Tracking the Misconduct of Federal Contractors

COMMENTARY | September 26, 2007
www.niemanwatchdog.org

Over a 12-year period, 43 of the top 50 federal contractors paid almost $13 billion for civil, criminal and administrative violations. In one case -- Boeing -- three units were suspended for 20 months but got contracts during that period anyway. The watchdog group POGO has a 'contractor misconduct database' listing such misconduct that's useful for reporters as well as for the government.

By Neil Gordon
ngordon@pogo.org

Honeywell International Inc. is a diversified technology and industrial supplies company. With over $2.3 billion in federal contracts in fiscal year 2005, Honeywell was the seventeenth largest supplier of goods and services to the federal government that year.

In September 2007, the company unwittingly became part of a notable milestone: Honeywell’s guilty plea and sentencing in a case involving a fatal chemical leak at its Baton Rouge, Louisiana, facility in 2003 was the 400th instance added to the Federal Contractor Misconduct Database (FCMD), a web-based resource developed by the Project On Government Oversight (POGO). POGO tracks the alleged and actual civil, criminal, and administrative wrongdoing of the federal government’s top 50 contractors.

Honeywell pleaded guilty to negligently causing the release of hazardous air pollutants, and to negligently placing another person in imminent danger of death. The company was sentenced to two years probation, and was ordered to pay an $8 million criminal fine and $4 million in restitution.

POGO wants to make sure that the hundreds of billions of taxpayer dollars (over $420 billion in FY 2006) the federal government hands out every year in contracts go to companies with solid records of responsibility, integrity, and performance. To make decisions that are in the best interests of the public, government contracting officers must have at their disposal as much information as possible to gauge the backgrounds of prospective vendors and, ultimately, to curb procurement fraud, waste, and abuse. It’s worthwhile for reporters and editors to have this information also.

POGO created the FCMD and released it in 2002. It uses the ranking of OMB Watch’s FedSpending.org to determine the top contractors (until just a few weeks ago, the most recent ranking used data from FY 2005), and searches public sources to determine instances of misconduct. POGO recently posted a new and improved version of the FCMD, which boasts a full range of tools that allow users to search and sort the data, easy access to primary source documentation, and a cleaner graphical layout.

The FCMD classifies misconduct into fifteen categories, including antitrust, contract fraud, environment, ethics, health, human rights, and labor. Whenever possible, POGO posts supporting documentation such as court filings, government press releases and corporate filings. In the FCMD, each contractor has a page containing useful background information and providing links to such information as the company’s website, corporate information, PAC contributions, and lobbying expenditures.

As of September 2007, the top 50 federal government contractors—who collectively accounted for almost half of the $384 billion in federal contract dollars awarded in fiscal year 2005—have since 1995 paid civil, criminal, and administrative fines, penalties, restitution, and settlements totaling almost $13 billion. This amount is somewhat understated, as many cases involve confidential out-of-court settlements, or penalties that were anonymously split between two or more companies. POGO has not yet found any instances of misconduct for seven of the top 50 contractors.

The FCMD is an evolving resource. POGO regularly searches public sources to find new, or old but overlooked, instances of misconduct. POGO plans another major update to the FCMD in the near future, including the top 100 contractors of FY 2006 and new features that will make the database even more user-friendly.

Business as Usual for Misbehaving Contractors

The federal suspension and debarment system is intended to keep contract money out of the hands of persistently under-performing or misbehaving companies. Furthermore, federal procurement law states that criminal convictions and civil judgments may be grounds for suspension or debarment.

The FCMD illustrates two important things: First, criminal convictions and adverse civil judgments against a contractor are a rarity. Second, suspensions and debarments are being under-utilized to prevent risky contractors from receiving future contracts. In other words, it’s business as usual for the government’s top contractors, despite long histories of misconduct.

The FCMD includes eleven instances in which a contractor either pleaded guilty or was convicted of criminal charges, and 32 instances in which the contractor faced an adverse judgment in a civil or administrative proceeding. However, POGO found only four instances since 1995 in which individual employees of contractors were suspended or debarred. In those instances, four individuals who had been working on contracts for the rebuilding of, and U.S. military presence in, Iraq were debarred. Two employees of former Halliburton subsidiary Kellogg, Brown & Root (KBR), one employee of L-3 Communications, and one employee of DynCorp (which is now owned by Veritas Capital Fund) had been convicted of various crimes including fraud, bribery, and accepting kickbacks.

Furthermore, POGO found only one instance in which a whole company, or particular sub-units of a company, were suspended or debarred. In that instance, three business units of Boeing were suspended for 20 months due to a pending criminal investigation into Boeing’s unlawful possession and use of a competitor’s proprietary documents. However, the Air Force waived the suspension at least three times before it officially expired to award business to those units. Boeing, the second-largest federal contractor in FY 2005, has 24 misconduct instances since 1995 and has paid $863 million in fines, penalties, and settlements for actual or alleged misconduct involving export laws, workplace discrimination, the environment, and the False Claims Act.

Certainly, the rarity of civil judgments and criminal convictions helps explain the lack of suspension and debarment actions. Civil proceedings are typically resolved with out-of-court settlements in which the contractor does not have to admit any culpability or wrongdoing. In criminal matters, federal prosecutors are abandoning traditional litigation in favor of deferred prosecution agreements and non-prosecution agreements which allow contractors to avoid criminal convictions—and thus suspension or debarment—by paying a fine and agreeing to certain conditions.

The FCMD’s Impact

POGO avoids the temptation to use the FCMD to label contractors as “good” or “bad.” Instead, POGO created the FCMD as a free resource for the public at large, and the public is putting it to good use.

For instance, journalists are finding the database helpful in reporting on some of the world’s largest military hardware manufacturers, information technology consultants, construction firms, education institutions, and energy companies. In an August 9, 2007, story on Bechtel, the general contractor on Boston’s $15 billion “Big Dig” project, the Boston Herald cited statistics from the FCMD about Bechtel’s misconduct history. Similarly, on August 30, 2007, a Government Executive exposé of the leading Iraq reconstruction contractors used the FCMD to illustrate the questionable performance records of Fluor, Halliburton/KBR, and DynCorp.

Not to be outdone by the traditional media, POGO uses its blog to inform the public when a contractor listed in the FCMD makes headlines, such as when Textron paid $4.6 million to settle charges that employees of its French subsidiaries had taken part in the United Nations Oil-For-Food program kickback scandal, or when SAIC announced that a security breach had occurred while the company was processing health care data for the government, putting hundreds of thousands at risk for identity theft.

Policymakers are also utilizing the FCMD, using it to inform decisions on such vital issues as government spending and corporate misconduct and oversight. The FCMD has been integral to recent efforts in Congress to reform the federal procurement system. Some in Congress have even taken the step toward creating a broader government-wide contractor responsibility database, modeled on the FCMD and in consultation with POGO.

These steps are important, and will hopefully spur even more action toward accountability and responsibility in government contracting. More immediately, however, POGO hopes the FCMD will become a favored tool of procurement officials at all levels of government to improve contracting decisions and reduce overall fraud, waste, and abuse.
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Neil Gordon is an investigator at the Project On Government Oversight, an investigative nonprofit organization in Washington, D.C.
E-mail: ngordon@pogo.org

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