How Swamp Creatures Are Cheating Taxpayers


Peter Ferrara Contributor
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Taxpayer dollars are run through the swamp in such high volume, with more than $4 trillion spent by the federal government every year, sticking up the taxpayers is done today with more sophisticated weapons of choice, such as “sole source contracting,” lobbyists, and insiders.

Big-time multinationals have figured out how to game the system using the revolving door between government and the private sector, with the help of aggressive lobbying.

The fourth-largest privately owned company in the United States, Delloite Touche Tohmatsu Limited, offers a case study of how the D.C. government contracting game is played with sole-source contracting. They are not doing anything illegal, but the end result is that taxpayers and small entrepreneurs are shafted.

Delloite originated as one of the biggest accounting companies, and today is one of the largest professional services companies in America.

Those professional services are consulting, audit and assurance, tax, risk and financial advisory services provided to many of the world’s top brand name companies, including 85 percent of the Fortune 500 and more than 6,000 middle market companies. The services are provided by business affiliates operating under such names as Delloite Consulting LLP and Delloite USA LLP. Delloite’s total haul in 2017: $38 billion (that’s 38 followed by 9 zeroes —$38,000,000,000 — collected by one conglomerate in one year).

Federal contracting is big business, governed by dozens of federal statutes enacted by Congress and signed by presidents, explained in dozens of legal volumes that can be found in every law library across the nation. Federal policy as provided in that governing law is based on the concept of “competitive bidding,” because as the most rudimentary economics shows, better results in terms of price and quality are obtained by competition rather than by monopoly (“sole source contracting”).

But if a company is a crony favored by contacts, friends, relatives of company employees or of lobbyists working for the company, that company can get “sole-source contracts” or even sole source grants, not subject to any competition. The money flows just when the contact, friend or relative working inside of some contracting government agency signs on the dotted line, giving away some share of the federal government’s $4 trillion in annual spending.

And what happens to price and performance under such “sole-source contracts”? Price goes up and quality, service and performance go down. Because there is no competition or incentive for lower prices or better quality, service and performance, when you can get the contract or grant without competition. Is anybody even monitoring quality, service and performance under such secretive sole-source contracts?

Sometimes such contracts are for unnecessary services, with bloated, non-competitive budgets, or for redundant services, or goods already provided by someone else under another contract.

This is all why they call it “the Swamp.”

The Small Business Administration reports that small businesses make up 99.9 percent of U.S. companies, 30.2 million spread from Maine to California and beyond, with 47.5 percent of private sector employees, 58.9 million in 2015.

But these small businesses and companies do not have contacts, friends and relatives in faraway Washington DC bureaucracies, or lobbyists who can be bought for these assets, which they cannot afford. They and their workers are completely excluded whenever a sole source contract or grant is given away along with your taxpayer money in the Swamp.

The esteemed Department of Homeland Security (DHS) is a major source of these noncompetitive sole source contracts.  In 2014 alone, DHS gave away 465 noncompetitive contracts and grants doling out $425 million in taxpayer funds, for overpriced, substandard goods and services (“waste”). Over the prior 6 years, such giveaways totaled more than $3 billion, just from this one agency alone.

Reports and information in the public domain indicate that Delloite has obtained sole source contracts and grants by hiring employees with spouses at DHS and other federal agencies, such as the U.S. Customs and Border Patrol Agency (CPB) and the Transportation Security Agency (TSA), or by hiring lobbyists with spouses directing contracting at federal agencies. Or by the age-old practice of hiring former contracting employees at those agencies, known as “the revolving door”.

Governing federal contracting law does provide for eight exceptions to competitive bidding for sole source contracts. But many of the sole source contracts given to Delloite on closer inspection do not seem to meet these exceptions, with other potential contractors often documented as able to do better work at lower prices.

The Swamp can be cleaned up in these cases simply by better enforcement of federal law, providing for competitive bidding. The biggest federal contracting agency of all, the Defense Department, is still burdened by some of these swampy practices, but obvious abuses such as sole source contracting do not seem prevalent anymore. Such federal contracting abuses are an obvious opportunity for the Trump Administration to clean up the Swamp, as promised.

Peter Ferrara, senior policy adviser to the National Tax Limitation Foundation, teaches Growth Economics at Kings College in New York. He served in the White House Office of Policy Development under President Reagan, and as Associate Deputy Attorney General of the United States under President George H.W. Bush.

The views and opinions expressed in this commentary are those of the author and do not reflect the official position of The Daily Caller.