Forgiving Fraud and Failure: Profiles in Federal Contracting

Executive Summary

Companies with immediate past histories of shoddy work and fraudulent practices are being rewarded with billions of dollars in federal contracts. The data suggest that the process by which the federal government currently spends $422 billion per year in taxpayer funds is insufficient to ensure that the American people receive good quality for goods and services purchased for the American people.

The rapid increase of federally contracted dollars—100 percent since 2000—makes outsourcing the fastest growing component of discretionary spending. The government’s preference for using outside contractors to provide goods and services makes careful scrutiny of the process and the decisions more important than in the past. At present, loose rules, lack of competition, and limited accountability permit so-called ‘bad actors’ to receive contracts that put taxpayers and our money at risk.

For this report, we reviewed hundreds of records and found numerous cases of contractors with questionable performance or responsibility records receiving contracts without competition or sufficient time to determine the extent of the problems identified. While the report outlines specific contractor practices, it is as much an indictment of the flawed contracting process as it is about any single company.

The profiles included in this report illustrate how little consideration is given to past performance and contractor responsibility. None of the companies faced suspension or debarment from receiving contracts for the incidents detailed in this report. The range of contracts shows the breadth of the problem and a sampling of the companies involved. A few examples include:

Fluor Corporation: Company executives were accused in 2000 of misusing federal contract dollars to buy luxury condos, a fine art collection and a Mercedes-Benz for the company president. The case settled in 2005. Less than a year later, Fluor Corporation’s contracts with the federal government increased by $1 billion; the value of the company’s non-competitively bid contracts rose from 5.7 percent to 43 percent. A significant portion of the contracts were for hurricane relief in the Gulf coast.

Bank of America: The company experienced several instances in a single year (2006) in which unencrypted data files were lost or stolen. In one instance, the bank lost records for 1.2 million federal employees including records of United States Senators. Federal agencies including the IRS continued to award the company contracts for data processing and management services. More than 60 percent of the 2006 contract dollars were awarded without competition.

General Electric: Among other concerns, GE allegedly sold the government faulty helicopter and airplane engine blades in 1999 and 2000. In August 2005, the same year that the government decided to trust GE with the better part of a $2.4 billion contract, the government was forced to get a court order to retrieve documents for its ongoing fraud case. In 2005 almost half of GE’s federal contract dollars were awarded without competition.

These are just a few of the examples that illustrate how the current federal contracting system lacks accountability and appears to accept and, by default, reward bad behavior. Changes are necessary to stem the immediate and consistent flow of money to contractors that do not act responsibly with taxpayer funds.

Changes must include:

• increased disclosure of contract information. Increase the level of accountability by giving the public access to the actual contracts, track records of companies, compliance records with relevant laws and regulations, and performance evaluations of the work completed.

• increased competition. Restore competition to the vast majority of contracts. Sole-source awards should take place only under exceptional circumstances and should be subject to even greater scrutiny and transparency.

• stronger rules to screen bad actors. Accountability requires consequences for negligent or fraudulent behavior. Tighter rules should reward responsible contractors and hold non-responsible contractors accountable for their actions.