government property, overcharging the military, and even causing infections among soldiers by giving them contaminated wastewater for bathing.2 Pentagon auditors have slammed KBR's "inadequate" internal financial controls.3 For more on Halliburton's scandals, see: http://www.halliburtonwatch.org.

And yet all attempts thus far to hold the company accountable have fallen short. When the Army Corps of Engineers' top civilian contracting official called a multi-billion dollar no-bid contract granted to Halliburton the "most blatant and improper contract abuse I have witnessed," she was promptly demoted.4 When the Pentagon's own auditors contested $253 million in Halliburton bills for delivering fuel and repairing oil equipment in Iraq, the Army reimbursed the company anyway.5

While Halliburton may be the prime example of war profiteering, it is by no means the only one. As of April 2006, the Special Inspector General for Iraq Reconstruction reported 72 ongoing investigations.6 Here are a few other examples that underscore the need for a modern-day Truman Committee

Custer Battles

In March 2006 a jury ordered Custer Battles to pay $10 million in penalties after finding that the firm used phony invoices to overcharge the government for security services in Iraq. This victory against war profiteering would not have happened without the resources of a private attorney who represented company whistleblowers. The U.S. Justice Department declined to be a party in the Custer Battles case, without explaining its decision.7 American taxpayers should not have to rely on private law firms to investigate and hold war contractors accountable.

Bush Administration Blocking Other Whistleblower Cases

The Justice Department is using a legal loophole to block 50 similar cases against other Iraq contractors. The cases have been filed under the False Claims Act, which allows whistleblowers to sue contractors suspected of defrauding the government and keep a portion of the penalties. The Justice Department is obstructing the cases by repeatedly asking for extensions, leaving many cases in limbo for years.8 A Truman Committee could help shine a spotlight on these charges.

DHB Industries

The military has recalled 23,000 of this company's bulletproof vests over concerns about their effectiveness. Government ballistics experts urged the Marines to reject DHB vests after discovering life-threatening flaws. And yet the recall did not begin until the Marine Corps Times exposed the test results. The military claims they took the action only because of fears provoked by the newspaper, fears they claim are unfounded because subsequent tests on a sample of the vests found nothing wrong.9 The military has stonewalled reporters who have attempted to probe further.10 Despite many lingering questions, the military continues to award contracts to DHB. A Truman-style Committee could subpoena company and government officials to give the public a full explanation.

- Sarah Anderson and Charlie Cray, June 13, 2006

Cray is the Director of the Center on Corporate Policy. Contact: ccray@corporatepolicy.org
Anderson is a CCP Steering Committee member and a Fellow of the Institute for Policy Studies. Contact: saraha@igc.org.

What Can be Done About War Profiteering?

  • Establish a permanent independent investigative subcommittee (modeled after the Truman Committee) responsible for investigating waste, fraud and abuses associated with any war-related contracts.11

  • Create genuine congressional oversight over moneys appropriated and spent, as well as contractor performance. Congress should conduct actual oversight, rather than leave it to the Inspector General.

  • Force greater competition in contracting. No-bid contracts should be banned and huge mega-contracts should be broken up so that large task orders can be competitively bid, better services can be delivered to the troops, and improved value returned to the taxpayers.

  • Establish a clear definition and stiff penalties for "war profiteering." "The Honest Leadership and Accountability in Contracting Act of 2006" (S. 2361) basically defines war profiteering as executing or attempting to execute a scheme to defraud the U.S. government in connection with a war or military contract or overvaluing any good or service with the intent of excessively profiting from a war or military action. The penalty for any person convicted of such on the offense would be up to 20 years in prison and a $1 million fine.

Additional Measures to End the "Culture of Corruption" in Government Contracting

  • Ban companies that repeatedly break the law and abuse taxpayer funds from getting contracts. The Bush Administration weakened the Federal Acquisition Regulations in 2001, resulting in lax enforcement of "responsible" contractor standards.12 Both clearer standards and stronger enforcement of suspension and debarment provisions are needed.13

  • Create a publicly accessible record of contractors' violations. Corporations bidding for federal contracts above a certain amount should be required to submit a certified record of their compliance history to be posted online.

    A publicly available online record of contractors' violations of federal laws - including criminal convictions and civil penalties - should be maintained by the GSA and used to disqualify repeat lawbreakers.14

  • Make all major federal contracts and grants available to the public free of charge in a searchable, downloadable online format, including relevant information about subcontractors.15

  • Tighten Performance Standards. Contractors should be required to meet high labor and environmental standards, including paying prevailing or living wages.16 They should also be prohibited from charging the government for any executive compensation above 25 times the pay of the company's lowest-paid contract employee or subcontractor employee.17

  • Strengthen Contract Eligibility Requirements.18 The Department of Homeland Security has barred companies that relocate their headquarters offshore to avoid taxes from eligibility,19 while states such as New Jersey and Arizona prohibit companies that move jobs offshore from bidding on their state contracts.20

  • Close the revolving door. Eliminate the cronyism that results when individuals leave government for a lucrative position in the private sector or come to government from contracting companies.21

  • Support whistleblowers who report waste, fraud, bribery and other abuses. Whistleblower protections should be broadened to cover national security employees and all government contractor employees.22

  • Eliminate "Pay to Play" for Government Contracts.23 Restore the pre-1976 prohibition on contractor campaign contributions.24 Follow Massachusetts' model of forcing contractors to prove they can perform services more effectively than the government before allowing work to be privatized.25

Additional Resources on Contract Accountability:

AFSCME legislative tools page: http://www.afscme.org/private/tools05.htm
Government Accountability Project (for whistleblowers): http://www.whistleblower.org
Halliburton Watch: http://www.halliburtonwatch.org
OMB Watch: http://www.ombwatch.org
Institute for Policy Studies (CEO Pay and Iraq contracts): http://www.ips-dc.org
Progressive States Action Network: http://www.progressivestates.net
Project on Government Oversight: http://www.pogo.org
Taxpayers Against Fraud: http://www.taf.org
Taxpayers for Common Sense: http://www.taxpayer.net

Additional Resources on the Truman Committee:

Arthur M. Schlesinger, Jr. and Roger Bruns, editors, Congress Investigates: 1792-1974 (Chelsea House Publishers, 1975).
Donald H. Riddle, The Truman Committee: A Study in Congressional Responsibility (Rutgers University Press, 1964).
Merle Miller, Plain Speaking: An Oral Biography of Harry S. Truman (Berkeley Publishing, 1973).
Sarah Anderson, "Harry Truman Wouldn't Stand for It," St. Louis Post-Dispatch, March 2, 2006. At: http://www.commondreams.org/views06/0302-24.htm.
U.S. House of Representatives, Committee on Appropriations - Democratic Staff, "A New 'Truman' Investigative Committee," http://www.house.gov/appropriations_democrats/pdf/2006-3-8-truman-committee-final.pdf

NOTES

1. Source: Defense Contract Audit Agency, "Briefing Slides: DCAA Contract Audit Support for Iraq Reconstruction," May 3, 2005. At: http://www.democrats.reform.house.gov/Documents/20050627140010-82879.pdf. For more information on Halliburton see http://www.HalliburtonWatch.org

2. David Ivanovich, "Doctor alleges water linked to infections," Houston Chronicle, April 7, 2006.

3. http://www.halliburtonwatch.org/news/pentagon_auditors.html

4. "Banished Whistle-Blowers"(editorial), New York Times, September 1, 2005.

5. James Glanz, "Army to pay Halliburton Units Most Costs Disputed by Audit," New York Times, February 27, 2006.

6. http://www.sigir.mil/reports/quarterlyreports/Apr06/Default.aspx

7. Laura Parker, "Jury fines defense contractor in Iraq $10M, USA Today, March 10, 2006.

8. Yochi J. Dreazen, "US: Attorney Pursues Iraq Contractor Fraud," Wall Street Journal, April 19, 2006.

9. Christian Lowe, "The Marines' Flawed Body Armor," Army Times, May 9, 2005; Christian Lowe and Matthew Cox, "Army, Marines Were issued 18,000 Flawed Vests," Army Times, November 21, 2005.

10. Timothy L. O'Brien, "All's Not Quiet on the Military Supply Front," New York Times, January 22, 2006.

11. See Senate Amendment 2476 introduced on 11/9/05, Senate (bi-partisan) Resolution 429 IS, introduced 9/15/04, and H. Res 494, introduced in the 108th Congress on 1/20/04 by Rep. Jim Leach (R-IA).

12. Charlie Cray, "The Government's Business," Multinational Monitor, May/June 2004.

13. See "The Honest Leadership and Accountability in Contracting Act of 2006" (S. 2361) and H.R. 2767, "The Contractors Accountability Act of 2003."

14. See H.R. 2767 "The Contractors Accountability Act of 2003," as well as the Project on Government Oversight's contractor misconduct database, http://www.pogo.org/db/

15. See S. 2590, the "Federal Funding Accountability and Transparency Act."

16. AFL-CIO State Procurement Fact Sheet. At: http://www.aflcio.org/issues/legislativealert/stateissues/upload/govcontractors.pdf

17. Section 808 of the FY 1998 National Defense Authorization Act made unallowable the costs of compensation in excess of a level established annually by OMB. See Public Law 105-85, Nov. 18, 1997, Section 808.

18. http://www.buildingtrades.org/govaffairs/policies.html.

19. http://www.corporatepolicy.org/issues/taxtraitors.htm.

20. http://www.gao.gov/new.items/d06342.pdf.

21. See www.revolvingdoor.info for more information.

22. See H.R. 5112 and H.R. 1317.

23. http://www.citizen.org/congress/campaign/state_local/pay_to_play/articles.cfm?ID=10982

24. See http://www.pogo.org/p/contracts/c/co-040101-contractorb.html#brecommendations. For information on state bans, see Progressive States Network, "Stateside Dispatch," April 10, 2006. At: http://www.progressivestates.org/dispatch

25. See AFSCME, http://www.afscme.org/private/tools05.htm

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