March 27, 2003
Diane Witiak
(202) 639-6419

DoD IG Blows Whistle On Yet Another Defense Contracting Scandal

(WASHINGTON, D.C.)—“I said it then and I’m saying it again now, taxpayers were scammed of their dollars and federal employees were robbed of their jobs when that work was wrongly awarded to contractors whose bid exceeded the real in-house cost by approximately $30 million,” stated AFGE National President Bobby L. Harnage, Sr. Harnage’s comments follow release of an investigative report by the Department of Defense (DoD) Inspector General (IG) on the public-private competition for the Defense Finance and Accounting Service’s (DFAS) military retired and annuitant pay functions.

"Taxpayers and military retirees owe a great debt to Representative Dennis Kucinich (D-Ohio) and AFGE Local 3283 in Cleveland, Ohio," declared Harnage. "Without their persistence, this bungled contract would never have been revealed for the scandal that it is.” According to the IG, a contract with a potential 10-year value of $346 million was awarded to the contractor rather than to the lower in-house bid because of a $31.8 million error.

Fact: The $31.8 million error was first made by yet another contractor, Mevatec Corp., that was hired by DFAS to conduct the competition.

“DFAS should immediately bring the work back in-house where it can be performed by experienced, reliable, and, above all, efficient employees,” insisted Harnage.

“This latest costly contracting blunder re-emphasizes all that is wrong with the Bush Administration’s privatization crusade and is typical of the broken-beyond repair contract administration process across the federal government,” added Harnage. “This particular competition was supervised by honest experts in the DoD IG’s office—and they still got it wrong. “

Non-DoD agencies have little expertise with OMB Circular A-76, having grown accustomed to privatizing work without any public-private competition. The systematic breakdown in contract administration, as exemplified by the DFAS debacle, is surely being exacerbated by OMB's unrelenting imposition of numerical privatization quotas and the threat to force agencies to finish future contracting out plans by arbitrary deadlines.

The DFAS blunder would have been brought to light sooner if the affected federal employees and their union had been given the same legal standing already enjoyed by contractors to take their grievances to the General Accounting Office and the Court of Federal Claims. If federal employees had legal standing, their fates wouldn't be entirely dependent on Congressional intervention and belated audits.

The OMB rewrite of the privatization process promises to create hundreds of DFAS-style disasters across the federal government. The new A-76 process would give agencies authority to pile additional unfair and unjustified indirect personnel costs on top of the steep 12 percent overhead rate already charged against in-house bids, so managers can always inflate the in-house bids by amounts sufficient to route work to politically-connected contractors.

For example, as the IG reported, the in-house bid was charged for costs associated with the DFAS Director, but the contractor bid was not. As the IG noted, “This rationale appears questionable because when a contractor wins a competition, these Government overhead costs may not be eliminated and, therefore, the Government may continue to pay them.” This is true of other indirect personnel costs that OMB, in it’s a-76 rewrite, would charge exclusively to in-house bids.

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