CONTRACTING EXPERTS CRITIQUE OBAMA’S TRANSPARENCY PUSH

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(Washington Business Journal) President Barack Obama has promised an unprecedented level of transparency to show the public how the government spends taxpayer money. But as $787 billion gets poured into the economy from the stimulus package passed in February, many wonder whether a more vigilant eye on federal spending and contractor performance will succeed in preventing waste.

Office of Management and Budget Director Peter Orszag issued initial guidelines last month for federal agencies that will award stimulus money to private contractors as well as to state and local governments.

The thrust of that memo: more paperwork. Agencies must submit various reports on how the money will be spent, including weekly project updates and monthly financial reports.

Much of that documentation will be published on the White House Web site Recovery.gov. And, as advised, Virginia, Maryland and other states, along with D.C., have established Web sites to track their stimulus spending.

The new requirements aim to prevent the kind of waste and misuse of money uncovered during the Iraq war and hurricanes Katrina and Rita – situations in which money was spent quickly. The Government Accountability Office found as much as $1.4 billion in waste from the hurricane relief efforts.

But mandating more documentation for the stimulus spending adds to an already labor-intensive and time-consuming federal procurement process.

Moreover, requiring hundreds of billions of dollars to be spent in a short time within the stressed procurement system could result in more, not less, waste, critics say. At best, many predict, the additional reporting requirements will slow the process, potentially diminishing the stimulating effects of the recovery plan.

The Obama administration says it is quite aware of the stakes.

In a March 12 meeting at the Eisenhower Executive Office Building, Vice President Joe Biden warned leaders from state delegations, “Six months from now, if the verdict on this effort is that we’ve wasted the money, we built things that were unnecessary, or we’ve done things that are legal but make no sense, then, folks, don’t look for any help from the federal government for a long while.”

Most agree the money needs to be spent as quickly as possible, though some federal procurement experts expect the government’s good intentions to monitor spending will backfire.

For better…

Increased oversight on government spending and contractors is “a good thing as a matter of public policy,” said attorney Sandy Hoe, who heads McKenna Long & Aldridge LLP’s government contracting practice in D.C.

And Hoe said he is impressed with how fast the administration has set up Recovery.gov to track spending and with the amount of information expected to be there.

“They are making use of the Internet in a way I haven’t seen the government do – this quickly anyway – in my time in this business,” he said. “Any data, even if it has to be explained, is a good thing.”

The accountability that comes with making information publicly available is encouraging said Angela Styles, a former OMB administrator of federal procurement policy and a partner at law firm Crowell & Moring LLP.

“No question, the federal contracting system needs some changes,” she said. “There’s a lot of added benefit to [contractors] realizing that people are watching.”

But uncovering waste after an expenditure has been reported on the Internet isn’t the primary goal of the transparency provisions, said Biden, who is overseeing the Recovery Accountability and Transparency Board in charge of stimulus oversight.

“We’re not looking to find corruption; we’re looking to prevent it,” he said in the March 12 meeting. “We’re looking at the front end of this [process] to prevent errors. … This is not a witch hunt. This is to make sure we spend this money well.”

That’s what John Saaty, CEO of Arlington-based Decision Lens Inc., says his company can help the government do.

Decision Lens sells software to help businesses make better decisions based on customized objectives and trade-offs. Using decision-support software, federal, state and local agencies could prioritize the projects they will fund and contractors could determine which ones to bid on, Saaty said.

Any organization using stimulus money will need a way to justify its spending decisions upfront, he said.

Saaty believes there is a huge opportunity for his company and others that sell similar technology for improving government decision-making.

“You’ll see those who will figure it out early and can step back and explain how [spending] decisions were made,” he said, and they will be more likely to avoid scrutiny.

Or worse…

Although everyone agrees that oversight is good, some people have doubts about the ability of the OMB rules to prevent waste.

The amount of labor that transparency requires and the pressure on agencies to get the stimulus money out fast could make increased oversight impractical and reduce potential benefits, some experts say.

“If you rush the process, there is a greater opportunity for error every step of the way,” said Ken Weckstein, a partner in Brown Rudnick LLP’s government contracts and litigation group in D.C.

Already Grants.gov, a site that can be used to apply for more than 1,000 government grant programs, had technical difficulty supporting applicant registrations and grant searches when as many as 3,000 users logged on to the site at one time.

OMB’s Orzag advised agencies to look for alternative ways to accept grant applications because the site is expected to experience a 60 percent increase in applications from April to August.

Weckstein has another concern. He fears that data won’t be reported properly to the government’s tracking sites. Even if it is, the information could elicit unnecessary scrutiny, he said.

For example, “there are often good and legally supportable reasons” for cost overruns on government contracts, Weckstein said, and reports posted on Recovery.gov might not explain them sufficiently to the public.

In addition, moving too quickly to spend money could result in shoddy planning or increase human error because there are not enough people to manage the process, many experts say.

“You couldn’t even find a commercial company that could manage that much money and get it quickly out the door effectively,” Styles said.

Many government employees are “lacking necessary skills and do it right too,” she said. “Even if you put people in place, you can’t guarantee it’s done well.”

The large volume of money being spent quickly also is likely to change competitive behavior among private contractors. Weckstein expects to see more bid protests by losing parties, which could slow the process.

The bottom line is there’s a simple trade-off, said Hoe of McKenna Long.

“You have a choice,” he said. “Take the time with the people you have and check all the boxes so you are not subject to criticism later, or do what was done in Iraq [where] the need [for funding] was so great that you don’t square every corner.”

How to deal

Companies anticipating close scrutiny of stimulus projects are trying to learn more about compliance issues, according to local law firms. Government contracting lawyers say more clients are asking for additional legal advice.

“We have several [clients] who want to use our expertise in the contracting and government affairs areas to help them understand where the [stimulus] money is going, what the proper process is to get the money … and how to position themselves so they’re ready to participate when the time comes,” said Sandy Hoe, a partner with McKenna Long & Aldridge LLP’s government contracting practice in D.C.

Angela Styles, a partner at Crowell & Moring LLP, helps her clients prepare for the government contracting reform expected from the Office of Management of Budget this fall. She offers some tips to prospective contractors:

  • Identify and assess how and where contracts are being executed.
  • Prepare for audits and questions about contract costs and price points.
  • Establish or revisit compliance programs.
  • Understand what your business provides to the government and how government handles that business.
  • Decide whether the expected risk of increased scrutiny is worth contracting with the government.
  • Prove your worth by communicating what makes your business a good government contractor.

Upcoming deadlines

  • May 1: Agencies submit plans for stimulus funded projects.
  • May 3: Agencies make performance plans publicly available.
  • May 3: Agencies begin reporting allocations for entitlement programs.
  • May 5: Agencies provide Recovery Act assistance transactions (grants, loans and loan guarantees) in the same format as USASpending.gov.
  • May 8: Agencies submit monthly reports detailing financial data.
  • July 1: OMB issues guidance on how agencies should identify wasteful or inefficient contracts.
  • July 15: Recipients of federal funding begin reporting their use of funds.
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1 comment
  1. Hank Wilfong Jr. said:

    Great article. The caution of “rushing to transparency” is well-advised. These experts ought be listened to. I’m not against “transparency”. However, transparency, in and of itself, will not get it done. And, the cost of providing it might exceed the benefits achieved.

    One might innocently think, “If we expose it, we will prevent it”. Not so. One might think, “If they know we’re gonna expose it, they won’t do it”. Not so. “They” have pretty much gotten used to the fact that, even if they do it, and get caught doing it, not much is gonna happen to them.

    The facts would tend to bear that out.

    So, what’s the answer(s)? Seek not “transparency” so much as “effectiveness”, and “accountability”. It’s been our experience that both take time and caution. Seek to find ways that will produce effective resolutions. Then, assure that those who perform will be held accountable. Reward “good”. Punish “bad”.

    Remember this, “The amount of labor that transparency requires and the pressure on agencies to get the stimulus money out fast could make increased oversight impractical and reduce potential benefits, some experts say.” Absolutely on mark.

    The article went on to say, “For example, “there are often good and legally supportable reasons” for cost overruns on government contracts, Weckstein said, and reports posted on Recovery.gov might not explain them sufficiently to the public.” You got it. And, such a situation only tends to exacerbate the problem.

    We, the public are often misled. The bureaucrats who must handle the task are befuddled, and harried by being hurried. They’re not used to performing like we’re all of a sudden, expecting them to perform. Angela Styles, former Director, Office of Federal Procurement Practice(OFPP) got it right when she said, “You couldn’t even find a commercial company that could manage that much money and get it quickly out the door effectively”.

    Move with caution, and seek effectiveness and accountability.

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