Outsourcing U.S. foreign policy: the ultimate rip-off - Updated postscript 9/7/07

By PHK

John Dexter’s letter “Working for the Government, or Acting as It?” to the WaPo editors in reaction to a December 26 page A-19 article by Glenn Kessler struck a raw nerve. So I dug up Kessler’s “Old Iraq Strategy Lives On In Weekly Progress Reports.” In it, Kessler mentioned, but peculiarly did not question - as retired U.S. Foreign Service Officer Dexter pointed out - the outsourcing of the process of administering American foreign policy in Iraq to BearingPoint, Inc. by the State Department for a mere $2 million.

Kessler’s article, in fact, alludes - almost under the radar - to what may turn out to be the tip of yet another contractor cronyism iceberg – or perhaps more accurately given the terrain and changes in Congress, minefield. But this is more than just your ordinary Teapot Dome scandal – it’s a scandal that goes to the essence of government itself.

Reams have been written – and we’re told that the new Democratic Congress is preparing to hold hearings - on the waste, fraud, abuse, corruption, mismanagement and lack of oversight surrounding huge Pentagon-related Iraq and Afghanistan war contracts to such now household company names as Halliburton, SAIC and Lockheed-Martin. There are also indications that the House’s Government Reform Committee under new committee chair Henry Waxman (D-Calif) and Homeland Security Committee under Bennie Thompson (D-Miss) will also closely examine contractor abuse and political corruption in their respective spheres.

Waxman has proposed the establishment of five subcommittees, the first to focus on national security and international relations.

But what about the House Foreign Affairs or Senate Foreign Relations Committees?

Will they too focus on problems surrounding State Department and USAID contractors where substantial sums have also changed from public to private hands in the vain hope of turning Iraq and Afghanistan into models of western democratic nations in the heart of the Middle East? Or will these committees stand aside and let Waxman bear the brunt of the investigatory process? I certainly hope not. Beyond the financial waste and abuse that may well be lurking here lies the broader issue of outsourcing the integrity and accountability of our foreign policy.

It doesn’t take much googling to put at least a few of the pieces together with respect to the incredible magnitude of the privatization of American foreign policy during the W administration – and not just what has occurred under the auspices of the DOD.

As others have suggested, this vicious turning riches-into-more-riches cycle for giant corporations includes corporate PAC and other campaign contributions to W’s election and reelection campaigns as well as those to selected members of Congress.

Yet, at least some of the big-ticket projects which the Republicans in Congress and the White House have blithely tossed to their pals in the private sector over the past six years would have been handled by career federal employees in times past, at, I would venture to suggest, far less expense, far more loyalty to the common good and with greater expertise.

BearingPoint represents another of the many private centipede contractors tied by enormous strings to thousands of subcontractors which eat away at the traditional functions of the U.S. government. Given the nature and enormity of this single corporation’s operation – I’ve read that it has contracts from all 14 US government departments - I’ve undoubtedly only stumbled onto bits and pieces of its whole.

What is BearingPoint?

From 1997 - October 2002, BearingPoint was the consulting arm of the more than a century old auditing firm KPMG. In the wake of the Enron-Arthur Andersen debacle, KPMG’s less-than-five-year-old consulting arm was quickly spun off under its new name.

BearingPoint aka KPMG consulting, however, had already entered the lucrative foreign aid contracting business during the 1990s in the former Yugoslavia at a time when USAID had begun outsourcing ever more of the tasks assigned it, in part at least, because this was the only way the Agency could respond to increasing US governmental demands for its services despite its shrinking staff. But it wasn’t until after 2000 that enormous civilian foreign affairs contracts started to flow in BearingPoint’s direction.

By that time, career USAID, State and USIA staffs had been dramatically reduced, thanks in good part to an isolationist Republican Congress that thought the world was flat and ended at the ocean’s edge and a Democratic White House that wanted to demonstrate that it could dramatically reduce the size of the US government in line with the “peace-dividend” at the “end of history” after the end of the Cold War.

Yet even during the 1990s, overall coordination for US government spending on civilian democracy-building-type projects for the Soviet Union and the former Yugoslavia took place within specially created offices for each in the State Department. I remember having to comply with their decisions, whether I agreed or not. These offices were staffed largely by career foreign service and civil servants even though much of the money was contracted out and the heads of the offices had strong political connections.

Thus outsourcing had already become the name of the civilian foreign affairs projects and programs game well before W rode into town. But at least it was career government employees - tending to see things in terms of the common public good that policed the private contractors – not private contractors “policing themselves” with all eyes focused principally on their company’s balance sheet.

As it turns out, BearingPoint’s current $2 million contract with the State Department to administer the government’s Iraq policy process is, in fact, small potatoes compared to the billions of dollars in contracts BearingPoint, Inc. has thus far received from USAID for projects just in connection with the economies of Iraq and Afghanistan.

BearingPoint, unsurprisingly therefore, turns up on the Center for Corporate Policy's list of one of ten major corporations in 2004 to profit the most from the Iraq war as well as one of the top 100 federal contractors overall. What distinguishes BearingPoint from companies that have profited even more - for instance Halliburton and Lockheed Martin - is that BearingPoint’s largest contracts come from USAID, not the military.

BearingPoint has also profited from DOD contracts and even more mightily from Department of Homeland Security contracts (for things like improving airport security) but the biggest single grant I located was for a second round USAID economic contract for Iraq awarded to BearingPoint in 2005.

BearingPoint’s initial USAID contract for the project which had been increased from $79, 583,885 to $103,500,000 by the time it had ended was then topped by that new contract for $184,637,237 in 2005. All together, BearingPoint received from USAID, between 2003-2005, contracts worth $288,137,237 solely for its work in Iraq – a remarkable accomplishment in less than three years.

What’s wrong with this picture?

Not only has BearingPoint profited mightily from huge USAID projects, it turns out that it wrote the specifications for USAID’s contract for the original Iraq economic project. In contrast, the other nine contractors who also bid on the proposal had only a single week to read the specifications written by BearingPoint and submit their final bids. In essence, this turned the entire competitive bidding process into a sham.

Results? BearingPoint hardly received so much as a slap on the wrist. Instead, it was rewarded with that first nearly 80 million dollar contract and then, within less than two years, was allowed to “compete” for - no surprises here – and won an even larger contract for a follow-up project. This, despite the irregularities that surrounded the first contract and not to mention the fact that the USAID Inspector General’s office found the company out of compliance in its administration of a grant for similar work in Afghanistan.

Wait: there’s more . . .

Where does loyalty lie?

Kessler’s article tells us that not only do ten employees of BearingPoint, Inc. write State’s thirty page weekly “progress” report on Iraq but that staff, working out of offices in the State Department, “arrange the meetings, set the agendas, take notes, and provide summaries of the discussions” for the working groups across the US government that implement Iraq policy on a daily basis. In addition, according to Kessler, BearingPoint “maintains the website of the US Embassy in Baghdad.” Would someone please tell me how many other Embassy web pages are maintained by contractors - and why any are?
More to this post’s point, if BearingPoint writes the government’s weekly “Iraq report card” – whether the categories it uses to “classify” the data are still relevant or not – then it is highly likely that its employees sit in positions that no other contract staff does. Thus, BearingPoint employees have the unique ability to present information in the reports cited so as to make their own employer’s project results look good – or at least not as ineffectual as they might otherwise appear.

BearingPoint also has access to what was once considered privileged information by virtue of its staff’s strategic place - in Kessler’s words, “arranging interagency meetings, setting their agendas, taking notes and providing summaries of discussions.” They are, therefore, also in a unique position to learn what funding for what types of projects is coming down the line, to know how their competitors are faring and even which officials are likely to support what.

The usual rationale most frequently resorted to by the-privatize-the-government conservative crowd is that contracting out saves the government money because contract staffs are allegedly cheaper than permanent government workers. In reality, this assertion is highly questionable.

If contractors can be said to be cheaper, it would have to be because of retirement benefits. Excluding the pension question, however, I understand that a contract employee costs 20-50 percent more to the US government than does a full time government employee. And as Joseph Neff of the Raleigh, North Carolina News & Observer wrote on December 24, “US taxpayers pay the premiums to insurance companies for these contractors. When the contractors are killed or injured in war, taxpayers pay the benefits, too. . . . No agency regulates the premiums, and no one tracks the overall costs.”

It is undisputed that government short term contracts for commercial tasks and certain nongovernmental functions are beneficial. For example, no one expects the government to get into the paper towel/toilet paper manufacturing business. But selling out the policy-and-programs store to a private profit making enterprise is something else again. As Dexter pointed out in responding to Kessler’s article, the “normal functions of responsible government agencies [are] not technical or advisory services that can be ‘privatized’ without compromising the integrity and accountability” of government itself.

Tracing the entangled relationships between various kinds of campaign contributions and lobbying efforts is another ballgame. But it does concern me that BearingPoint contributed $2,000 to the 2006 reelection campaign of Bennie Thompson, who now chairs the House Homeland Security Committee, and $10,000 for the same campaign to Tom Davis, now the ranking member of the House Government Reform Committee. The good news: at least Henry Waxman, the latter committee’s new chair does not appear on any BearingPoint pay-off Congressional list that I have found and neither does Tom Lantos, the new chair of House Foreign Affairs Committee. This gives hope for genuine reform.

Only time will tell whether the 110th Congress will turn more than fleeting attention to BearingPoint and other corporations who have also reaped untold profits from the civilian side of the Iraq fiasco. But while they’re at it, I wish they’d also look at something else.
Once upon a time we had a career, professional civil and Foreign Service large enough to handle our government’s important tasks. This system supplanted the corrupt, inefficient spoils system that had gone before. The new Civil and Foreign Service systems were design to operate on merit principles, to avoid nepotism and to employ professionals with the consistent skills and expertise needed to operate an ever more complex government.

This system functioned well for years – but beginning in 1980 when the anti-government movement hit Washington, it began to falter. The politicization of the federal bureaucracy is now at fever pitch.
Yet, if US taxpayers want competent, uncorrupt government then they also need to bite the bullet and pay for it. This means a turn-around in the number and quality of full-time career government employees supported by strong ethics legislation with teeth in it.

Would this Congress please, at least, give both a try?

9/7/2007 post script: Elizabeth D. Dyson pointed out to me today the following in Al Kamen’s In-the-Loop column in the WaPo. This is a report stating that the Army Contracting Agency is now planning to outsource its quarterly Congressional Iraq Reconstruction reports. To do so it is requesting bids from small private businesses “to procure all personnel, equipment, tools, materials, supervision, and other items and non-personnel services necessary to perform data collection, analysis, design, formation and other project management support to ensure publication of the quarterly project.”

Please. Think about the implications – these reports are read avidly and have tremendous impact. They are particularly significant because, as Kamen states, “they have revealed tremendous waste and fraud and not very much progress on the reconstruction front.” Perhaps Congress’s Government Accountability Office (GAO) or one of the appropriate Hill oversight committees might want to explore this latest bit of outsourcing in greater depth.

This post was prepared with assistance from Washington attorney Elizabeth D. Dyson who worked in the General Counsel’s office at the US Office of Personnel Management for 15 years.

Comments

[Ken Larson]

There are good points in your article. I would like to supplement them with some information:

I am a 2 tour Vietnam Veteran who recently retired after 36 years of working in the Defense Industrial Complex on many of the weapons systems being used by our forces as we speak.

If you are interested in a view of the inside of the Pentagon procurement process from Vietnam to Iraq please check the posting at my blog entitled, “Odyssey of Armaments”

http://rosecoveredglasses.blogspot.com/2006/11/odyssey-of-armaments.html

The Pentagon is a giant, incredibly complex establishment, budgeted in excess of $500B per year. The Rumsfelds, the Administrations and the Congressmen come and go but the real machinery of policy and procurement keeps grinding away, presenting the politicos who arrive with detail and alternatives slanted to perpetuate itself.

How can any newcomer, be he a President, a Congressman or even the new Sec. Def.Mr. Gates, understand such complexity, particularly if heretofore he has not had the clearance to get the full details?

Answer- he can’t. Therefore he accepts the alternatives provided by the career establishment that never goes away and he hopes he makes the right choices. Or he is influenced by a lobbyist or two representing companies in his district or special interest groups.

From a practical standpoint, policy and war decisions are made far below the levels of the talking heads who take the heat or the credit for the results.

This situation is unfortunate but it is absolute fact. Take it from one who has been to war and worked in the establishment.

This giant policy making and war machine will eventually come apart and have to be put back together to operate smaller, leaner and on less fuel. But that won’t happen until it hits a brick wall at high speed.

We will then have to run a Volkswagen instead of a Caddy and get along somehow. We better start practicing now and get off our high horse. Our golden aura in the world is beginning to dull from arrogance.

[PHK]

Ken: Thanks for your insightful comments about the Pentagon procurement process. It is a nightmare. I think your point is well taken about the slanting of alternatives by those involved. This certainly happens on the civilian side as well. But I question whether the political bosses are hapless in their choices - isn't that why they have professional staffs and the Congress has committee staffs, CRS and GAO? Sure the politicians are not going to know the details of intricate weapons systems (or even international exchange programs), but the Pentagon also has one of the most elaborate lobbying systems I know (State's is really pathetic and something Powell tried to change) so combine that with the defense contractors lobbying activities - then toss in the neocons who want to use the military to "solve" every international problem - and the results are sadly predictable.

Anyway, my point in the above post was to focus on the civilian side of the foreign affairs outsourcing problem because I'm afraid it is about to be overlooked in Congressional investigations. And it's far larger and insidious to "the common good" of this country than most people realize.

[gandhi]

Ken,

There are good points in your comment. I guess that's why you reproduce it on a totally different post at my blog?

PHK,

Good article! Linked today by Juan Cole.

[mbbsdphil]

This administration has maneuvered privatization into the operations of virtually all US Government agencies. From mercenaries in Iraq, who cost three to five times the rate of US service personnel, to Inspector Generals' offices. Tie this with the political appointment of career lobbyists to run these agencies, and the US Government may soon be like the Army: unable to dig a latrine, feed its soldiers, clean their clothes or load their weapons without an accompanying private sector geek. All at considerably more cost to the taxpayer than competent government employees, retirement pensions and healthcare included. This is matched by an equally insidious development at the state level: the "outsourcing" of our transportation infrastructure, such as the Indiana Turnpike. Paid for and supported by federal and state taxpayer dollars, these assets are increasingly being sold or leased to foreign private interests at rock bottom rates. With exorbitant penalty clauses should more savvy governments seek to reverse the transactions. A high stakes game of heads I win, tails I win. Equally troublesome is funding Mr. Bush's deficit by borrowing heavily from China and Saudi Arabia. As with outsourcing public government functions to private interests, we will have less ability to make decisions independent of these interests. Worst of all, how dependent we are is unlikely to be disclosed. Tick the box on another task for a Congress run by a thin majority in the Senate.

[The Lounsbury]

Well, I see much scare mongering but nothing of particular substance with respect to why out-sourcing implementation of development programs is worse than having a large staff of implementing bureaucrats.

Cronyism and corruption is of course a disease of this American government, but having seen say the EU model of government staffed economic development programs in action, I fail to see a critique.

[PHK]

I think you missed a major point. It's not only the outsourcing of USAID projects, it's the issue of who is in charge of the process of administering US foreign policy in Iraq. To contact out this basic governmental function (which did not happen under previous administrations) as is happening now with a private company that is also a major USAID contractor in Iraq has all sorts of implications that need examination by the new Congress.

[The Lounsbury]

I miss your major point as I don't see any evidence of what your banging on about. And I find this But at least it was career government employees - tending to see things in terms of the common public good that policed the private contractors – not private contractors “policing themselves” with all eyes focused principally on their company’s balance sheet risible.

You idealise the bureaucrats and demonise the contractors.

Nothing but the usual bollocks as far as I can see, the career bureaucrats look after building empires by bureaucracy, contractors look to do so via contracts.

Leaving aside Left hysteria regarding "privatising" the issue in Iraq has been competence of the Sr. strategic policy makers, and the subsequent chain of transmission.

Poor governance as such, not merely outsourcing, strikes me to be the problem.

That being said, the opposition party would do well to go after your corrupt, and worse, incompetent administration.

[PHK]

If you had worked for the US government in the foreign affairs field and been involved in administering and awarding contracts to private companies, then you might understand better what I'm saying.

Look again at Glenn Kessler's description of the $2 million contract to BearingPoint for "administering the Iraq process" at the State Department - then think about the enormous USAID Iraq contracts that the company got, how it got the first one, and what insider knowledge it will have for the projected ones coming in the future as a part of the administration's "surge" funding.

You may not think highly of British diplomats and aid officials, but the ones I've known over the years have been quite professional.

And I don't know what you're experience has been with the US Foreign Service. Sure, I've run into a handful of former colleagues who had been dishonest - but they also were weeded out of the corps. The vast majority were honest, loyal and tried to do the best they could with ever shrinking staffs, resources and greater demands on their time.

[CKR]

One of the obvious problems with the BearingPoint contract is that BearingPoint seems to have helped write the specs for it.

This is simply not acceptable, or at least it wasn't when I was administering contracts. The reason is that the company can tilt the specs toward itself: conflict of interest, y'know.

There is also the question of interest in making national policy. A company has its own interests. Whatever the limitations of government employees, at least they are not being paid by a particular company with its need to make a profit.