U.S. Crackdown on Wasteful War Contractors Urged by Commission

The U.S. government should intensify its efforts to prohibit wasteful and corrupt companies from receiving federal contracts in war zones, a commission authorized by Congress said.

“Suspensions and debarment can be powerful tools to protect the government’s interests,” said an eight-page summary of the Commission on Wartime Contracting’s final report, released today.

More than $30 billion has been wasted or lost to fraud from U.S.-funded Iraq and Afghanistan contracts, about one in every six dollars of the $192.5 billion spent on contracts and grants from 2002 to 2011, the panel said. The amount of overall spending will grow to $206 billion by Sept. 30.

The amount of wasteful spending could grow to as much as $60 billion in Iraq and Afghanistan if their governments fail to maintain adequate controls on U.S.-started projects, the commission said.

“Fostering a culture of accountability is especially difficult in war zones where the contractor community is made up of U.S., local and third-party nationals, where gathering a stable of responsible, competitive companies is a challenge,” the report said. “When agencies fail to suspend contractors from participating in the federal marketplace despite chronic misconduct, criminal behavior, or repeated poor performance, the deterrent threat is lost.”

Call for Crackdown

The report cites the case of the Louis Berger Group, which in November 2010 “entered into a deferred-prosecution agreement with the Department of Justice after allegations of massive fraud. USAID did not suspend the firm. Instead, the agency entered into an administrative agreement which allowed the firm to continue competing for federal contracts,” the report said.

The call for a crackdown could reinforce legislative proposals in the pending fiscal 2012 defense policy bill. They would require any defense contractor to quickly lose funding if a subcontractor is found to have connections to the Taliban, al- Qaeda or insurgent groups.

The commission issued 15 recommendations that it said would improve contractors’ performance and reduce wasteful spending.

They include phasing out the use of private security contractors in some circumstances; expanding the authority of military and civilian officials responsible for contingency contracting; creating a permanent inspector general’s office for contingency operations; and setting annual goals to increase competition for wartime contracts.

‘Procedural Barriers’

The commission recommended the federal government “revise regulations to lower procedural barriers” for pursuing the actions and “require a written rationale for not pursing a proposed suspension or debarment.”

The suspension provisions “will have the most impact on companies where it has been demonstrated wrong-doing,” the commission co-chairman Michael Thibault said in an interview.

“Our feeling is if an organization really demonstrates it cannot operate within the boundaries of the law, the consequence ought to be greater,” he said. “We believe the appeal process has bogged the system down so much suspension and debarment is often ineffective.”

Representative John Tierney, a Massachusetts Democrat, said in a statement today he will introduce legislation mandating a permanent inspector general.

Better Access

The panel also recommended increasing staffing and authority of the Pentagon’s primary oversight units, the Defense Contract Management Agency and Defense Contract Audit Agency, to ensure better access to contractor records.

The Pentagon on Aug. 16 put into effect one of the commission’s ideas: authority to withhold contractor payments for significant deficiencies in any of six primary business systems.

The commission was established by the fiscal 2008 defense bill at the insistence of Senate Armed Services Committee members James Webb of Virginia and Claire McCaskill of Missouri, both Democrats. They remain on the panel, putting them in position to press its recommendations in the next defense budget.

“It is shocking that the commission found such rampant waste, fraud and abuse,” McCaskill said in a statement yesterday. “I plan to begin working immediately to implement their recommendations.”

To contact the reporter on this story: Tony Capaccio in Washington at acapaccio@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net

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