Forgiving Fraud and Failure
2007-10-04
Executive Summary
Companies with immediate past histories of shoddy
work and fraudulent practices are being rewarded with
billions of dollars in federal contracts. The data suggest
that the process by which the federal government currently
spends $422 billion per year in taxpayer funds is
insufficient to ensure that the American people receive
good quality for goods and services purchased for the
American people.
The rapid increase of federally contracted dollars—100
percent since 2000—makes outsourcing the fastest
growing component of discretionary spending. The
government’s preference for using outside contractors
to provide goods and services makes careful scrutiny of
the process and the decisions more important than in
the past. At present, loose rules, lack of competition,
and limited accountability permit so-called ‘bad actors’
to receive contracts that put taxpayers and our money
at risk.
For this report, we reviewed hundreds of records and
found numerous cases of contractors with questionable
performance or responsibility records receiving
contracts without competition or sufficient time to determine
the extent of the problems identified. While
the report outlines specific contractor practices, it is as
much an indictment of the flawed contracting process
as it is about any single company.
The profiles included in this report illustrate how little
consideration is given to past performance and contractor
responsibility. None of the companies faced suspension
or debarment from receiving contracts for the
incidents detailed in this report. The range of contracts
shows the breadth of the problem and a sampling of the
companies involved. A few examples include:
Fluor Corporation: Company executives were accused
in 2000 of misusing federal contract dollars to buy luxury
condos, a fine art collection and a Mercedes-Benz
for the company president. The case settled in 2005.
Less than a year later, Fluor Corporation’s contracts
with the federal government increased by $1 billion;
the value of the company’s non-competitively bid contracts
rose from 5.7 percent to 43 percent. A significant
portion of the contracts were for hurricane relief in the
Gulf coast.
Bank of America: The company experienced several
instances in a single year (2006) in which unencrypted
data files were lost or stolen. In one instance, the bank
lost records for 1.2 million federal employees including
records of United States Senators. Federal agencies
including the IRS continued to award the company
contracts for data processing and management services.
More than 60 percent of the 2006 contract dollars were
awarded without competition.
General Electric: Among other concerns, GE allegedly
sold the government faulty helicopter and airplane engine
blades in 1999 and 2000. In August 2005, the same
year that the government decided to trust GE with the
better part of a $2.4 billion contract, the government
was forced to get a court order to retrieve documents
for its ongoing fraud case. In 2005 almost half of GE’s
federal contract dollars were awarded without competition.
These are just a few of the examples that illustrate how
the current federal contracting system lacks accountability
and appears to accept and, by default, reward
bad behavior. Changes are necessary to stem the immediate
and consistent flow of money to contractors that
do not act responsibly with taxpayer funds.
Changes must include:
• increased disclosure of contract information.
Increase the level of accountability by giving the
public access to the actual contracts, track records
of companies, compliance records with relevant laws
and regulations, and performance evaluations of the
work completed.
• increased competition. Restore competition to the
vast majority of contracts. Sole-source awards should
take place only under exceptional circumstances
and should be subject to even greater scrutiny and
transparency..
• stronger rules to screen bad actors. Accountability
requires consequences for negligent or fraudulent
behavior. Tighter rules should reward responsible
contractors and hold non-responsible contractors
accountable for their actions.
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