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Defense Contractors exploiting loopholes in DOD contracting policies

Have defense contracts become less competitive over the past decade? A recent report by the Center for Public Integrity’s iWatch News shows that over the past ten years Defense Department funding for non-competitive contracts has nearly tripled.

According to iWatch, the dollar amounts going to non-competitive contracts has increased from $50 billion in 2001 to $140 billion in 2010. Furthermore, competitive contracts, measured in dollar amount, fell to 55 percent in the first two quarters of 2011, to the lowest level at any point since 9/11.

There are several legal loopholes that contractors and the Department of Defense can use to get out of having to go through competitive contracting. Some reasons are perfectly valid, for example there may only be one supplier of a certain good. There also may be cases where competitive contracts could hurt governmental operations, so an exception may be made if the Pentagon can argue there is an “unusual and compelling urgency” to forgo competitive contracts.

However, the report notes that legal loopholes have become increasingly abused. In fact, after analyzing many studies and conducting numerous interviews, iWatch found a number of concerns about DOD practices.

The concerns include:

  • “The use of large umbrella contracts to purchase goods and services that could be competed individually, thus resulting in lower price.”
  • Justifying sole-source contracts by citing an “urgent and compelling need,” when in fact the urgency stemmed from the agency’s lack of planning for requirements that have been known for years.
  • Extending large contracts as a “bridge,” rather than re-opening them to competitive bids.
  • “An overall failure to utilize competition in cases that could result in cost savings and better performance.”

Investigations have concluded that the consequences of abusing loopholes in contracting include wasted taxpayer dollars, lower quality goods and services and fraud.

One notable example is Custer Battles, a security company given sole-source contracts for security and construction. The company was convicted of fraud after being given millions of dollars in contracts, including one $16.5 million contract to provide security at Baghdad International Airport. The company was also accused of charging “grossly inflated prices, in part by using fictitious companies to ‘lease’ equipment to the government.”

When President Obama came to office he pledged to end no-bid contracting and to curb the use of defense contractors. This was all done in an effort to crack down on fraud, waste and abuse in defense contracting. However, the Washington Post wrote:

“The Commission on Wartime Contracting concluded that the use of hired hands has become a ‘default option,’ pointing to the estimated $177 billion spent since 2001 on contractors in Afghanistan and Iraq.”

Furthermore, a May 2011 report by the Congressional Research Service shows that as of March 2011, there were more DOD contractors in Iraq and Afghanistan than uniformed personnel, 155,000 and 145,000 respectively. Contractors represented 52 percent of the DOD workforce in the area at that time.

As iWatch points out, the lack of competition in recent years for competitive contracts could be due to factors beyond the control of the DOD, such as the urgency of wartime contracts. The Pentagon maintains that the nature of defense means large weapons systems have follow-up contracts that have to go to their original supplier.

But the Pentagon’s office of Industrial Policy issued a report that found that “sole source contracts… appear to be a problem, not with the industrial base or with competition, but with DOD practices and policies.”

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