Letting Government Contractors Pick Their Own Auditors is a Bad Idea

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“THE PROJECT ON GOVERNMENT OVERSIGHT”

“The law in question is the 2017 National Defense Authorization Act (NDAA) passed late last year.

When it comes to contract auditing, giving audit responsibilities to a company working directly for a contractor hampers the government’s ability to negotiate good deals for taxpayers.

Section 820 of the law states that “contractors with the Department of Defense may present, and the Defense Contract Audit Agency shall accept without performing additional audits, a summary of audit findings prepared by a commercial auditor” of contractors’ indirect costs (with some exceptions). This section is scheduled to go into effect on October 1, 2018.

Last year, in annual legislation setting defense policy, Congress gave military contractors the authority to hire their own auditors to review the bills those contractors send to the government. For decades, the Pentagon’s own Defense Contract Audit Agency (DCAA) has helped government contracting officials negotiate better deals by examining a contractor’s charges. But last year’s legislation, which goes into effect next year, diminishes the DCAA’s oversight authority to the detriment of taxpayers.

The topic was broached in an important, but under-the-radar Congressional oversight hearing in April.

Most of the hearing centered on the cost of government versus private auditors, with two conflicting tales being told. But a bigger issue went largely unaddressed: whether allowing contractors to pick their own auditors creates inherent conflicts of interest since the auditors would be in the position of serving contractors—their client—rather than taxpayers. There is a reasonable fear that these private sector auditors, in an effort to keep their client happy and win repeat business, would be reluctant to disclose to the government that the contractor is overcharging taxpayers.

New legislation pending before Congress would rescind Section 820, but it would also allow “contractors to engage commercial auditors to perform incurred cost audits,” according to a Department of Defense (DoD) analysis. The analysis also states that the new provision creates “several unintended consequences that will negatively impact the Department and industry.” The DoD opposes both Section 820 and the new Congressional language. The DoD’s proposed alternative keeps the power to conduct these audits in DCAA’s hands with an option allowing the government (rather than the contractors) to hire private sector auditors on a case-by-case basis. After analyzing the issue, POGO supports the Department’s proposed alternative.

DCAA’s Role

DCAA is responsible for auditing the financial side of certain defense contracts to “ensure that warfighters get what they need at fair and reasonable prices,” according to  its website. DCAA looks for whether contractor costs are “allowable, allocable, and reasonable,” and it performs other audits to ensure contractors have adequate business and accounting systems and adhere to federal cost and accounting principles. DCAA’s report for fiscal year 2016 notes that it audited $287 billion in contract costs that year. These audits are not usually intended to uncover fraud, although DCAA sometimes finds indicators of criminal activity and participates in law enforcement investigations.

What Are “Indirect Costs” and Why Do They Matter?

Contractors charge the government for two types of costs: direct costs that specifically relate to the contract, such as labor and materials, and indirect costs that exist apart from specific work on the contract, such as the rent a contractor pays for its office or fringe benefits for employees.

But there’s nothing fringe about these costs. Within incurred cost audits, indirect costs make up the majority of all questioned costs, according to DCAA Director Anita Bales. Because they are less clear-cut than direct audits, audits of indirect costs can be contentious—especially when auditors want more access to contractor information than the contractor is willing to provide—and quite technical. For instance, contractors are allowed to charge the government for indirect costs associated with litigation under some circumstances, but not in other situations. Contractors can easily pad their profits at taxpayers’ expense if these costs are not carefully examined.

An example of indirect cost overbilling made the news in February 2016 when the Justice Department announced that Centerra Services International (formerly known as Wackenhut Services LLC) agreed to pay $7.4 million to resolve a whistleblower lawsuit alleging the company had defrauded taxpayers. According to the Justice Department, Centerra double billed its labor costs while providing firefighting services on a military base in Iraq. The government alleged Centerra “inflated its labor costs by billing the salaries of certain managers as direct costs under the subcontract, when those salaries had already been charged as indirect costs.”

The Centerra case isn’t a one-off. In 2015, a DCAA audit questioned $14.6 million in costs that a contractor charged the government, according to a DoD Inspector General report to Congress. The vast majority—$14 million—involved wrongly billed indirect costs.

Lessons from the Recent Past

We don’t have to look very far back in history to see that allowing profit-motivated companies to hire their own profit-motivated auditors can lead to problems.

The Enron scandal showed that accountants and auditors aren’t immune from conflicts of interest. “Obviously the history of Enron and the financial crisis suggest we have to be very careful in this situation,” Representative Seth Moulton (D-MA), Ranking Member of the House Armed Services Oversight and Investigations Subcommittee said during his opening statement at the April hearing. Arthur Andersen, Enron’s auditor, had conflicts of interest. It was simultaneously employed as internal and external auditor, meaning that the supposedly independent external auditor could cover up the inaccuracies of the internal audit team.

More recently, during the fallout of the Great Recession, the government required banks to conduct mortgage foreclosure reviews. Banks were allowed to hire for those reviews their own “independent consultants” who proved to be not so independent. The New York Department of Financial Services (NYDFS) punished several of these consultants, including Promontory Financial Group, Deloitte, and PricewaterhouseCoopers, for “misconduct, violations of law, and lack of autonomy.” Settlements generally included multi-million dollar fines and temporary bans from consulting.

“A consultant’s allegiance too often goes to the client that pays the bills,” former NYDFS General Counsel Daniel Alter wrote in a 2015 piece for American Banker. Laws like Sarbanes-Oxley, which create criminal liability for misrepresenting financial statements, have helped to prevent future Enrons by balancing that pressure. However, criminal liability doesn’t apply to other types of financial reporting, such as the consulting work done in the aftermath of the housing crisis and the proposed contract audits.

Counting the Costs  

At the April Congressional hearing, DCAA Director Anita Bales testified that third-party auditors would cost an estimated 30 percent more than DCAA auditors. David Berteau, President and CEO of the Professional Services Council, a contractor lobbying group, countered in his testimony that when civilian agencies have used private auditors, they have in some cases paid significantly less than they used to pay DCAA.

Bales’ claim that DCAA auditors were 30 percent cheaper was based on a comparison of hourly billing rates, according to emails provided to POGO through the Freedom Of Information Act (FOIA). Berteau and other employees of the Professional Services Council did not respond to emails requesting evidence supporting their claims.

Other members of the federal auditing community have told POGO that the comparison of auditing costs is not clear cut. DCAA has more specialized experience and might charge lower costs per auditor hour, but they may also take longer to conduct audits (which may be a good thing in the long run, as more thorough audits may save even more money). Pricing for private auditors can also vary widely from company to company and even year to year, making a comprehensive analysis difficult.

And although cost was the most-discussed factor at the hearing, it isn’t the only factor that needs to be examined. A federal source, not authorized to speak on the record, who is familiar with both DCAA and private contract audits for civilian agencies said the work of private auditors still has to be closely checked, even when they are hired directly by the government. Both last year’s NDAA and a recent proposal for this year’s NDAA prohibit DCAA from examining the work of private auditors before accepting the results.

There is also concern over how the records generated by private auditors would be handled: Will they be subject to FOIA? How would the discovery of potential fraud be handled? Would private sector audits be incorporated into the DCAA’s “Management Information System” that tracks audit data so that auditors can spot trends and look at the bigger picture?

What About Incurred Costs?

New Congressional language would rescind Section 820 but would allow contractors to hire auditors to audit incurred costs. The argument for this is DCAA’s lower rate of return when it audits incurred costs. However, DCAA’s other auditing work with the same contractor and on the same contracts benefits from its incurred cost audits, and vice-versa. For instance, DCAA conducts audits of contractors’ billing, accounts, and internal control systems. The insights DCAA gains from those audits assists DCAA when it audits a contractor’s incurred costs. According to a DoD analysis of the impacts of the recently proposed legislation, keeping incurred cost audits in the hands of DCAA:

…allows for the continuation of many initiatives that DCAA has put in place to more efficiently and effectively perform audits (e.g., the use of the low risk sampling process, the coordination of subcontract assist audits, and the process for obtaining and determining adequacy of incurred cost proposals). Without one group coordinating the need for commercial auditors, the Department will lose many of these efficiencies and will lose adequate oversight over the complete incurred cost audit process. [emphasis added]

One of the primary motivations for the new Congressional language on incurred cost audits is DCAA’s incurred cost audit backlog, which was relatively large until a few years ago and has recently become more manageable according to DCAA’s most recent annual report. The agency said it was on track to eliminate the backlog by next year, although with the hiring freeze it may have to re-evaluate that goal. Regardless of whether the backlog is eliminated one or three or even five years from now, Congress is proposing a rather drastic solution to a problem that is no longer drastic itself.

(Source: “Report to Congress on FY 2016 Activities Defense Contract Audit Agency, page 13.)

This is not a backyard experiment with few consequences for failure. Billions of taxpayer dollars are on the line every year. While DCAA has room for improvement, privatizing the agency’s work would most likely make it harder to crack down on contractor overbilling.

Given the large risks and the unclear benefits or privatizing contract audits, Section 820 should be repealed. If DCAA needs a temporary boost, it should be given authority to hire more staff on a temporary basis, or perhaps even hire private sector auditors on a short-term basis. The Defense Department proposes the latter, calling it “much more effective” while ensuring “that a function that is inherently governmental in nature continues to be performed by Government auditors when feasible, but allows for the use of commercial auditors when necessary to address incurred cost backlog.”

POGO does not often agree with the Defense Department, but its proposal makes sense. Let’s learn from our past mistakes rather than repeat them.”

http://www.pogo.org/blog/2017/06/letting-contractors-pick-own-auditors-bad-idea.html

Are You Prepared for a Contract Cancellation?

 

Image:  nbmcwd.com

 

“WASHINGTON TECHNOLOGY”  By Darrell Hineman, Brian Courtney

“The possibility of a contract termination should be incorporated into every government contractor’s business continuity plan.

Implementing safeguards and procedures designed to mitigate the risk of a termination will limit the impact it has on your organization’s operations.

Preparing for the possibility of a contract termination is a defensive strategy that contractors should undertake now. Here are three key steps you should consider immediately:

1. Plan ahead. Never consider your contract as “termination-proof.”
2. Fully understand the contract termination process
3. Learn how to calculate and submit your Request for Equitable Adjustment or settlement proposal.

The possibility of a contract termination should be incorporated into every government contractor’s business continuity plan. Implementing safeguards and procedures designed to mitigate the risk of a termination will limit the impact it has on your organization’s operations. Ask yourself, “Does my organization have procedures in place to deal with cure notices, customer complaints, and quality issues? What about monitoring subcontractors?”

If you are still reading this article, you probably are not as well prepared for a contract termination as you should be. Most contract terminations have a root cause and are not solely due to the government no longer requiring the items or services.

Here are some common contract termination causes and how to prevent them:

Failure to immediately address government concerns

Whether a complaint or “suggestion” is received verbally or in writing from the government, there should be a process in place to respond immediately. Often, we hear from clients that their program personnel were in the process of addressing a government issue (but apparently not in real-time). Now, they are dealing with a cure notice for many items to be corrected in two weeks.

Incorporate the handling and response to government communications and complaints/concerns into your program management policy and procedures. All complaints/concerns should be documented and tracked from the initial problem to the eventual solutions.

Regular communication with the government is also critical in staying ahead of potential contract issues and preventing a termination. The contractor program manager should routinely relay project status to the government in writing – even if not required under the contract terms. We recommend weekly communications but, depending on the project, monthly communications may suffice.

Failure to evaluate change orders for potential effect on cost or schedule

Sometimes, trying to fully please the client can actually lead to a termination. A contractor has only 30 days from the date of receipt of a written order to assert its right to an adjustment. Often, accepting changes without evaluating the impact on scope, cost, and/or schedule can lead to project delays and cost overruns. These may ultimately result in missed delivery/performance dates.

As a preventative measure, create a standard procedure to evaluate the impact of any change request on the scope, cost, and/or schedule of a project. Share this required procedure with the customer: “Yes, we can make changes, but we first need to evaluate the scope, cost, and schedule to identify any project impacts.”

Subcontractor performance issues

Many contractors focus on complying with the requirement to issue subcontracts and neglect their associated responsibility for managing subcontractors under FAR 42.202(e)(2), Assignment of Contract Administration. Prime contractors often assume, without oversight or verification, that their subcontractors will meet prescribed performance and deliverable requirements.

When a subcontractor fails to deliver, the prime contractor is ultimately responsible for addressing the issue, or may face termination. Therefore, you should ensure that you flow down the proper terms and conditions to your subcontractors, including the prime contract termination clauses and deliverable dates.

Another step we recommend is to create a post-award subcontract administration procedure to address the risk. Ensure that adequate and comprehensive subcontractor oversight is built in to your procurement and project management processes. Any issue that can affect contract performance/delivery must be escalated quickly for resolution.

Bidding on unprofitable work

Today, when lowest price, technically acceptable typically beats out best value (though recent legislation directs more limited use of LPTA procurements), contractors often estimate their cost to fit the price they want to bid and what they think the government is willing to pay. Instead, you should be focusing on the actual cost required to address the government’s mission-stated requirements.

Even though you may know that the “price to win” is too low to perform the work adequately, the proposal development organization might not want to deviate from that winning number.

To avoid bidding on unprofitable work, you should develop a comprehensive estimating manual and system so that your estimated costs are based on real costs/prices currently in the marketplace. As part of this, build and encourage a corporate culture that incentivizes employees for more profitable work as opposed to contract wins exclusively.

As no contract is termination proof, the key is to always be prepared and have a defense strategy in place at all times.”

About the Authors

Darrell Hineman is the director of the government compliance group at the accounting, tax and advisory firm CohnReznick LLP. https://www.cohnreznick.com/industries/government-contracting

Brian Courtney is a senior manager at the accounting, tax and advisory firm CohnReznick LLP. https://www.cohnreznick.com/industries/government-contracting

https://washingtontechnology.com/articles/2017/06/09/insights-contractor-termination.aspx

 

For more information on the types of contract terminations, preparing for them and managing them, please see the article linked below:

http://www.smalltofeds.com/2011/08/federal-government-contract.html

Defense Companies Are Here To Stay

“DEFENSE NEWS” By Charles Mahoney

“Like it or not, government agencies responsible for national security are dependent on private defense firms.

These companies are primarily responsible to shareholders rather than the American people. How can they be held accountable to the nation’s interests?

What is certain is that for-profit military and intelligence firms will remain an integral part of U.S. national defense. My research focuses on the changing nature of the private defense industry. Military contracting is still big business, although media coverage of private military firms has diminished since the withdrawal of the U.S. from Iraq in 2011. Today, contractors’ work ranges from assisting in drone missions to analyzing signals intelligence to training police forces in fragile countries like Afghanistan.”

Image: “Defense News”

“New frontiers

In recent years, private military companies have adapted to changing demands from U.S. defense agencies. During the wars in Iraq and Afghanistan, the U.S. military relied heavily on contractors to support counterinsurgency operations. However, high-profile incidents of alleged human rights abuses by the company CACI at Abu Ghraib prison in Iraq and Blackwater at Nisour Square, Iraq brought to light the difficulty the American military faces monitoring private defense companies.

At the same time, Americans have since become averse to nation-building campaigns in failing states. So, private defense firms have shifted away from supporting “boots on the ground.” Instead, they are increasingly assisting military and intelligence agencies with counterterrorism and cybersecurity.

While the American people generally want to avoid deploying troops to conflict zones, they still demand protection from terrorism. The Pentagon, CIA and other defense agencies receive assistance in these areas from private companies with expertise in drone warfare, special forces operations and analysis of electronic surveillance of potential terrorist threats. These traditionally were duties of public employees.

Cybersecurity is another area in which private military companies see increasing demand. Information gleaned from hacking government agencies, world leaders and political campaigns can be used by rogue states like Russia and nonstate actors like WikiLeaks to harm American interests.

Serving the public interest?

Most defense analysts now acknowledge that the question is not whether to privatize, but where to draw the line. If the U.S. government is going to work extensively with contractors, it requires a more robust oversight system. Government agencies and courts also need assurances they can hold defense firms accountable if they break the law overseas.

During the Iraq War, this was a point of serious contention. It was unclear what legal jurisdiction applied to employees of private defense firms. The uncertain legal status of contractors caused significant tension between the U.S. and the government of Iraq and hampered American counterinsurgency efforts.

Here are three ways Congress could increase accountability for private defense firms as the industry becomes more enmeshed in national security.

• Congress could create an independent regulatory agency to report on contractors’ performance. While major firms in the industry insist they can regulate themselves, an independent oversight agency could more adequately assess how defense contractors perform.
• As things stand now, the U.S. government often overlooks bad behavior and renews contracts with companies that have less than stellar records. Instead, the government could more severely penalize firms that do not fulfill the terms of their agreements.
• Government employees often transition from public service into lucrative positions at billion-dollar defense corporations. Stricter rules to limit this “revolving door” would make government employees more willing to penalize firms.

Private defense contractors will likely be a major part of U.S. national defense for the foreseeable future. Diligent oversight and regulation of companies in this rapidly evolving industry, I believe, are necessary to ensure that these firms advance the public good of American security.”

http://www.defensenews.com/articles/private-defense-companies-are-here-to-stay-what-does-that-mean-for-national-security

Charles Mahoney is a professor of political science at California State University, Long Beach. His commentary was originally published on The Conversation .

 

 

 

Pentagon Contractor Performance Monitoring Lacks Timeliness and Content

“THE PROJECT ON GOVERNMENT OVERSIGHT (POGO)”

“Last week, the Department of Defense (DoD) Inspector General (IG) released a summary of a series of reports assessing how effectively the Pentagon tracks the performance of its contractors.

The DoD measures contractors’ past performance with performance assessment reports, or PARs, evaluations that provide a record—both positive and negative—of performance on a contract during a specific period of time.

The DoD IG audited 18 DoD divisions, including the main service branches—Navy, Air Force, and Army (POGO blogged about the IG’s report on the Army last year)—and the Defense Logistics Agency. The audit reviewed a total of 238 PARs on contracts worth a total of $18 billion.

PARs are compiled in a database called the Contractor Performance Assessment Reporting System (CPARS) and are shared government-wide via the Past Performance Information Retrieval System (PPIRS) database.

PARs are incredibly important because without access to timely, accurate, and complete past performance information, the government risks awarding taxpayer money to non-responsible contractors, which is a violation of the law, or allowing performance deficiencies to fester. The former happened several years ago with the botched rollout of the HealthCare.gov website, a fiasco that might have been avoided had the Centers for Medicare and Medicaid Services more thoroughly researched the performance history of the contractor it put in charge of designing and testing the site. An example of the latter was recently discovered on a US Marshals Service contract to manage the Leavenworth Detention Center in Kansas. The Department of Justice IG found the Marshals Service was not entering past performance evaluations of the contractor into CPARS. As a result, safety and security problems at the maximum-security prison caused by understaffing persisted for almost a year.

The IG found the information reported in CPARS and PPIRS “was not consistently useful” because contracting officials did not always comply with requirements for evaluating contractor performance. Although the IG found DoD agencies are preparing more PARs in a timely manner than ever before (74 percent in fiscal year 2016, almost 20 percentage points higher than the previous year), more than a third of the 238 PARs were still late by an average of 73 days. The agencies seem to have a bigger problem with completeness: 84 percent of the PARs contained performance ratings, written narratives, or contract descriptions that fell short of past performance reporting requirements. For example, officials gave contractors an “exceptional” or “very good” rating for required evaluation factors without adequately explaining why the rating was justified, or sometimes even failed to provide a rating at all.

Finally, we would be remiss if we didn’t use this opportunity to reiterate our call for publicly releasing contractor past performance evaluations. Bits of past performance information occasionally turn up in judicial opinions and bid protest decisions, but the government has long resistedpublicly releasing this data on a regular basis in a centralized location. Public availability of contractor past performance records would incentivize responsible business conduct, which would protect the government’s and taxpayers’ interests in the long run.”

http://www.pogo.org/blog/2017/05/watchdog-finds-dod-must-improve-contractor-performance-monitoring.html

 

 

 

Navigating Defense Department Cyber Rules

“NATIONAL DEFENSE MAGAZINE”

“Defense contractors by Dec. 31 are expected to provide “adequate security” to protect “covered defense information” using cyber safeguards.

Thousands of companies who sell directly to the Defense Department, and thousands more who sell to its suppliers, are or will be, subject to the rule.

This obligation arises from a Defense Acquisition Regulation System Supplement clause, “Network Penetration Reporting and Contracting For Cloud Services,” that was finalized last October and described in the National Institute of Standards and Technology (NIST) Special Publication 800-171.

The Pentagon is well-justified to seek improved cyber protection of sensitive but unclassified technical information. Hackers have exploited network vulnerabilities in the defense supply chain for the unauthorized exfiltration of valuable and sensitive defense information. Senior defense officials have expressed alarm at this persistent and pervasive economic espionage. 

Since 2013, the Defense Department has used acquisition regulations to protect controlled technical information significant to military or space. Other forms of information may not have direct military or space significance, but loss of confidentiality through a cyber breach can produce serious, even grave national injury. 

The Defense Department is the leader among federal agencies in using its contractual power to cause its vendors to improve their cybersecurity. The principal instruments are two contract clauses, DFARS 252.204-7008, “Compliance with Safeguarding Covered Defense Information Controls,” and DFARS 252.204-7012, “Safeguarding Covered Defense Information and Cyber Incident Reporting.” Both were the subject of final rulemaking released Oct. 21.

Where the -7008 “compliance” clause is included in a solicitation, the offeror commits to implement the SP 800-171 safeguards by the end of this year. Defense Department contracts will include the -7012 “safeguards” clause, which defines the types of information that must be protected, informs contractors of their obligation to deliver “adequate security” using SP 800-171 controls, and obligates reporting to the department of cyber incidents.  

Every responsible defense supplier supports the objectives of these cyber DFARS rules. But the requirements are complex and are not currently well-understood. Outside of a few of the largest, dedicated military suppliers, many companies in the defense supply chain view these rules with a mix of doubt, concern and alarm. This recipe serves neither the interests of the Defense Department nor its industrial base.

A technology trade association, the IT Alliance for Public Sector, released a white paper that examines the Defense Acquisition Regulation System Supplement and other federal initiatives to protect controlled unclassified information. The goal was to assist both government and industry to find effective, practical and affordable means to implement the new cyber requirements. The paper examines these five areas: designation, scope, methods, adoption and compliance.

As for designation, the department should accept that it is responsible to identify and designate the covered defense information that contractors are obliged to protect. It should confirm that contractors only have to protect information that it has designated as covered, and that such obligations are only prospective — newly received information — and not retrospective.

In regards to “scope,” the Defense Department should revise the rule to clarify that contractors must protect information that it has identified as covered and provided to the contractor in the course of performance of a contract that is subject to the rule. The definition of “covered defense information” should be revised to remove confusing language that can be interpreted to require protection of “background” business information and other data that has only a remote nexus to a Defense Department contract.

The October 2016 revision now allows defense contractors to use external cloud service providers, where covered information is involved, only if those vendors meet the security requirements of FedRAMP Moderate “or equivalent.” The Federal Risk and Authorization Management Program, or FedRAMP, is a government-wide program that provides a standardized approach to security assessment, authorization and continuous monitoring for cloud products and services.

The regulation fails to explain what is meant by “or equivalent” and who decides. The Defense Department needs to explain what it expects from cloud services to satisfy SP 800-171 and the DFARS rules. A security overlay should be prepared by NIST to add cloud-specific controls. But it is unnecessary to impose the whole of the FedRAMP process and federal-specific controls on commercial cloud providers.

The Defense Department continues to depend on small business for many needs, and seeks their innovative ideas. The supplements are an obstacle and burden on smaller businesses, and yet security is just as important at the lower levels of the supply chain as at the top. The department can improve the ability of small business to implement the required security controls. Several specific recommendations are made as to how it can reach and assist the small business community. One recommendation is to make increased use of the NIST voluntary cybersecurity framework.

As far as compliance, contractors are required to represent that they will deliver “adequate security” and fully implement the SP 800-171 controls by the year-end deadline. The Defense Department needs to better inform its contractors how they can be confident their security measures will satisfy the requirements should they come under scrutiny following a cyber incident. The white paper explores different ways to create a safe harbor for compliance. A key component is contractor documentation of a system security plan, which was added as a 110th requirement to SP 800-171.        

The White Paper is available here. The Defense Department is hosting an industry day on the cyber DFARS, June 23 at the Mark Center in Alexandria, Virginia. Information and registration details available here. ”     

http://www.nationaldefensemagazine.org/articles/2017/4/21/navigating-defense-department-cyber-rules

Wars to Keep the Military Industry in Demand

Image: Batr.org

The defense industry in America has utilized the threat of war and self-fulfilling prophesies to promote engagements by our country in several countries over the last 15 years. They pay more in lobbying costs each year than they pay in taxes.

There have been two major factors in the U.S. approach to undeclared warfare:

1. The motives of the U.S. and International Military Industrial Complexes, USAID and other western USAID counterparts in fostering continued warfare during this period, netting billions in sales of weapons to the war fighters and massive construction and redevelopment dollars for international companies who often operated fraudulently and fostered waste, looting and lack of funds control.

It is common knowledge that many of these corporations spend more each year in lobbying costs than they pay in taxes and pass exorbitant overhead and executive pay cost on to the tax payer in sales, thus financing their operating personnel riches while remaining marginally profitable to their stockholders.

I watched this from the inside of many of these companies for 36 years. Here is my dissertation on that subject. You can read it on line at:

Odyssey of Armaments | Ken Larson – Academia.edu

Here is an example of how the lobbying and behind the scenes string pulling worked:

CorpWatch : US: Lockheed Stock and Two Smoking Barrels

2. The complete lack of cultural understanding between U.S. and Western decision makers and the middle east cultures they were trying to “Assist” by nation building.

The only real understanding that existed during the period was in the person of General Schwarzkopf who spent much of his youth in the Middle East with his father who was an ambassador to Saudi Arabia. He was fascinated by the Arab culture, commended their respect and like Eisenhower led a coalition during the Gulf War. He then astutely recommend no occupation of Iraq, went home and stayed out of government. Norman, like Ike, knew the power of the MIC and he wanted no part of it.

The U.S Tax payer has funded billions in USAID and construction projects in Iraq and wasted the money due to a lack of cultural understanding, fraud and abuse. POGO documents many:

http://pogoblog.typepad.com/pogo…

There is history repeating itself here – much like Vietnam the above two factors are deeply at play with the lack of astute learning in our government as we look back over our shoulder.

We must come to the understanding, like a recent highly respected war veteran and West Point Instructor has, that military victory is dead.

“MODERN WAR INSTITUTE AT WEST POINT”

“Victory’s been defeated; it’s time we recognized that and moved on to what we actually can accomplish. “

https://rosecoveredglasses.wordp…

Frank Spinney is an expert on the MIC. He spent the same time I did on the inside of the Pentagon while I worked Industry. You may find his interviews informative.

http://billmoyers.com/content/in…

https://www.antiwar.com/blog/201…

http://rosecoveredglasses.blogspot.com/2017/05/wars-to-keep-military-industry-in-demand.html

Government Contractor Tax Day Tidbits – “Food for Thought”

“THE PROJECT ON GOVERNMENT OVERSIGHT”

[On] the federal tax filing deadline, the Project On Government Oversight (POGO) offer[ed] some tax-related contractor oversight food for thought:

• ” The Treasury Inspector General for Tax Administration (TIGTA) found that the Internal Revenue Service (IRS) awarded contracts to at least 20 companies that owed more than $5 million in delinquent federal taxes. TIGTA also found that 11 contractors owing $4.3 million in taxes were awarded more than $356 million in IRS contracts and an additional $3.7 billion in contracts from other federal agencies

• POGO tracks tax violations in our Federal Contractor Misconduct Database, which shows that contractors have paid $3.64 billion to resolve cases with local, federal, and foreign revenue collection authorities. The bulk of this amount comes from GlaxoSmithKline’s record-breaking $3.4 billion payment in 2006 to settle IRS charges of under-reporting profits.

• There are some noteworthy tax misconduct cases pending against the large federal contractors, including actions by New York City and State against FedEx and United Parcel Service for allegedly trafficking in contraband cigarettes, and a complaint filed with the IRS accusing ExxonMobil of violating tax laws to wage a campaign attacking climate science.

• Earlier this month, the IRS launched a program employing private debt collection companies to recover delinquent income taxes. This is the third time since 1996 the IRS has tried to outsource tax debt collection—both previous attempts were dismal failures.

• Congress has taken another stab at passing a law that would prevent individuals with seriously delinquent tax debts from obtaining federal employment, contracts, and grants. Similar bills introduced in 2011, 2013, and 2015 ultimately failed to advance. The Senate is also attempting to strengthen protections for those who blow the whistle on tax fraud.

So get those tax returns out the door! You can rest assured that POGO will do its best to make sure the government collects what it is owed and does not waste that money.”

http://www.pogo.org/blog/2017/04/tax-day-tidbits.html

 

 

 

Secrets That Highly Successful Government Contractors Use Everyday

Image:  “Smalltofeds”

“WASHINGTON TECHNOLOGY”

“What does it take to deliver at least 20 percent revenue growth year after year?

Last month, we released a new study of high-growth firms, including 445 government contractors. We found three key findings from that study that your  business can use to improve your growth prospects.

Each of these findings can be folded into a cohesive strategy. And a characteristic of high-growth firms is that they often employ all three.

Strategy 1: High-Growth Government Contractors Specialize

Our first finding was that high-growth government contractors tend to specialize. Interestingly, so do the firms that exhibited little or no growth. The difference was what they chose to specialize in.

As you can see in Figure 1 below, high-growth firms often focus on solving a particular challenge or providing a specialized service. In fact, high-growth contractors were two-and-a-half times more likely to be highly specialized. No-growth firms that described a specialty usually specialized in an industry.

~

Why does specialization matter? In a related finding, 68 percent  of buyers cited specialized skills and expertise as their top criterion when selecting a firm. Specialization implies expertise, and buyers value that.

Takeaway: Try to define an area of focus for your firm. As you do so, consider building it around a specialized service or common client challenge.

Strategy 2: High-Growth Contractors Are Well Differentiated

According to our research, high-growth firms are three times more likely than their no-growth peers to have a strong differentiator.

Differentiation is the way in which a business separates itself from other similar firms. Usually this difference is expressed in the language a contractor uses to describe itself or its services. But there is more to a differentiator than lip service. It has to meet three criteria. A differentiator must be:

1. True
2. Relevant
3. Provable

And of course, it must be different from most of your competitors. Figure 2 lists the differentiators cited most often by the high-growth firms in our study.

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Now, this data begs the question, how can a characteristic that’s favored by over 80 percent of high-growth firms still be a differentiator?  After all, isn’t the point of a differentiator to be different?

The answer is that many of the responses in Figure 2 are aggregated and categorized. That means “The expertise of our team,” for example, represents a diverse range of answers that are more specialized than the generic category name implies. A firm that differentiates around its expertise might have deep experience in a narrow discipline, such as conducting insider threat risk assessments or designing secure but welcoming embassy facilities.

Takeaway: Figure out how you are different from your competitors and develop messaging to convey this to your audiences. Make sure your differentiators really are in fact truly different.

Strategy 3: High-Growth Firms Invest in Marketing Techniques that Build Their Visibility and Reputation

While high-growth firms grow much faster than their peers, they actually invest less time and money doing so. That means their marketing is more efficient. Figure 3 lists the 10 most favored marketing techniques of high-growth and no-growth firms.

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One thing you will notice is that high-growth firms tend to use more marketing techniques overall than their no-growth brethren. Now let’s look at the five techniques high-growth contractors identified as having the most impact on their business.

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All five of these share two characteristics: 1) they build the firm’s visibility, and 2) they leverage their expertise to enhance their reputation.

The top technique, partnership marketing, deserves a little explanation. Traditional partnership marketing is a strategy in which a firm seeks out other firms, associations or organizations that share one or more target audiences with the firm but don’t directly compete with them. The two parties then pool their resources and market jointly to their audience. For instance they might conduct joint webinars or promote each other’s services to their client lists.

In the case of government contractors, however, partnership marketing takes an interesting twist. Often the partnering firms are direct competitors, but because they have different characteristics, they need each other from time to time to qualify for an RFP or comply with a regulatory requirement, such as 8(a) or HUBZone certification.

Takeaway: Don’t waste your limited marketing dollars on timeworn tactics that no longer produce results. Instead, model your marketing on today’s most successful government contractors.

If you are wondering why your firm is stuck in the doldrums while others grow quickly, take heart. There are changes you can make to change your fortunes.

Reposition your firm as a specialist, clearly articulate how your firm is different, and look to the high-growth firms in your industry to uncover what marketing techniques are most effective.”

About the Author

Elizabeth Harr is a partner with Hinge Marketing and leads the firm’s technology and consulting practice. She is the co-author of two books, the Visible Expert and the Buyer’s Brain.

https://washingtontechnology.com/articles/2017/04/14/insights-harr-differentiation-and-success.aspx

 

Military Contract Manufacturing There When You Need It

“MILITARY AND AEROSPACE ELECTRONICS”

“The nation’s prime defense contractors often find themselves with too many orders to handle with in-house expertise.

That’s where electronics contract manufacturing comes in.

With the rapid expansion of high-tech military equipment and componentry, thousands of small specialty manufacturers have come into being, with the initial big boost during with the Space Race of the 1960s.

Throughout that period – and with even greater frequency since the turn of the century – contract manufacturing of military electronics grew into a major industry in its own right. Working primarily for systems integrators, contract manufacturers typically focus on specific areas, such as machining; mechanical and electrical assemblies; power systems; lasers; optics; sensors; robotics; vehicular controls; RF systems; satellite instrumentation; environmental stress screening; G-force testing; and electronic circuit card assembly.

“In the last 10 years, if you look at industry consolidation, that tends to support systems integration, which intuitively should mean more contract manufacturing,” says Matt Turpin, CEO of contract manufacturer Zentech Manufacturing Inc. in Windsor Mill, Md. “Given the peaks and troughs of the mil-aero business, any company that tried to stay vertically integrated would probably die. Given the rate of technology change, vertical integration would not, in general, be able to keep up.”

The role of industry consolidation

This is the primary reason that big systems integrators like Lockheed Martin, Northrop Grumman, and L-3 rely on best-in-breed contract manufacturing,” Turpin says. “The economics don’t really support them trying to do it all in-house. If you try to bring in that capability for just your stuff, you can’t even out the troughs in mil-aero the way an independent contract manufacturer can.”

Contract manufacturing of military electronics is significantly different from the model in use in many other industries, where the contract manufacturer produces complete products under the contractor’s brand.

In the military market, the contract manufacturer may produce unique components designed by the contractor or provide its own designs, developments, prototyping and modeling, assemblies, fabrication, tooling, manufacturing, qualification testing, procurement, and logistics services to meet the contractor’s requirements.

Representative of that is Jabil Circuit Inc. in St. Petersburg, Fla. With $18 billion in annual revenues, Jabil is the third largest contract manufacturer in the world – behind Taiwan’s Hon Hai Precision Industry (Foxconn) and Singapore’s Flextronics International Ltd.

Trailing closely behind Jabil in size are U.S. contract manufacturers Sanmina Corp. in San Jose, Calif.; Benchmark Electronics Inc. in Angleton, Texas; and Plexus Corp. in Neenah, Wis.

Jabil promotes its second largest division, Defense and Aerospace, as providing a skilled workforce for aerospace and defense manufacturing, design, and supply chain management for high-mix, low- to medium-volume products and electronic and mechanical solutions to complement original equipment manufacturers’ core competencies and reduce program costs.

“Systems integrators are still doing a lot of work in-house, but are outsourcing more each year, although the increase is not that great,” says Mike Matthes, president of the Jabil Aerospace and Defense division.

Demonstrating Value

“We have to provide a value proposition to show it is more advantageous to outsource electronics manufacturing than to keep it in-house, which allows them to focus more on their strategic plans and not worry about the actual manufacturing,” Matthes says. “Jabil is moving into a new capability – aerospace machining – and entering into agreements to provide that to defense and civilian companies.” Contract manufacturers also have to grow their capabilities to retain that value, he points out.

“We do electronic manufacturing and systems integration, but not the machining portion,” Matthes continues. “At Jabil Green Point, our largest division, we do machining, mostly in China, but not for aerospace. It’s not an easy capability to master and we’re working with our customers to develop and launch that. Some of that will be based in the U.S., other parts in Asia. Military contracting would have to be done in the U.S., including a new facility. Almost everything we have at this time is commercial aerospace, but we will be working toward that.”

Jabil’s high volume of non-military contract manufacturing is fairly common among the larger contract manufacturers, much of it for overseas customers, although many of the smaller companies have focused their efforts tightly on items in demand by U.S. military contractors. While the vast majority of such contracts are with industry, some contract manufacturers do have direct contracts with the military services and the U.S. Department of Defense (DOD).

“It’s a combination,” says Zentech’s Turpin. “We have two divisions, one with a long history of direct contracts, primarily with the Navy. The other does fewer direct contacts, but in the last five years contracts with the Army at Aberdeen Proving Ground and a blanket purchase agreement with the Navy have increased. But most are with industry,” he says.

“For us, the U.S. government – and certainly DOD – are huge customers with lots of opportunity, predominantly subcontract work for primes, especially as we come out of sequestration, where defense dollars really did shrink a lot,” adds Jabil’s Matthes. “As we move forward under the new administration, there certainly are possibilities for increased defense spending.”

Prime defense contractors are reluctant to surrender their manufacturing capabilities to contract manufacturers.

“The primes have their own manufacturing and to move it out they would have to cut jobs and close factories, which is never palatable for anyone,” Matthes says. “And moving jobs and changing the labor landscape is never popular, even if the work remains in the U.S. It does become popular when the benefits outweigh concerns, so our job is to show where that value is.”

Industry diversity

U.S. military electronics contract manufacturers come in all sizes, representing the full gamut of needs from systems prime contractors and, to a lesser extent, the military services themselves. By focusing their efforts and investments in specialty technologies and workers, they can make themselves too valuable to the defense industry at large to be taken in-house by individual companies.

Representatives of that diversity include: NEO Tech in Chatsworth, Calif., with a focus on advanced IP protections systems, anti-counterfeit protection, and upgrading or replacing out-of-date legacy systems for its aerospace and defense customers.

“The obsolescence of electronic components is a serious challenge in the aerospace and defense markets. Many of the ICs designed into systems have shorter life cycles than the end products in these markets,” according to a company document. “NEO Tech has implemented a supply- chain design for the industry that can support long product life cycles. NEO Tech Obsolescence Mitigation helps customers through the obsolescence process so disruption to ongoing programs is mitigated.”

Many contract manufacturers also are prime contractors themselves, typically on smaller systems for the military services.

One such is Sparton Corp. in De Leon Springs, Fla., which focuses on specialized technologies like embedded systems, RF, lasers, optics, sensors, and robotics for uses as varied as undersea warfare to cockpit controls to satellite communications, as well as aerospace and military printed circuit board assemblies.

Sypris Electronics in Tampa, Fla., a division of Sypris Solutions in Louisville, Ky., offers complete electronic manufacturing services (EMS) from circuit card assemblies to complex box builds and systems integration. Their approach is based on a Lean/Six Sigma, continuous improvement culture cultivated through internal investments.

TeligentEMS LLC in Havana, Fla., another ITAR and ISO 9001 registered contract manufacturer, offers product manufacturing services in a wide range of technologies, including unattended ground sensors, GPS tracking devices, spread spectrum transceivers, and handheld communication devices. The company promotes its capabilities in “technically complex defense projects, combined with strong configuration management capabilities and organizational flexibility.”

Specializing in electronic, electro-mechanical, and electro-optical equipment, the engineering group at TRICOR Systems Inc. in Elgin, Ill., develops complete packages for their customers, from concept to operating manuals. That has included a broad array of products, under contract and for sale directly by TRICOR, from extremely complex to simple test equipment, hardware and software simulators, illuminator systems, and airborne black boxes.

Steady work flow

Commercial and non-military government contracts provide the ability to “even-out the troughs” as defense spending changes from year to year and administration to administration. Homeland security, for example, has grown significantly as a market in which contract manufacturers can find customers and is expected to continue to grow for the foreseeable future. That also applies – primarily in the U.S. – to investments in cyber-related hardware and chem/bio-detection equipment. Globally, industry experts say there has been a stated focus on improving commercial air fleets.

The resulting increased demand for contract manufacturers has led not only to growing competition but also to closer industry oversight.

“For existing EMS companies, if there is more demand for military equipment, most U.S.-built, there will be an uptick of military assembly work in the U.S., but it also is likely to incentivize people to get into the market, either through acquisitions or expansion,” says Zentech’s Turpin. “To an outsider looking in, military electronics may seem pretty simple, but hiring and maintaining a skilled workforce, and maintaining a balance through the peaks and troughs is a different story.”

About three years ago, industry standards group IPC – Association Connecting Electronics Industries in Bannockburn, Ill., came up with a list of trusted sources. “Competition to receive that is brutal,” Turpin says.

IPC describes its origin and purpose on its website: “IPC Validation Services was created to answer a recognized need identified in an industry survey – 75 percent of responding engineers and executive management from OEMs, EMS providers, and industry suppliers viewed a supplier qualification program as vital to their business. For EMS providers and industry suppliers, IPC Validation Services provides the opportunity to become part of a network of trusted sources that industry will look to first and foremost when evaluating existing and potential business partners.

“Participating EMS providers and supplier companies will be audited by IPC Validation Services – the authoritative, objective source for quality conformance and data reporting – to earn certification through the Qualified Products List (QPL) and Qualified Manufacturers List (QML) programs. Once certification is achieved, EMS companies and industry suppliers earn the right to a high level of visibility throughout the industry,” the IPC description reads.

Disruptive technologies

Industry leaders largely agree that coming disruptive technologies, including further advances in miniaturization and evolution of the Internet of Things, also will change the world of electronics contract manufacturing.

“There are many disruptive technologies being developed right now, but nobody knows which ones will actually displace an existing technology in a way that is efficient and effective in meeting military SWaP [size, weight and power] requirements or commercial requirements for quality. Everything active will be disrupted by such things as nanotech, nanostructures, new fabrication techniques other than 3D printing – which itself is changing so fast, making prototyping faster and less expensive, for example,” Zentech’s Turpin says.

“Quantum computing is another that will change everything in the future, if and when they get it nailed down – how manufacturing and product development are done,” Turpin continues. “As relates to EMS companies, all that further underscores and exacerbates the issues surrounding capital investment. These technologies are not cheap and it doesn’t make sense for a prime to invest in such technologies with only relatively small production requirements.”

As more new and disruptive technologies come out, it will be incumbent on the primes to determine which EMS companies have the right people and equipment to build their products and properly use those technologies. Those in charge of contracting complex, high-reliability, military and aerospace assemblies will have to place even more emphasis on who is building those components by fully understanding the problems, challenges, and risks involved.

“If you use the wrong electronics contract manufacturer, no matter how good they may be, if they don’t have the right people or equipment, you could end up killing your own business,” Turpin warns.

Jabil’s Matthes agrees, but does not believe such new developments constitute an immediate concern for military electronics contract manufacturing.

“I see disruptive technologies that will take hold, but not in the short term,” Turpin says. “When you have a force out there fighting, if you are going to change the equipment they are using, you will have to do a lot of testing before making that move, which could take years. It could be a long time before it finds its way into the field to any large extent,” he predicts.

“So in the next few years, I don’t think disruptive tech will be a big changer; it will be more policy, funding, and outsourcing strategies from the primes,” Turpin says. “The big technology trends are going to make their way in, but will require a lot of time to mature and meet pretty stringent reliability and operating requirements. So while those will slowly become part of it, they will be slower to adoption than on the commercial side.”

Government and industry policies

For the military, then, technology changes will not be as important to contract manufacturing as new government policies, especially given the anticipated changes of the new Trump Administration. That also applies to changes in how the military does business, moving more toward autonomous systems, major improvements in battery technology, and overall energy requirements and technologies, with the commercial sector leading the way. Continuing advances in materials science also will shape that future.

Regardless of how quickly new technologies and new demands on contract manufacturing develop, they are on the horizon and primes and contract manufacturers will have to prepare themselves for them.

“Wherever there is change, there is opportunity; it just depends on how well you are positioned to take advantage of it, especially in areas in which you are investing,” says Jabil’s Matthes. “The trick is to invest in the right technologies at the right time.” Jabil’s size will be an advantage that will enable company executives to make strategic decisions rather than betting the company. “The more resources you have, the easier it is to fund that type of research and development.

“We are a Fortune 150 company, about $18 billion in annual revenue and 180,000 employees worldwide,” Matthes says. “That can be an advantage in having a breadth of resources and capabilities, but it can be a disadvantage if a customer fears we’re so large, their work might get lost. But divisionalizing our business units and keeping each customer with its own business unit manager makes the connection much more intimate and gives the feel of a smaller, more nimble company.”

For the next decade, Zentech’s Turpin sees a future depending on increased investment in manufacturing technologies for the military electronics market, in the U.S. and abroad.

“I would love to say increased profitability will mark the decade, but I say that tongue-in-cheek due to the continuing peaks and troughs in mil-aero. Nevertheless, the promise of increased military spending should be good for business,” Turpin says. “Other changes for contract manufacturing to stay in business, especially on the mil-aero side, will mean more new investments in capital equipment. When new technology comes out, you need equipment to work it and inspect it in order to compete.”

While all military electronics contract manufacturing must be done by U.S. companies at plants in the United States, successful competition for customers – primarily commercial – around the world is important to the ability of contract manufacturers to maintain a steady level of business and invest in the appropriate technologies and expertise.

Domestic manufacturing

In one of the first efforts to support advanced domestic manufacturing technologies, the U.S. Congress approved the Revitalize American Manufacturing and Innovation (RAMI) Act in 2014. It was designed to use federal and private matching funds to create an initial network of as many as 15 institutes around the country, pursuing areas of greatest interest to industry.

The resulting National Network for Manufacturing Innovation, renamed Manufacturing USA in 2016, established nine institutes in its first years of operation, with another six planned for 2017. The long-term goal is for as many as 45 public-private partnerships, each with its own technology focus area, but working toward a common goal, to secure America’s technological future through manufacturing innovation, education, and collaboration.

Seen as a major boost for prime and contract manufacturers, the Manufacturing USA network is operated by the inter-agency Advanced Manufacturing National Program Office (AMNPO), headquartered in the National Institute of Standards and Technology at the Department of Commerce. The office is staffed by representatives from federal agencies with manufacturing-related missions, as well as fellows from manufacturing companies and universities, all working with DOD, NASA, the National Science Foundation, and the departments of Energy, Education, and Agriculture.

As it has grown and adjusted to continuing rapid changes in technologies, manufacturing processes, and market demand, but the organization says it has not changed its overarching mission:

• “to convene and enable industry-led, private-public partnerships focused on manufacturing innovation and engaging U.S. universities; and
• “to design and implement an integrated whole-of-government advanced manufacturing initiative to facilitate collaboration and information sharing across federal agencies.

“By coordinating federal resources and programs, the AMNPO enhances technology transfer in U.S. manufacturing industries and helps companies overcome technical obstacles to scale up new technologies and products.”

Turpin describes it as the best effort to date to help contract manufacturers, primes, and the military maintain the nation’s technological lead.

Manufacturing goals

“At a macro level, the U.S. does a lot of things extremely well, but one thing it has not done well is have a national manufacturing strategy. Other countries have a very defined national strategy to embrace, enhance, and grow advanced manufacturing in their nations,” Turpin explains.

“The IPC was very active in lobbying Congress to set up the RAMI Act. The advanced manufacturing centers being created throughout the country to focus on building up the next generation of manufacturing in the U.S. should help the military and commercial worlds.”

In a strategic plan for Manufac-turing USA issued in February 2016, Commerce Secretary Penny Pritzker noted that manufacturing “innovation is the lifeblood of our economy, supporting one-third of our economic growth,” from the largest defense and commercial companies to the smallest contract manufacturers and suppliers. “Having a cutting-edge manufacturing sector that remains a step ahead of the global competition is not simply nice to have, it is a ‘must have’ for our country to thrive, now and in the future,” she wrote. “In today’s advanced manufacturing industries – those that make the highest-value goods, pay the highest wages, and export all over the world – product and process innovation are two sides of the same coin. Inventing, designing, making, and improving happen in concert, which requires a collaborative environment that brings together researchers and companies throughout the supply chain.

“America has all the essential ingredients to form innovation ecosystems, including universities and government labs that excel at basic science and technology research, top-flight original equipment manufacturers, capable suppliers, enterprising start-ups, and a new generation of workers,” Pritzker wrote. “The NNMI Program assembles our diverse competitive assets – the people, organizations, and resources – necessary for the United States to stay at the head of the pack in the global race to out-innovate – and out-produce – the competition… [laying] the foundation for American manufacturing competitiveness for generations to come.”

http://www.militaryaerospace.com/search.html?q=Contract+manufacturing%253A+there+when+you+need+it&x=13&y=1

 

 

 

 

 

 

 

 

 

Federal Government Contracts Need to Be Posted Online

“THE PROJECT ON GOVERNMENT OVERSIGHT’

“Last Week Senator Claire McCaskill (D-MO) introduced the “Contractor Accountability and Transparency Act of 2017” (S. 651), which POGO and eight other bipartisan groups supported.

The bill will expand the contracting information available on USASpending.gov (which now only offers summaries of contracts), make the contract information more accessible and readable, and help reduce Freedom of Information Act backlogs.

In fiscal year 2016, the federal government spent $472 billion for the acquisition of goods and services. In order to rein in spending and regain public faith in the contracting system, the government must provide public access to information on the contracting process. Posting copies of contracts—rather than summary data that offers little, if any, insights into the goods and services being purchased—is essential to learning about government activities and eliminating waste, fraud, abuse, and substandard performance.

When contract information is publicly accessible, genuine competition will increase, and the government will be better situated to get better deals, especially as budget constraints take hold. Simply stated, the government will be in a much improved position to leverage its robust buying power.

Despite concerns some have voiced about posting contracts, it can be accomplished without compromising national security information or contractors’ proprietary commercial or financial information.

In fact, many states have already adopted a more transparent contracting system without negatively impacting their ability to do business with contractors. According to a recent Project On Government Oversight report, at least 33 states proactively post some contracts online. That means two-thirds of the states are ahead of the federal government when it comes to contract transparency.

For many years, groups and Members of Congress have worked in a bipartisan manner to enhance transparency in the area of federal contract spending. In 2006, Senator Tom Coburn (R-OK), with the support of Senators John McCain (R-AZ), Tom Carper (D-DE), and Barack Obama (D-IL), introduced a bill that brought federal spending out of the Dark Ages—the Federal Funding Accountability and Transparency Act of 2006 (FFATA). That bill was signed into law (see the Notes section) by President George W. Bush, and it provided the foundation for USASpending.org and learning more about federal spending.

In 2008, all four Senators teamed up again to introduce the Strengthening Transparency and Accountability in Federal Spending Act of 2008, which proposed to enhance federal spending transparency. The new bill was intended to expand the scope of information that would become publicly available, including details about the contract bids and the award’s financial terms. Additionally, the bill would have posted searchable copies of “all contracts, subcontracts, purchase orders, task orders, lease agreements and assignments, and delivery orders.”

The 2008 election, pitting Senator Obama against Senator McCain, essentially caused the bill to die in the Senate Committee on Homeland Security and Governmental Affairs. But that wasn’t the last we heard about posting contracts online.

In addition to Senator McCaskill, Senator Jon Tester (D-MT) has also been working on the issue.  He not only cosponsored the McCaskill bill, but since 2010 and most recently on March 14, 2017, has also introduced the Public Online Information Act, which will make information from all three branches of government available on the internet, including contracts.

With annual contract spending bouncing back up to nearly $500 billion, oversight of that spending is crucial. Groups from across the political spectrum support efforts to increase disclosure of federal contracts to improve transparency and accountability in federal spending. Posting contracts online should have happened years ago. We will see if the 115th Congress is serious about transparency and accountability in federal spending. If it is, passing Senator McCaskill’s and Senator Tester’s bills will be a good start.”

http://www.pogo.org/blog/2017/03/contracts-need-to-be-posted-online-mccaskill-sunshine-transparency.html