“SMALL BUSINESS ADMINISTRATION OFFICE OF INSPECTOR GENERAL”
“SBA used three vendors without a contract to handle foreclosures and sales of properties. These vendors were primarily responsible for identifying subcontractors for appraisals, repairs, maintenance, listings, sale of properties, and legal services.
None of the three vendors were registered in the SAM, as required, and SBA did not purchase their services following federal procurement policy. Since 2012, SBA has made 34,030 payments for unauthorized commitments totaling over $10.8 million to these vendors.”
“During our audit work, we learned SBA used three vendors without a contract to handle foreclosures and sales of properties. These vendors were primarily responsible for identifying subcontractors for appraisals, repairs, maintenance, listings, sale of properties, and legal services.
The three vendors billed the resolution center for the foreclosure and sale services and administrative fees for commissioning the sales. Since 2012, SBA has made 34,030 payments for unauthorized commitments totaling over $10.8 million to these vendors as follows:
Vendor 1—22,384 payments totaling more than $8.1million
Vendor 2—9,325 payments totaling more than $2.4 million
Vendor 3—2,321 payments totaling more than $336,800
Agencies are required to use the U.S. government’s System for Award Management (SAM) as the primary source of vendor information. None of the three vendors were registered in the SAM, as required, and SBA did not purchase their services following federal procurement policy. We questioned these unauthorized payments, totaling more than $10.8 million, because SBA did not comply with regulations (see Appendix I). Federal Acquisition Regulation (FAR) Part 1.102 requires “promotion of competition, maximizing the use of commercial products and services, and conducting business withintegrity, fairness, and openness.” FAR Part 13 Subpart 104 Promoting Competition states a contracting officer must “promote competition to the maximum extent practicable to obtain supplies and services from the source whose offer is the most advantageous to the Government.”
The regulatory provision defined in the FAR states that any agreement made by a government employee who lacked the authority to enter into such agreement with a vendor is considered an unauthorized commitment. Title 5 of the Code of Federal Regulations (CFR) Part 2635.101 Standards of Ethical Conduct for Employees of the Executive Branch states employees shall not knowingly make unauthorized commitments or promises of any kind that bind the government.
Additionally, Title 48 of the Code of Federal Regulations Part 1.602-3 Ratification of Unauthorized Commitments states ratification of an unauthorized commitment mayonly be performed by a contracting officer or an official with the authority to do so as designated by the head of the contracting office.
The CFR defines an unauthorized payment as any action or agreement which is not binding solely because the representative who made it lacked the proper authority to enter into this action or agreement on behalf of the government. Agencies should takepositive action to preclude, to the maximum extent possible, the need for ratification actions.
SBA had not entered into a government contract and was using vendors that were not recorded in SAM. The agency paid more than $10.8 million in unauthorized commitments that should be ratified under 48 C.F.R. § 1.602-3. Additionally, the agency did not conduct these contracting actions with integrity and openness in a fair and equitable manner, as required by the FAR.
An SBA official told us the vendors were first engaged for small services for what was perceived to be of minimal value. Use of the vendors continued over time and became part of the resolution center’s normal process. The practice of using these vendors without a contract was not intentional but rather an oversight.
The official further explained that the FAR applies to the acquisition of supplies and services with appropriated funds. The nature of the services does not require the use of federally appropriated funds. The fees associated with each service are the borrower’sfinancial obligation and are charged back to the borrower by way of a care and preservation of collateral fee.
It is important to note that the disaster loans are in default, and the sale of the real estate collateral is being used as a last resort to recover a portion of the delinquent debt. Any fees charged by the vendors are added to the delinquent loan balance. Any portion of the delinquent debt not recovered through foreclosure is charged off, so the 3 federal government ultimately pays for these services.”
“SMALL BUSINESS ADMINISTATION OFFICE OF INSPECTOR GENERAL“
“SBA, in its effort to provide billions of dollars of capital to small businesses quickly, “lowered the guardrails” or relaxed internal controls, which significantly increased the risk of program fraud.
The unprecedented demand for COVID-19 Economic Injury Disaster Loans (EIDL) and the equally unprecedented challenges SBA had in responding to this pandemic combined with lowered controls resulted in billions of dollars in potentially fraudulent loans and loans to potentially ineligible businesses.“
“This report presents the results of the Office of Inspector General’s inspection to assess the Small Business Administration’s (SBA) initial disaster response to the Coronavirus Disease 2019 (COVID-19) pandemic. The report is available by CLICKING HERE. A series of stimulus acts passed by Congress: deemed the COVID-19 pandemic a disaster, provided additional funding to provide Economic Injury Disaster Loans (EIDL) to small businesses nationwide impacted by the pandemic; provided additional funding of about $373 billion for EIDL; and provided $20 billion to stand up a new program for EIDL advance grants.
Based on our analysis of SBA’s COVID-19 EIDL data, as of July 31, 2020, we found SBA approved $14.3 billion ($13.4 billion disbursed) in COVID-19 EIDLs to accounts that differed from the original bank accounts listed on the loan applications; $62.7 billion ($58.0 billion disbursed) in multiple (between 2 and 245) COVID-19 EIDLs to applicants using the same IP addresses, email addresses, bank accounts, or businesses listed at the same addresses; and approximately $1.1 billion in COVID-19 EIDLs and emergency advance grants to potentially ineligible businesses.
We made 10 recommendations for SBA to strengthen its controls to lower fraud risk and recover funds from ineligible businesses as it continues to respond to the ongoing pandemic.
“With many agency leaders facing a “use-it-or-lose-it” deadline for utilizing their budgets before the end of the fiscal year, the use of OTAs may be a critical and needed weapon for agencies to acquire the resources needed to execute on their fiscal 2020 initiatives.“
“The federal government’s year-end fourth quarter spend has become an annual ritual in Washington, D.C., every September, similar to the anticipation of kids returning to school and the start of fall sports.
It’s more than just the numbers that have revealed this new reality for fourth quarter spending. The entire contracting market has felt it. Government contractors anticipate the release of RFPs over a typical “federal summer” with contract awards to follow in the fall.
In 2018, the year-end spend was referred to as a spending spree of “historic proportions” with nearly 40 percent of contracts being awarded in the last quarter of the government’s fiscal year. Even in a normal year, it was anticipated that 2020 would continue the trend and final quarter spending was predicted to increase. Of course, 2020 has been anything but normal. And it appears this year’s final quarter spend will surpass the previous ones, but with good reason.
The Impact of COVID-19
Suffice to say, 2020 has had a few more challenges than previous years for federal executives. The COVID-19 pandemic has upended all facets of life, business and government. With so much uncertainty throughout the year, many agencies were not able to move forward with some initiatives as quickly as they hoped, thus they did not spend as much as anticipated in the spring and summer months.
Combined with the now-annual Q4 spending frenzy, it means that this year’s fourth quarter will be unlike any before when it comes to government spending. In IT spending alone, Bloomberg Government estimates that nearly $28 billion will be spent by agencies in fourth quarter of fiscal 2020.
An example of the spending push comes from the Department of Veterans Affairs (VA). The VA has spent only $1.7 billion on IT contracts so far this fiscal year, compared to its $7.8 billion IT budget request, which leaves a massive $6.1 billion that must be spent in the final quarter. Furthermore, the CARES Act appropriated the VA an additional $2.2 billion to modernize its IT and electronic health records systems.
OTAs May Be the Answer
While GSAs push to best in class (BIC) government wide acquisition contracts, has created preferred paths to the market, and the use of those BICs can often lend themselves to short turnaround times to make awards, OTAs seem to be on the rise as another alternative.
Other transaction authority (OTAs) have soared in recent years, as they allow agencies to enter into contracts quicker than some of the traditional procurement methods. These have been most popular within the Department of Defense, as they aim to seek to enlist capabilities faster. Their spending through OTAs has increased from about $1 billion in fiscal year 2015 to $7.8 billion in 2019, according to Bloomberg Government data.
However, the use of OTAs could quickly expand to other agencies in a response to COVID-19 and the need to utilize funding in a timely manner to keep pace with the increased demands that have risen in helping our Country get past this pandemic.
According to federal market analyst Chris Cornillie, this may also become the new normal for procurement moving forward.
“We expect that HHS will continue to use OTAs as it meets the needs of the COVID response, and we may see HHS normalize OTAs as a larger part of their R&D portfolio in future years,” he said.”
“Now in its third year, the once dreaded department-wide financial audit is now firmly part of the Pentagon’s culture, Deputy Secretary of Defense David Norquist said Sept. 10.
“Perhaps no change highlights the difference in attitude more than the audit,” he said at the Defense News Conference.
For more than 20 years under multiple administrations, the Pentagon declined to carry out a full-scope financial statement audit, he noted. The attitude was, “Why should we conduct an audit until we are certain we can pass?” he said.
“It doesn’t work that way,” he added. “No one wants to get audited, but if you want to improve, the most important step you can take is to start the audit.”
Auditors, for example, have identified unused or mislabeled inventory that could be put back in the system to save money. In two cases, the department saved $81 million and $53 million at two different bases by labeling items correctly. Additionally, Defense Logistics Agency supply discrepancy reports have resulted in $287 million in back orders being filled, he said.
“I recognize that this is not as dramatic as directed energy or hypersonics, but sometimes changing the management culture is one of the hardest and equally important changes the department has to make,” Norquist said.
Savings were a result of auditors filling out reports called “Notice of Findings and Recommendations” that identify areas of corrective actions and are used to track progress. Last year, the department closed out about 615 of the recommendations, which was about 25 percent of the total filed, Norquist said. He expects about 20 percent to be closed by the end of this fiscal year despite the challenges posed by the COVID-19 crisis.
More accurate data is also a cost saver, and manually inputting data is inefficient, the department has learned, he noted.
“When data passes automatically between systems — and the quality control is up front — the accuracy goes up and the costs go down,” Norquist said. For example, the Navy saved $65 million by creating an automated feed to the Defense Finance and Counting Service, he said.
The audit has also uncovered “dormant accounts” where there had been little activity to identify potential areas of savings that could be reinvested in other programs. The result has been $2.6 billion in readjusted funds, he added.
The audit will ultimately bring more accurate data to the department, resulting in the ability to carry out the same kind of data analytics now common in the private sector, Norquist said.”
“Every year, the federal government spends over $400 billion on goods and services, making it the largest purchaser of goods and services in the world. Today, the U.S. Small Business Administration released the annual Fiscal Year 2019 Small Business Federal Procurement Scorecard, which tracks and assesses each agency’s yearly and individually negotiated small business prime and subcontracting performance and determines grades ranging from A+ to F
We are very pleased to announce that in FY19 the federal government not only exceeded its small business contracting goal, it awarded a historic $132.9 billion or 26.50 percent in prime contract dollars to small businesses. This is an increase of $12 billion from FY18, earning the federal government an “A” on SBA’s Scorecard. This smashes the record-setting $120 billion the federal government awarded to small businesses in FY18!
It was a record-breaking year for women-owned small businesses too! For the second time ever since the implementation of the women-owned contracting goal, the federal government met the five percent contract goal awarding $26 billion in federal contracts, or 5.19 percent to women-owned small businesses.
The federal government also awarded nearly $90.7 billion in subcontracting dollars to small businesses. The prime and subcontracting dollars combined amount to one million jobs created that are supported annually through federal contracting. These jobs help to build communities and fuel the nation’s economy.
I have spent 25 years of my government tenure as a professional program administrator, the Chief Procurement Officer for the Federal Emergency Management Agency, the Director of Acquisition and Contracting for the Federal Aviation Administration and the Chief Acquisition Officer at the Department of Energy. I am pleased to oversee the SBA’s Office of Government Contracting and Business Development, which is charged with making sure that the federal government spends at least 23 percent of its contract dollars with small businesses annually.
The goal of my office is to increase support to the small business contracting community, namely, the agency procurement personnel which includes: SBA’s Procurement Center Representatives, Commercial Market Representatives, the Office of Small Disadvantaged Business Utilization, the Office of Small Business Programs and contracting officers who are responsible for actually making the contract awards to small businesses to achieve the 23 percent goal.
I am so pleased to see this shared result between the SBA and its colleague agencies and partners despite the challenges caused by the pandemic. Meeting these small business contracting goals is part of our commitment to ensuring that entrepreneurs are adequately supported and represented throughout the government.
These positive results are also because of small business owners like:
James Moore, Managing Partner of Expert Maintenance and Construction Services, LLC (EMCS), an 8(a) and Disadvantaged Business Enterprise-certified firm of Prairieville, Louisiana and SBA’s Louisiana 2020 Small Business Person of the Year. James founded his business with just two employees and has grown his business to 85 employees, with $16 million in revenues.
EMCS has performed numerous contracts with federal, state, and local agencies in addition to private entities and has completed projects in multiple states, including Louisiana, South Carolina, Kansas, Missouri, and Texas, with offices in all five states.
SBA is incredibly proud of the small businesses that we support. We are deeply gratified to work with our federal partners and are appreciative of their efforts in helping to achieve and exceed the 23 percent goal. This achievement is not only a win for the federal government; it is a win for small businesses and the nation’s economy.”
ABOUT THE AUTHOR:
Dr. Francis Spampinato is Associate Administrator for the Office of Government Contracting and Business Development
“Even as the movement to think critically about cutting the Pentagon’s budget slowly gains ground, wrong-headed arguments in favor of boosting military spending without question still prevail.
Just take a recent column in Defense One from Dakota Wood of the Heritage Foundation, who attempted to make the case that the character of the modern military operations justify $740 billion Pentagon budgets. In it, he claims that cost reductions just aren’t possible since arms and personnel costs have exploded faster than inflation since World War II.
Yet, he failed in most cases to address why military costs have grown so much and how increased budgets exacerbate problematic weapons programs.
The reality is, according to John Boyd, the legendary military thinker and central figure of the Reagan-era military reform movement, wars are won by good people using innovative ideas. The weapons they use are mere tools. As anyone who has tinkered around their garage knows, the best tools are the simple, reliable ones specifically engineered for the task at hand.
Sadly, the members of the military industrial congressional complex do not seem to understand this. They bought an aircraft carrier so loaded up with unproven technology that it is already five years behind schedule and still has at least three years of work to go before it can set sail. They will spend more than $400 billion to buy a fighter plane that can’t shoot straight.
The weapons the Pentagon buys are too often needlessly complex and thus unnecessarily expensive. While they are sold as vast improvements over earlier weapons, the new versions often provide only marginally improved capabilities in the best cases, but are way more expensive than their predecessors. Just as often, in the pursuit of new capabilities, the excessively complex weapons are actually less effective than what came before them. And the increased logistics and maintenance burdens make the systems even more expensive while reducing the overall combat effectiveness.
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These overly complex weapons often serve as a distraction on the battlefield because they force the troops to spend far too much time focused internally on what’s necessary to get the finicky contraptions to work. This distracts them from where their focus should be: on how to fight the enemy. Training becomes an issue as well because it takes far longer to teach someone how to use the new systems. For a force that is already burdened with more required training events than it has time to execute properly, the Pentagon should not further encumber troops with training on overly complicated weapons systems.
Defense contractors intentionally load up their products with as many gadgets as possible because by doing so they make more money. They receive money on the front end during the development process, and then make more money on the back end through lucrative long-term sustainment contracts.
Wood’s argument that the only way to deal with adversary technology is with better technology is also false. We don’t need to out-engineer the Russias and Chinas of the world, we need to out-think them. For virtually every high-tech weapon, there is a low-tech counter. Our struggles to deal with IEDs in Iraq is the perfect example of this. The Pentagon spent $20 billion to develop counter-IED systems only to come to the realization that nothing worked as well as a dog.
In the meantime, the ever-increasing costs of weapons mean that the services can afford to purchase fewer of them.
For example, the Air Force originally planned to purchase 132 B-2 “Spirit” bombers. As costs spiraled upward, the Pentagon pared back the total fleet size until just 21 were built at a total program cost of $2.1 billion a piece. The B-21 is being developed now along similar lines and could suffer the same fate. Interestingly, the Air Force has plans to retire the flashy B-2, which entered the fleet in 1993, but plans to retain the 1950s vintage B-52, proving that simpler technology has its advantages.
The overall effect is that the American people end up spending more and receiving less. Wood points out that the Pentagon budget in 1970 was $78.5 billion, which, adjusted for inflation, would be the equivalent of $521 billion in 2020. He says that the $713 billion 2020 defense budget is only 27 percent higher. This is a misleading claim. The 1970 defense budget included a great deal of spending that is not included in Pentagon budgets now. Today, many of those costs are spread between the Department of Veterans Affairs, Department of Energy, and the Department of Homeland Security, and several other agencies. When all the defense-related spending across the various departments are added together, the American taxpayers were asked to spend more than $1.21 trillion this year.
The Complexity Vortex
The character of American military spending comports quite well with the law of diminishing returns.Read More
What does that support? The $78.5 billion in 1970 supported an active duty force of 3,066,294. The active duty force in 2020 is 480,000. So, the American people are paying 130% more for a force that is 84% smaller.
A recent proposal would have cut 10 percent from the Pentagon’s budget. Wood’s column demonstrates how nervous the defense industry becomes whenever someone threatens the free-flow of money from the treasury to their coffers.
Like most similar efforts, this latest budget cutting proposal was sold as a means of freeing up funds for domestic programs. President Eisenhower once said that for “every gun that is made, every warship launched, every rocket fired signifies, in the final sense, a theft from those who hunger and are not fed, those who are cold and are not clothed.” His words ring especially true today as lawmakers debate how best to deliver resources to people and businesses most adversely impacted by the COVID response.
Just as importantly, cutting the Pentagon’s budget would also serve a useful military purpose. It would force service leaders to think harder about what they buy and why they buy it. In order to get the force size they want, they would have to pursue simpler designs rather than the highly complex systems that have become the norm today. In warfare, good enough beats sexy. It’s time the military industrial congressional complex learns that lesson.”
The undersigned was on the staff of one of the design companies for the gun system of the Bradley Fighting Vehicle development program. I witnessed first hand one of the most costly weapons system development programs in history.
I cannot help but observe that we are undergoing a similar debacle for the Bradley’s replacement. The bottom line question: With Pandemic and civil unrest economic impact today, can we afford to embark on the equivalent of a re-release and update of the famous HBO Movie, “Pentagon Wars”?
“TASK AND PURPOSE“:
“The Army will likely end up spending upwards of $1.57 billion to develop a replacement for the Bradley Fighting Vehicle that’s served the U.S. military for nearly four decades, according to a new assessment from the Government Accountability Office — and that’s just for a fleet of prototypes.
As of January 2020, the service had doled out roughly $366.64 million in funding as part of a middle-tier acquisition program for the Optionally Manned Fighting Vehicle Increment 1 the service initiated in September 2018, according to the GAO report.
The Army is expected to spend another $1.2 billion to procure 14 prototype vehicles apiece from two separate defense contractors, an acquisition that, planned for this past March, fell apart when the service cancelled its solicitation in January in order to “revisit the requirements, acquisition strategy and schedule” prior to prototyping.
The cancellation was reportedlyprompted by the fact that the service only received one bid, from General Dynamics Land Systems, for the OMFV prototyping competition, as Army leaders told Defense News at the time.
According to the GAO report, the Army had previously planned on handing out an initial production contract award in late fiscal year 2023 and fielding the initial replacement vehicle by some time in early fiscal year 2026, but those dates are now up in the air due to the January cancellation.
“Officials stated that Army leadership is still committed to moving forward with the program, but they will need to reassess the achievability of their requirements within the desired timeframe,” according to the GAO report.
As Task & Purpose previously reported, the OMFV — part of Army Futures Command’s Next-Generation Combat Vehicle (NGCV) program — is just the latest attempt to replace the Bradley that has spanned nearly two decades.
In 1999, the Army adopted the Future Combat Systems (FSC) Manned Ground Vehicles (MGV) program was initiated as part of a broad effort to make the service’s legacy forces “lighter, more modular, and — most importantly — more deployable,” as the Army put it at the time.
That program was cancelled a decade later in 2009 and immediately replaced with the Ground Combat Vehicle program in 2010, which sought to replace the Bradley with the a Ground Combat Infantry Fighting Vehicle before being cancelled in 2014 amid rising costs and expanding requirements.”
The largest contracts — worth more than $550 million total — went to 21 companies to develop “big bet” technologies. Those companies are Aerial Applications, Analytical Space, Anduril Industries, Applied Minds, Elroy Air, Enview, Edgybees, Essentium, Falkonry, ICON Technology, Orbital Insight, Orbital Sidekick, Pison, Privoro, Shift.org, Swarm Technologies, Tectus Corp., Virtualitics, Wickr, Wafer and one company that the Air Force has not disclosed.
“For all these awardees, you’re on a four-year, fixed-price contract that we believe, if successful, will disrupt part of our mission in a way that will give a huge advantage for our future airmen,” said Will Roper, the Air Force’s acquisition executive.
The value of the contracts awarded by AFWERX may seem small compared to the multibillion awards for major defense programs. However, these awards go a long way in helping technology firms overcome the “valley of death” between technology development and production, when a lot of companies are vulnerable to failure, said Chris Brose, head of strategy for Anduril Industries, which specializes in developing artificial intelligence technologies.
“For a company like ours or companies of that size, It’s quite significant. It allows us to really kind of do more of the good work that we’re doing, to scale and grow and work with new partners, and it makes a huge difference,” Brose said.
Brose declined to detail the precise nature of Anduril’s contract with the Air Force, but said that the general objective is to prove that an unmanned aerial system can deliver a mass of swarming drones capable of performing complex missions. While a human would still be “in the loop” overseeing the network, certain tasks — such as steering the drones, moving their sensors and processing gathered data — would be automated.”
“Call it a colossal victory for a Pentagon that hasn’t won a war in this century, but not for the rest of us. Congress only recently passed and the president approved one of the largest Pentagon budgets ever. It will surpass spending at the peaks of both the Korean and Vietnam wars. As last year ended, as if to highlight the strangeness of all this, the Washington Postbroke a story about a “confidential trove of government documents” — interviews with key figures involved in the Afghan War by the Office of the Special Inspector General for Afghanistan Reconstruction — revealing the degree to which senior Pentagon leaders and military commanders understood that the war was failing. Yet, year after year, they provided “rosy pronouncements they knew to be false,” while “hiding unmistakable evidence that the war had become unwinnable.”
Given the way the Pentagon has sunk taxpayer dollars into endless wars, in a more reasonable world that institution would be overdue for a comprehensive audit.
However, as the latest Pentagon budget shows, no matter the revelations, there will be no reckoning when it comes to this country’s endless wars or its military establishment — not at a moment when President Donald Trump is sending yet more U.S. military personnel into the Middle East and has picked a new fight with Iran. No less troubling: how few in either party in Congress are willing to hold the president and the Pentagon accountable for runaway defense spending or the poor performance that has gone with it.
Given the way the Pentagon has sunk taxpayer dollars into those endless wars, in a more reasonable world that institution would be overdue for a comprehensive audit of all its programs and a reevaluation of its expenditures. (It has, by the way, never actually passed an audit.) According to Brown University’s Costs of War Project, Washington has already spent at least $2 trillion on its war in Afghanistan alone and, as the Post made clear, the corruption, waste, and failure associated with those expenditures was (or at least should have been) mindboggling.
Of course, little of this was news to people who had read the damning reports released by the Special Inspector General for Afghanistan Reconstruction in previous years. They included evidence, for instance, that somewhere between $10 million and $43 million had been spent constructing a single gas station in the middle of nowhere, that $150 million had gone into luxury private villas for Americans who were supposed to be helping strengthen Afghanistan’s economy, and that tens of millions more were wasted on failed programs to improve Afghan industries focused on extracting more of the country’s minerals, oil, and natural gas reserves.
In the face of all this, rather than curtailing Pentagon spending, Congress continued to increase its budget, while also supporting a Department of Defense slush fund for war spending to keep the efforts going. Still, the special inspector general’s reports did manage to rankle American military commanders (unable to find successful combat strategies in Afghanistan) enough to launch what, in effect, would be a public-relations war to try to undermine that watchdog’s findings.
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All of this, in turn, reflected the “unwarranted influence” of the military-industrial complex that President (and former five-star General) Dwight Eisenhower warned Americans about in his memorable 1961 farewell address. That complex only continues to thrive and grow almost six decades later, as contractor profits are endlessly prioritized over what might be considered the national security interests of the citizenry.
The infamous “revolving door” that regularly ushers senior Pentagon officials into defense-industry posts and senior defense-industry figures into key positions at the Pentagon (and in the rest of the national security state) just adds to the endless public-relations offensives that accompany this country’s forever wars. After all, the retired generals and other officials the media regularly looks to for expertise are often essentially paid shills for the defense industry. The lack of public disclosure and media discussion about such obvious conflicts of interest only further corrupts public debate on both the wars and the funding of the military, while giving the arms industry the biggest seat at the table when decisions are made on how much to spend on war and preparations for the same.
Media Analysis Brought to You by the Arms Industry
That lack of disclosure regarding potential conflicts of interest recently came into fresh relief as industry boosters beat the media drums for war with Iran. Unfortunately, it’s a story we’ve seen many times before. Back in 2008, for instance, in a Pulitzer Prize-winning series, the New York Timesrevealed that the Pentagon had launched a program to cultivate a coterie of retired-military-officers-turned-pundits in support of its already disastrous war in Iraq. Seeing such figures on TV or reading their comments in the press, the public may have assumed that they were just speaking their minds. However, the Times investigation showed that, while widely cited in the media and regularly featured on the TV news, they never disclosed that they received special Pentagon access and that, collectively, they had financial ties to more than 150 Pentagon contractors.
Given such financial interests, it was nearly impossible for them to be “objective” when it came to this country’s failing war in Iraq. After all, they needed to secure more contracts for their defense-industry employers. A subsequent analysis by the Government Accountability Office found that the Pentagon’s program raised “legitimate questions” about how its public propaganda efforts were tied to the weaponry it bought, highlighting “the possibility of compromised procurements resulting from potential competitive advantages” for those who helped them.
While the program was discontinued that same year, a similar effort was revealed in 2013 during a debate over whether the U.S. should attack Bashar al-Assad’s Syrian regime. You probably won’t be surprised to discover that most of the former military figures and officials used as analysts at the time supported action against Syria. A review of their commentary by the Public Accountability Initiative found a number of them also had undisclosed ties to the arms industry. In fact, of 111 appearances in major media outlets by 22 commentators, only 13 of them disclosed any aspect of their potential conflicts of interest that might lead them to promote war.
The same pattern is now being repeated in the debate over the Trump administration’s decision to assassinate by drone Iranian Major General Qassem Soleimani and other Iran-related issues. While Soleimani clearly opposed the United States and many of its national security interests, his killing risked pushing Washington into another endless war in the Middle East. And in a distinctly recognizable pattern, the Intercept has already found that the air waves were subsequently flooded by defense-industry pundits praising the strike. Unsurprisingly, news of a potential war also promptly boosted defense industry stocks. Northrop Grumman’s, Raytheon’s, and Lockheed Martin’s all started 2020 with an uptick.
Senator Elizabeth Warren (D-MA) and Representative Jackie Speier (D-CA) have offered legislation that could shut down that revolving door between the major weapons makers and Washington for good, but it has met concerted resistance from Pentagon officials and others still in Congress who stand to benefit from preserving the system as is. Even if that revolving door wasn’t shut down, transparency about just who was going through it would help the public better understand what former officials and military commanders are really advocating for when they speak positively of the necessity for yet another war in the Middle East.
Costly Weapons (and Well-Paid Lobbyists)
Here’s what we already know about how it all now works: weapon systems produced by the big defense firms with all those retired generals, former administration officials, and one-time congressional representatives on their boards (or lobbying for or consulting for them behind the scenes) regularly come in overpriced, are often delivered behind schedule, and repeatedly fail to have the capabilities advertised. Take, for instance, the new Ford class aircraft carriers, produced by Huntington Ingalls Industries, the sort of ships that have traditionally been used to show strength globally. In this case, however, the program’s development has been stifled by problems with its weapons elevators and the systems used to launch and recover its aircraft. Those problems have been costly enough to send the price for the first of those carriers soaring to $13.1 billion. Meanwhile, Lockheed Martin’s F-35 jet fighter, the most expensive weapons system in Pentagon history, has an abysmal rate of combat readiness and currently comes in at more than $100 million per aircraft.
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And yet, somehow, no one ever seems to be responsible for such programmatic failures and prices — certainly not the companies that make them (or all those retired military commanders sitting on their boards or working for them). One crucial reason for this lack of accountability is that key members of Congress serving on committees that should be overseeing such spending are often the top recipients of campaign contributions from the big weapons makers and their allies. And just as at the Pentagon, members of those committees or their staff often later become lobbyists for those very federal contractors.
With this in mind, the big defense firms carefully spread their contracts for weapons production across as many congressional districts as possible. This practice of “political engineering,” a term promoted by former Department of Defense analyst and military reformer Chuck Spinney, helps those contractors and the Pentagon buy off members of Congress from both parties. Take, for example, the Littoral Combat Ship, a vessel meant to operate close to shore. Costs for the program tripled over initial estimates and, according to Defense News, the Navy is already considering decommissioning four of the new ships next year as a cost-saving measure. It’s not the first time that program has been threatened with the budget axe. In the past, however, pork-barrel politics spearheaded by Senators Tammy Baldwin (D-WI) and Richard Shelby (R-AL), in whose states those boats were being built, kept the program afloat.
The Air Force’s new bomber, the B-21, being built by Northrup Grumman, has been on a similar trajectory. Despite significant pressure from then-Senator John McCain (R-AZ), the Air Force refused in 2017 to make public or agree upon a contract price for the program. (It was a “cost-plus,” not a “fixed price” contract, after all.) It did, however, release the names of the companies providing components to the program, ensuring that relevant congressional representatives would support it, no matter the predictably spiraling costs to come.
Recent polling indicates that such pork-barrel politics isn’t backed by the public, even when they might benefit from it. Asked whether congressional representatives should use the Pentagon’s budget to generate jobs in their districts, 77% of respondents rejected the notion. Two-thirds favored shifting such funds to sectors like healthcare, infrastructure, and clean energy that would, in fact, create significantly more jobs.
And keep in mind that, in this big-time system of profiteering, hardware costs, however staggering, are just a modest part of the equation. The Pentagon spends about as much on what it calls “services” as it does on the weaponry itself and those service contracts are another major source of profits. For example, it’s estimated that the F-35 program will cost $1.5 trillion over the lifetime of the plane, but a trillion dollars of those costs will be for support and maintenance of the aircraft.
Increasingly, this means contractors are able to hold the Pentagon hostage over a weapon’s lifetime, which means overcharges of just about every imaginable sort, including for labor. The Project On Government Oversight (where I work) has, for instance, been uncovering overcharges in spare parts since our founding, including an infamous $435 hammer back in 1983. I’m sad to report that what, in the 1980s, was a seemingly outrageous $640 plastic toilet-seat cover for military airplanes now costs an eye-popping $10,000. A number of factors help explain such otherwise unimaginable prices, including the way contractors often retain intellectual property rights to many of the systems taxpayers funded to develop, legal loopholes that make it difficult for the government to challenge wild charges, and a system largely beholden to the interests of defense companies.
In for a TransDigm, Out for Billions
While it is easy to blame TransDigm, Congress created the problem, and agencies are placed in the undesirable position of relying on outdated, and often outrageous, prices.Read More
The most recent and notorious case may be TransDigm, a company that has purchased other companies with a monopoly on providing spare parts for a number of weapon systems. That, in turn, gave it power to increase the prices of parts with little fear of losing business — once, receiving 9,400% in excess profits for a single half-inch metal pin. An investigation by the House Oversight and Reform Committee found that TransDigm’s employees had been coached to resist providing cost or pricing information to the government, lest such overcharges be challenged.
In one case, for instance, a subsidiary of TransDigm resisted providing such information until the government, desperate for parts for weapons to be used in Iraq and Afghanistan, was forced to capitulate or risk putting troops’ lives on the line. TransDigm did later repay the government $16 million for certain overcharges, but only after the House Oversight and Reform Committee held a hearing on the subject that shamed the company. As it happens, TransDigm’s behavior isn’t an outlier. It’s typical of many defense-related companies doing business with the government — about 20 major industry players, according to a former Pentagon pricing czar.
A Recipe for Disaster
For too long Congress has largely abdicated its responsibilities when it comes to holding the Pentagon accountable. You won’t be surprised to learn that most of the “acquisition reforms” it’s passed in recent years, which affect how the Department of Defense buys goods and services, have placed just about all real negotiating power in the hands of the big defense contractors. To add insult to injury, both parties of Congress continue to vote in near unanimity for increases in the Pentagon budget, despite 18-plus years of losing wars, the never-ending gross mismanagement of weapons programs, and a continued failure to pass a basic audit. If any other federal agency (or the contractors it dealt with) had a similar track record, you can only begin to imagine the hubbub that would ensue. But not the Pentagon. Never the Pentagon.
A significantly reduced budget would undoubtedly increase that institution’s effectiveness by curbing its urge to throw ever more money at problems. Instead, an often bought-and-paid-for Congress continues to enable bad decision-making about what to buy and how to buy it. And let’s face it, a Congress that allows endless wars, terrible spending practices, and multiplying conflicts of interest is, as the history of the twenty-first century has shown us, a recipe for disaster.”
Mandy Smithberger rejoined POGO as the director of the Straus Military Reform Project at the Center for Defense Information in December 2014. Previously she was a national security policy adviser to U.S. Rep. Jackie Speier (D-Calif.) worked on passing key provisions of the Military Whistleblower Protection Enhancement Act into law, which expands protections by increasing the level of Inspector General review for complaints, requiring timely action on findings of reprisal, and increasing the time whistleblowers have to report reprisals. Previously an investigator with POGO, she was part of a team that received the Society of Professional Journalists’ Sunshine Award for contributions in the area of open government. Ms. Smithberger received her B.A. in government from Smith College and her Masters in Strategic Studies and International Economics from Johns Hopkins University’s School of Advanced International Studies. She also served as an analyst at the Defense Intelligence Agency and U.S. Central Command.
“The sad truth is that each time a government contract is awarded to a company falsifying its status as a SDVOSB, other veterans operating legitimate, eligible small businesses are denied opportunities that they’ve earned through their service to our nation.“
It’s up to us to ensure these opportunities are safeguarded for our veterans today and tomorrow. It’s the honorable thing to do.“
“Ensuring that each veteran receives our full respect and support as he or she transitions back to civilian life is one of our duties as a nation.
While the personal sacrifice made by our veterans is impossible to measure and represents a debt that can never fully be repaid, it is vital that Americans do what we can to protect the benefits and services our nation’s veterans have earned.
Extending opportunities to entrepreneurial veterans who have suffered service-related disabilities is one way our nation honors their extraordinary service. The Service-Disabled Veteran-Owned Small Business (“SDVOSB”) procurement program was established in 2003 as an extension of the federal government’s policy to maximize procurement opportunities for small businesses. The program provides opportunities for SDVOSBs by establishing a goal that at least 3 percent of all federal contracting dollars be awarded to service-disabled veteran-owned small businesses each year.
Three percent of federal contracting dollars may seem like a small amount—but the reality is this program represents billions of dollars in opportunity for our nation’s veterans. Unfortunately, over the years, this program has become a lucrative target for fraud and abuse. In fact, in a sobering December 2019 report from the Government Accountability Office focused on contracting fraud with the Department of Defense, one of the most rampant forms of abuse documented relates to contractors falsely claiming eligibility for contracts set aside for small businesses owned by service-disabled veterans.
Schemes in which well-resourced, large companies either create fraudulent SDVOSBs or manipulate existing SDVOSBs to capture federal set-aside contracts for themselves are on the rise. These schemes are robbing our nation’s veterans of opportunities that they earned through their service. This is why it is critical that we understand the rules involving contracts set aside for SDVOSBs, as well as how to identify SDVOSB fraud.
First, let us look at the rules of SDVOSB procurement. In order to be eligible for a set-aside or sole-source SDVOSB contract with the federal government, a firm must meet four criteria. First, the firm must be a small business. Second, the company must be at least 51-percent owned by one or more service-disabled veterans. Third, a service-disabled veteran must hold the highest position in the company—such as the role of CEO—and be responsible for the day-to-day operation of the firm. And finally, the eligible veterans must have a service-connected disability.
It’s also worth noting that while SDVOSBs can join forces with large companies to bid on government contracts, to qualify for an SDVOSB set-aside opportunity, at least 51 percent of the net profits earned by the joint venture must be distributed to the SDVOSB and the SDVOSB needs to play the lead role as project manager on the project.
Even though these rules should be easy to understand and follow, the lure of securing set-aside government contracts worth billions of dollars is too much for some large business owners to resist, often leading some to commit fraud by creating small businesses to serve as a “pass through” entity to illegally win SDVOSB set-aside contracts. For example, the Virginia-based defense contractor ADS, Inc. and Luke Hillier, ADS’s former Chief Executive Officer, collectively agreed to pay the United States nearly $37 million to settle allegations that they violated the False Claims Act by fraudulently obtaining federal set-aside contracts reserved for small businesses that ADS was ineligible to receive. Specifically, ADS settled allegations that it had established a “pass through” small business named MJL Enterprises led by a former ADS employee who happened to be a service-disabled veteran. The lawsuit further alleged that ADS managed MJL’s day-to-day operations and supplied the necessary logistical services to allow MJL to perform under its SDVOSB set-aside contracts. In turn, MJL brought in more than $70 million in small business set-aside government contracts that ADS otherwise would not have been eligible to receive.
In the case of ADS, the punishment for allegedly using a fraudulent SDVOSB was severe. Hillier’s settlement of $20 million is among the largest secured against an individual in the history of the FCA. In addition to the $20 million settlement announced by the DOJ in August 2019, the firm also paid the U.S. government a settlement of $16 million in 2017 related to the same conduct.
So, what can be done about the issue? The GAO report underscores that the Defense Department should be doing more to verify who actually owns and manages the companies that supply the agency with goods and services. That sounds great, but the reality is the complex system that includes thousands of vendor companies and hundreds of thousands of contracts and subcontracts makes this kind of additional oversight a herculean task.
Another solution is to encourage those with insider knowledge of potential SDVOSB fraud to come forward as whistleblowers. Whistleblowers with direct knowledge about the ownership and management structure of these organizations are uniquely positioned to shine a light on fraudulent schemes that may otherwise never be uncovered.”