Government for sale

This NY Times article on government contracting is the must read of the day.

WASHINGTON, Feb. 3 — In June, short of people to process cases of incompetence and fraud by federal contractors, officials at the General Services Administration responded with what has become the government’s reflexive answer to almost every problem.

They hired another contractor.

It did not matter that the company they chose, CACI International, had itself recently avoided a suspension from federal contracting; or that the work, delving into investigative files on other contractors, appeared to pose a conflict of interest; or that each person supplied by the company would cost taxpayers $104 an hour. Six CACI workers soon joined hundreds of other private-sector workers at the G.S.A., the government’s management agency.

Without a public debate or formal policy decision, contractors have become a virtual fourth branch of government. On the rise for decades, spending on federal contracts has soared during the Bush administration, to about $400 billion last year from $207 billion in 2000, fueled by the war in Iraq, domestic security and Hurricane Katrina, but also by a philosophy that encourages outsourcing almost everything government does.

The alleged reason for outsourcing is the alleged superior efficiency of business over government. However, efficiency only comes if there is healthy competition, and as this article makes clear, only 48% of the current bids are competitive (down from 75% in 2005). Moreover, it's probably true that in most of the 48% the competition was very thin -- perhaps one or two other bidders. From my experience competing with the big boys for State contracts here in New Jersey, this is often not competition. The two big firms planning to bid often divide up the market between them -- if not through direct collusion, through tacit consent -- and bid non-cometitively high prices that still win them the contracts even when smaller less well known firms are willing to bid lower prices. They win on reputation and size, not merit.

As the article goes on to point out, problems include:

¶The most successful contractors are not necessarily those doing the best work, but those who have mastered the special skill of selling to Uncle Sam. The top 20 service contractors have spent nearly $300 million since 2000 on lobbying and have donated $23 million to political campaigns. “We’ve created huge behemoths that are doing 90 or 95 percent of their business with the government,” said Peter W. Singer, who wrote a book on military outsourcing. “They’re not really companies, they’re quasi agencies.” Indeed, the biggest federal contractor, Lockheed Martin, which has spent $53 million on lobbying and $6 million on donations since 2000, gets more federal money each year than the Departments of Justice or Energy.

¶Contracting almost always leads to less public scrutiny, as government programs are hidden behind closed corporate doors. Companies, unlike agencies, are not subject to the Freedom of Information Act. Members of Congress have sought unsuccessfully for two years to get the Army to explain the contracts for Blackwater USA security officers in Iraq, which involved several costly layers of subcontractors.