Mr. Gregory Garrett, CPCM, C.P.M., PMP, and NCMA Fellow, wrote an article entitled “Risk Management in Government Contracting: Common Myths and Best Practices” in the October 2009 edition of Contract Management magazine.  The article was a “modified extract” from his book Risk Management for Complex U.S. Government Contracts (NCMA, 2009).  While there was much to commend (and some areas to nitpick), we thought one of his “common myths” was interesting enough to write about.

Myth #8:  All government contractors are crooks!

According to Mr. Garrett, “Most government contractors are honest, reliable, and dedicated companies … [u]nfortunately, there is a relatively small percentage of government contractors who do act illegally and their bad actions are frequently and widely publicized … creating a very negative perception of the industry as a whole.”

We think Mr. Garrett is spot-on.  Moreover, we think too much Government time, resources and money have been devoted to detecting contractor misdeeds, while not enough time, resources and money have been devoted to detecting misdeeds on the part of government officials.  Our perception is that there are nearly as many bad actors in the ranks of the military and civil servants as there are in the contractors that support them.  Two recent stories are offered as evidence for our position.

In the first story, on October 20, 2009 the Department of Justice (DoJ) announced that an Army Sergeant who had been deployed at Bagram Airfield in Afghanistan had pleaded guilty to charges of “bribery and a money-laundering conspiracy arising out of her work administering transportation services.”

According to the charges, Ana C. Chavez accepted $90,000 in cash and wire transfers as a bribe from an unnamed DOD contractor in return for Chavez exercising her influence at the Transportation Operations Support Office in the award of contracts and work orders to that contractor’s company.  “Chavez gave a portion of the bribe proceeds to another DOD contractor working at Bagram Airfield, with whom she conspired to launder the money through various bank accounts held by Chavez’s associates in the United States. According to the court documents, the alleged conduct began at least in or about February 2005 and continued until September 2006.”

Chavez agreed to pay the $90,000 to the U.S. Government as restitution, and faces up to 35 years in prison, plus a potential fine that could range up to $770,000, depending on circumstances.

In the second story, GovExec.com posted on October 21, 2009 an AP wire story reporting that a State Department program manager was arrested for allegedly “taking tens of thousands of dollars in bribes and kickbacks on contracts for Iraq reconstruction work.” According to the article, Mr. Richard Razo began taking bribes from a subcontractor (Hayder Al Batat starting in 2005 while Mr. Razo worked as a security and logistics manager in Iraq for Innovative Technical Solutions, Inc., (ITSI) a government contractor headquartered in Walnut Creek, Calif. An affidavit filed with the court revealed that "Razo provided H. Al Batat with contract documents, assisted H. Al Batat in preparing his company's bids and shared competitors' bid information with H. Al Batat thereby enabling H. Al Batat to underbid competitors.”  Mr. Razo joined the State Department in August 2008, where "continued his scheme to obtain bribes in return for the award of U.S. government contracts to Iraqi contractors,” according to the affidavit.

The article reports that, according to the affidavit:

[Razo] used his new authority to pressure Al Batat's brother, Yahya, who also owned a construction and did work in the area Razo had been assigned to…. In numerous e-mails, Razo told Yahya Al Batat he wanted the $22,500 his brother allegedly owed him ‘prior to his award of any future business.’ The court records also allege that Razo targeted seven contracts worth $2.7 million that would go to Yahya Al Batat's company and another firm. Razo would take a total of $144,000 in fees for the arrangement. The contracts were awarded in that order. It's not clear how much Razo received, however. The affidavit states that while home in the U.S. on leave in late 2008, he made three separate cash deposits into his bank account totaling $13,500.

How was Mr. Razo caught?  According to the article, Al Batat “was the subject of a previous federal investigation into alleged kickbacks on construction contracts.  That inquiry led investigators to e-mails between Al Batat and Razo.”  So it wasn’t any management oversight or internal controls that identified Razo’s wrongdoings; it was old-fashioned detective work.

As savvy readers know, the FAR was recently revised to mandate that contractors have codes of ethics/business conduct, have effective control systems that detect violations, and (when criminal violations related to a contract are detected) mandate reporting of those violations.  The Defense Contract Audit Agency (DCAA) recently revised its audit guidance to focus on evaluations of those contractor systems.  The Government Accountability Office (GAO) issued a report in which it opined that DOD wasn’t doing enough to verify the effectiveness of those systems.  The Commission on Wartime Contracting blasted everybody in sight for ineffective contractor “business systems” that allegedly permitted “millions of dollars” of Iraq/Afghanistan battlefield support contractor overbillings to the DOD. It’s a rare week when somebody (usually a politician) is not attacking DOD contractors for fraud, waste, and/or abuse.

Which brings us back to our original point: Where is a similar focus on Governmental wrongdoing?  Why does the spotlight only point at contractors, and not those who manage them?  For every stone cast at a contractor, it seems that another one could be thrown at the Federal government’s house of glass.  Yet the magnifying glass of scrutiny and accompanying outrage seems directed solely in one direction.  We think that situation needs to change.  We think the Federal government needs to get serious about cleaning its own house, by implementing and enforcing strong internal controls designed to detect and deter wrongdoing committed by its employees.  When both contractor and Government manager are subject to the same level of scrutiny and outrage, we might see a real reduction in procurement corruption.