Balkinization: Watching for Stimulus Abuses

Watching for Stimulus Abuses

Guest Blogger

Martha Minow

The economic stimulus package will provide billions of dollars through contracts with government contractors over the next several years—and it’s about time to anticipate and control for the predictable problems with accountability. Rebuilding bridges and tunnels, green initiatives improving energy efficiency in government buildings and in private settings, information technology projects for schools and health care, even funding of arts initiatives, to meet the stimulus goal, will have to proceed quickly and will necessarily rely on private providers. We know from the escalating reliance on private contractors during the Afghanistan and Iraq wars, the response to the Katrina disaster, and the first phase of the bail-out for financial institutions that emergencies invite carelessness and abuse when it comes to ensuring that government dollars reach their intended use and produce effective results. Massive graft by contractors and government officials in Iraq reconstruction projects is well-documented. Chains of subcontractors involved in clean-up and reconstruction in New Orleans often ran many companies deep, with each additional tier making it hard to discover and go after fraud and making lost pay. The Congress is still trying to get answers about how moneys were spent on the Troubled Assets Relief Program. We know the risks; we should demand tough oversight accountability measures to accompany the stimulus package and its pay-out at the state and local levels.

Some, and perhaps even much, of private government contracting works well. Contracts for run-of-the mill supplies and routine commercial services may pose few problems while generating significant savings or quality improvements for taxpayers. From this perspective, examples of egregious contractor conduct seem few and far between, and should not be the basis for unnecessary system-wide reform. Ye especially when viewed as emergency actions, contracts are literally off-the-books; others are awarded under suspicious circumstances, hurriedly and without competition. Many contracts are so underspecified as to afford contractors almost unlimited discretion. And even when contractual terms are clear, there can be a stunning failure of government oversight. At times, it seems as if no one in any branch of government—executive, legislative, judicial—has the knowledge and capacity, not to mention the political will, to enforce contractual terms.

In fact, the three accountability regimes of law, markets, and politics can all break down in the face of the extensive government contracting. Government agencies so often lack the capacity to enforce contractual terms or keep up with contractors who know how to exploit gaps in the framework of legal obligations and contract duties. Private economic markets can fail to exert meaningful control over contractors; often the government itself creates the market by generating demand, and then, through devices like no-bid and cost-plus contracts, fails to use market discipline. Political checks, which are inconsistent at best, can collapse entirely. This happens especially when one political party controls both Congress and the executive branch: oversight investigations dropped off significantly. Even when Congress does actively investigate wrongdoing, the hearings and follow-up measures tend to be reactive and superficial, offering relatively little by way of meaningful reform. Of course, none of three main accountability mechanisms can function effectively if basic information about performance, costs, and effects are hard to obtain. The relative inaccessibility of the contracting process (to all but the competing contractors themselves, and the most intrepid academics) only heightens the risk that serious problems will be identified too late, or never. If contractual governance bypasses the checks on efficiency, performance, and compliance with public norms, then it can fail by these very criteria.

The Department of Defense has even contracted out the oversight process to private parties, who often have conflicts of interest because they seek and at times hold direct service contracts as well. Neither the agencies supervising the contracts, nor Congress, which supervises the agencies, are able to ensure that contracting is done in a fair or effective manner, resulting in millions of wasted taxpayer money. The scandals involving Blackwater employees, who provide security services to U.S. diplomats and are answerable to no legal system, went further, culminating in the company’s ouster by Iraq after its employees allegedly opened fire on civilians, killing several. Especially when the private contractors perform outside the jurisdiction of an operating legal system—as in war-time Iraq or New Orleans immediately after the Hurricane Katrina disaster—risks of illegal and abusive conduct, however exceptional, increase dramatically.

Much outsourced work evades basic public efforts at openness. For example, despite repeated public questions since 9/11, neither the Army nor the Pentagon directly answered how many private contract employees worked for the military; public officials report that they simply do not know the answer. It is thus not surprising that Congress and the wider public have limited understanding of the actual extent of outsourced activity. Large-scale government contracts are likely to lack effective accountability mechanisms, such as a system enabling real-time auditing and guarding against excessive sub-contracting that raises overhead and reduces efficiency and transparency. Large-scale contracts executed under exigent circumstances may also well exceed the government’s capacity to manage and monitor private company performance.

It is not enough to call for more government oversight when our current oversight system has not been effective at addressing the problems detailed above. Nor is it adequate to demand more of the familiar legal and procedural checks if those checks will ossify the contracting system to the point of paralysis. Minimal accountability for government contracting requires sufficient investment in human capital and deliberate selection of the mechanisms for gathering information, setting the requirements for effective performance, and managing and enforcing the contracting and oversight process. Planning before entering into any contract, determining procedures for large-scale contracting, and anticipating the impact of the use of contractors on the government’s capacity to comply with law and public policies are crucial elements both for decisions about whether to contract and for the redesign and administration of the framework for government contracting.

As a first step in any serious discussion of reform, the accounting system for contractual governance must be honest: the costs of adequate supervision must be calculated as part of the outsourcing program, and built in, even if this means that outsourcing will not reduce costs as much as projections suggest. The government must invest in oversight—in the sense of ensuring that mechanisms of accountability are in place, whether they take the form of legal regulation, measurable contract performance terms and government contract management capacity, or political review, with sufficient disclosure of relevant indicators of performance and effectiveness. Clarity about actual requirements, roles, and responsibilities is the central precondition so that each contracting arrangement specifies who is accountable to whom, for what, through what processes, by clear standards, and with specific consequences. Meantime, providing for real monitoring and oversight, if calculated and paid for, could also add to the basic purpose of the stimulus package by restoring confidence in the system—and by providing jobs for the watch-dogs.

Martha Minow, Jeremiah Smith Jr. Professor at Harvard Law School, is co-editor (with Jody Freeman) of Government by Contract (Harvard University Press 2009).

Posted 7:05 AM by Guest Blogger [link]