McCaskill's law aims to stop war profiteering, rein in costs

McCaskill didn’t get all the anti-profiteering measures she sought, but contracts will have more oversight.

01/20/2013 10:21 AM

05/16/2014 8:51 PM

When Sen. Claire McCaskill set out to crack down on waste and fraud in wartime contracting six years ago, the new senator figured a push to save taxpayer dollars in Iraq and Afghanistan would be a no-brainer.

“I assumed that cleaning up war contracting and profiteering would be a consensus item that would fly through the process,” McCaskill, a Missouri Democrat and former state auditor, said in a recent interview. “I learned quickly that that was very naive.”

This month, after half a dozen years of hearings, reports, overseas fact-finding trips, painful compromises and some last-minute, round-the-clock negotiations, the first substantial overhaul of the federal government’s wartime contracting practices since World War II finally became law.

In the end, McCaskill didn’t get everything she wanted. Some of her proposals were dropped or scaled back, and she acknowledges that the new law will add paperwork for the federal bureaucracy without any additional funds.

Still, McCaskill feels she compromised a little to get a lot.

The new law is designed to prevent repeats of the recent past: an ineffective water plant that Iraqis couldn’t operate or maintain, a still-unfinished highway in Afghanistan wildly over budget at $176 million and a $300 million power plant near Kabul that Afghans can’t afford to operate because the diesel fuel required is too costly.

The power plant was a project by Black & Veatch, an engineering and construction firm based in Overland Park.

Black & Veatch referred questions about the feasibility of the plant to the U.S. Agency for International Development, which funded the project.

“Afghanistan is a very difficult place to work,” the company said in a statement. “We put our lives on the line for the government and the people of Afghanistan every day, and we are proud of the work we’ve done in the region.”

The plant typically runs at less than 10 percent capacity, according to USAID.

Sheikeb Nesar, the head of operations for Afghanistan’s national power utility, said the plant is used during emergency situations when other power sources to Kabul are cut off. The plant was designed as a backup to be used sparingly, but it might sometimes run constantly, according to a 2010 audit.

“It is a big, hulking, overpriced, oversized generator, and you don’t pay almost $300 million for a generator,” McCaskill said.

But the senator defended Black & Veatch, a company that contributed $6,000 to her campaign in 2006 through its political action committee and $1,000 in 2008.

The PAC didn’t donate to her 2012 campaign.

“They didn’t do anything wrong,” McCaskill said. “What was wrong was the analysis in the first place. … There was not an adequate sustainability analysis prior to the decision to build it.”

Such an analysis is mandated by the new law. It is intended, McCaskill said, to help prevent flawed ventures such as the power plant.

The law requires government agencies to allocate funds only after they prove that taxpayer dollars won’t be wasted. It strengthens the powers of inspectors general who investigate fraud and abuse. And it establishes a clear chain of authority for contracting oversight in the Defense Department, the State Department and USAID.

“Now someone has to take responsibility for the contract at the front end, so that if things go badly we know who to call on the carpet,” McCaskill said.

The law also requires the three agencies to conduct risk assessments to evaluate their use of contractors, to reduce reliance on private security firms and to establish databases to better track contractors’ performance and pricing.

Some of the measure’s provisions were watered down or cut entirely. The final version dropped language that would automatically refer companies accused of violating the law for suspension from government contracts, as well as a provision that would have forced firms that use subcontractors for more than half their work to identify the subcontractors in writing.

McCaskill had hoped to restrict the use of subcontracting, which can make it difficult to trace problems or pin blame. It also can add to costs, as primary contractors hire subcontractors who hire more subcontractors in turn, with expenses ballooning with each new layer.

Lobbyists for large contractors successfully fought to exclude those provisions, McCaskill said. The Obama administration also opposed a provision that would have required the president to provide Congress with a financial plan for any future war. The White House threatened to veto the bill in part because of the language that mandated automatic suspension referrals for contractors charged with wrongdoing.

“There’s big money in these contracts,” McCaskill said of the pushback she encountered. “There’s a lot of people who have made big money off these contracts, and clearly we are trying to stop the gravy train.”

Ultimately, the changes appear to address many of the contracting irregularities that hampered America’s war efforts in the past decade, said Michael O’Hanlon, the director of research for the foreign policy program at the center-left Brookings Institution think tank.

“Certainly the emphasis on competition, the emphasis on transparency with subcontractors, the emphasis on inspectors general, these are all welcome ideas,” O’Hanlon said. “The hard part is going to be implementation.”

One unintended consequence might be to make it harder for the U.S. government to hire local companies for contracting work in war zones, a key counterinsurgency strategy, he said.

“Developing the intelligence on local subcontractors is actually fairly hard to do initially if you’re in a place you didn’t expect to go,” O’Hanlon said. McCaskill acknowledged that the law adds red tape without adding funds, meaning that military commanders and other federal officials will have more paperwork to complete during wartime, but no new resources with which to do it.

“Having to cross a few t’s and dot a few i’s is a very small price to pay to save billions for taxpayers,” McCaskill said.

For the largest contractors, the new regulations probably will be “a little bump in the road,” but extra bureaucracy could harm small or midsize contractors, said Simon Brody, a spokesman for the National Association of Government Contractors, a trade group.

“There is a need for these regulations because there has been abuse, but more regulation always hurts smaller contractors first,” Brody said. “It’s off-putting, especially for businesses that are trying to get into government contracting.”

The new law also skirts the problem of cost-plus contracting. Under a cost-plus contract, a contractor bills the government for expenses and is given a margin as profit. That means the more money a contractor spends, the more profit it makes.

Primary contractors with cost-plus contracts frequently hire subcontractors on fixed-price contracts to do most of the work, said Paul Hinks, the chief executive officer of Symbion Power, a Washington, D.C.-based company that has experience on projects in Iraq and Afghanistan, including as a subcontractor hired by Black & Veatch to build the Kabul power plant.

“They shouldn’t even be giving out cost-plus contracts to do this type of construction work in a war zone. It’s just madness,” Hinks said. “There’s no incentive to save any money.”

McCaskill joined forces with then senator Jim Webb, a Virginia Democrat, in 2007 to create the Commission on Wartime Contracting in Iraq and Afghanistan, a bipartisan panel modeled after President Harry Truman’s campaign to curb war profiteering during World War II.

McCaskill and several other senators drafted a bill, the Comprehensive Contingency Contracting Reform Act, based on the commission’s recommendations.

Major components of the act were included as an amendment to the defense authorization bill that the president signed recently.

The revisions mean that at least some lessons have been learned from Iraq and Afghanistan, despite resistance to change from contractors, said commission member Charles Tiefer, a professor of government contracting law at University of Baltimore.

“The contractors would have been very happy to keep the status quo, and they would have been very happy if this bill had not gone through,” he said. “I’m much more impressed by what got into the law than what didn’t.”

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