[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]


 
        RESPONSIBILITY IN FEDERAL HOMELAND SECURITY CONTRACTING

=======================================================================

                              FULL HEARING

                                 of the

                     COMMITTEE ON HOMELAND SECURITY
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                               __________

                             APRIL 20, 2007

                               __________

                           Serial No. 110-27

                               __________

       Printed for the use of the Committee on Homeland Security
                                     
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                     COMMITTEE ON HOMELAND SECURITY

               BENNIE G. THOMPSON, Mississippi, Chairman

LORETTA SANCHEZ, California,         PETER T. KING, New York
EDWARD J. MARKEY, Massachusetts      LAMAR SMITH, Texas
NORMAN D. DICKS, Washington          CHRISTOPHER SHAYS, Connecticut
JANE HARMAN, California              MARK E. SOUDER, Indiana
PETER A. DeFAZIO, Oregon             TOM DAVIS, Virginia
NITA M. LOWEY, New York              DANIEL E. LUNGREN, California
ELEANOR HOLMES NORTON, District of   MIKE ROGERS, Alabama
Columbia                             BOBBY JINDAL, Louisiana
ZOE LOFGREN, California              DAVID G. REICHERT, Washington
SHEILA JACKSON-LEE, Texas            MICHAEL T. McCAUL, Texas
DONNA M. CHRISTENSEN, U.S. Virgin    CHARLES W. DENT, Pennsylvania
Islands                              GINNY BROWN-WAITE, Florida
BOB ETHERIDGE, North Carolina        MARSHA BLACKBURN, Tennessee
JAMES R. LANGEVIN, Rhode Island      GUS M. BILIRAKIS, Florida
HENRY CUELLAR, Texas                 DAVID DAVIS, Tennessee
CHRISTOPHER P. CARNEY, Pennsylvania
YVETTE D. CLARKE, New York
AL GREEN, Texas
ED PERLMUTTER, Colorado
VACANCY

       Jessica Herrera-Flanigan, Staff Director & General Counsel

                     Rosaline Cohen, Chief Counsel

                     Michael Twinchek, Chief Clerk

                Robert O'Connor, Minority Staff Director

                                  (II)


                            C O N T E N T S

                              ----------                              
                                                                   Page

                               STATEMENTS

The Honorable Bennie G. Thompson, a Representative in Congress 
  From the State of Mississippi, and Chairman, Committee on 
  Homeland Security..............................................     1
The Honorable Gus M. Bilirakis, a Representative in Congress From 
  the State of Florida...........................................     2
The Honorable Yvette Clarke, a Representative in Congress From 
  the State of New York..........................................    10
The Honorable Al Green, a Representative in Congress From the 
  State of Texas.................................................    14
The Honorable Sheila Jackson Lee, a Representative in Congress 
  From the State of Texas........................................    12

                               Witnesses
                                Panel I

Ms. Elaine Duke, Chief Procurement Officer, Department of 
  Homeland Security:
  Oral Statement.................................................     3
  Prepared Statement.............................................     4

                                Panel II

Mr. Scott H. Amey, General Counsel, Project on Government 
  Oversight (POGO):
  Oral Statement.................................................    16
  Prepared Statement.............................................    18
Mr. Alan Chvotkin, Senior Vice President and Counsel, 
  Professional Services Council:
  Oral Statement.................................................    25
  Prepared Statement.............................................    27
Professor Charles Tiefer, Private Citizen:
  Oral Statement.................................................    30
  Prepared Statement.............................................    31

                                Appendix

Questions and Responses:
  Responses From Mr. Scott H. Amey...............................    51


        RESPONSIBILITY IN FEDERAL HOMELAND SECURITY CONTRACTING

                              ----------                              


                         Friday, April 20, 2007

                     U.S. House of Representatives,
                            Committee on Homeland Security,
                                                   Washington, D.C.
    The committee met, pursuant to call, at 10:12 a.m., in Room 
311, Cannon House Office Building, Hon. Bennie G. Thompson 
[chairman of the committee] presiding.
    Present: Representatives Thompson, Jackson Lee, Cuellar, 
Carney, Clarke, Green, Rogers, McCaul, Dent, and Bilirakis.
    Chairman Thompson. I would like to call the hearing to 
order. We are scheduled to have a series of votes in the next 
15 to 20 minutes. What we would like to do is get our first 
witness out of--comments out so we can begin the questioning. 
Ranking Member King is delayed a few minutes. But since it is a 
hearing, we can begin since we have, according to the rules, 
enough members to begin.
    I want to thank our witnesses who are here today. Federal 
contracting is an important issue. Every year, the Federal 
Government spends billions of dollars in buying goods and 
services from the private sector. There is a necessary 
relationship between the government and the private sector. In 
2006 alone, DHS spent about 40 percent of its $31 billion 
budget on contracts for goods and services, making DHS the 
third-largest purchaser in the Federal sector.
    I have been told their responsibility in contracting is a 
government-wide issue and shouldn't be the concern for this 
committee. I have also been told that strengthening 
responsibility rules must be a government-wide undertaking. 
Yes, I agree that responsibility should permeate every 
procurement shop in the Federal Government. But that will never 
happen unless one agency steps forward and decides to reach for 
a higher standard. Increasing contract accountability at DHS 
will help transform the 6 slip shot contracting methods that 
pervade the Federal Government.
    As Members of Congress, we have a duty to ensure that 
before the taxpayers' money is spent, DHS knows the company 
receiving it will exercise sound business practices ethics and 
integrity. Yet, I am told that responsibility in contracting is 
a controversial topic. How could anyone be opposed to increase 
standards of accountability? Assuring accountability before 
contracts are awarded would reduce fraud, waste and abuse later 
on down the line. Experience has proven that there is a direct 
connection between an agency failing to adequately compete a 
contract and poor performance on that contract.
    The billions wasted in no-bid sole source contracts awarded 
after Katrina stand as a testament to that fact. Traditionally, 
full and open competition has been a government-wide standard. 
However, in recent years, there has been a troubling shift 
toward noncompetitive sole source contract.
    In fiscal year 2005 alone, nearly 50 percent of DHS 
contract awards was sole source, no-bid contracts. This 
committee has established a robust record and a demonstrated 
commitment to increased responsibility in contracting at the 
Department of Homeland Security. In our authorization bill for 
fiscal year 2008, we require each contractor to disclose any 
role its company may have had in creating any part of the 
contract vehicle that it is bidding on. We also require a 
statement from each contractor that it is not in default or 
delinquent on Federal tax obligations. This is a good start and 
does not stop there. If a company wants a DHS contract, should 
we expect at the very least that there is no conflict of 
interest and they have paid their taxes?
    Contractor responsibility is just this simple. Federal tax 
dollars should not be used to support companies that are not 
willing to comply with Federal law. I want to thank all our 
witnesses who are here today and I look forward to our 
testimony.
    I understand Mr. Bilirakis will do the opening statement 
for our Ranking Member, Mr. King. I yield to Mr. Bilirakis.
    Mr. Bilirakis. Thank you, Mr. Chairman. I appreciate it 
very much. It is an honor to be able to present the opening 
statement on behalf of Mr. King. It is imperative that DHS work 
with responsible contractors in procuring goods and services 
from the private sector. Awarding contracts to responsible 
bidders means decreasing the potential for waste, fraud and 
abuse in the system. This is critical, given the limited number 
of dollars DHS has to counter the many threats to the security 
of the homeland. There already exists clear standards for 
responsible bidders in government contracting. We must remember 
that there already exists a substantive and well-founded 
regulatory framework that pertains to government procurement, 
the Federal Acquisition Regulations or FAR.
    It is important to note that no agency, including the 
Department of Homeland Security, can opt out or exempt itself 
from the FAR. In all, DHS contractors are faced with nearly 
1,500 pages of government procurement standards. Complying with 
this voluminous and oftentimes burdensome set of regulations is 
a challenge for many businesses. It has the potential to 
discourage would-be government contractors, and the burden of 
these complicated regulations often falls disproportionately on 
small businesses which do not have the government procurement 
expertise to navigate the rules of this complicated acquisition 
system.
    The Department of Homeland Security, due to its mission of 
protecting the homeland, certainly has a high volume of 
procurement contracts. However, the Department is only 4 years 
old. While the Department has seen its share of procurement 
problems and issues with Federal contractors, many of the DHS 
procurement problems have more to do with the lack of 
experience and training on the part of DHS acquisition 
workforce than a lack of standards for contracts.
    Additional or new procurement regulations are not the 
answer. The answer lies with the Department in properly 
following and complying with existing procurement standards, 
vetting prospective contractors and conducting substantive due 
diligence to the best of its ability. This committee also has a 
responsibility in this process in carrying out our highly 
important oversight responsibilities.
    I thank the witnesses for appearing before the committee 
today. And I look forward to your testimony. Thank you, Mr. 
Chairman.
    Chairman Thompson. Thank you very much. Ms. Duke, we are 
going to try to get through your testimony, and we will come 
back after that for questions. But in the interest of time, 
please begin your testimony.

STATEMENT OF ELAINE DUKE, CHIEF PROCUREMENT OFFICER, DEPARTMENT 
                      OF HOMELAND SECURITY

    Ms. Duke. Thank you. Thank you, Mr. Chairman, members of 
the committee for the opportunity to appear with you to discuss 
the DHS contracting procedures on responsibility. In my written 
testimony, I outlined the detail of the processes and systems 
we rely on to ensure that we do business only with responsible 
contractors. For today's purposes, let me very briefly touch on 
the processes and systems and address your question, are the 
current standards for responsibility sufficient? In accordance 
with the regulations, contracting officers are required to 
obtain acceptable evidence of the prospective contractor's 
ability to obtain required resources and must be provided with 
a satisfactory performance record.
    At DHS, our acquisition regulations supplements make it 
very clear that contracting officers are to perform 
responsibility determinations before awarding a contract. Their 
assessments are based on a number of inputs ranging from 
information collected in response to a specific procurement to 
centrally available information.
    For example, contracting officers evaluate a company's 
financial statements, consider how long it has been in business 
or may review its bond rating. Prior to making an award, 
contracting officers check the excluded parties list system to 
determine if a contractor is debarred or suspended from 
government contracting. A single agency's suspension or 
debarment decision with limited exceptions precludes all other 
agencies from doing business with that excluded party. Another 
critical step in determining responsibility is considering past 
performance. DHS contracting officers use the government-wide 
Past Performance Information Retrieval System known as PPIRS to 
obtain information Federalwide on contractor past performance.
    Overall responsibility determinations are also dependent on 
the contractor representations and certifications as they are 
known. The contractor certifies, for instance, to the best of 
its knowledge and belief, whether within 3 years of its offer, 
the company or any of its principles have been convicted of or 
had civil judgment rendered against them for a wide range of 
offenses.
    Now, in response to the central question of the hearing, 
are the standards for determining responsibility sufficient? 
Let me start by saying that people frequently use 
responsibility and suspension and debarment almost 
interchangeably. Yet, responsibility determinations and 
suspension debarment are both for the purposes of protecting 
the government's interest, the scopes and consequences of those 
actions differ considerably. A responsibility determination is 
made by the contracting officer and pertains to the specific 
contact action.
    Of course, in conducting responsibility determination, the 
contracting officer may become aware of a series of problems 
that may force them to recommend a contractor for suspension 
and debarment. But generally the responsibility determination 
is confined to a single award and focuses on answering the 
question, does the contractor have the integrity past 
performance and resources to meet the government's requirement?
    Contracting officers use their discretion when evaluating 
the information for responsibility determination. What I mean 
by this is, acquisition professionals must make the decisions 
based on the information available to them and the situation 
before them so that in applying the rules there may be 
different outcomes in different situations. On the other hand, 
suspension and debarment are made by the head of the agency and 
generally relate to patterns of behavior and violations of law 
regulations.
    Current regulations regarding responsibility and suspension 
debarment reflect a philosophy that emphasizes that the 
intended purpose of the action is to prevent poor performance, 
waste, fraud and abuse in Federal procurement. The motivation 
behind an action to suspend or debar a contractor or for the 
contracting officer to make a negative responsibility 
determination is not punitive in nature, but rather a measure 
designated to protect the government's interests.
    We strive to be fair and reasonable, to be aware of privacy 
concerns and to ensure due process is afforded where 
appropriate and to craft regulations that allow for those that 
may not have been model citizens in the past to be 
rehabilitated so that they are eligible for government 
contracts.
    Mr. Chairman, I know the committee is concerned with the 
contracts that are being awarded to unethical contractors. The 
civilian agency acquisition council recently published two FAR 
cases related to responsibility. One rule entitled Contractor 
Code of Ethics and Business Conduct was initiated by members of 
my staff and proposes as establishing clear and consistent 
policy on contractor code of ethics and business conduct. The 
second rule, Representations and Certifications on Tax 
Delinquency, proposes to specifically address delinquent 
Federal or State tax obligations within 3 years of an offer and 
contractors' representations and certifications.
    I appreciate the opportunity to testify before this 
committee about DHS contracting and I would be happy to answer 
questions of the committee after your vote.
    [The statement of Ms. Duke follows:]

                   Prepared Statement of Elaine Duke

    Chairman Thompson, Congressman King, and Members of the Committee, 
thank you for this opportunity to appear before you to discuss the 
Department of Homeland Security (DHS) acquisition program and our 
contracting procedures as they relate to responsibility determinations. 
I am the Chief Procurement Officer (OCPO) for the Department of 
Homeland Security (DHS). I am a career executive and I have spent most 
of my 23 years of public service in the procurement profession.
    Before addressing responsibility determinations, I'd like to convey 
my top three priorities, which are essential elements to enhancing our 
ability to procure from responsible contractors.
         First, to build the DHS acquisition workforce.
         Second, to make good business deals.
         Third, to do effective contract administration.
    As the CPO, I provide oversight and support to eight procurement 
offices within DHS--Customs and Border Protection (CBP), Federal 
Emergency Management Agency (FEMA), Immigration and Customs Enforcement 
(ICE), Transportation Security Administration (TSA), United States 
Coast Guard (USCG), United States Secret Service (USSS), Federal Law 
Enforcement Training Center (FLETC), and the Office of Procurement 
Operations (OPO). As the CPO, my primary responsibility is to manage 
and oversee the DHS acquisition program. I provide the acquisition 
infrastructure by instituting acquisition policies and procedure that 
allow DHS contracting offices to operate in a uniform and consistent 
manner.
    Mr. Chairman, I know that you are very concerned about ensuring 
that DHS and its Components procure goods and services on behalf of the 
American taxpayer from responsible contractors. I can assure you that 
we share your interest.
    Not just at DHS, but throughout Federal agencies, there is an 
emphasis on conducting business with responsible contractors. The 
Federal Acquisition Regulation (FAR) requires all Federal agencies to 
procure goods and services only from responsible contractors. Prior to 
entering into a contract, the Contracting Officer is required to obtain 
acceptable evidence of the prospective contractor's ability to obtain 
required resources, and also must be provided with a satisfactory 
performance record. When a Contracting Officer awards a Federal 
contract, he or she is making an affirmative determination that the 
recipient of the contract is a responsible contractor with respect to 
that contract. If there are concerns about the responsibility of 
responsive small businesses, the Small Business Administration is the 
sole authority for these determinations.
    The FAR provides the guiding principles and the processes and 
procedures the acquisition community uses to ensure that the Government 
does business only with responsible contractors. The process for 
reaching a conclusion that a contractor is responsible is governed by 
FAR Subsection 9.104-1(a), which requires that in order to be deemed 
responsible, a prospective contractor must
         Have adequate financial resources;
         Be able to comply with the delivery or performance 
        schedule;
         Have a satisfactory performance record;
         Possess a satisfactory record on integrity and 
        business ethics;
         Possess the necessary organization, experience, 
        technical skills, accounting and operations oversight;
         Have the production, construction and/or technical 
        equipment and facilities to perform the work required; and
         Otherwise be qualified and eligible.
    At DHS, our Homeland Security Acquisition Regulation, the HSAR, and 
our Homeland Security Acquisition Manual, the HSAM, supplement the FAR 
guidance and make it very clear that our Contracting Officers are to 
perform responsibility determinations prior to making a new contract 
award. In fact, DHS has even developed a form, DHS Form 700-12, to 
guide the responsibility determination process. The list of factors 
required by the form expands upon those required by FAR 9.104 and 
includes drug free workplace, small business subcontracting compliance, 
equal employment opportunity, and environmental/energy considerations.
    Our Contracting Officer's assessments with respect to a 
contractor's responsibility are based on a number of inputs, ranging 
from information collected in response to a specific procurement to 
centrally available information. For example, when assessing financial 
responsibility, a DHS Contracting Officer may review and evaluate the 
latest company financial statements. Other considerations may include 
how long the company has been in business, any bankruptcies declared by 
the company, bond rating by Moody's or Standard and Poor's, etc. 
Additionally, since April of 2003, DHS has had a memorandum of 
understanding in place with the Defense Contract Audit Agency (DCAA) 
that makes available their expertise in determining financial 
responsibility of prospective contactors.
    Prior to making an award, the Contracting Officer reviews the web-
based Excluded Parties List System (EPLS) operated by the General 
Services Administration to ascertain whether the contractor is debarred 
or suspended from Government contracting; those on the list are 
excluded from doing business with the Government. The focus of 
debarment and suspension is to exclude companies that are not presently 
deemed responsible. A contractor may be suspended or debarred for broad 
range of conduct--commission of fraud or a criminal offense in 
connection with obtaining, attempting to obtain, or performing a public 
contract or subcontract; violation of Federal or State antitrust 
statutes relating to the submission of offers; commission of 
embezzlement, theft, forgery, bribery, falsification, or destruction of 
records, making false statements, tax evasion, or receiving stolen 
property. However, it should be noted that convictions or civil 
judgments are not required; a debarment may use a preponderance of 
evidence standard when making decisions. The standard for suspension is 
adequate evidence and often is imposed when there is an indictment, but 
not a current conviction or judgment. Additionally, suspension and 
debarment may occur as a result of any other offense indicating a lack 
of integrity or business honesty that seriously and directly affects 
the present responsibility of a Government contractor or subcontractor. 
But, that said, it is important to note the existence of a cause for 
suspension or debarment does not necessarily require that the 
contractor be suspended or debarred; the seriousness of the 
contractor's acts or omissions and any remedial measures or mitigating 
factors are considered.
    The Excluded Parties List System (EPLS) and the Government's 
debarment and suspension procedures are well-established and well-
understood within the Government and by companies who do business with 
the Government. EPLS is a tool integral to the way we do business. It 
provides the single comprehensive list of individuals and firms 
excluded by Federal Government agencies from receiving Federal 
contracts or federally approved subcontracts. A single agency's 
suspension or debarment decision, with limited exceptions, precludes 
all other agencies from doing business with an excluded party.
    Another critical step in determining contractor responsibility is 
consideration of contractor Past Performance. DHS Contracting Officers 
are also required to use the Past Performance Information Retrieval 
System, known as ``PPIRS'', to obtain information on contractor past 
performance to assist with source selections. PPIRS is a government-
wide data warehouse which contains information on past performance of 
contractors with whom the Government does business. DHS Contracting 
Officers and Contracting Officer Representatives (CORs) use a feeder 
system to input information on DHS contractor performance into PPIRS. 
The Contractor Performance System (CPS) managed by NIH allows us to 
input performance information on our DHS contract actions. This data 
then feeds into the PPIRS data warehouse.
    An overall responsibility determination also is dependent on 
contractor representations and certifications--``reps & certs'' as they 
are known. Contractors provide these FAR--required statements by using 
the Online Representations and Certifications (ORCA) system. As part of 
the submission, the contractor certifies, to the best of its knowledge 
and belief, whether it and/or any of its principals, within a three-
year period preceding the offer, have been convicted of or had a civil 
judgment rendered against them for the following: commission of fraud 
or a criminal offense in connection with obtaining, attempting to 
obtain, or performing a Federal, State or local Government contract or 
subcontract; violation of Federal or State antitrust statutes relating 
to the submission of offers; or commission of embezzlement, theft, 
forgery, bribery, falsification or destruction of records, making false 
statements, tax evasion, or receiving stolen property. The Contracting 
Officer is responsible for reviewing the ``reps and certs'' prior to 
award to ensure that the company does not present information that 
would prevent an affirmative finding of contractor responsibility.
    A more expanded pre-award survey may be conducted if the 
Contracting Officer has reason to believe that one or more of the 
responsibility standards I mentioned earlier is in doubt, or if 
information is not readily available.
    In response to the central question of this hearing is--Are the 
standards for determining responsibility sufficient?--Let me start by 
saying that people frequently use the terms ``responsibility'' and 
``suspension and debarment'' almost interchangeably. Yes, 
responsibility determination and suspension and debarment are both for 
the purpose of protecting the interests of the Government, but the 
scope, the consequences of an action, as well as the decision makers 
involved, differ considerably. A responsibility determination is made 
by the Contracting Officer and pertains to a specific contract action. 
Of course, there are instances where during the course of a 
responsibility determination, the Contracting Officer becomes aware of 
serious systemic problems or a single serious breach that warrants 
suspension and debarment based on actions under a single contract; but, 
generally, responsibility determinations are confined to a single award 
scenario and focus on answering the question: Does the contractor have 
the integrity, past performance and resources to meet the Government's 
requirement? Very importantly, the consequences of that determination 
are limited to that contract action. On the other hand, suspension and 
debarment actions are made by the Head of the Agency, or designee, and 
frequently relate to patterns of behavior and violations of law. Once 
the offending contractor is entered into the EPLS, the government-wide 
suspension and debarment system, Contracting Officers are, almost 
without exception, precluded from making any contract award to that 
contractor.
    To get back to your central question, are standards for determining 
responsibility sufficient? I am among those across the Government who 
believe that problems surrounding contractor responsibility assessment 
are a training and implementation issue, not a policy issue. Concerns 
about DHS doing business with contractors that may not be complying 
with laws or regulations should be handled by agency suspension and 
debarment officials in accordance with FAR government-wide suspension 
and debarment procedures at FAR Subpart 9.4, not handled by Contracting 
Officers under FAR contracting responsibility determination procedures 
leading to award of individual contracts.
    Let me expand on a point I made earlier. It is important to 
recognize that the current regulations regarding responsibility, 
suspension and debarment reflect a philosophy that emphasizes that the 
intended purpose is to prevent poor performance, waste, fraud and abuse 
in Federal procurement. The motivation behind an action to suspend or 
debar a contractor from Federal Government contracts or for a 
Contracting Officer to make a negative responsibility determination is 
not punitive in nature. These actions are not intended as punishment, 
but rather a measure designed to protect the Government's interests.
    A responsibility determination is required for each contract award; 
however, Contracting Officers use their discretion when evaluating the 
information before them. What I mean by this is, our acquisition 
professionals must make decisions based on the information available to 
them and the situation before them so that when applying the rules, 
there may be a different outcome in different situations. I believe 
that as you consider whether additional guidance, tools and government-
wide processes should be added to our existing approach to determining 
responsibility, it is important to maintain this discretion. Our 
contracting professionals are able to make appropriate business 
decisions based on the particular facts of a given situation.
    I would also like to address certain important presumptions and 
considerations that are built into our current processes and procedures 
for responsibility. We strive to be fair, to be reasonable, to be aware 
of privacy concerns, to ensure due process is afforded where 
appropriate, and to craft regulations that allow for those that may not 
have been model citizens in the past to be rehabilitated such that they 
are eligible for Government contracts. To be sure there are competing 
interests at play when we are making our determinations, but in the 
end, we should be mindful that we have a very real responsibility to 
balance these competing interests. After all, the consequences of our 
actions with regard to responsibility determinations ultimately may 
mean that we are depriving an individual of their livelihood.
    Mr. Chairman, I know that you and the Members of the Committee are 
concerned that contracts are being awarded to non-responsible and 
unethical contractors. To that end, the Civilian Agency Acquisition 
Council (CAAC) has initiated several FAR cases related to 
responsibility.
    In the past two months, the FAR Secretariat published two proposed 
rules dealing with contractor responsibility matters. A proposed FAR 
rule, entitled Contractor Code of Ethics and Business Conduct, was 
published in the Federal Register on February 16, 2007. The rule, 
initiated by members of my OCPO staff, establishes a clear and 
consistent policy regarding contractor code of ethics and business 
conduct, and responsibility to avoid improper business practices. 
Additionally, the proposed rule requires contractors to provide their 
employees with information on contacting the appropriate Inspector 
General to report potential wrongdoing to include posting this 
information on company internal websites and prominently displaying 
hotline posters. The second proposed FAR rule, Representations and 
Certifications-Tax Delinquency, published in the Federal Register for 
public comment on March 30, 2007, proposes to amend the FAR clause 
governing offerors' representations and certifications to specifically 
address delinquent Federal or State tax obligations within a three year 
period.
    Another new FAR case, currently under consideration and not yet 
published, would amend Federal regulations to address updates to Past 
Performance procedures. The Office of Federal Procurement Policy's 
(OFPP) Best Practices Guide, last published in May of 2000, is also 
presently being updated as directed by OFPP through the Chief 
Acquisition Officers' Acquisition Committee for E-Gov (ACE), which has 
established an interagency working group to review regulations, 
policies, and guidance associated with contractor performance 
information.
    In keeping with my top three objectives I iterated earlier in my 
testimony, I have been growing both the size and capability of my 
staff, both in operations and in my policy, training, and oversight 
cadre. This is allowing us to approach our oversight responsibilities 
both on the front end of the procurement cycle and the post-award back 
end. We are developing a robust training program for acquisition 
professional. Our Excellence in Contracting Training Series for DHS 
Headquarters and Component personnel is designed to enhance the 
acquisition workforce's understanding of contracting regulations and 
policies. Recent topics have included Contracting by Negotiations, 
Contract Financing, the SAFETY Act, and Strategic Sourcing. We are also 
planning additional in-depth training in targeted areas such as Buy 
American Act procedures and Performance-Based Acquisition. The growth 
in the number of talented and experienced acquisition professionals in 
OCPO to serve as Desk Officers enhances our ability to work closely 
with the Components on their specific acquisition issues, and the 
growth in the size of my Oversight group will enable OCPO to perform 
more structured procurement management reviews of the Components' 
acquisition programs.
    Ethical behavior is a core DHS value. OCPO has developed additional 
on-line ethics training, beyond what is required, which highlights 
ethical acquisition practices for our Government acquisition 
professionals department-wide. The training is expected to be launched 
by the end of the month to our contracting personnel and all within the 
Department who participate in DHS acquisitions.
    Mr. Chairman, thank you for the opportunity to testify before the 
Committee about DHS contracting procedures. I am glad to answer any 
questions you or the Members of the Committee may have for me.

    Chairman Thompson. Thank you very much. As previously 
announced, we will recess the hearing. It appears that it might 
be about 45 minutes before we reconvene. We have about nine 
votes to take. And shortly after taking those votes, we will 
reconvene.
    Ms. Duke. Thank you, Mr. Chairman.
    Chairman Thompson. The committee is recessed.
    [Recess.]
    Chairman Thompson. We will start the questioning since I 
have the first opportunity.
    Ms. Duke, relative to procurement, I am not certain--I know 
you were not here when the Shirlington contract was authorized. 
But as you know, we held some hearings on that procurement. We 
shared a lot of concern from this committee on that contract. 
And we have subsequently requested an Inspector Generals report 
on that entire procurement, and I am told that it will be 
publicly available next week.
    For the record, I was briefed on it earlier this morning. 
And many items that we raised in those hearings based on that 
briefing I think will be found to be true. But since you have 
been on board, what have you done to assure us that 
procurements like Shirlington will not occur on your watch.
    Ms. Duke. I think the biggest thing we have done is public 
policy on how responsibility determinations are to be done. So 
we have a directive on responsibility determinations and 
policy. It has a checklist with it. And we, by our DHS policy, 
have the form in each contract file that shows that the 
contractor made an affirmative determination of responsibility 
before awarding the contract. And when we do our oversight from 
my office, we check to see if that determination of 
responsibility has been done.
    Chairman Thompson. For the record, can you provide this 
committee with information on how many procurements have been 
denied because contractors did not meet the nonresponsible 
contractor clause?
    Ms. Duke. I will gather that information for you.
    Chairman Thompson. One of the things we are trying to do is 
just establish those situations. Apart from that, one of the 
issues I think you are aware of, also, is the number of the 
private contractors and consultants that are used in 
procurement. Have you been able to employ full-time procurement 
personnel since your tenure at the Department and less a 
reliance on contractor consultant expertise?
    Ms. Duke. Within the contracting offices, we have increased 
the number of people that we have, Federal employees in the 
contracting offices.
    We have gone up actually about 42 percent in the number of 
people over the last year and a half. We still need to hire 
more people in the contracting offices. Our workload is 
growing, in addition. So we were behind, when we started a 
number of people and then our workload is growing. So we still 
are working on the hiring efforts. But we are being able to 
attract people to the Department.
    Chairman Thompson. How do you go about attracting people to 
your department?
    Ms. Duke. What we are trying to do is market the mission 
that we have in the Department. We are trying to get existing 
Federal employees. We are trying to get people from industry to 
come in to work with the Federal workforce, and we are building 
an intern program. As you know, in the President's budget, we 
have enough funding to have about 70 interns, which we will 
centrally manage out of my office, rotate them through the 
components of the Department, and they will gradually be placed 
permanently. That is a growth revitalization effort.
    In terms of current, we are trying to--we put an add in The 
Washington Post to attract people. We are trying to make the 
human resource process a little more streamlined so that people 
will come and not be deterred by the bureaucracy of getting a 
Federal job. And we are working with the Federal capital 
officer with that to get people more quickly from the time they 
apply to the time they can be put in a Federal position, and I 
think that is going to be key to our success.
    Chairman Thompson. Well, a good point. We had the human 
capital person before us yesterday. Can you tell me how many 
positions you have authorized in your department versus how 
many are out in the field to date?
    Ms. Duke. We have about 1,100 positions authorized, and we 
have a little under 900 filled. So we have a 24 percent vacancy 
rate in the contracting field.
    Chairman Thompson. Have you put together a time line where 
you would like to have all 1,100 filled?
    Ms. Duke. We would like to have them all filled by the end 
of fiscal year 2007. But that is--we have an attrition rate 
that is making it very difficult to reach that.
    Chairman Thompson. If I told you that Members of Congress 
are bombarded quite a bit by people who are pursuing employment 
opportunities, but they very rarely hear of situations like 
yours, and I am from Mississippi, and a constituent from 
Mississippi probably is not reading The Washington Post, I 
would like to see enhanced recruitment on your part working 
with the Human Capital Operation to not only expand it, but 
they are very good people who, I think, if we can touch, who 
would look at Federal service as a career, and I would just 
offer that as a suggestion for you to fill that void that you 
have now in a faster period of time.
    I will at this point yield my--any other time and I will 
now call on the gentlelady from New York, Ms. Clarke.
    Ms. Clarke. Thank you very much, Mr. Chairman. And thank 
you for pursuing this area of expertise for oversight.
    There is no doubt, Mr. Chairman, that DHS is the newest 
department in our government, it is one of the government's 
largest purchasers. This is why Congress must be extra vigilant 
in its oversight of the department's procurement process. As 
DHS continues to develop, the next few years will be vital in 
determining DHS will have a legacy of wasteful spending or 
makes good use of the nation's resources and protection of our 
country.
    I wanted to just ask you, Ms. Duke, you know, while every 
agency occasionally needs to farm out certain operations that 
the private sector can better handle, when it comes to the 
protection of American people, our government cannot really 
rely too heavily on private contractors over whom we have less 
control. I am very concerned about that.
    Could you tell me what DHS is doing to try to reduce the 
amount of outside contractors and increase the amount of work 
performed by DHS employees?
    Ms. Duke. I think what we are doing is we are in the key 
areas, the program offices, the offices that run the program, 
we are doing our recruiting efforts to fill the majority of 
those positions with Federal employees. And the recruiting 
effort, I mentioned earlier, is not just for contracting 
people. It is for testing, evaluation systems engineering, 
program managers. And that is critical.
    We feel that what happened was DHS's mission grew more 
quickly than its workforce grew, and so we do have a 
proportionally large reliance on contractors in key positions.
    So we are systematically working through our major 
programs, our major acquisition programs and making sure that 
we have Federal employees running those offices.
    Ms. Clarke. Can I ask you how--whether you have a plan to 
really balance that out and a time frame in which, you know, 
you would begin to, you know, transfer that type of 
responsibility from private contractors to Federal employees? 
And, you know, are we building out a situation where the 
private sector becomes more preeminent in certain sensitive 
areas that, indeed, the American public really needs to see us 
having more control over.
    Can you speak to that?
    Ms. Duke. Sure.
    In terms of the private sector's involvement, I think 
relying on the private sector for the solution for delivering 
it is acceptable as long as it is clear to both the contractor, 
to the American people, that the government is the decision 
making role. I think when we partner with contractors to have 
good relations is a good, a good position, but we are 
accountable, the funds of--that were appropriated to DHS, and 
we are accountable to the expenditure of those funds. It is not 
a partnership in the accountability of how we spend those 
funds.
    So that is a mindset and a culture that we believe in in 
DHS.
    In terms of the time frame for building this acquisition 
office, our first step is by the end of this year, we want to 
have a properly certified and qualified program manager running 
each of our major programs. And that is our first step, and 
that is our first level of recruiting in the Department. We 
have about 25 of those major programs.
    Ms. Clarke. I would like to sort of add my voice to that of 
Mr. Chair in terms of your outreach around recruitment.
    Again, I come from New York City, The Washington Post is 
not necessarily the paper of the day there. And I know that the 
talent and expertise that you are looking for has already been 
cultivated around this nation. To the extent that we can look 
at some more creative ways of casting a net for the talent that 
DHS really requires, I think we should look at those areas 
around the nation where procurement has become a way of life 
and an expertise.
    In New York City, for instance, we are constantly reaching 
out for those within--to do contracting through our 
governmental agencies. So we have a lot of folks there who are 
already familiar with that process. So I would encourage you to 
look at more of a creative means of casting a wider net to 
drawing the expertise that is required for the Agency.
    I wanted to refer to your testimony in which you state that 
the problem surrounding contractor responsibility assessments 
are a training and implementation issue and not a policy issue.
    Since there are clearly problems with responsibility 
assessments, has DHS management dropped the ball on 
implementation, and how are you addressing this?
    Ms. Duke. I think that we have done a lot to make sure that 
contracting officers know what needs to be done on the 
responsibility determination. We have had workshop-type 
training on it. And we have the checklist that helps guide them 
through it and the policy. And we do have, in our supplement to 
the Federal Acquisition Regulation, discussion on it.
    We have specifically addressed some unique positions with 
DHS that deal with our provisions on foreign entities and 
domestic inverted companies, and we also make sure that that 
determination is done.
    I think that with some of the implementation, it is an 
issue of what should be done in a responsibility determination 
versus what should be done in terms of debarment and access to 
the information. Federal-wide, we have done a lot to make 
access better in terms of how does a contracting officer know 
if a contractor is performing well.
    So there is a lot of Federal initiatives we work on to make 
sure that the contracting officer has access to the good 
information.
    Ms. Clarke. And is there sort of an assessment tool that 
looks at the standard by which, you know, that implementation 
is regarded, you know. You want to make sure that the 
consistencies are of a mega agency. But it becomes subjective 
at a certain point. Is there an assessment tool that you all 
are utilizing to make sure the implementation is of the highest 
standard and it is somewhat uniform across the agency?
    Ms. Duke. In terms of the process, we look at that in 
oversight. But in terms of the actual determination, that is, 
by regulation, by practice, the discretion of the contracting 
officer.
    So some of the indicators we can handle, whether that is 
working well, was it done or not for oversight. Another thing 
we look at is we look at our protests to the General 
Accountability Office and whether we are prevailing on most 
protests, which is an indicator that we are doing our pre-award 
work well.
    So we do have some indicators, but we do not go back and 
look at--we do have the IG looking at and judging whether or 
not they think the contracting officer used their discretion 
effectively. But we are looking to see if it is done.
    Ms. Clarke. Thank you very much, Mr. Chair.
    Chairman Thompson. Thank you.
    Thank you very much for your questions.
    We now recognize the gentlelady from Texas for 5 minutes 
for questions.
    Ms. Jackson Lee. Thank you very much, Mr. Chairman. And 
thank you for holding this hearing.
    And thank you, Ms. Duke. Can you hear me?
    Ms. Duke. Yes, I can.
    Ms. Jackson Lee. Thank you very much for your testimony and 
some of the work that we have begun together anew on focusing 
on a more far reaching effort in procurement by the United 
States Government, and in this instance, the Department of 
Homeland Security.
    I think it is important to make the point that these 
contracts are funded by tax dollars. And many times, taxpayers 
who are lacking in their individual lobbyist's connectedness 
really get a back seat to doing work with the Federal 
government. They do so because it is sometimes complex, it is 
sometimes, unfortunately, about connection or bigness. And even 
sometimes it is partisan. And I hope this hearing can help to 
move us in a direction that we focus on good services, good 
servants, public servants, and delivering the services to those 
who are most in need.
    So my interest is--interest is going to focus on the most 
serious debacle, and that is Katrina, from the Federal 
Government's perspective. And I would argue that we saw one of 
the largest abuses, and I cite an opening paragraph of a letter 
dated August 24th, 2006, the government awarded 70 percent of 
its contracts for Hurricane Katrina work without full 
competition, wasting hundreds of millions of dollars--of 
taxpayer dollars in the process. A Houston--a House study that 
we did just about a year ago.
    They report a comprehensive overview of government audits 
on Katrina contracting that out found that out of 10.6 billion 
in contracts awarded after the storm last year, more than 7.4 
billion were handed out with limited or no competitive bidding. 
Nineteen contracts worth 8.75 billion were found to have wasted 
taxpayer money at least in part costing taxpayers hundreds of 
millions of dollars according to the report.
    The other problem, of course, is when we have that happen, 
those who are victims and who are supposed to get the money 
really don't. And spending a lot of time in New Orleans and 
working with Katrina survivors in Houston, one of the major 
components of their complaints was the inability to pick 
themselves up by their bootstraps and get back to work based 
upon doing the work that was needed in New Orleans.
    Let me add one other point before I start my questions.
    The existing program that is now called the Road Home 
contract, another article from The Times Picayune, talks about 
critics, a consortium of churches on Monday called for a 
Federal investigation of the contract between the State and ICF 
International. The company earned up to 756 million to parcel 
out billions in Federal recovery, but the bad news is that the 
Ninth Ward still looks the way it looks and nobody has anything 
and the Road Home office that is in my Congressional district, 
is like a ghost town because most people say it doesn't work.
    Let me cite one other. ``A Screw on Blue Tarp Contract,'' 
another article. Now months later NOLA has looked into this, 
specifically the ACE angle, the Army Corps of Engineers say 
they did not overpay for the tens of thousands of blue roofs. 
Of course we think otherwise.
    So let me ask the question as to why these big contracts 
were given, why we couldn't find small businesses, and I know 
that the SBA is partly, greatly to blame in many instances. You 
had to look for section 8(a). It would have been smart to waive 
some of those. But what kind of outreach or collaboration was 
with the SBA to say let us find some small businesses that can 
haul trash, that could cut trees, that could help with power 
lines, that would allow people to get more effectively back 
into their homes.
    But I specifically want to know about ICF. I would like to 
know about SHAW. What we utilized there. Everywhere I went, it 
was SHAW being ineffective.
    And I yield for a moment to Ms. Duke.
    Ms. Duke. In terms of SHAW and the other three large 
contractors who did a lot of the work after Hurricane Katrina, 
that was a result of not having the contingency contracts in 
place when Katrina hit. So when the disaster hit, we 
immediately entered into contracts. The cure to that is to have 
the contracts in place before the disaster hits. And that is 
what we have been working on with my office with FEMA. And we 
have awarded over 70 contracts, just contingency planning-type 
contracts, that are in place. Many of them have been set aside 
for local businesses, small businesses.
    So that in the gulf area, so that both the work and 
continuing recovery in Katrina and from new disasters, the 
contracts would be in place so we are not searching for those 
small businesses in the midst of the chaos post disaster. And I 
think that is the key to effectively having competition and 
making sure that we use local businesses.
    The second thing we are trying to do is work more 
effectively with the States and planning to make sure that they 
are ready to receive grant money so that we don't have as many 
direct Federal contracts, and we can let the State and the 
local governments receive Federal disaster grant money and 
effectively spend it within their districts, and that is 
something that we have been doing a lot with the State and 
locals.
    Your specific question about ICF, that sounds like it would 
have been via a grant to the State of Louisiana, and I do not 
have a specific information on ICF and can get back to that for 
the record for you.
    Ms. Jackson Lee. Let me make this point.
    I see that we are preplanning, and I would really like the 
percentages out of the 70 that are local, small minority and 
women-owned businesses because I can assure you, they are very 
much still up in arms. The sadness of it is that they had such 
great experience, and they could have been enormously 
effective, and I hate that we lost their expertise because of 
the frustration in not knowing how to reach the power points of 
procurement.
    But was there any collaboration beforehand or as the crisis 
was proceeding to get with SBA? We know they have been 
dysfunctional. But was there any cross-pollenization to say 
what section 8(a)s do you have already certified that we can 
utilize? Even in the crisis, did anyone pick up the phone and 
try to collaborate with them?
    Ms. Duke. There was a lot of work with SBA early on. We did 
a lot of conferences and outreach in the entire gulf region, 
both DHS alone, we continue to do that. There is another one in 
partnership with the local government next week.
    The feedback we got from the local businesses was that it 
didn't yield the results they were looking for. They had the 
opportunity to meet with us and small business but weren't 
satisfied that enough resulted from that contract.
    One other program that will really be helpful in future 
disasters is the GSA Federal supply schedules. By direction of 
the Secretary, as part of our last year's appropriations bill, 
was able to say what Federal supply schedules should be opened 
up to State and local governments to be able to order from. And 
there are many, many small disadvantaged businesses on the 
supply schedules. The Secretary decided they should all be 
opened up to State and--to State loan governments in a priority 
order.
    So GSA is in the process of doing that.
    So in future disasters, State and local governments will 
have the ability, if they choose, to look to Federal supply 
schedules and target small minority businesses directly in 
those prepriced, prenegotiated statutes, and I think that is a 
huge step forward. And we are beginning an education program so 
they understand how to use those.
    Ms. Jackson Lee. Let me close by--
    Chairman Thompson. Excuse me. The gentlelady's time has 
expired.
    Ms. Jackson Lee. May I say the final sentence?
    Chairman Thompson. Final sentence.
    Ms. Jackson Lee. Chairman, if I could, and I thank him, I 
would like a full investigation of ICF, I guess it is ICF and 
SHAW, and I do think the State process of distributing funds is 
broken and we need legislation to fix it. It should go to local 
governments.
    And I thank the chairman for his indulgence.
    I yield back.
    Chairman Thompson. Thank you very much.
    We now recognize the gentleman from Texas, Mr. Green from 
Texas, for 5 minutes.
    Mr. Green. Thank you.
    Thank you for hosting this important meeting.
    I, too, have had a number of persons from my district call 
to my attention some concerns that they have. And many of these 
concerns center around the inability to secure opportunities 
notwithstanding a belief that they have met all of the 
requirements necessary.
    So my initial question to you is do you have an evaluation 
program that allows you to review your process such that you 
may make some decision based upon empirical data as to how well 
you are doing?
    Ms. Duke. We track our performance in terms of how many of 
our dollars and contract actions went to the different 
socioeconomic categories, and that is the primary tool we use 
to see if we are meeting the Federal and DHS goals.
    Mr. Green. I think that is a great way to do business, but 
permit me to ask this, please. Do you have a means by which 
those persons who would do business with you can have input 
such that you will know what they think about the process?
    Ms. Duke. We have conferences, those type of ad hoc. But 
nothing systemic that I know of where they feed back to either 
Small Business Administration or DHS.
    Mr. Green. Would a tool of this type be helpful to you in 
evaluating how efficacious you are?
    Ms. Duke. I think feedback from industry is always good. It 
is a good cross-check, and we need that information and we do 
solicit it through our contacts. So I would have to say yes.
    Mr. Green. Next question. With reference to your 
contracting, assuming that you do have a business, doesn't 
matter what size, that has, in the opinion of the persons who 
work with the business, done everything appropriately but is 
still not receiving any opportunities, what is then the next 
step?
    Ms. Duke. Generally, if they come to our attention, I have 
a small business office within my office. And generally someone 
from the contracting side of my office, someone from the small 
business would meet with them and try--if it is a specific 
problem where they think--where or if it is a general problem, 
just meet with them one on one and try to find out why it is 
they are not getting business, and we do that regularly. We 
take some people--some people contact us directly. We get 
referrals from different bodies. And even with the small 
business offices, even if they are not a small business, we 
meet with them and try to understand what their specific issue 
was, whether they got a contract and it is not going well or 
whether they are not getting contracts.
    Mr. Green. And for my edification, what percentage of the 
business is going to minority contractors, please. And if you 
would, define ``minority contractors'' for me.
    Ms. Duke. In terms of minority contractors, we track small 
businesses and--small disadvantaged businesses and 8(a) 
businesses. And small disadvantaged businesses are businesses 
owned and controlled by a minority owner, and that is defined 
by the small businesses. Those aren't the exact words. I can 
get them for you.
    And then 8(a) is another level of certification that a 
small disadvantaged business can get. Once you are certified as 
8(a), you can get direct award sole source up to $3 million, 
and that is a way to allow the small disadvantaged minority 
businesses to get the first opportunities. Those two combined, 
we did--the Federal goal is 5 percent. I believe we did about 9 
percent, and I can check that for you. But we track both those.
    Mr. Green. And in the small business arena, and because 
time is short, let me ask as concisely as I possibly can, can 
we also have persons who are not minorities included in the 
number?
    Ms. Duke. Yes. We have a goal for small businesses in 
general. The Federal goal is 23 percent.
    Mr. Green. Excuse me, because my time is short. Would this 
9 percent include persons who were not minorities?
    Ms. Duke. Those would not.
    Mr. Green. So this is an absolute in terms of minority 
small business persons?
    Ms. Duke. Yes. The goal was 5 percent Federalwide.
    Mr. Green. Mr. Chairman, you have been very generous with 
the time. Thank you very much. I yield back.
    Chairman Thompson. Thank you very much.
    If any Member would submit any additional questions they 
might want Ms. Duke to answer, please feel free to do so, and I 
am sure she will be very accommodating.
    Ms. Duke, you have been most gracious and patient with the 
Members because of the vote. We thank you, and we thank you for 
the work we do. It is a hard job. And we appreciate your 
outreach. And I speak for both sides. You have done a good job 
with that. Please continue. Thank you very much.
    We will now call our next panel of witnesses.
    We would like to welcome our second panel of witnesses. Mr. 
Scott Amey, general counsel and senior investigative officer of 
Project on Governmental Oversight. Mr. Alan Chvotkin is senior 
vice president and counsel for the Professional Services 
Council. And professor Charles Tiefer is professor of 
contracting law at the University of Baltimore School of Law.
    Chairman Thompson. We would like to welcome the three of 
you to this panel. And we will give each one of you 5 minutes 
to give your presentation to the committee. And we will follow 
with questions after. Mr. Amey.

      STATEMENT OF SCOTT AMEY, GENERAL COUNSEL AND SENIOR 
    INVESTIGATIVE OFFICER, PROJECT ON GOVERNMENTAL OVERSIGHT

    Mr. Amey. Good afternoon, Chairman Thompson, Ranking Member 
King, and members of the committee. Thank you for inviting me 
to testify today about the state of DHS contracting.
    I am Scott Amey, the general counsel of the Public 
Governmental Oversight, a nonpartisan public interest group. We 
were founded in 1981 and we investigate and expose corruption 
and other misconduct in order to achieve a more accountable 
Federal Government.
    I usually get this question, so I will just say that we 
take no government money. We take no union money and no 
corporate money to keep our independence.
    POGO has created a niche in investigating and exposing and 
remedying waste, fraud and abuse in government spending. In the 
1990s, many acquisition forms were implemented. The problems 
created by those reforms became startlingly apparent at the 
beginning of the Afghan and Iraq wars and after Hurricane 
Katrina devastated the gulf coast. The event showed that 
contracting decisions were placing taxpayer dollars and 
sometimes lives at risk. If the problems with the contracting 
process are not corrected, POGO believes that the next 
consulting or IT contract will mirror the misspending miss 
characterized by the $436 hammer and the $7,600 coffee makers 
that were procured in the 1980s.
    As just a general reference point that we have seen so much 
change in government contracting, I just want to present a few 
numbers to the committee and Mr. Chairman.
    The government currently spends $417 billion, and that was 
from fiscal year 2006. No-bid contracts, a rarity in the 
private sector, have become commonplace for the government. 
One-bid offers account for now 20 percent of all competed 
contracts spending. Bid protests sustain rates have increased 
to nearly 30 percent.
    DHS spending has increased from 3.4 billion in fiscal year 
2003 to 15.8 billion in fiscal year 2006. That makes DHS, as 
Mr. Chairman noted, the largest or the third largest agency 
behind DOD and DOE.
    DHS sole source spending is also fastly rising. It has 
increased from 23 percent from fiscal year 2004 to 37 percent 
in fiscal year 2005. There are a few encouraging trends with 
DHS contracting. The use of fixed-price contracts has risen. 
The use of risky contracting vehicles has decreased and DHS 
awarded over 45 percent of contracting dollars to small 
businesses.
    Unfortunately, the questions you asked the last panel don't 
reflect that, but these are regarding DHS's own numbers in the 
Federal Procurement Data System. And that number greatly 
exceeds the 23 percent goal for normal, general Federal 
agencies.
    Nevertheless, POGO has concerns about the state of DHS 
contracting. This committee just recently put out a report that 
graded procurement and emergency preparedness slash FEMA as C 
minus. Those two grades indicate that DHS is experiencing 
contracting problems and it is becoming--it needs to become 
more responsible in spending taxpayer dollars. This committee 
highlighted missteps in the Deep Water Program. Just this week, 
we have seen that the Coast Guard has taken the lead as going 
to be the lead systems integrator. We applaud that step, and we 
also applaud the DOJ's investigation that they have started 
into the program.
    But there was a question yesterday on whether these 
companies should be debarred. And I think it is a little too 
early to take that step but it should be something that DHS is 
seriously considering to protect future government contracts 
and future taxpayer dollars that are going to those companies.
    The GAO and the DHS IG have provided extensive documents 
and reports to this committee on the lack of internal controls 
within DHS, the financial systems, human capital and 
contracting system, and all of those must be improved to 
prevent future waste, fraud and abuse.
    The most concerning thing that I see is DHS is kind of 
hidden behind the fact that it is a new agency for 4 years. I 
think its baby steps are kind of long over, and that it really 
needs to improve its process. Some of the same problems we have 
seen from Hurricane Katrina were problems that we originally 
witnessed after Hurricane Andrew back in 1992. These aren't new 
problems, but they need to be corrected.
    There is one problem that I would like to document here. It 
was discussed earlier about GSA schedules. But when DHS had the 
opportunity and FEMA had the opportunity to use the schedule to 
lease vehicles during Hurricane Katrina, it went off the 
schedule. It didn't use it. It ended up using Enterprise Car 
Rental to lease 18 vehicles at a price of $11,000 per vehicle. 
That ends up being $936 a month. The vehicles on the schedule 
were $600 a month. So even when they had systems in place, that 
they could have utilized, they didn't use them.
    I want to cut to a few different recommendations that POGO 
has.
    POGO hopes this committee will investigate the following 
contracting problems: Cozy negotiations, inadequate 
competition, lack of accountability, little transparency and 
risky contracting vehicles.
    Specifically, POGO respectfully requests that the committee 
consider the following recommendations to improve DHS 
contracting: Ensure full and open competition is the rule 
rather than the exception, and ensure that the definition of 
competitive bidding requires at least two bidders. Require that 
risky contracting vehicles are used in limited circumstances, 
and only when supported by proper justifications and oversight 
protections, review DHS commercial item and service 
acquisitions to ensure that genuine commercial market place 
exists. Examine the use of IDIQ and GWAC contracts to ensure 
that contractors are not are not receiving improper fees, and 
investigate how prime contractors bill the government at their 
own labor rates rather than at the rates this they pay their 
subcontractors on time and material, labor hour contracts.
    In addition, I recommend--I have other recommendations that 
are in our written testimony that I hope the committee will 
take a look at.
    I do have one final comment. The fact that President Bush 
just last week in talking about the No Child Left Behind Act 
made the statement, It is important for all of us to make clear 
that accountability is not a way to punish anyone. 
Accountability to taxpayers isn't punishment. It is a way to 
improve the way the government works.
    Thank you again for this opportunity to share POGO's view 
on the DHS contracting. It will be a pleasure to answer any 
questions that you have.
    Chairman Thompson. Thank you very much for your summarized 
testimony.
    [The statement of Scott Amey follows:]

                    Prepared Statement of Scott Amey

    Good morning, Mr. Chairman Thompson, Ranking Member King, and 
Members of the Committee.
    Thank you for inviting me to testify today about the state of the 
federal and DHS contracting systems. I am Scott Amey, General Counsel 
and Senior Investigator with the Project On Government Oversight 
(POGO), a nonpartisan public interest group. Founded in 1981, POGO 
investigates and exposes corruption and other misconduct in order to 
achieve a more accountable federal government.\1\
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    \1\ For more information on POGO, please visit www.pogo.org.
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    Throughout its twenty-six-year history, POGO has created a niche in 
investigating, exposing, and helping to remedy waste, fraud, and abuse 
in government spending. One of POGO's most celebrated investigations 
uncovered outrageously overpriced military spare parts such as the 
$7,600 coffee maker and the $436 hammer. Since that time, particularly 
in the 1990s, many acquisition reforms have been implemented. The 
reforms, however, were not all they were cracked up to be. The problems 
created by the reforms became starkly apparent after the beginning of 
the Afghanistan and Iraq Wars, and after Hurricane Katrina devastated 
the Gulf Coast. These events showed that contracting decisions were 
placing taxpayer dollars--and sometimes lives--at risk.
    The war on terror and the post-hurricane recovery and 
reconstruction effort also highlighted how drastically different the 
federal government's contracting landscape is now from what it was in 
past decades. Contracting dollars have increased, oversight has 
decreased, the acquisition workforce is stretched thin, and spending on 
services now outpaces spending on goods. (Because the return on 
services is more difficult to quantify than on goods, contracting is 
even more vulnerable to waste, fraud, and abuse.) If the problems with 
the contracting process are not corrected now, POGO believes the next 
consulting or information technology contract will mirror the 
misspending characterized by the hammers and coffee makers in the mid-
1980s. We provide the following procurement history and recommendations 
as a roadmap to assist Congress in better overseeing the use of 
taxpayer dollars.

Contracting Past
    The 1980s witnessed some of the strongest pro-taxpayer contracting 
reforms implemented to date. During the decade, the Competition in 
Contracting Act (CICA) was passed,\2\ the Cost Accounting Standards 
(CAS) Board was reestablished,\3\ the False Claims Act was 
strengthened,\4\ and there was a greater emphasis placed on the Truth 
in Negotiations Act (TINA).\5\ Those actions increased competition in 
contracting, provided uniformity in contractor accounting practices, 
prevented fraud, and allowed the government to review contractor cost 
or pricing data to ensure taxpayer dollars were being spent wisely.
---------------------------------------------------------------------------
    \2\ 10 U.S.C. Sec. 2304(a) (1) (applicable to DOD); 41 U.S.C. 
Sec. 253(a) (1) (applicable to other executive agencies); 41 U.S.C. 
Sec. 403(6) ``definition of ``full and open competition'').
    \3\ The Board's regulations are codified at 48 CFR, Chapter 99. See 
FAR Part 30 (Cost Accounting Standards Administration).
    \4\ The False Claims Act (31 U.S.C. Sec. Sec. 3729-3733) was 
originally passed in 1863 at the urging of President Abraham Lincoln, 
who was attempting to halt the Civil War profiteering that was 
crippling the Union Army. Amendments to the Act in 1986, championed by 
Senator Charles Grassley (R-IA), increased the penalties for fraud and 
encouraged private citizens to come forward if they were aware of 
corporations defrauding the government.
    \5\ 10 U.S.C. Sec. 2306a, 41 U.S.C. Sec. 254b.
---------------------------------------------------------------------------
    In the 1990s the Clinton-Gore Administration's effort to reinvent 
government so that it operated more like the private sector and 
decreased contracting red-tape succeeded to a point. But acquisition 
reform--which was part of reinventing government--resulted in several 
laws that made government contracts more susceptible to misconduct, 
cost more, and get results contractors care about rather than making 
the government (work better, cost less, and get results Americans care 
about,'' \6\ as was its intent. Those laws reduced contract oversight, 
making it difficult for government investigators and auditors to find 
waste, fraud, and abuse,\7\ and created risky contracting vehicles that 
often place public funds at risk.
---------------------------------------------------------------------------
    \6\ The Clinton-Gore initiative was known as the ``National 
Performance Review'' and the ``National Partnership For Reinventing 
Government.'' Available at http://govinfo.library.unt.edu/npr/
index.htm.
    \7\ The Federal Acquisition Streamlining Act of 1994 (FASA) (Public 
Law 103-355), the Federal Acquisition Reform Act of 1996 (FARA) (Public 
Law 104-106), and the Services Acquisition Reform Act of 2003 (SARA) 
(Public Law 108-136).
---------------------------------------------------------------------------
    Finally, ``best value contracting'' \8\ further swung the pendulum 
away from protecting taxpayers and allowed contracts to be steered to 
well-connected, influential, and sometimes undeserving contractors.
---------------------------------------------------------------------------
    \8\ ``Best value'' contracting had been used in certain instances, 
but was added to the Federal Acquisition Regulation (FAR) in August 
1997. A policy debate continues pitting ``low price'' against ``best 
value'' as the preferred method for buying goods and services. Buying 
goods and services at the ``lowest practical cost'' would allow for 
some buying flexibility and provide a more objective criteria that 
would prevent the unjustified steering of contracts to non-responsible, 
questionable, or politically-connected companies.

Contracting Present
    Simply stated, the contracting landscape has drastically changed in 
recent years and the government must do a better job to ensure that 
taxpayer dollars get spent wisely. Federal contract spending has 
dramatically increased while government control, competition, and 
oversight has been reduced. This bodes ill for taxpayers, as can be 
seen by the problems below.

The Big Picture
         Contract spending for goods and services has nearly 
        doubled in recent years, increasing from $219 billion in fiscal 
        year 2000 to nearly $417 billion in fiscal year 2006.\9\
---------------------------------------------------------------------------
    \9\ Federal Procurement Data Service--Next Generation, ``Trending 
Analysis Report for the Last 5 Years,'' and ``List of Agencies 
Submitting,'' as of April 17, 2007. Available at http://www.fpdsng.com/
downloads/top_requests/FPDSNG5YearViewOnTotals.xls and http://
www.fpdsng.com/downloads/agency_data_submit_list.htm.
---------------------------------------------------------------------------
         The federal government is spending more on services 
        than goods.\10\
---------------------------------------------------------------------------
    \10\ Acquisition Advisory Panel, ``Report of the Acquisition 
Advisory Panel to the Office of Federal Procurement Policy and the 
United States Congress,'' December 2006, p. 2-3. Available at http://
www.acqnet.gov/comp/aap/documents/DraftFinalReport.pdf. Hereinafter 
``1423 Panel Report.''
---------------------------------------------------------------------------
         No-bid contracts, a rarity in the private sector,\11\ 
        have become commonplace in the government. Nearly 40 percent of 
        all contract spending is awarded without competition.\12\
---------------------------------------------------------------------------
    \11\ 1423 Panel Report, p. 2.
    \12\ 1423 Panel, ``Findings and Recommendations on Data,'' August 
10, 2006, p. 3-4. Hereinafter ``1423 Panel Data.'' Available at http://
www.acqnet.gov/comp/aap/documents/
Data%20Findings%20and%20Recommendations%20Charts%2008%2010%2006.pdf.
---------------------------------------------------------------------------
         In addition, one-bid offers account for 20 percent of 
        ``competed'' contract spending.\13\
---------------------------------------------------------------------------
    \13\ 1423 Panel Data, at p. 7.
---------------------------------------------------------------------------
         The government is relying on contractors to execute 
        jobs once performed by civil servants, including policy-making 
        and budgetary decisions.\14\ The federal contracting workforce, 
        depending on the definition that you use, has leveled-off since 
        the mid-1990s.\15\
---------------------------------------------------------------------------
    \14\ See FAR Subpart 7.503.
    \15\ 1423 Panel Report, p. 3.
---------------------------------------------------------------------------
         The vastly expanded definition of ``commercial item'' 
        has resulted in decreased oversight of and accountability for 
        contractors because they no longer have to provide certified 
        cost or pricing data for the ``commercial'' goods or services.
         Interagency contracting continues to increase--GSA 
        schedule sales totaled $35.1 billion in fiscal year 2006.\16\ 
        Although interagency contracts provide agencies flexibility to 
        purchase commonly required goods and services, which can save 
        taxpayers money, they are also risky and prone to abuse. 
        Monitoring and oversight have been very poor and competition 
        has been lacking.\17\
---------------------------------------------------------------------------
    \16\ GAO Report (GAO-07-310), High-Risk Series: An Update, January 
2007, p. 77. Available at http://www.gao.gov/new.items/d07310.pdf.
    \17\ Id.
---------------------------------------------------------------------------
         The government recovered a record $3.1 billion in 
        settlements and judgments in cases involving allegations of 
        fraud against the government in fiscal year 2006 and has 
        recovered $18 billion since 1986.\18\
---------------------------------------------------------------------------
    \18\ DOJ Press Release (06-783), ``Justice Department Recovers 
Record $3.1 Billion in Fraud and False Claims in Fiscal Year 2006,'' 
November, 21, 2006. Available at http://www.usdoj.gov/opa/pr/2006/
November/06_civ_783.html.
---------------------------------------------------------------------------
         Bid protest sustain rates (when GAO agrees that a 
        contract was awarded improperly) have increased to nearly 30 
        percent,\19\ which illustrates that flawed contract award 
        decisions--both honest and egregious--are being made at a 
        higher rate than in the past.
---------------------------------------------------------------------------
    \19\ GAO Report (GAO-07-155R), Letter to The Honorable J. Dennis 
Hastert, Speaker of the House of Representatives, November 15, 2006, p. 
2. Available at http://www.gao.gov/special.pubs/bidpro06.pdf.
---------------------------------------------------------------------------
Homeland Security
         DHS contract spending has increased from $3.4 billion 
        in fiscal year 2003 to $15.8 billion in fiscal year 2006.\20\ 
        That total makes DHS the third largest agency, after DOD ($296 
        billion) and DOE ($22 billion).
---------------------------------------------------------------------------
    \20\ Federal Procurement Data Service--Next Generation, ``FY 2003, 
Section III, Agency Views,'' p. 90 and ``List of Agencies Submitting,'' 
as of April 12, 2007, p. 1. Available at http://www.fpdsng.com/
downloads/FPR_Reports/FPR2003c.pdf and http://www.fpdsng.com/downloads/
agency_data_submit_list.htm.
---------------------------------------------------------------------------
         Nearly $5.2 billion of the $10.3 billion--or 50 
        percent--in contract awards during fiscal year 2005 were non-
        competitive.\21\ The use of no-bid contracts increased from 23 
        percent in fiscal year 2004 to 37 percent in fiscal year 
        2005.\22\
---------------------------------------------------------------------------
    \21\ POGO's estimate combines contracts designated as ``Not 
Competed,'' ``Not Available for Competition,'' ``Not Competed under 
SAT,'' ``Follow On to Competed Action,'' and ``non-Competitive Delivery 
Order.'' Federal Procurement Data Service--Next Generation, ``FPDS-NG 
Federal Procurement Reportfiscal year 2005, Section III, Agency 
Views,'' as of April 17, 2007, p. 86. Available at http://
www.fpdsng.com/downloads/FPR_Reports/
2005_fpr_section_III_agency_views.pdf.
    \22\ Fiscal year 2005 listed $3.8 billion out of $10.3 billion as 
(Not competed.( Available at http://www.fpdsng.com/downloads/FPR--
Reports/2005--fpr--section--III--agency--views.pdf. fiscal year 2004 
listed $1.4 billion out of $6.1 billion as (Not competed.( Available at 
http://www.fpdsng.com/downloads/FPR_Reports/
fpr_section_III_agency_views.pdf.
---------------------------------------------------------------------------
         Approximately 65 percent ($6.8 billion) of DHS 
        contract dollars were awarded in fixed-price contracts in 
        fiscal year 2005.\23\
---------------------------------------------------------------------------
    \23\ Id., at p. 87.
---------------------------------------------------------------------------
         Commercial item acquisitions accounted for $467 
        million in fiscal year 2005--down 13 percent from fiscal year 
        2004.\24\
---------------------------------------------------------------------------
    \24\ Id., at p. 88.
---------------------------------------------------------------------------
         Performance-based service acquisitions accounted for 
        nearly $1.5 billion in fiscal year 2005--down 6 percent from 
        fiscal year 2004.\25\
---------------------------------------------------------------------------
    \25\ Id.
---------------------------------------------------------------------------
         DHS awarded 46.6 percent of its contract dollars to 
        small businesses--greatly exceeding the general 23 percent 
        small business goal.\26\
---------------------------------------------------------------------------
    \26\ Federal Procurement Data System--Next Generation, ``Small 
Business Goaling Report Actions Reported Between Fiscal Year 2005 (Q1) 
and Fiscal Year 2005 (Q4).'' As of April 17, 2007. Available at http://
www.sba.gov/GC/goals/SmallBusinessGoalingReport_2005.pdf.
---------------------------------------------------------------------------
    As the above information shows, DHS is doing some things well. For 
instance, DHS's use of risky contract vehicles decreased in fiscal year 
2005 and the agency contracted with a large percentage of small 
businesses. Additionally, DHS's use of fixed-price contracts helps DHS 
eliminate some contracting problems. That stated, however, POGO has a 
number of concerns about the state of DHS contracting.

DHS Responsibility
    DHS's mission is to prevent terrorist attacks in the U.S., reduce 
America's vulnerability to terrorism, and minimize damage from 
terrorism and natural disasters. To fulfill this mission, DHS has a 
vast organizational mandate that ranges from protecting the President 
(U.S. Secret Service), to protecting our oceans (U.S. Coast Guard), to 
protecting our borders (Customs & Border Protection and Immigration & 
Customs Enforcement), to protecting our airports (Transportation 
Security Administration), and to helping every town, city, county, and 
state in relief, recovery, and reconstruction efforts (Federal 
Emergency Management Agency). As a result, DHS has to be on the cutting 
edge of innovation, technology, and service to stay at least one step 
ahead of threats to our nation. Yet, it still must protect the U.S. 
taxpayers.
    It is difficult to tell if DHS is succeeding in contracting to meet 
its mission--especially considering the emergency contracting 
environment in which the agency often works. Last week, however, this 
Committee released a reported on ``The State of Homeland Security,'' 
which rated DHS in light of how it performed on seventeen homeland 
security issue areas.\27\ POGO was disappointed to learn that no DHS 
component received a grade higher than a ``B,'' and that four 
components received a ``C-'' or lower. The two functions at the heart 
of today's hearing--``Emergency Preparedness/FEMA'' and 
``Procurement''--each received a ``C-.'' The fact that DHS received a 
C- is indicative of the large problems that DHS is experiencing in 
contracting and that it must become more responsible when spending 
taxpayer dollars.
---------------------------------------------------------------------------
    \27\ U.S. House of Representatives Committee on Homeland Security, 
``The State of Homeland Security: The 2007 Annual Report Card on the 
Department of Homeland Security,'' April 13, 2007, p. 5. Hereinafter 
``DHS Report Card.'' Available at http://homeland.house.gov/
SiteDocuments/20070413143439-12273.pdf.
---------------------------------------------------------------------------
    While the Committee's report card stated that DHS succeeded in 
awarding some contracts, it also found for the most part that the 
agency failed in three key procurement measures--``cost, performance/
meeting requirements, and schedule. Unfortunately, the Department's 
[DHS's] track record in all three is poor.'' \28\ The Committee further 
stated that ``oversight and management of basic procurement processes 
[have] been weak.'' \29\ The report highlighted procurement missteps in 
the Deepwater program,\30\ the Integrated Surveillance Intelligence 
System (ISIS), and eMerge2. Those contracting missteps compound the 
many mistakes made prior to and after Hurricane Katrina--some of the 
same contracting problems that occurred in the ``aftermath of Hurricane 
Andrew in 1992, which leveled much of South Florida.'' \31\
---------------------------------------------------------------------------
    \28\ DHS Report Card, at p. 66.
    \29\ Id.
    \30\ POGO applauds the Coast Guard's recent decision to take over 
the role of lead systems integrator for the $24 billion Deepwater 
acquisition program. That shift in management and control of the 
program should enhance oversight of and accountability in the Deepwater 
program.
    \31\ GAO Report (GAO-06-442T), ``Hurricane Katrina: GAO's 
Preliminary Observations Regarding Preparedness, Response, and 
Recovery,'' March 8, 2006, p. 2. Available at http://www.gao.gov/
new.items/d06442t.pdf.
---------------------------------------------------------------------------
    This Committee's findings confirmed those of a 2007 GAO 
investigation into the problems facing DHS. The GAO stated:
        The auditors continue to report 10 material internal control 
        weaknesses and that DHS's financial systems do not 
        substantially comply with federal requirements. These 
        weaknesses highlight the concern that DHS, the second-largest 
        government agency, may not be able to account for all of its 
        funding and resources or have reliable financial information 
        for management and budget purposes.
    DHS has not institutionalized an effective strategic framework for 
information management to, among other things, guide technology 
investments, and despite some progress, DHS's human capital--the 
centerpiece of its transformation efforts--and acquisition systems will 
require continued attention to help prevent waste and to ensure that 
DHS can allocate its resources efficiently and effectively.
        * * *
        To help ensure its missions are achieved, DHS must overcome 
        continued challenges related to. . .clearly defining leadership 
        roles and responsibilities, developing necessary disaster 
        response capabilities, and establishing accountability systems 
        to provide effective services while protecting against waste, 
        fraud, and abuse at the Federal Emergency Management Agency 
        (FEMA).\32\
---------------------------------------------------------------------------
    \32\ GAO Report (GAO-07-452T), ``Homeland Security: Management and 
Programmatic Challenges Facing the Department of Homeland Security,'' 
February 7, 2007, p. 2-3. Available at http://frwebgate.access.gpo.gov/
cgi-bin/getdoc.cgi?dbname=gao&docid=f:d07452t.pdf.
---------------------------------------------------------------------------
    Many of the Committee's and the GAO's concerns were confirmed in 
Inspector General Richard Skinner's testimony before this Committee on 
February 7, 2007. Inspector General Skinner testified that DHS 
``identified significant risks and vulnerabilities that might threaten 
the integrity of DHS' acquisition management program. In general, DHS 
needs to improve its major acquisitions planning, operational 
requirements definition, and implementation oversight.'' \33\ 
Unfortunately, Mr. Skinner places too much blame on acquisition 
workforce shortages and doesn't look hard enough at DHS's overall 
contracting system to determine if that system is working in the best 
interests of both DHS and taxpayers.
---------------------------------------------------------------------------
    \33\ Statement of Richard L. Skinner, Inspector General, U.S. 
Department of Homeland Security, Before The Committee on Homeland 
Security, U.S. House of Representatives, (An Overview of Issues and 
Challenges Facing the Department of Homeland Security,( February 7, 
2007, p. 7. Available at http://www.dhs.gov/xoig/assets/testimony/
OIGtm_RLS_020707.pdf.
---------------------------------------------------------------------------
    For example, DHS was in a position to use pre-negotiated contracts 
for the Hurricane Katrina response, but failed to do so. GSA Schedules 
offer government buyers goods and services at pre-negotiated rates from 
approved vendors. Even though one vehicle leasing company on the GSA 
Schedule could have provided FEMA with vehicles for under $600 per 
month,\34\ the agency instead leased 18 vehicles from Enterprise Rent-
A-Car at the annual price of $11,232 a vehicle ($936 per month).\35\
---------------------------------------------------------------------------
    \34\ GSA, ``GSA Schedule e-Library Schedule Details.'' Available at 
http://www.gsaelibrary.gsa.gov/ElibMain/
SinDetails;jsessionid=www.gsaelibrary.gsa.gov-
50c9%3A43f09ea8%3A34ac18eed43496?executeQuery=YES&scheduleNumber=751&fla
g=&filter=&specialItemNumber=751+1.
    \35\ Chris Joyner, Clarion Ledger, ``FEMA car rentals draw 
criticism,'' February 10, 2006.
---------------------------------------------------------------------------
    At the same time that DHS is struggling with its contracting 
procedures, its contractors are lining up to learn the tricks to 
receiving more contract dollars. Fedmarket.com held a seminar on May 
26, 2006, with topics including: (The advantage and disadvantages of 
selling to DHS,'' ``Ways to keep your investment in the DHS market 
reasonable and your sales costs down,'' ``Locating DHS sales 
opportunities,'' ``Identifying DHS procurement decisions makers,'' and 
``Simplified Acquisition Procedures.'' \36\ Although this is common in 
and around the Beltway, it emphasizes the fact that contractors are 
jumping at the opportunity to learn how to maximize some, if not all, 
of the agency's contracting vulnerabilities.
---------------------------------------------------------------------------
    \36\ Fedmarket.com, ``Selling to the Department of Homeland 
Security Seminar,'' May 26, 2006.
---------------------------------------------------------------------------
    Although many Members of Congress, media outlets, and public 
interest groups point fingers at the contractors, the problem is much 
deeper. DHS is in a vulnerable position: the agency has poor contract 
management policies and procedures, while at the same time it is buying 
infant technologies, and buying under emergency circumstances where 
competition is, by necessity, limited or non-existent. As a result, DHS 
is frequently placing all of its contracting eggs in one basket. In 
cases when competition is limited or non-existent, Congress, DHS 
contract and program officers, and agency oversight officials must 
place a greater emphasis on pre-award decisions and on post-award 
monitoring and administration. DHS must establish integrity in its 
buying system: its current system is plagued with improperly awarded, 
out-of-scope, overpriced contracts, and with contracts that produce 
little or no results.

Awards to Responsible Contractors
    Government contracts are predicated on a basic principle--taxpayer 
dollars should be awarded to responsible contractors only. FAR Subpart 
9.103 states:
        (a) Purchases shall be made from, and contracts shall be 
        awarded to, responsible prospective contractors only.
        (b) No purchase or award shall be made unless the contracting 
        officer makes an affirmative determination of responsibility. 
        In the absence of information clearly indicating that the 
        prospective contractor is responsible, the contracting officer 
        shall make a determination of nonresponsibility. (Emphasis 
        added.)
    To be determined responsible, a prospective contractor must:
        (a) Have adequate financial resources to perform the contract, 
        or the ability to obtain them (see 9.104-3(a));
        (b) Be able to comply with the required or proposed delivery or 
        performance schedule, taking into consideration all existing 
        commercial and governmental business commitments;
        (c) Have a satisfactory performance record (see 9.104-3(b) and 
        Subpart 42.15). A prospective contractor shall not be 
        determined responsible or nonresponsible solely on the basis of 
        a lack of relevant performance history, except as provided in 
        9.104-2;
        (d) Have a satisfactory record of integrity and business 
        ethics.
        (e) Have the necessary organization, experience, accounting and 
        operational controls, and technical skills, or the ability to 
        obtain them (including, as appropriate, such elements as 
        production control procedures, property control systems, 
        quality assurance measures, and safety programs applicable to 
        materials to be produced or services to be performed by the 
        prospective contractor and subcontractors). (See 9.104-3(a).)
        (f) Have the necessary production, construction, and technical 
        equipment and facilities, or the ability to obtain them (see 
        9.104-3(a)); and
        (g) Be otherwise qualified and eligible to receive an award 
        under applicable laws and regulations.\37\
---------------------------------------------------------------------------
    \37\ FAR Subpart 9.104-1 (``General standards'').
---------------------------------------------------------------------------
    Questions should be raised within DHS, and the government in 
general, when contracts are awarded to risky contractors. These include 
contractors that have defrauded the government or violated laws or 
regulations,\38\ contractors that had poor work performance during a 
contract, or contractors that had their contracts terminated for 
default. Continuing to award contracts to such contractors undermines 
the public's confidence in the fair-play process and exacerbates 
distrust in our government. It also results in bad deals for the agency 
and for the taxpayer.
---------------------------------------------------------------------------
    \38\ POGO published a Federal Contractor Misconduct Database in 
2002. Available at http://www.pogo.org/db/. A new and improved version 
of that database, including misconduct involving the Top 100 federal 
contractors will be released in 2007.
---------------------------------------------------------------------------
    In an effort to prevent contracting with the ``usual suspects'' 
that have long rap sheets of misconduct, DHS should look for 
responsible vendors during its planning and contingency contracting 
phase. Some of the largest contractors hired to respond to the 
hurricanes in 2005 have checkered histories of misconduct: CH2M Hill (5 
instances); Bechtel (12 instances); Halliburton/KBR (11 instances); and 
Fluor (20 instances). Instances of misconduct include: false claims 
against the government, violations of the Anti-Kickback Act, fraud, 
conspiracy to launder money, retaliation against workers' complaints, 
and environmental violations.\39\ DHS is shirking its responsibility to 
vet contractors and determine whether they are truly responsible. POGO 
is concerned that pre-award contractor responsibility determinations 
have fallen to the wayside. DHS and other federal agencies seem more 
concerned with awarding contracts quickly rather than ensuring the 
government gets the best goods or services at the best practical price.
---------------------------------------------------------------------------
    \39\ Id.
---------------------------------------------------------------------------
    Another problem that faces DHS is the under-utilization of the 
suspension and debarment system as a tool to weed out risky 
contractors. To be fair, the problem is not limited to DHS--all federal 
agencies under-use suspension and debarment against large contractors 
that supply the majority of the $417 billion worth of goods and 
services to the federal government each year. Overall, the government 
needs to reemphasize the importance of preventing risky contractors 
from receiving future taxpayer dollars.

Contracting Future
    While examining on systemic contracting issues, I request that the 
Committee look at the report produced by the Acquisition Advisory Panel 
(also known as the 1423 or the Services Acquisition Reform Act (SARA) 
Panel).\40\ During the nearly two years after its initial meeting in 
February 2005, the Panel held over 30 public meetings, interviewed 
scores of government and private sector witnesses, reviewed thousands 
of pages of testimony, studied numerous government reports, and 
formulated hundreds of findings and recommendations that, if considered 
and passed by Congress, could improve the government's system for 
buying goods and services. Although some of the Panel's recommendations 
do not go as far as POGO would like, the majority would still improve 
competition, negotiations, oversight, transparency, and spending 
decision-making.
---------------------------------------------------------------------------
    \40\ 1423 Panel Report. Available at http://www.acqnet.gov/comp/
aap/documents/DraftFinalReport.pdf.

Conclusion
    Acquisition reform and the changed contracting landscape have 
placed taxpayer dollars at risk. POGO has witnessed the weakening or 
bypassing of taxpayer protections, and the unraveling of free market 
forces that protect government agencies. For years, IG and GAO reports 
have exposed specific contracting missteps in individual cases of 
waste, fraud, and abuse. But the findings and recommendations from the 
individual cases are applicable to the larger systemic problems with 
DHS's, and the rest of the federal government's, contracting laws and 
regulations.

Recommendations
    POGO has highlighted the following government-wide contracting 
problems, which we hope will be considered by the Committee:
        1. Cozy Negotiations--To make every effort to get the best 
        value for the taxpayer, the government must promote aggressive 
        arm's-length negotiations with contractors.
        2. Inadequate Competition--To better evaluate goods and 
        services and get the best value, the government must encourage 
        genuine competition so that it can correct the current trend of 
        entering into non-competitive contracts in over 40 percent of 
        government purchases.
        3. Lack of Accountability--To ensure that taxpayer dollars are 
        being spent responsibly, the government must regularly monitor 
        and audit contracts after they are awarded.
        4. Little Transparency--To regain public faith in the 
        contracting system, the government must ensure that the 
        contracting process is open to the public, including contractor 
        data and contracting officers' decisions and justifications.
        5. Risky Contracting Vehicles--To prevent abuse, the government 
        must ensure that risky contract types that have been abused in 
        the past (including performance-based contracts, interagency 
        contracts, ``task and delivery orders'' also known as 
        Indefinite Delivery/Indefinite Quantity (ID/IQ) contracts under 
        multiple award and government-wide acquisition contracts 
        (GWACs), time & material contracts, purchase card transactions, 
        commercial item purchases, and other transaction authority) are 
        only used in limited circumstances and are accompanied by audit 
        and oversight controls.
        Specifically, POGO respectfully requests that this Committee 
        consider the following recommendations to improve DHS 
        contracting:
        1. Ensure that full and open competition is the rule rather 
        than the exception and restore the definition of ``competitive 
        bidding'' to require at least two bidders.
        2. Require that risky contract vehicles are used in limited 
        circumstances and only when supported by proper justifications 
        and oversight protections.
        3. Review DHS commercial item and service acquisitions to 
        ensure that a commercial marketplace exists.
        4. Examine the use of ID/IQ and GWAC contracts to ensure that 
        contractors are not receiving improper fees.
        5. Investigate how prime contractors bill the government at 
        their own labor rate(s) rather than the rate that they pay 
        their subcontractors on Time and Material or Labor Hour (T&M/
        LH) contracts.
        6. Confirm that contractors are not performing inherently 
        governmental functions, which must be performed by civil 
        servants.
        7. Reaffirm Congress's commitment to fund contract oversight 
        responsibilities.
        8. Reestablish the taxpayer-protection checks and balances that 
        have been removed from the contracting system.
        9. Review DHS's use of the suspension and debarment system, 
        especially as it has been applied to large contractors with 
        repeated histories of misconduct.
        10. Provide a fair playing field for all DHS contractors by 
        requiring public posting of all task and delivery order 
        opportunities on FedBizOpps website, and require copies of 
        contracts and task and delivery orders awards be made publicly 
        available on the Federal Procurement Data System (FPDS) 
        website.

    Chairman Thompson. The next witness is Mr. Chvotkin.

STATEMENT OF ALAN CHVOTKIN, SENIOR VICE PRESIDENT AND COUNSEL, 
                 PROFESSIONAL SERVICES COUNCIL

    Mr. Chvotkin. Thank you very much for the invitation to be 
here today. I am the senior vice president counsel of the 
Professional Services Council.
    PSC is the leading national trade association representing 
companies that provide services of almost every kind to 
virtually every Federal agency of the Federal Government. We 
believe that the taxpayer and the government are best served by 
a vibrant partnership between the public and private sectors 
through which the government is able to access the best 
solutions and capabilities.
    By any measure, the Federal Government has the largest and 
most complex procurement system in the world, and since public 
dollars are involved, it is imperative that the Federal 
procurement system be underpinned by credibility, trust, and 
competency. We share your commitment and that of the committee 
to ensuring that the Federal Government generally, and the 
Department of Homeland Security specifically, only does 
business with responsible, ethical parties. After all, 
contracting with the Federal Government is a privilege. It is 
not a right.
    Despite much of the current rhetoric however, it is 
heartening and important to note that even with the size and 
complexity, the bottom line is that this system as a whole does 
serve the public well.
    Clearly, it is also a system that faces many challenges and 
areas where improvements are needed.
    Real fraud and abuse. While deeply troubling wherever it is 
uncovered is actually relatively rare, and the government has 
in place a wide variety of statutes and standards to apply to 
entities who are seeking to do business with it.
    As you know, any organization wishing to do business with 
the government must comply with all applicable laws whether 
they be tax, environmental, or labor laws.
    Each area of law or regulation is enforced and adjudicated 
through its own experience and knowledgeable entities at the 
Federal, State and local levels. This layering of statutes and 
regulations across the government at all levels provides a 
construct in which businesses in the nation must operate.
    But for Federal Government contractors, there is much more. 
There are numerous laws and regulations that only apply to 
firms that want to do business with the Federal Government. 
Most Federal agencies follow the uniform Federal Acquisition 
Regulation that is maintained by DOD, GSA and NASA and policy 
provided by the office of Federal Procurement Policy.
    Mr. Chairman, this is the Federal Acquisition Regulation, 
2000 pages, that govern the behaviors in Federal contracts.
    Beyond these government-wide rules, there are also 
specialized regulations.
    I brought with me a copy of the Cost Accounting Standards 
that companies must comply with when seeking to do business 
with the Federal Government. And for the Department of Homeland 
Security, this is the Department of Homeland Security 
acquisition regulation laid on top. So we have roughly 2,000 
pages of acquisition regulation, roughly another 500 pages of 
standard regulations and an additional 150 pages, single-sided, 
I might add, of the Department of Homeland Security. A complex 
regime important to understand the complexity of doing business 
in the Federal marketplace.
    Beyond those government-wide rules, there are noted 
specialized rules dealing with the Democrat of Homeland 
Security. For example, as you have noted, DHS has a limitation 
on the types of companies with which it can do business.
    In addition, a myriad of other laws and regulations provide 
authority and responsibility for government officials, 
primarily contracting offices and grants officials to ask the 
right questions and take the right action again those who fail 
to follow the laws.
    But there are important and appropriate constraints on the 
government's flexibility. For instance, the government may not 
act arbitrarily, and it must adhere to its own regulations. 
There must be respect for due process. There are also long-
standing procedures to protect small business from arbitrary 
agency decisions about the competency of these businesses to 
perform Federal contracts.
    I mention all of this because it is important to recognize 
the many layers that do exist to protect the government's 
interests. It is equally important to recognize that the rules 
and regulations have evolved to strike a proper balance between 
protecting the government's interest and maintaining an 
effective and vibrant marketplace that can support the 
government's complex missions.
    Overly punitive measures unnecessarily increase costs for 
the government or its suppliers all in the name of seeking to 
achieve the unachievable. Nor is this a new debate. This dates 
back to the Clinton administration so-called blacklisting 
initiative, ostensibly to ensure the government did not award 
contracts to unethical companies. At that time, many of the 
government's own senior career contracting leaders opposed that 
initiative. Then, as now, any such rule was both unnecessary 
and unexecutable.
    Mr. Chairman, as I said at the outset, we are strong 
supporters of the government business compliance rules, and 
routinely encourage our member companies to ensure that their 
business conduct compliance programs are current and complete. 
We recognize that, regrettably, individuals and organizations 
violate the law and we have little sympathy for those that do. 
But it would be a costly travesty if we were to impose new and 
unnecessary rules, let alone ineffective and unexecutable ones, 
based on a mistaken impression that the current system has 
failed us.
    We are ready and willing to work with you in ways to make 
the system stronger even as we seek to maintain that critical 
balance that I mentioned, but I would urge you to reject 
precipitous proposals based on limited information and 
dangerous assumptions.
    Thank you again for the opportunity to be here. I look 
forward to responding to any questions the committee may have.
    Chairman Thompson. Thank you very much.
    [The statement of Mr. Chvotkin follows:]

                  Prepared Statement of Alan Chvotkin

Introduction
    Mr. Chairman and Members of the Committee, thank you for the 
invitation to testify at today's hearing. I am Alan Chvotkin, the 
senior vice president and counsel of the Professional Services Council 
(PSC). PSC is the leading national trade association representing 
companies that provide services of almost every kind to virtually every 
agency of the federal government.
    We believe that the taxpayer and the government are best served by 
a vibrant partnership between the public and private sectors through 
which the government is able to access the best solutions and 
capabilities. By any measure, the federal government has the largest 
and most complex procurement system in the world, and the Department of 
Homeland Security is one of its many components. Since public dollars 
are involved, it is imperative that the federal procurement system be 
underpinned by credibility, trust, and competency. As such, we share 
your commitment to ensuring that the Federal government generally, and 
the Department of Homeland Security specifically, only does business 
with responsible, ethical parties. After all, contracting with the 
federal government is a privilege--not a right.

DHS Procurement Spending is Significant
    In Fiscal Year 2006, the Federal government spent more than $400 
billion on the purchase of goods and services, through over 30 million 
individual contract transactions, with nearly two-thirds of the dollars 
spent on services. The Department of Homeland Security spent more than 
$14 billion through contracts, awarding business to almost 16,000 
contractors through close to 67,000 individual contract transactions. 
The vast majority of this DHS spending also was for the procurement of 
services. To its credit, more than $4.5 billion of the DHS prime 
contracting dollars went to small business.
    Despite much of the current rhetoric, it is heartening and 
important to note that, even with its size and complexity, the federal 
acquisition system actually work quite well. Clearly, it is also a 
system that faces many challenges and areas where improvements are 
needed. But the bottom line is that this system, on the whole, serves 
the public well. Real fraud and abuse, while deeply troubling whenever 
it is uncovered, is actually relatively rare and the government has in 
place a wide array of generally effective statutes and standards that 
apply to entities seeking to do business with it.

Regulating Businesses
    As you know, any organization wishing to do business with the 
government must comply with all generally applicable laws and 
regulations for maintaining a business, including all relevant tax, 
environmental, and labor provisions. Each area of law or regulation is 
enforced and adjudicated through its own experienced and knowledgeable 
entities at the federal, state, and local levels. For example, Congress 
has given responsibility to the Internal Revenue Service to write 
regulations to implement tax laws. The Environmental Protection Agency 
has similar primary responsibility for environmental laws, the Labor 
Department for labor matters, and so on. Many of these agencies also 
have internal administrative enforcement authority, while the Justice 
Department is generally charged with civil and criminal enforcement at 
the Federal level.
    Taken together, this layering of statutes and regulations across 
the government, at all levels, provides a construct under which all 
businesses in the nation must operate. But for government contractors, 
there is much more.

Regulating Government Contractors
    There are numerous laws and regulations that only apply to firms 
that want to do business with any agency of the federal government--
such as registering in the government's central contractor registration 
(CCR) system, agreeing to unique audit and/or competition rules, 
meeting the government's unique accounting and billing standards, or 
agreeing to utilize small business for a certain percentage of 
subcontracting opportunities. For these government-wide procurement 
requirements, most federal agencies follow the uniform Federal 
Acquisition Regulation (FAR) requirements. The FAR is maintained by 
three lead agencies--DoD, GSA and NASA--and policy is provided by those 
agencies under the leadership of the Administrator of the Office of 
Federal Procurement Policy in the Office of Management and Budget.
    Beyond those general rules, frequently there are also specialized 
laws and regulations that apply when doing business with specific 
agencies of the federal government or for specific types of activities. 
For example, DHS has a restriction on the types of companies with which 
it can do business. The Defense Department has an entirely separate set 
of specialized rules to guide its procurements for major weapons 
systems. In those specialized areas, each federal agency is responsible 
for developing, publishing and maintaining separate acquisition 
regulations that supplement the government-wide regulations. For the 
Department of Homeland Security, this supplemental regulation is called 
the Homeland Security Acquisition Regulation (HSAR). Each agency is 
also responsible for writing its own contracts and monitoring 
compliance with agency-specific requirements.
    In addition, a myriad of laws and regulations provide the authority 
and responsibility for government officials--primarily contracting 
officers and grants officers--to ask the right questions and take the 
right action against those who fail to follow the laws and regulations. 
If a contracting officer is concerned about putting the federal 
government at risk by doing business with inappropriate entities--
whether it is an individual, a company, a university or a non-profit 
organization--he or she has wide latitude with regard to information 
that can be sought from that concern. These procedures apply to both 
contracts and grants.
    But there are appropriate and important constraints on the 
government's flexibility. For instance, the government may not act 
arbitrarily and it must adhere to its own regulations and procedures. 
One of these is respect for due process before denying work to an 
individual or a contractor, unless the government has an urgent need to 
protect its interest. There are also long-standing procedures to 
protect small business from arbitrary agency decisions about the 
competency of these businesses to perform federal contracts.
    On February 16, 2007, the FAR agencies issued a proposed rule to 
require all government contractors receiving awards in excess of $5 
million to have a formal ethics and compliance program. The vast 
majority, if not all, of PSC's more than 210 member companies have 
formal ethics and complianceprograms and place a high premium on 
corporate and individual responsibility. We support the direction taken 
in this proposed rule, although in our April 17 detailed comments we 
raised a number of concerns with its operational aspects.*
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    * The full PSC comments are available http://www.pscounsel.org/
pdfs/PSCFARCodeOfConduct104-17-07.pdf.
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    I mention all of this because it is important to recognize the many 
layers that exist to protect the government's interests and equities. 
It is equally important to recognize that this extensive regime of 
rules and regulations has evolved over many years in an effort to 
strike the proper balance between protecting the government's interests 
and maintaining a vibrant and effective marketplace that can support 
the government's diverse and increasingly complex missions. The 
government marketplace is vastly different and far more regulated than 
the commercial marketplace and we would not suggest that the two can be 
or should be identical. However, a balance is vital to ensure that the 
government has access to the widest possible array of suppliers and 
solutions.
    Unfortunately, no matter what laws or regulations are in place, a 
system this large and complex will have problems. With so many dollars 
spent, unethical government and contractor employees will seek to 
enrich themselves at the expense of the taxpayer and the mission. Just 
a few weeks ago, five individuals were arrested for conspiring to 
embezzle funds intended for Iraq reconstruction--the five included two 
Army reservists, a government civilian, and a contractor. While the 
arrest is not an indicator of final guilt or innocence, such activities 
are never acceptable and those responsible should be dealt with 
aggressively.
    But because these cases are a distinct minority, policymakers 
should focus on how to appropriately punish such behavior while still 
guarding against imposing new and often untenable burdens on the entire 
federal procurement system. Overly punitive measures unnecessarily 
increase costs for the government or its suppliers, all in the name of 
achieving the unachievable. In the end, this is a delicate balancing 
act. This hearing offers an important opportunity to make progress 
toward that balance.

POGO Hysteria
    I have reviewed the POGO ``Federal Contractor Misconduct Database'' 
as well as its 2002 ``Pick-pocketing'' report. Taken at face value, 
without understanding how the federal acquisition system works or even 
digging just a little bit beneath the surface, it is easy to mistakenly 
conclude that the acquisition system has failed.
    Yet none of that information really tells us what we need to know 
and thus, what, if anything, we need to change. For example, the POGO 
website cites only 639 cases for the past nineteen plus years (from 1/
8/88 through 4/17/07); of those, scores involve settlements of civil 
actions--with no indication of any admission of guilt. Under our system 
of laws, a settlement, particularly one without any finding or 
admission of guilt, cannot be equated with a guilty verdict. Yet the 
POGO database makes no such distinctions. Nor does the information 
separate out scores of relatively common legal actions, such as 
disputes between employees and employers which were settled, again, 
without any specific findings. Instead, the list simply presumes guilt. 
Each of these cases are fact-specific but the report fails to account 
for critical differences in the activities, such as whether the company 
identified the problem, whether any senior officials were involved, and 
whether and when corrective action was taken. Even the 2002 POGO report 
is fraught with a remarkable number of mistakes and misstatements.
    If we are to remain a government of laws under which due process is 
a sacrosanct privilege afforded all citizens and entities, then we must 
look at their ``Federal Contractor Misconduct Database'' through a very 
different lens. To understand the real implications of the report and 
the degree to which the rhetoric surrounding the database matches the 
realities, real scrutiny is needed. That scrutiny must assess the 
degrees to which violations of any kind have been proven to have 
occurred, whether restitution was paid, how old the allegation is, and, 
of course, how serious the violation is. These are essential elements 
but, unfortunately, the database is of little help.
    Similar rhetoric surrounds allegations that government contractors 
have reputedly violated tax laws but continue to receive contracts. 
However, if one carefully reads the Government Accountability Office 
(GAO) and other objective reports on the subject, very few contractors 
are actually accused of, let alone proven to have committed, tax fraud. 
In fact, the main point of the GAO report was that the systems to link 
IRS tax collection procedures with agency payment processes were not 
working as planned. Since those reports were prepared, regulatory and 
corrective administrative actions have already been taken and more are 
in process.
    Indeed, each of these topical area assertions raises complex and 
difficult questions of compliance with highly regulated areas, yet none 
of them have been adequately answered. Nor is this a new debate; it 
dates back to the Clinton Administration's so-called ``blacklisting'' 
initiative, ostensibly developed to ensure that the government did not 
award contracts to unethical companies or individuals. At that time, 
many of the government's own senior career contracting leaders opposed 
that initiative. Then, as now, any such rule is both unnecessary and 
unexecutable.

Role of the Government Contracting Officer
    Some have suggested that contracting officers be required to deny 
federal contracts to companies that have demonstrated a ``consistent 
pattern'' of abusing federal laws and/or regulations. How is a GS-9 or 
GS-11 contracting officer supposed to make these determinations? On 
what information, advice, counsel, or assurances is the determination 
certified to be objective and fair? This proposal neither includes nor 
contemplates any guidelines or definitions as to what constitutes a 
consistent pattern or what types of violations are considered serious 
enough to merit the exclusion of a company from government contracting 
and these would be difficult to draft comprehensively and fairly.
    The proposal places on the government's contracting officers the 
entire burden of making complex legal determinations about a company's 
compliance with tax, environmental, labor, and other federal statutes 
that would warrant being denied the opportunity to compete for 
government work. These are fields for which entire legal communities 
are created and mastery can take years of training and practice.
    Moreover, are we now going to change the fundamental construct of 
our federal procurement system so that, with no guidelines relating to 
the severity of a charge and its ultimate impact on the government, and 
even after a company or individual pays restitution, an individual or 
company continues to be punished through the denial of access to 
government contracts? Do we simply ignore the overlay of the numerous 
statutes and adjudicative processes?
    Answers to these questions are central in determining how this 
issue should be addressed. In short, in too many of these discussions, 
the concept of due process appears to be largely ignored!

Conclusion
    In our view, the current mix of laws and regulations does a very 
good job of enabling the government to ensure it only does business 
with responsible parties, and provides numerous, appropriate means that 
enable the government to fully and adequately ``protect its 
interests.''
    Mr. Chairman, as I said at the outset, we are strong supporters of 
the government's business compliance rules and routinely encourage our 
member companies to ensure that their business conduct and compliance 
programs are current and complete. We recognize that, regrettably, 
individuals and organizations violate the law and we have little 
sympathy for those that do. But it would be a costly travesty if we 
were to impose new and unnecessary rules, let alone ineffective and 
unexecutable ones, based on the mistaken impression that the current 
system has failed us. By and large, it hasn't.
    We are always ready and willing to work with you on ways to make 
the system stronger even as we seek to maintain that critical balance I 
mentioned earlier. But I would urge you to reject precipitous proposals 
based on limited information and dangerous assumptions.
    Mr. Chairman, thank you again for the opportunity to testify here 
today. I look forward to answering any questions you might have.

    Chairman Thompson. We will now listen to Professor Tiefer's 
testimony.
    Welcome.

STATEMENT OF PROFESSOR CHARLES TIEFER, PROFESSOR OF CONTRACTING 
          LAW, UNIVERSITY OF BALTIMORE SCHOOL OF LAW.

    Mr. Tiefer. Thank you, Chairman Thompson and 
Representatives Clarke and Green. Your presence here shows the 
importance of the issues we are talking about.
    I am a professor of government contractor law at the 
University of Baltimore Law School and the author of a case 
book on government contracting law.
    Responsibility is a key criterion for perspective 
government contractors which DHS should be considering much 
more broadly and carefully.
    Under current law and procedures, which Ms. Duke described 
earlier when she was saying what the checklist was that the 
contracting officers go through at DHS, they do a pre-award 
survey and in the course of it, they look at who has been 
debarred and they look at a very narrow form of past 
performance information. The information that is kept on what 
she called PPIRS, the past performance information retrieval 
system.
    To take an example so one understands just how narrow this 
look is, a large juicy contract was given to Halliburton KBR to 
build emergency detention facilities. One would think if one 
looked at the past performance of Halliburton, one would get a 
great big pile of information about allegations of waste, fraud 
and abuse in Iraq. But I will wager that if you look at it, you 
will find a very benign record, and for that matter, I think a 
good thing to do would be to task the GAO to look at how little 
there is in the PPIR system for Halliburton.
    Why is that? Well, as the GAO has said in a January 2007 
report called Select Agencies Use of Criminal Background Checks 
For Determining Responsibility, which explains they looked at 
the DHS system and other departments, that their routine does 
not include looking at past criminal records. What else don't 
they look at? Well, information from inspectors general and 
from auditors and from the General Accounting Office is 
typically not to be found in these databases because it is, as 
the GAO says in that report, narrative in nature. It is not 
sort of machine readable, and the contracting officers who put 
information in that database aren't interested in going through 
IG reports, auditors reports, whose questioning they may not 
have accepted.
    So in the case of Halliburton, which had a billion dollars 
in questioned costs, but which the high command in the DOD 
contracting offices decided to let Halliburton walk away with, 
that billion dollars is not going to be in the database as it 
is simply things that the auditors questioned.
    What are other examples of contractors who have a more 
broad survey of their past performance would lead to 
questioning about their ability to contract with DHS? Well, we 
have SAIC, which has a history of having badly botched a 
contract to buy cargo screening equipment so the Department had 
to say we don't want to buy any more from SAIC and which in the 
past month or two had a full-length article, magazine article, 
which I summarize in my testimony, showing how it has obtained 
DHS contracts by--and contracts throughout the government--by 
having high level lobbying partners who have great influence in 
the government while it has a history of, as I describe in my 
testimony, the GAO, the DOD IG, and the press, showing that its 
performance has been highly questionable.
    We have the Bearing Point KPMG which bungled the eMerge2, a 
financial software system at DHS. This committee held hearings 
about this very subject. Those hearings aren't going to be 
found in the past performance system. So that when each of 
these come up for new contract, is the responsibility 
questioned? No.
    Now it has been suggested well, we have the general 
government-wide regulations. What would we need anything 
stronger at DHS for. Ms. Duke pointed out the example that we 
already know we need more at DHS. She said their checklist 
includes their own provisions concerning what she called 
inverted entities. These are the companies that have gone and 
switched their headquarters to Bermuda so they can cheat the 
U.S. government out of the taxes that it should be paid.
    The Congress decided that that was not to happen at DHS, 
and so DHS, in its own regulation, has a strong provision that 
it is checked. You could reach out further and say that 
companies like Halliburton, where the CEO is going to go to 
Dubai, that kind of thing ought to be checked for 
responsibility. It won't be under the government-wide 
regulation. It should be under the HSAR.
    Thank you, Mr. Chairman.
    [The statement of Mr. Tiefer follows:]

                               Hearing on

        Responsibility in Federal Homeland Security Contracting

                             April 20, 2007

                      by Professor Charles Tiefer

                 NON-RESPONSIBLITY IN DHS CONTRACTORS:

                  WHO'S RESPONSIBLE? WHAT CAN BE DONE?

    Thank you for the opportunity to testify on the subject of 
responsibility among contractors at the Department of Homeland Security 
(DHS). I am Professor of Law at the University of Baltimore Law School 
since 1995, and the author of a book, and of pertinent law review and 
journal studies, on federal procurement policy.\1\
---------------------------------------------------------------------------
    \1\ These include GOVERNMENT CONTRACT LAW: CASES AND MATERIALS 
(Carolina Academic Press 2d edition 2004)(co-authored with William A. 
Shook). In 1984--1995 I was Solicitor and General Counsel (Acting) of 
the U.S. House of Representatives, and participated in numerous 
oversight investigations of federal procurement policy.
---------------------------------------------------------------------------
        I. Executive Summary
        II. The Narrow Current DHS Approach to Contractor 
        Responsibility.
        III. Broader Consideration of Past Contracting Waste, Fraud and 
        Abuse
        IV. Broader Contractor Responsibility--Civil Rights, 
        Expatriates, and Other Issues

I. Executive Summary
    ``Responsibility'' is a key criterion for prospective government 
contractors, which DHS should consider more broadly, in several 
respects. Under current law, after DHS selects a contractor for award, 
it conducts a pre-award survey to determine responsibility. This 
existing ``responsibility'' determination consists mostly just of 
checking that the awardee is not on the list of suspended or debarred 
contractors (``excluded persons''); has adequate finances (from Dun & 
Bradstreet); and has satisfactory ``past performance'' in a narrow 
sense.
    Whether and how DHS should consider ``responsibility'' more broadly 
involves several issues.
    For one issue--upon which this testimony focuses--DHS's methods 
examine only a narrow version of the ``past performance'' record of the 
contractor. DHS makes little effort to gather up broadly the whole of 
the government contractor's record of fraud, waste, abuse, and other 
violations, which may not get into the narrow ``past performance'' 
database. The revelations by Inspectors General, auditors, qui tam 
False Claims Act plaintiffs, and the press often do not go into the 
databases primarily maintained by contracting officers of solely their 
own experiences with the contractor.
    To make this concrete, this testimony looks at the past record of 
some of DHS's biggest and best-known contractors with irregularities in 
their past performance, drawn from those public record sources 
sometimes not included in the DHS past performance review. It starts 
with SAIC, which has botched DHS work, and has a full-length recent 
article in Vanity Fair about its many questionable episodes. This part 
continues with Boeing, for which a 20-month partial debarment can, and 
did, work. It discusses BearingPoint (KPMG), which bungled eMerge2.
    For another issue, responsibility could be expanded to include 
significant federal law deviations or transgressions besides poor past 
performance. American contractors that move abroad--technical 
``expatriates'' or those like Halliburton that move their CEO to 
Dubai--raise a potential responsibility subject. More generally, the 
``contractor responsibility'' rule, promulgated during that Clinton 
Administration and rescinded in the Bush Administration, raised 
subjects such as compliance with civil rights, tax, environmental, and 
labor laws. DHS may be the right department for a version of the 
contractor responsibility rule.

II. The Narrow Current DHS Approach to Contractor Responsibility.
    Agencies may award contracts only to ``responsible'' offerors--in 
other words, only after their contractor officers determine that the 
potential awardee is ``responsible.'' The law about contractor 
responsibility for all government departments, including DHS, comes 
from Federal Acquisition Regulation (FAR) 9.104 (emphasis added and 
details omitted):
        Subpart 9.1 Responsible Prospective Contractors

        9.104 Standards
        9.104-1 General standards.

        To be determined responsible, a prospective contractor must--

        (a) Have adequate financial resources to perform the contract, 
        or the ability to obtain them (see 9.104-3(a));
        (b) Be able to comply with the required or proposed delivery or 
        performance schedule . . . .
        (c) Have a satisfactory performance record. . . . .
        (d) Have a satisfactory record of integrity and business 
        ethics;
        (e) Have the necessary organization, experience, accounting and 
        operational controls, and technical skills. . . .;
        (f) Have the necessary production, construction, and technical 
        equipment and facilities. . . .; and
        (g) Be otherwise qualified and eligible to receive an award 
        under applicable laws and regulations.
    Government contracting law has long-standing and elaborate 
provisions for finding contractor responsibility--discussed in own 
book, and written about by others in detail.\2\
---------------------------------------------------------------------------
    \2\ David Z. Bodenheimer, Responsibility of Prospective 
Contractors, 97-09 Briefing Papers 1 (available in Westlaw); Steven W. 
Feldman, 2 Government Contract Awards: Negotiation and Sealed Bidding, 
ch. 18, sec. I, ``Performance Responsibility'' (2006 ed.)(available in 
Westlaw).
---------------------------------------------------------------------------
    These criteria have great potential for flexibility--in particular, 
the notion that a contractor must have a ``satisfactory record of 
integrity and business ethics'' and a ``satisfactory performance 
record'' have wide potential. Under current law, after DHS selects a 
contractor for a large award, it conducts a ``pre-award'' survey to 
determine responsibility. But, this is relatively narrow. This existing 
``responsibility'' determination consists mostly just of checking that 
it is not on the list of suspended or debarred contractors (``excluded 
persons''); is financially responsible (from Dun & Bradstreet); and has 
acceptable ``past performance'' in a narrow sense.
    Two GAO reports, one of them a quite recent and relatively 
overlooked study released in January 2007, investigated just how narrow 
the pre-award survey of contractor responsibility can be. GAO, Selected 
Agencies Use of Criminal Background Checks for Determining 
Responsibility, GAO-07-215R (Jan. 12, 2007); GAO, Federal Procurement: 
Additional Data Reporting Could Improve the Suspension and Debarment 
Process, GAO-05-479 (July 2005). The January 2007 GAO study disclosed 
that contracting officers these day often depend upon rather narrow 
pre-award surveys (conducted for them by, e.g., the Defense Contract 
Management Agency). The surveys use two important tools, tracked by a 
contractor's Data Universal Numbering System (DUNS) number: the data in 
the Excluded Parties List System (EPLS) about suspensions or 
debarments; and, the data in the Central Contractor Registration System 
(CCR) about contract awards.
    The government has a standard arrangement to obtain Dun & 
Bradstreet data on potential awardees to check their financial 
resources.
    What is left out by surveys of suspensions or debarments, financial 
solvency, and past performance? A striking example is that the GAO 
found that there is no particular reason that the ordinary pre-award 
survey would turn up whether the principals on an awarded contract had 
prior criminal records. In general, criminal background checks are not 
required and may well not have occurred.\3\
---------------------------------------------------------------------------
    \3\ Criminal records might come out if DHS is implementing Homeland 
Security Presidential Directive 12, about the standards for issuing 
identification to employees and contractors. Criminal records also 
might come out if there has been the kind of criminal investigation of 
the awardee in which part of the standard procedure is to run a 
criminal record check.
---------------------------------------------------------------------------
    Presumably the survey also picks up, if the contracting office has 
not already tapped this in evaluating the offer, the relevant past 
performance database. For the Defense Department, NASA, and NIH, that 
is the Past Performance Information Retrieval System (PPIRS). Many 
expect a trend toward a single federal database on past performance 
information for all agencies.
    To step back, the agency systems for past performance derive from 
one of the most highly regarded procurement initiatives of the 1990s--
the expanded importance of past performance as a source selection 
factor.\4\ This works by a process starting when agency contracting 
officers do evaluations of the contractors' performance of contracts at 
the time of performance. (The contractor's awareness of this evaluation 
and its importance is expected to ``motivate'' the contractor to 
perform well.) This evaluation goes into the aforementioned databases. 
Then, when contractors compete for subsequent awards, the agency source 
selection personnel consider each offeror's past performance as a 
factor in selecting the awardee.\5\
---------------------------------------------------------------------------
    \4\ Nathanael Causey, Past Performance Information, De Facto 
Debarments, and Due Process: Debunking the Myth of Pandora's Box, 29 
Pub. Cont. L.J. 637 (2000).
    \5\ Steven W. Feldman, supra, sec. 6:12 (``Past Performance'') and 
10:28 (``Organizational experience/past performance''); Richard White, 
Overall Government Contract Evaluation process--Past Performances, 
FedMarket.com, May 19, 2005.
---------------------------------------------------------------------------
    One DHS example, among countless others, reflects how big a factor 
past performance can be. When DHS awarded a task order to Security 
Consultants Group Inc for security guard services, it weighted past 
performance 60% of the technical factors--an impressively decisive 
weight.\6\
---------------------------------------------------------------------------
    \6\ Government Contractor, April 14, 2004, p.166, discussing Comp. 
Gen. Dec. B-293344.2. The 60%, although impressive, is not so 
surprising. DHS is much more involved in purchasing of services, than 
of commodities, and for these services, past performance is a uniquely 
indicative factor in a way that mechanical tests on the physical 
characteristics of the ``product'' cannot be.
---------------------------------------------------------------------------
    However, there is no particular reason that the ordinary pre-award 
survey would turn up the allegations of prior fraud or other 
irregularities, that an agency may receive from many sources apart from 
contracting officers. In its section, ``Data on Instances of Previous 
Fraud by Contractor Principals Not Readily Available,'' the January 
2007 GAO report noted that ``investigations of fraud'' are assigned to 
investigative units ``such as the office of Inspector General.'' Those 
units keep their case files in ``narrative'' form--not entered in the 
aforementioned databases--so there is no particular reason a pre-award 
survey must pull up what Inspector Generals have found out about the 
contractor.
    Besides the Inspector General, there are other sources of 
information about contractor fraud, waste, and abuse. The Project on 
Government Oversight website on contractors provides a survey of such 
sources. For example, private relators may bring qui tam False Claims 
Act lawsuits against contractors. Such qui tam cases may win in court, 
or, the contractor may settle them. The success of a suit reveals a 
false claim, that is, statutory fraud.
    Yet, contracting officers may very well, for a number of reasons, 
put nothing about such a successful suit in their database. The suit, 
and especially its eventual outcome, may post-date the contract; the 
contracting officer may not agree with the suit, regardless of the 
outcome, from partiality to the contractor or a desire to minimize what 
might seem a blemish on the C.O.'s own record; or, the contracting 
officer may just decide against taking on the argument with the 
contractor ensuing from penalizing it by making a big record of the 
false claim suit's allegations and outcome. The example of SAIC below 
draws on a False Claims Act case settled by SAIC, that reflects 
negatively on SAIC, yet may not be found in the kinds of records 
checked when SAIC is a potential awardee.

    III. Broader Consideration of Past Contracting Involving Waste, 
Fraud and Abuse
    As discussed above, the current DHS approach to responsibility 
draws too narrowly on what contractors have done on past contracts, in 
assessing ``past performance.'' Specifically, it does not even draw on 
the investigations of the Inspector General of DHS, let alone the 
auditing agencies of other departments (such as DCAA). And, it does not 
draw on private suits--qui tam False Claims Act cases. All this results 
from a narrow approach to past performance which uses databases filled 
out by contracting officers--not inspectors general, not auditors, and 
not information from qui tam lawsuits about government contract fraud.
    DHS could remedy this by tasking its Inspector General, or, its 
central procurement office, with two steps as to its records for past 
performance. (Any excess burden from these could be handled by 
restricting this, at least at first, to matters and contracts with some 
high minimum, such as $1 million.
    First, the IG (or procurement office) should enter, in the past 
performance records, its conclusions from its investigative work. This 
should not be left to contracting officers, particularly when they may 
not be familiar with, or may not want to follow up, the investigation. 
Moreover, the IG could enter information from matters that fall 
naturally to it, such as private qui tam False Claims Act suits, as to 
which the IG office is routinely tasked to become familiar when the 
government is deciding on joining the suit.
    Second, the IG (or procurement office) should consult certain kinds 
of public databases for a larger sweep of information about important 
offerors or awardees. These include criminal record databases; the 
press databases of Lexis-Nexis; and those public databases (notably, 
that of the Project on Government Oversight) that systematically 
collect government contractor information.
    Of course, as with other past performance information, the 
government contractor should have the opportunity to enter its own 
response to correct or to clarify anything with which it takes issue.

Example: SAIC
    To see what is not put together by current DHS responsibility 
practice, let us take as an example of a very important DHS contractor 
with negative episodes in its background: SAIC. Helpfully, a 
comprehensive investigative treatment of SAIC's contracting has 
appeared recently--Donald L. Barlett, Washington's $8 Billion Shadow, 
Vanity Fair, March 2007, at 342--supplementing similar prior 
accounts.\7\
---------------------------------------------------------------------------
    \7\ A prior description of SAIC is in ``Windfalls of War--The 
Center for Public Integrity,'' http://www.publicintegrity.org.
---------------------------------------------------------------------------
    SAIC has sold a great deal to departments such as the Defense 
Department and intelligence agencies. With DHS as well it has a 
particular important contract. In 2003, TSA awarded it a contract with 
a billion-dollar potential, pursuant to which SAIC provided about 400 
cargo-screening monitors for border crossings and ports. As U.S. News & 
World Report reported in 2005, ``[T]he government awarded a contract to 
San Diego-based Science Applications International Corp. . . . The 
machines were plagued by performance problems.'' \8\
---------------------------------------------------------------------------
    \8\ ``A Radioactive Contract,'' USNews.com, May 22, 2005.
---------------------------------------------------------------------------
    This committee is familiar with the problem, having held hearings 
on that failure,\9\ but, it warrants noting. ``What's the problem? 
Well, for starters, the monitors can't distinguish between a nuclear 
bomb and radiation that occurs naturally in a variety of materials, 
including ceramic tiles, quarry tile, cat litter, fertilizer, and 
bananas . . . .'' Id.\10\
---------------------------------------------------------------------------
    \9\ Hearings on Detecting Nuclear Weapons and Radiological 
Materials, House Homeland Security Committee (June 21, 2005).
    \10\ A similar story is Eric Lipton, ``U.S. to Spend Billions More 
to Alter Security Systems,'' New York Times, May 7, 2005.
---------------------------------------------------------------------------
    Suppose DHS's experience with that large, sensitive contract with 
SAIC caused it to look broadly at questions of SAIC's past negative 
performance, as part of SAIC's responsibility. It would find these 
specific legal and ethical controversies:
    --SAIC is organized primarily for a revolving-door approach to 
Washington lobbying. It rotates, on and off its payroll, officials at 
the very top level, which includes former Secretaries of Defense and 
heads of the CIA and NSA. It has a pattern of obtaining highly 
profitable contracts from such officials while they are in office, and 
providing them lucrative rewards, particularly stock options, when they 
are on its payroll.\11\
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    \11\ As the Vanity Fair article commented, ``Civilians at SAIC used 
to joke that the company had so many admirals and generals in its ranks 
it could start its own war. Some might argue that, in the case of Iraq, 
it did.'' The existence of SAIC's company-wide pattern of obtaining 
contracts by revolving-door methods puts each individual controversy 
into a larger framework.
---------------------------------------------------------------------------
    --SAIC had to settle a federal fraud (False Claims Act) case in 
April 2005. Those widely reported allegations might involve gross 
understatement of excess profits on extensive national SAIC 
contracting. I discussed this in the NBC-TV segment, ``The Fleecing of 
America,'' on May 5, 2005. As Vanity Fair says about SAIC's formula for 
understating its excess profits uncovered in that case, ``the principle 
involved was large, and it had potentially national implications. Was 
SAIC using the same formula in thousands upon thousands of other 
contracts it had with the government?'' Yet, it does not appear that 
current DHS methods for checking ``past performance'' would even put 
this on the table in front of a contracting officer.
    --SAIC had a major contract terminated after revelations of a 
spectacular conflict of interest. It had the NRC's contract to 
formulate safety guidelines for radiation-contaminated waste. Then, it 
became a subcontractor on a major DOE contract for recycling 
radioactive scrap metal. When the SAIC conflict of interest came out, 
the NRC not only terminated its contract with SAIC, it filed suit 
against SAIC alleging false representations.\12\
---------------------------------------------------------------------------
    \12\ This is discussed in the Vanity Fair article.
---------------------------------------------------------------------------
    --SAIC was involved in several of the most questionable contracts 
by which Defense Department funds have been paid for untoward 
``support'' in Iraq. SAIC was the contractor for paying the ``Iraqi 
Reconstruction and Development Council'' exiles including Ahmed 
Chalabi. As the Vanity Fair article comments, a typical exile on this 
SAIC payroll was ``a onetime atomic-energy official in Iraq, who 
insisted that Saddam posed an imminent nuclear danger to the United 
States. . . .'' SAIC's obtaining this contract has been criticized by 
the GAO on pure contracting grounds,\13\ the DoD IG also criticized 
SAIC on it,\14\ and I have discussed it critically in the Washington 
Post.\15\ From what the GAO, the DoD IG, and the Washington Post laid 
out, this was not some small matter. At the most critical of all times, 
SAIC was doing a very wrong thing.\16\
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    \13\ The Government Account Office received and upheld a protest 
against the award of that contract, from commercial companies that 
wished to compete to provide such services legitimately. Matter of 
Worldwide Language Resources, Inc, B-296693.2 (Nov. 14, 2005).
    \14\ Demetri Sevastopulo, US Military ``Cut Corners'' on Iraq 
Contracts, Fin. Times, March 26, 2004, at 4; Bruce V. Bigelow, Report 
Rips SAIC Over Iraq Contracts, San Diego Union-Tribune, March 25, 2004, 
at C-1.
    \15\ Renae Merle, Air Force Erred with No-Bid Iraq Contract, GAO 
Says, Wash. Post, Nov. 29, 2005, at A17.
    \16\ The GAO and DoD-IG criticisms are important. This is not just 
some reporters' lack of appreciation of a contractor with whom the 
reporters disagree. Rather, SAIC was found to be acting to obtain 
greater profit, without competition, but in ways--such as sole-source 
providing of personnel services that were being manipulated to pay off 
specific Iraqi exiles providing false intelligence.
---------------------------------------------------------------------------
    Also, this includes hiring SAIC for establishing the Iraq Media 
Network, which the press found initially to be a disseminator of DoD 
disinformation contrary to the official United States policy 
(particularly for a department, such as DoD, and its contractors, which 
are not part of the intelligence agencies tasked with such covert 
actions); SAIC's network has since become, with painful irony, an Iraqi 
government disseminator of virulent anti-American messages.\17\
---------------------------------------------------------------------------
    \17\ Barlett, supra.

Lessons from SAIC
    SAIC illustrates a number of points about the need for greater 
attention to contractor responsibility.
    First, it would help if, at the time contractors engage, and are 
caught, in waste, fraud, and abuse, the agencies made a strenuous 
effort to create a ``past performance'' record of this--not just have 
it occur only if a contracting officer would ordinarily mention the 
matter in filling out the performance paperwork. Without pushing, low-
ranking DHS officials may not be expected to stand up to contractors 
with the demonstrated clout and connections of SAIC. But, if the 
prospect of a record that would block future awards forced it, SAIC may 
be obliged to either clean up its act or cease to drain DHS's funds.
    Second, a good way for DHS to address and to change a company-wide 
pattern like this with an important vendor (like SAIC) is via the issue 
of responsibility. A company which faces a broad loss of contracts may 
change its culture to rein in the abuses. Without that prospect, a 
company like SAIC will simply settle the consequences of each 
individual abuse that is caught, and continue its pattern with the 
expectation that what it does that is not caught, will more than make 
up in revenues for what it does that is caught.
    Third, DHS must stand ready to impose formal sanctions, like 
terminations for default, upon the particular contracts of a contractor 
like SAIC when its performance of a contract involves waste, fraud, or 
abuse meeting the standards for formal sanctions. DHS may have been 
able to terminated for default SAIC's contract for radiation monitors 
on the ground that the monitors materially failed to perform as 
promised (there is insufficient information available on the public 
record to tell this for certain), rather than simply not continuing to 
order more units. Doing so lays the groundwork to consider findings of 
poor past performance the next time around.

Responsibility is a Properly Tough Criterion Even for (Perhaps, 
Especially for) the Biggest DHS Contractors
    Boeing at DHS and Boeing's Billion-Dollar Suspension
    Boeing is by no means the worst DHS contractor, but, reviewing 
Boeing provides important lessons about responsibility. The TSA awarded 
Boeing a contract that included the delivery and installation of 1100 
explosive detection (baggage screening) systems. A 2004 IG report found 
wasteful spending and mismanagement.\18\ Boeing's bid was the highest. 
Boeing insisted on a ``cost plus a percentage of cost'' arrangement, 
which is about as close to per se abuse as procurement can get. Then, 
Boeing turned around and subcontracted 92 percent of the work to L-3 
and another company--which is the way to most abuse such a contract. 
And so it proved: Boeing received a 210 percent return on investment, 
and the IG deemed more than half of that profit to be ``excessive.'' 
\19\
---------------------------------------------------------------------------
    \18\ DHS IG, Evaluation of TSA's Contract for the Installation and 
Maintenance of Explosive Detection Equipment at United States Airports 
(Sept. 2004).
    \19\ Contracting Rush for Security Led to Waste, Abuse, 
WashingtonPost.com., May 21, 2005.
---------------------------------------------------------------------------
    Boeing is, of course, one of the biggest government contractors, 
but it is not alone in abuses both at DHS and elsewhere. Just two 
months ago, DHS's Inspector General criticized a multibillion-dollar 
program run by Lockheed Martin and Northrop Grumman, which, together 
with Boeing, make up the ``Big 3'' of defense contracting. The Coast 
Guard awarded its Deepwater contract to a joint venture of Lockheed and 
Northrop. The DHS IG found design flaws for the Coast Guard cutters 
that led to spiraling maintenance costs and, without a fix, could 
reduce the ships' longevity. Deepwater is a $24 billion, 25-year 
program. So this could be a waste problem on a gargantuan scale--as a 
hearing by the House Oversight and Government Reform Committee on 
February 13, 2007, discussed.\20\
---------------------------------------------------------------------------
    \20\ Deborah Billings, DHS: Waxman Blasts DHS for Outsourcing Too 
Much Authority Under Major Contracts, BNA Fed. Cont. Rep., Feb. 13, 
2007, at 160.
---------------------------------------------------------------------------
    It need hardly be said that a check of the background of Boeing or 
Lockheed would readily display a very large set of prior matters 
reflecting adversely on responsibility. Boeing has been responsible for 
the Darleen Druyun scandal, with high-level criminal convictions 
(Druyun and former Boeing CFO Michael Sears) and the resignation of 
Boeing's CEO \21\--the single most dramatic criminal procurement 
scandal (leaving aside the Iraq and post-Katrina scandals) of this 
Administration. Lockheed has the highest number by far (92) of issues 
on the POGO website for any government contractor.\22\
---------------------------------------------------------------------------
    \21\ Druyun Scandal Prompts DOD-wide Review of Procurements, Wynne 
Says, BNA-FCR, Nov. 23, 2004, at 549.
    \22\ Lockheed's reputation goes back to when Lockheed's worldwide 
payoff scandals dominated the inquiries of an entire Senate special 
committee's existence (the Church Subcommittee on Multinationals) and 
led to the enactment of the Foreign Corrupt Practices Act.
---------------------------------------------------------------------------
    What lessons can be learned about responsibility from the abuses in 
the contracts of Boeing (or, for that matter, Lockheed)? Most 
important: DHS can, as a viable and practical matter, treat even the 
very biggest contracts and contractors with toughness on 
responsibility.
    On many grounds, the contracting industry, and even this 
Administration, might dispute this. They might say that DHS 
nonresponsibility determinations cannot occur against giant companies 
because the government needs them too much both when they are the sole 
source, and when they are among the few competitors, for important 
contracts. And, they might say that DHS nonresponsibility 
determinations are unfair or ineffective as to the very biggest 
contracts and contractors, because such contractors operate on so large 
a scale, with so many units and such decentralization, that it is 
unfair or ineffective to sanction the whole company for the faults of 
``the one rotten apple in the whole barrel.'' After all, they are the 
biggest government contractors, and some of the extent of their record 
simply owes to their contracts' scale.
    There is a very concrete example that supports DHS treating even 
the very biggest contractors like Boeing with toughness: the Defense 
Department did treat Boeing that way as recently as 2003-2005. The Air 
Force awarded Boeing 19 of 28 contracts for upcoming launching 
satellites, a multi-billion dollar contract. Then, the government 
investigated Boeing's having improperly and obtained Lockheed 
proprietary information to compete for those contracts, with criminal 
charges against Boeing officials on the satellite proposal team. From 
2003-2005, the Air Force suspended three Boeing units from eligibility 
for future government contracts, for twenty months; and, it reallocated 
Boeing's number of launches from 19 to 12--$1 billion in work.\23\
---------------------------------------------------------------------------
    \23\ Air Force Lifts Suspension of Boeing From Eligibility for 
Federal Contracts, BNA-FCR, March 8, 2005, at 226.
---------------------------------------------------------------------------
    The 20 month Boeing suspension also illustrated the doubly 
effective lesson of such a sanction, even in (indeed, especially in) 
spheres of contracting where there are only a few sufficiently large or 
specialized contractors available to perform major specialized 
contracts.\24\ By reallocating $1 billion in work from Boeing to its 
``victim'' (Lockheed), the suspension taught the whole industry two 
lessons. One was that ``crime doesn't pay.'' The other is that 
``honesty DOES pay.'' The lesson is taught by giving the work that 
would otherwise go to the nonresponsible contractor to other, 
responsible contractors. And, contractors are not being held to 
impossibly high standards--Lockheed is itself no angel, as just 
explained above--just to the workable standard that those who go beyond 
the pale see a large quantity of their work go to those who stay within 
the pale.
---------------------------------------------------------------------------
    \24\ As much as any other suspension or nonresponsibility 
determination, the 20 month suspension of Boeing involved the issues 
that the industry raises to argue against nonresponsibility 
determinations by DHS or other agencies. The government had very few 
choices, but must reallocate work to Lockheed, and must forego needed 
competition in the field. And, it could be argued that the suspension 
harshly penalized a substantial contingent in the Boeing workforce, who 
suffered loss of work for the misconduct of a few officials.
---------------------------------------------------------------------------
    Moreover, limited exceptions, by waiver, can occur in the course of 
a suspension.\25\ Similarly, DHS could make nonresponsibility 
determinations about particular contractors, and reserve the right to 
make limited exceptions by waiver.
---------------------------------------------------------------------------
    \25\ The Air Force twice waived the suspension, letting Boeing 
launch one rocket in 2003 for ``compelling need'' and another in 2004 
for ``national security.'' These amounted together to about a $100 
million in work--nothing to sneeze at, but a small fraction of what 
Boeing lost overall. Air ForceLifts Suspension of Boeing From 
Eligibility for Federal Contracts, BNA-FCR, March 8, 2005, at 226.

Bearing Point/KPMG and eMerge2
    A detailed press article in 2006 entitled ``Security for Sale,'' 
had the subheading: ``The Department of Homeland Security has a Section 
on Its Web Site Labeled `Open for Business.' It Certainly Is.'' \26\ 
The article assembled many examples, some well-known within the 
procurement community, of contractor exploitation, often facilitated by 
lobbyists, of lax standards at DHS. Security for Sale develops usefully 
one particular example about which this Committee has recently held 
important hearings.
---------------------------------------------------------------------------
    \26\ By Sarah Posner, in The American Prospect (Jan. 2006).
---------------------------------------------------------------------------
    It describes how the company BearingPoint, formerly known as KPMG 
Consulting, obtained the eMerge2 contract. ``In 2004, after signing on 
with Blank Rome, the company won three major DHS deals: a $229 million 
contract for its `eMerge2' software, designed to integrate the 
financial management of the department's 22 component agencies [and 2 
other contracts].'' \27\ Blank Rome was a Philadelphia lawyer-lobbyist 
firm extremely well connected to the DHS Secretary, Tom Ridge of 
Pennsylvania.\28\
---------------------------------------------------------------------------
    \27\ Id.
    \28\ Id.
---------------------------------------------------------------------------
    There was reason from the beginning to be skeptical of the 
BearingPoint contract. At the very moment that DHS awarded the eMerge2 
contract to BearingPoint, another federal agency, the Department of 
Veterans Affairs, was canceling a computer systems integration contract 
with BearingPoint for a Florida VA medical center after paying 
BearingPoint $117 million, and the State of Florida was canceling a 
similar $173 million with BearingPoint and Accenture.\29\ More broadly, 
the technical procurement world grouped BearingPoint's eMerge2, as an 
enterprise resource project (ERP), as one of the ``well-known ERP 
implosions'' as to which ``the history of failed ERP projects [are] 
dotting the federal landscape.'' \30\
---------------------------------------------------------------------------
    \29\ Paul de law Garza, Critics Question Federal Contract, St. 
Petersburg Times, Oct. 7, 2004
    \30\ Wilson P. Dizard III & Mary Mosquera, ERP's Learning Curve, 
TechNews (Feb. 16, 2006).
---------------------------------------------------------------------------
    It seems rather blithe for DHS just to walk away from that failure 
without asking some hard questions of BearingPoint and of its own 
project workforce. DHS has a painful history of material weaknesses in 
its component financial statements and financial management systems 
precisely in the context that the BearingPoint contract was to fix, as 
GAO reported to this Committee at its March 29, 2006 hearing.\31\ DHS 
depended on that contract for a solution, having chosen the 
BearingPoint proposal over a rival proposal by established solution-
provider IBM--and over simply implementing the internal solution of the 
Coast Guard's much-praised system. It seems BearingPoint's failure was 
apparent ``within weeks,'' \32\ yet DHS, having stayed several years 
with BearingPoint, now finds itself having lost years in this key 
effort.
---------------------------------------------------------------------------
    \31\ Statement of McCoy Williams Before the Jt. Hearing of the 
Subcomm. On Government Management, Finance and Accountability of the 
House Government Reform Comm. and the Subcomm. On Management, 
Integration, and Oversight of the House Homeland Security Comm. (March 
29, 2006).
    \32\ U.P.I., DHS Financial Management Plan Collapses (April 3, 
2006).
---------------------------------------------------------------------------
    There are important lessons for ``past performance'' and 
responsibility of contractors at DHS. The contracting officers of the 
department evidently face pressure to go lightly upon contractors who 
engage in waste or abuse or simply fail badly. Moreover, the 
contracting officers seem insensitive to organizational conflicts of 
interest (OCI)--using a company during an early phase of a project, 
then awarding a lucrative deal to the same company during a later 
phase. That is why it would be beneficial for the IG or some other 
separate office to make sure that contractor abuses at DHS were entered 
in databases in appropriately serious terms, and, that contractor 
abuses elsewhere were also entered so as not to be overlooked during 
``past performance'' and responsibility determinations. eMerge2 might 
have been avoided. In any event, its recurrence might be prevented. To 
paraphrase an old saying,\33\ ``history repeats itself--because people 
didn't put a record of it, the first time, in the `past performance' 
database.''
---------------------------------------------------------------------------
    \33\ It is usually stated as: ``history repeats itself because 
people weren't watching the first time.''

    IV. Broader Contractor Responsibility--Civil Rights, Expatriates 
and Other Issues
    For another set of issues, subject matters for contractor 
responsibility are suggested besides past performance involving waste, 
fraud and abuse.

    A. Expatriates and Other Contractors Making a Foreign Shift
    One issue concerns American contractors that make moves abroad. 
These may include business that are, technically, ``expatriates''--
American companies that reincorporate in foreign tax havens. A 2002 GAO 
report found out the following about such expatriates, notably 
including Accenture, which is a well-known contractor for DHS (notably 
in relation to the $10 billion U.S.-VISIT contract)
        On October 1 [2002], the General Accounting Office reported 
        that $2.7 billion in Government contracts were awarded to 
        expatriate companies during Fiscal Year 2001. Although only 
        four companies were named as being incorporated in 
        international ``tax haven'' countries, the total awarded to 
        them was about 2.6% of the $102 billion awarded to the top 100 
        federal contractors, according to GAO's report. GAO also 
        reported that the Department of Treasury has found a ``marked 
        increase'' in the frequency, size, and profile of ``inversion'' 
        transactions, which occur when a U.S.-based multinational 
        company ``restructures its corporate group so that after the 
        transaction the ultimate parent of the corporate group is a 
        foreign corporation.'' The four companies incorporated overseas 
        were: (1) McDermott International, Inc., incorporated in 
        Panama; (2) Foster Wheeler, Ltd., incorporated in Bermuda; (3) 
        Accenture, Ltd., incorporated in Bermuda; and (4) Tyco 
        International, Ltd., also incorporated in Bermuda. All of these 
        contractors were on the top 100 publicly traded federal 
        contractors list. See 44 GC  61. McDermott International was 
        number 11 on the list, Foster Wheeler ranked 57, Accenture 
        ranked 58, and Tyco International ranked 68, according to the 
        report.
    GAO Finds $2.7 Billion Awarded to Expatriate Companies in fiscal 
year 2001, Gov't Cont., Oct. 9, 2002, at 387.
    Of course, a series of enacted provisions, followed up by 
provisions in DHS regulations (the HSAR), have dealt with expatriate 
companies. As an article about DHS's regulations laid out:
    Prohibition Against Contracts with Corporate Expatriates--Section 
835 of the Homeland Security Act of 2002 (the Act) prohibits DHS from 
contracting with ``a foreign incorporated entity which is treated as an 
inverted domestic corporation.'' In short, the bar renders certain 
otherwise ``domestic'' entities that incorporated overseas after the 
Act's effective date (November 25, 2002) ineligible to receive DHS 
contracts.

    Treated as a matter of contractor responsibility, HSAR 3009.104-70 
implements the prohibition and requires the clause at HSAR 3052.209-70 
to be inserted in all DHS solicitations and contracts; however, the 
exclusion is not mandatory. Requests for waivers submitted to DHS' 
Chief Procurement Officer (CPO) may be granted by the Secretary of DHS 
on a contract-by-contract basis if doing so would be ``required in the 
interest of homeland security, or to prevent the loss of any jobs in 
the United States or prevent the Government from incurring additional 
costs that otherwise would not occur.'' See HSAR 3009.104-74(a). As 
part of the Homeland Security Act Amendments of 2003, however, this 
waiver authority was restricted so that the Secretary can only waive 
the prohibition upon making a determination that the waiver is required 
in the interest of homeland security (and for no other purpose). See 
Pub. L. No. 108-7, Sec. 101(2), 117 Stat. 528 (2003). DHS will modify 
the waiver authority to be consistent with this amendment.
    The exclusion applies only to a narrow group of entities. To fall 
within the exclusion, the entity must be incorporated overseas and 
treated as a ``domestic inverted corporation'' as that term is defined 
by the regulations (i.e., certain otherwise domestic entities whose 
place of incorporation was transferred off-shore after November 25, 
2002). The exclusion is entirely unique in Government procurement. 
There is no analogous requirement in the FAR or any other agency-unique 
acquisition regulations applicable to such ``corporate expatriates.''
    Richard P. Rector & William J. Crowley, Homeland Security--The New 
Acquisition Regulations and Guidelines, Gov't Cont., Feb. 25, 2004, 
p.80 (emphasis added). Not that the mechanism by which the expatriate 
provision works, is a DHS regulation (in the HSAR) as to contractor 
responsibility.
    Even so, such companies that are technically expatriates are only 
one part of this issue. Without technically becoming expatriates by 
reincorporating overseas, companies raise diverse issues by other kinds 
of what might be called ``foreign shifts''--foreign takeovers, such as 
the Dubai Ports issue; or, moving their headquarters or their CEO 
abroad, such as Halliburton moving its CEO to Dubai. This testimony 
need not delve into the concerns raised in this way. The foreign shift 
suggests a diminished and even potentially conflicted commitment to 
American security concerns, which may become attenuated as the 
Halliburton CEO, for example, relocates away from America and learns to 
identify less with his former country and more with his chosen locus in 
Dubai (and close-at-hand customers there) and its regional perspective.
    Moreover, in many ways, a foreign shift can lead to a changed, and 
possibly diminished, commitment to the laws that contractors are 
expected to carry out. For example, Title VII, and the related 
proscriptions of sex and race discrimination, envisage a strong effort 
by contractors to hire women and minorities at all levels, especially 
at the top. It is not at all clear that Halliburton's new CEO 
headquarters in Dubai is in a vicinity where he will vigorously recruit 
American (or any) women for top posts. More likely, the Dubai-based CEO 
may develop a version of the corporate glass ceiling.

    B. The ``Contractor Responsibility'' Rule
    The government-wide ``contractor responsibility'' rule, promulgated 
during the Clinton Administration and rescinded in the Bush 
Administration, cited noncompliance with civil rights, tax, 
environmental, and labor laws as a basis for finding an awardee 
nonresponsible. As for whether to have such a rule on a government-wide 
basis, it is unnecessary to go back through all the arguments made in 
the period of the late 1990s and early 2000s. Before the rule was 
promulgated, the Administration made a strong record in its favor. 
Moreover, while this was not so noticed in the din of debate, as the 
consideration of the rule went along, a sound conception developed 
about how best to draft and implement it, so that lawyers were able to 
advise their contractor clients how the vast majority of them could 
live quite easily with the rule:
        The commentary emphasizes that the government is not so much 
        concerned by contractors who may have individual violations at 
        some point in their histories as it is by contractors who have 
        a recent history of ``repeated, pervasive and significant 
        violations.'' Moreover, the regulations encourage contractors 
        to institute ameliorative actions when violations are found, 
        instructing contracting officers to consider as positive 
        evidence of responsibility efforts by companies to comply with 
        administrative settlement agreements that reflect an effort to 
        ameliorate past violations.
    Anthony H. Anikeeff, Avoiding the ``Blacklisting'' Minefield, Fed. 
Law., April 2001, at 42 (emphasis added). In other words, a big company 
which lost some limited number of race and sex discrimination cases by 
individuals, some not even recent, would point out that this did not 
show a recent history of ``repeated, pervasive and significant'' 
violations. Even if the company had resolved some large-scale issue 
with the EEOC or other administrative body, it could point out its 
successful effort to comply afterward, as positive evidence of 
responsibility. In contrast, the systematic and hardened discriminator, 
with a pattern of extensive recent discrimination and no sign of effort 
at amelioration or improvement, would be challenged to explain its 
responsibility.
    Putting aside the issue not present here of a government-wide rule, 
it is worth considering whether there is some greater reason to having 
some version of a ``contractor responsibility'' rule just for the 
Homeland Security Department. As just discussed, there is no 
government-wide expatriate rule, but there is such a rule for DHS, in 
the department's acquisition regulation, the HSAR. Among other factors, 
the spirit of homeland security suggests a particular type of 
idealistic patriotism, with which the notion of dropping American 
corporate citizenship and reincorporating in a foreign tax haven seems 
peculiarly at odds. Moreover, Americans are asked to undertake the 
effort of creating a new department, and funding its large and growing 
programs, to meet potentially great perils. Furthermore, DHS contracts 
may well prove more lucrative than other contracts; they tend to be 
less commercial in nature, less competitive in allocation, and lack the 
longstanding cost controls of more established fields. All that seems 
to warrant asking something of the contractors who received that large-
scale and especially lucrative funding, namely, to maintain an 
identification with this country.
    Similarly, the spirit of homeland security, and the demand upon 
Americans to fund its large and growing programs, is at odds with a 
business mentality that would consistently violate the laws embodying 
national ideals--like civil rights, environmental, and labor laws. 
Contractors ought not take, with one hand, DHS's especially lucrative 
contracts, and, with the other hand, refuse to invest the relatively 
modest sums needed to comply with federal laws. It is understandable 
that the Congress more willingly enacts large and growing 
appropriations for DHS if it provides that the money will not go into 
the pockets of those systematically violating the civil rights laws and 
similar laws.
    Moreover, there may be some value in having one department--DHS--
serve as a test site for a version of the contractor responsibility 
rule in its departmental regulations (the HSAR), rather than either 
having no such rule or going to a government-wide rule. There has been 
dispute over just how extensively any such rule would affect 
contractors. Proponents have argued that a large majority of businesses 
do, in fact, obey these federal laws and need have no concerns, and 
that it is only a rather small handful of corporate ``outlaws'' with 
exceptional records of scorning compliance with federal laws. Only 
because that handful has taken over a disproportionate role, on this 
issue, in the business lobby, is a corporate responsibility rule made 
to seem problematic. By having a DHS rule, this debate would be 
resolved by concrete experience. If the large majority of DHS 
contractors do not experience particular difficulties with such a rule, 
as the rule's proponents suggest, then that could be taken into 
consideration as to expansion to other departments. On the other hand, 
the expatriate rule did not immediately expand to other departments, 
showing that a contractor responsibility rule may last, applying just 
to DHS.

    Chairman Thompson. Thank you very much, Professor.
    I yield myself 5 minutes for questions.
    Each one of you have talked about responsible contracting. 
And you have heard the testimony of the representative from DHS 
earlier.
    In your own words, what steps should a contracting officer 
take to ensure that a prospective contractor is a responsible 
bidder? As you know, there are some questions about the 
Shirlington contract, that was a limousine contract that was 
questionable. The professor talked about some other contracts. 
And I am aware of the Professional Services Council 
representative talking about existing regulations. And I guess 
the question is are the existing regulations tight enough to do 
it? Is it just that they are not being followed in some 
instances, or do you think there are some other measures that 
could be put in to get us to that point. And I will start with 
Mr. Amey.
    Mr. Amey. Thank you, Mr. Chairman.
    The regulations are on the books, but I do think they could 
be tightened up. The examples that Professor Tiefer just walked 
you through are the perfect examples of the government's narrow 
interpretation of them that they are not going to step out of 
that box. And, obviously, you know, the Professional Service 
Council will say they shouldn't step outside of that box. They 
are following the regulations and that is the argument at POGO 
that we have with the contracting associations all the time is 
that, you know, well they are following the rules but are they 
following it as intended.
    Ms. Duke testified that they have the policies and 
procedures that they need, but I don't think they are working 
as intended. When you have examples and POGO has a contractor 
misconduct database for the specific examples of what Professor 
Tiefer was testifying about. We have examples of false claims 
against the government, violations of the Anti-Kick-Back Act, 
outright fraud, conspiracy to launder money and retaliation 
against workers and environmental violations. None of those are 
being used in responsibility determination. So it really does 
fall on DHS to do a better job in spending taxpayer money 
wisely.
    Chairman Thompson. Thank you very much.
    Mr. Chvotkin. I am in the uncomfortable position of being 
on Mr. Amey's left. I am really there. And I couldn't disagree 
more with either of the two other colleagues on this panel.
    The tools, the checklist that Ms. Duke talked about, the 
standards that exist in the regulations are quite comprehensive 
yet quite flexible. They are flexible because they address 
individual circumstances. They address compliance, the 
capability to execute an existing contract. That is what the 
responsibility determinations are all about.
    These are not about second-guessing auditors or Government 
Accountability Office reports. They are trying to make the best 
determination whether the contractor is likely to perform work.
    Past performance is an indicator of future success. It is 
unquestionable. We strongly support a robust past performance 
information reporting system. The PPIR system is relatively 
new, not as robust as it should be. It is not as comprehensive 
as it needs to be. We have endorsed strongly on the executive 
branch that they enhance that system. We have encouraged 
agencies to make sure the contracting officers respond and 
submit information to that past performance information 
reporting system and other databases that track that 
information.
    We have endorsed strengthening the excluded parties list 
that the General Services Administration maintains as executive 
agent on a government-wide basis. To make sure that that data 
is more readily available, we have now got that on line along 
with other activities that are now coming on line.
    So I think there are steps that are being taken. Much of it 
is enforcement. Much of it goes to the workforce challenges 
who, in addition to having the need to get the work out the 
door, have a responsibility to go through the--this 
determination as well as other determinations.
    So a combination of workforce training and experience, 
systems tools in place, and compliance with existing 
regulations, I think will get to most of the circumstances that 
have been raised.
    Now are there bad actors? There are. Will they slip through 
the cracks? They will. And that is where oversight and 
responsibility on the government contracting officer and the 
performance is designed to check.
    And here again, the government has a lot of tools available 
to them where they find that mistake to correct it through 
terminations for convenience, through prosecutions.
    So there is certainly no lack of capability of executing.
    Chairman Thompson. Thank you.
    Professor.
    Mr. Tiefer. Well, there couldn't be a more important 
question than what more should those contracting officers do 
and whether the existing regulations need to be strengthened.
    The first thing is that given the systematic inadequacy of 
the database that is kept in that it is kept only by 
contracting officers and it doesn't have all of these items we 
mentioned previously, Inspector Generals and auditors and so 
forth, that one should contracting officer should go to public 
databases, which, for example, the one at POGO is one. 
Databases that will inform them about key false claims action 
cases which are very important, which develop a great deal of 
information, which are otherwise are going to go right past the 
contracting officer, won't be aware.
    SAIC is an example of a company that settled a very 
important False Claims Act case, in effect, though not 
technically, in effect, admitting that it had jacked up its 
cost and its prices.
    Mr. Chvotkin. Not technically?
    Chairman Thompson. Excuse me, sir. You have had your 
chance.
    Professor, continue.
    Mr. Tiefer. The point is taken. They don't admit or deny, 
but for purposes of checking their past performance, it should 
be checked. It should be checked. It is like if you had someone 
who had been charged with drunk driving and they pleaded no lo 
contendere, that should be checked if one is deciding if they 
should be out there behind the wheel again, especially if you 
see further examples of them drinking and driving.
    Anyway, we have--there are false claims--there are 
databases that are kept, records that are kept about False 
Claims Act things.
    A specific example which is brought up of the instance of 
Shirlington Limousine is of criminal records. When the GAO 
asked these various departments do your people look at criminal 
records, other departments said as a matter of fact--the 
Department of Justice, GSA said as a matter of fact, we do. Our 
procedures do lead us to know. DHS's answer was no. Could they 
check it? Yes. They would simply have their contracting 
officers ask the IG and the IG check to see whether the 
principals on the contract had a criminal record.
    I will say that the DHS does check if it is fallen on 
Homeland Security directives and things are involved like 
badges for admittance to sensitive facilities, so there is some 
checking at DHS, but there is not a department-wide procedure 
the way there is apparently at other places.
    Last, there are things which under the current regulations 
there is no push at all at contracting offices to look at. 
These are the violations of Federal law apart from waste, fraud 
and abuse. Violations like civil rights employment 
discrimination violation, which the government has turned its 
back on checking.
    I think that regulation changes could be made and should be 
made so that people--firms that have a record of systematic 
discrimination which has been exposed by class action lawsuits, 
this should be put in front of the contracting office.
    Chairman Thompson. Thank you very much.
    We now recognize the gentlelady from Texas, Ms. Jackson 
Lee, for 5 minutes.
    Ms. Jackson Lee. I am not sure if this mike is working but 
am I heard. Thank you very much. Thank you.
    I know that Ms. Duke is not at the witness table, but I 
want to make the point that as we are learning today, the 
procurement office is really moving with a breath of fresh air 
in the right direction. And I think we can all learn today in 
how we can make it better.
    And so Mr. Amey, I am going to raise with you a forward 
thinking question, because the government needs to learn and 
Congress needs to write laws in the right manner.
    And I note that you probably covered some areas, and I 
thank you for your indulgence. There are two hearings that we 
are attending to.
    But this is a crucial hearing, because we are really 
speaking of billions of taxpayer dollars. I mean, I think that 
is--you know, that is what you call throw your hands up in 
frustration, and then we add to it the insult to the burden of 
victims who are already victimized and simply want something to 
work.
    And so I just have to go back again, and I know that you, 
as I understand it, have mentioned some other debacles, and I 
will mention them as well.
    Ms. Jackson Lee. You know, I don't know why the government 
feels that only huge conglomerates--and Halliburton is a 
constituent, but there is not a crisis that occurs in America 
that Halliburton is not there. Now this is the Department of 
Defense I would imagine. We have to find a way to expand. I 
will use the term ``fix that.'' But we have to find a way to 
become more opportunity generating with competition. So I 
wanted you to speak to this comfort level that we get with 
large entities.
    Then the next point is that, you know, as we do that, we 
certainly shortchange procurement officers or staff, and maybe 
that may be a question. It is much easier to go with what we 
perceive to be comfort level but I think when we get comfort 
level, then we get reckless spending by the entity that feels 
that we are working hand in glove. That was certainly a point I 
think that is evident with Halliburton in places like 
Afghanistan, Iraq and also Haiti.
    The second question is, with respect to I think a necessary 
change in the law or administratively, and that is these large 
contracts on crises going to the State government, not getting 
to local entities. And when we went into New Orleans in the 
parishes and we talked to the local officials, they said, you 
know what, I am barred from hiring a local guy because there is 
a big major contract generated because we have sent money to 
the State. And therefore, the State goes into this either 
noncompetitive, hand in glove situation. That is why, although 
I know ICF and the Road Home Program is State, I believe there 
should be a Federal investigation because billions of moneys 
are still stymied.
    So what about the idea--now, if you take that one first, of 
restructuring how we send moneys in time of crisis, and so that 
St. Bernard Parish, making it an argument or putting the 
structure in place, would get the money directly. You send it 
to the State, the State sits there for a period of time. There 
may be--and I am not indicting any state-elected officials, 
meaning the legislature, the Governor's office, but they sit 
and boil for a long period of time in time of crisis and the 
local dollars, they never give them.
    Mr. Amey.
    Mr. Amey. Well, I will handle your second question first. 
But to me they all merge together, and it ends up being a very 
connected answer. And that is the first thing that we need to 
look at is the number of tiers we have. By using lead system 
integrators, the system that we currently have with these large 
prime contractors, we are really taking away business from 
small and medium-sized businesses.
    Ms. Jackson Lee. And minority, minority and women.
    Mr. Amey. And minority and women as well. And the problem 
is, you hit it on the head, and I think Mr. Chvotkin started 
out his testimony with that in saying this is subpartnership. 
Through the years, we have gotten away from arm's length 
negotiations. I always use the example, when I buy a car, I am 
not hand in hand with the person selling me the car. Somewhere 
here the government has turned to this approach where we are in 
the same business with these contractors, so at that point we 
are working for the same goals. And I don't always see it that 
way. I know Mr. Chvotkin is going to criticize that comment. 
But that is where that comfort level with large contractors 
comes from. At POGO, we call it the usual suspects. It is a lot 
easier to turn to the usual suspects than going out and doing 
it--trying to find another contractor, turning to somewhere 
else where they are doing the same work. One of the terms that 
they bat around is ``bundling.'' We need to start debundling 
contracts. There is no reason Halliburton had to get laundry 
services, food services, construction services. Why not break 
those apart? But it was a lot more convenient. It was a lot 
more efficient for the government to get that contract awarded 
as a larger contract. So let's not break it apart. Let's get it 
awarded and then we will allow Halliburton to then subcontract 
out all the work to other people. And you end up with multiple 
tiers.
    So that gets to your second question you asked, was at one 
point we end up with up with one, two, three--I have heard 
four, five levels of subcontractors where everyone is taking 
their piece of pie at that point. We have seen where--and this 
is where I have talked about prime and material contracts, 
where the prime contractor will bill out the government $100 an 
hour to pay their contractor at $50 an hour, and then the 
worker is actually only getting $15 an hour. There is risk 
involved there, there is allocations of expenses I know in 
Economics 101. But at the same time you have a prime contractor 
getting $50 to do little or no work because the contractor is 
already doing it. And that needs to end. That is where there is 
a need for new regulations, there is a need to look at the 
system and say, it isn't working as intended because there has 
been so many changes with the War in Iraq, with Hurricane 
Katrina.
    Have we caught up to the system? I think it is the tail 
wagging the dog at this point.
    Thank you for your question.
    Ms. Jackson Lee. Professor, did you want to--the gentleman 
in the middle. I am sorry. Professor Teifer.
    Mr. Chvotkin. I am Alan Chvotkin.
    Ms. Jackson Lee. Where is the professor there? Yes. Sorry 
we have you listed second but you are over here. Yes. Did you 
want to comment?
    Mr. Tiefer. Very much so. You are quite right that there is 
a syndrome of large entities, of a greater comfort level with 
contracting with large entities and as a result, reckless 
spending. An example in DHS, which I discuss in my testimony, 
is the famous Deepwater contract that the Coast Guard handles, 
which is a $24 billion contract, which has received a lot of 
critical attention from the oversight people and which is a 
joint contract between Lockheed Martin and Northrop Grumman. 
When one goes and looks at the Project on Government Oversight 
database, Lockheed is the winner of the prize. But it is the 
prize that people try not to win, it is the prize of the 
largest number of past abuses recorded for any firm. Lockheed 
wins the prize coming in by far the largest at 92. Is there a 
better way to contract? You asked a good question. Is there a 
way to contract so that we are dealing, for example, sometimes 
directly with local governments rather than only through State 
governments? And the same question can be asked, is there a 
time where we are going not just to the Lockheeds but directly 
to its subcontractors and eliminating? And the answer is, if 
one has the requisite number of contracting officers, if one 
hasn't purged the staff of the experienced contracting 
officers, they will go more directly to the local governments, 
to the subcontractors, to the small businesses, to the 
minority-owned businesses.
    Well, should DHS be doing this? I testified a year ago 
about DHS personnel. DHS I think has one of the highest ratios 
of amounts of money spent per contracting officer. This is 
again a prize one tries not to win. This means there is the 
smallest oversight, the least direct. Is this the history 
there? No. The Federal Emergency Management Agency had an 
excellent record on the disasters of the 1990s, the hurricanes 
of the 1990s. It had more people ready to go directly to the 
scene and directly to provide what is needed and that would 
take the place of--depending upon large entities and only 
States.
    Ms. Jackson Lee. Thank you very much. Thank you, Mr. 
Chairman.
    Chairman Thompson. Thank you very much for your questions. 
We now recognize the gentlelady from New York for 5 minutes for 
her questions.
    Ms. Clarke. Thank you very much, Mr. Chairman. I wanted to 
direct my questions to Mr. Amey and to Professor Tiefer. I 
wanted to get a sense of, you know, your opinions. Mr. Amey, in 
your testimony you note that the government is relying on 
contractors to perform jobs previously performed by civil 
servants, including policy and budget decisions that impact the 
direction of the Department. I want to ask whether you feel 
that this goes to the ability of the agency to retain 
personnel, the ability to establish an agency culture and what 
impact you feel it has on the overall performance of the 
Department.
    Mr. Amey. Unfortunately, the first panel isn't here. But 
that would be a perfect question for them because I am not 
within DHS. But I will say that there is a syndrome that goes 
along here that you have with outsourcing. Outsourcing isn't 
new. Let's not make this up as something that just started. 
This has been going on for 50, 60 years, even longer. The 
question is, are we outsourcing jobs that should be performed 
by government employees? The FAR, you know, as people are 
talking about regulations and whether we need to add things or 
not, there is a section in the FAR on inherently governmental 
functions. And in section, I think, C of that provision, it has 
18 or 19 things that are listed that says this is inherently 
governmental, it should be or shall be performed by government 
employees. Then you get to subsection D and it says these 
things are closely related to inherently governmental functions 
but they can be performed by contractors. Well, there are 20 
things listed there. Some of them overlap. You have FOIA, for 
example, is one where you have FOIA in both categories. The 
question is, where is the bright line between the two? When 
does the contractor cross that line and start performing 
inherently governmental function? You need to look at this from 
two different perspectives. In POGO my next investigation is 
going to be on this issue, it is taking a look at it 
financially.
    And then second is a control issue, is the government 
losing control of itself? Lead system integrators, there has 
been just two great reports that have come out on lead system 
integrators, and at that point they are really calling into 
question, is the government giving too much control over 
contractors to run the government? And their answer is yes. But 
we don't have anyone inside the government to do that. And that 
is a question Mr. Chvotkin may want to weigh in on this as 
well. There is a morale issue. The revolving door creates a 
morale issue as well. But I think that is something that you 
want to pose to DHS and try to get a feel for what their 
employees think about outsourcing and about the revolving door 
and control of the government.
    Mr. Tiefer. Thank you, Ms. Clark. DHS is unfortunately a 
strong example of a place in which things that should be done 
in house by civil servants, by the government are being 
outsourced and being done by people whose firms, whose interest 
itself of course is for them to make the most money. The 
example of course of the extreme outsourcing that is going on 
there is the current thing called the Secure Border Initiative, 
which is a multi-multi-billion dollar throwing of money at the 
border under the notion that this can solve our problems. And 
it is famous in the procurement observing community that DHS 
said when it was putting this out we are not going to tell you 
firms what to do. You come to us with ideas about what we 
should do, and we will be glad to take your ideas and thank you 
for them, which is not letting the fox into the hen house, but 
giving the deed to the hen house to the fox and saying it is 
your house, what would you like to do here? There is a general 
problem in DHS that it was built on give it to the contractor 
notions and not extend the civil service notions. You have in 
many of the subdivisions of DHS dedicated people who have been 
doing the work of customs, the work of immigration, the work of 
the Coast Guard all these years. And instead of being given the 
tools, they are being told stand aside and let the contractors 
do it.
    Ms. Clarke. Mr. Chvotkin, did you want to comment on that?
    Mr. Chvotkin. Yes, I would. I appreciate the opportunity to 
do that. Last time I checked, and I believe from the 
committee's standpoint there are no government employees who 
have the ship build yard. There are no government employees who 
are doing the debris removal. So the reliance on the 
contracting community is absolutely appropriate. I agree 
completely with Mr. Amey that the oversight responsibility, the 
engineering capability, the design capability must be resident 
in the government, and they simply don't have that talent 
today. So it is not in the question of what we would like to 
do. It is a question of what we are actually able to do.
    The regulation is very clear. The agencies have the desire. 
Ms. Duke talked about having 200 vacancies for the government 
contracting job. We are strong supporters of the well-trained, 
well-compensated Federal acquisition workforce. I use the 
expression that you may have heard in another commercial, an 
educated consumer is our best customer. That is how many of our 
members feel. A smart buyer is the better customer for us. We 
need to take steps, and this committee has already started down 
that path in the authorization bill, to address some of these 
workforce issues. We are a day late. We shouldn't be 2 days 
late in getting that work done. But that is still work ahead of 
us, and that doesn't mean that the responsibility, relying on 
contractors for appropriate work should go out the door.
    Ms. Clarke. My time is up. Thank you very much, Mr. Chair.
    Mr. Green. [presiding.] Thank you very much. And the Chair 
will now allocate 5 minutes of time. And I would like to start 
with Mr. Amey. Mr. Amey, sir, will you kindly explain what 
percentage of the no-bid contracts are sole source and what 
percentage would be cost plus?
    Mr. Amey. For DHS, their total number of--and what I 
consider no-bid contracts, you know, and this get into what 
definition are you going to use. I can provide pie charts that 
come from the SRA panel, the acquisition advisory panel that 
recently concluded its 18-month investigation on where the 
government currently is with competition levels. There is three 
or four different parts of that pie, competition and then 
contracts that were not competed. But then there is also 
follow-on contracts that weren't competed, task and delivery 
orders that weren't competed. As far as POGO is concerned, we 
add all those basic ideas of noncompetition together and get an 
estimate. It is probably closer to 40 or 50 percent. And again, 
those numbers are somewhat flawed because the government does 
not have the best, most reliable data out there. So I will say, 
take it with a grain of salt. That is not my problem. But it is 
the way contracting officers are entering into the system.
    Mr. Green. Let me intercede if I may. Do you have any 
indication as to what percentage of the contracts are MBE, WBE 
or SBE?
    Mr. Amey. Not--I can provide that to the panel. But I don't 
have that information with me.
    Mr. Green. And I am talking about now your no-bid--the 40 
percent that you say are going to no-bid contractors.
    Mr. Amey. Right. I can provide that.
    Mr. Green. Mr. Amey, you are with POGO.
    Mr. Amey. Yes.
    Mr. Green. Sir, you indicate that prime contractors--this 
is in your testimony--are using their own labor rates as 
opposed to subcontractor rates.
    Mr. Amey. Yes.
    Mr. Green. Could you kindly explain this, please?
    Mr. Amey. Well, we have recently seen an example in which--
it is a Katrina example in which a prime contractor is billing 
the State of Louisiana, but it is with FEMA grant money so it 
ends up being Federal Government, ultimately $100 per hour for 
work. That work they have subbed out to a contractor at $50 per 
hour. So the invoices are coming in from the subcontractor. 
They are going through the State. They are then going to FEMA. 
They are then approving them. But the subcontract or the prime 
is getting paid $50 an hour. So that means you have $50 of 
every $100 that is going to the prime for work that the 
subcontractor is doing. So the prime is doing nothing other 
than--and they are even billing on top of that their own 
administrative costs of running that subcontract. So it is not 
even like those costs are included. So you have $50 for every 
dollar being spend going to a prime contractor for little or no 
work. That is purely wasteful as the questions to previous 
panels indicated, that is money that is not going to the people 
that need it. It is not just that the prime contractor is 
making that money, but that is not trickling down to the people 
in the parishes, in the States that need it, into the local 
governments. So that is less money that they have for relief, 
that is less money for reconstruction.
    Mr. Green. Mr. Chvotkin, would you give a comment on this, 
please? Is your experience similar?
    Mr. Chvotkin. No, sir. But they are clearly examples. I 
don't know Mr. Amey's specific example and I challenge that. 
There are different kinds, types of contracts. The government 
frequently enters into fixed price contracts where they 
negotiate the rate, happy with the rate, and expect the 
contractor to perform at that rate. If the contractor is 
disclosing the use of subcontractors, there may be a great 
differential. If it is a cost type contract, the answer may be 
very different; that is, the costs are passed through to the 
government, to the rate billed by the subcontractor. So 
contract type is separate and apart from the execution issue.
    The key for us--and we have been a strong proponent of 
transparency. As long as the government knows the environment 
in which that is going to take place, they should be able to 
negotiate that responsibility.
    Mr. Green. Let me intercede and ask this, if the example 
given is correct, if it is correct, accepting this as a 
premise, would you condone the example that was given?
    Mr. Chvotkin. No.
    Mr. Green. Why would you not condone it?
    Mr. Chvotkin. If there was--if the agency was aware--if the 
agency negotiated a cost type contract and the prime contractor 
was subcontracting out and missed billing the government, those 
billing errors we would not condone.
    Mr. Green. Would you consider this fraud?
    Mr. Chvotkin. If the government was not aware of it--fraud 
is a legal term, and I don't want--it might be fraud.
    Mr. Green. My time is about to expire. Let me ask Mr. Amey 
to give us his opinion on it.
    Mr. Amey. It is funny because this has been hotly debated 
in the contracting circles for a few years here on these time 
and material and labor hour contracts where this is occurring. 
There was a proposal on the table in legislation, I think it 
was about a year ago, in which they said as long as you 
disclose what your billable rate will be for the subcontractor 
then it will be allowed. And I agree with Mr. Chvotkin, there 
anything that prevents this right now. So this is a step that 
Congress really needs to take to make this change and improve 
this. The real problem is even if you disclose it--
    Mr. Green. I am going to have to ask you to summarize 
quickly because my time is up.
    Mr. Amey. It is just like putting us on notice that you are 
taking $50 out of every $100. Even if you disclose it, it 
doesn't make it right. That is not good government to me. That 
is what needs to be corrected. Disclosure doesn't fix it, 
transparency doesn't fix it. It is a matter of you should only 
be allowed to bill out at a rate that is what you are actually 
paying your subcontractors out. Why have that increased cost--
higher cost, you know, as part of the government's equation? 
That is not good government.
    Mr. Green. Thank you very much. The Chair appreciates the 
testimony of all of the witnesses, and would like to announce 
that the hearing record will be open for 10 days. There being 
no further business, we are adjourned. Thank you.
    [Whereupon, at 1:35 p.m. the committee was adjourned.]


                                APPENDIX

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                        Questions and Responses










                                 
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