BP’s Partner in Crime

The liability costs stemming from the ongoing environmental disaster in the Gulf of Mexico are likely to be in the tens of billions of dollars. BP, of course, will bear the brunt of those costs, but other deep pockets should not be ignored. Transocean, the owner of the rig where the initial explosion occurred, and Halliburton, which was supposed to seal the well with concrete, will both be targeted.

But we shouldn’t forget that BP is not the sole owner of the underground well, known as Macondo, that continues to spew large quantities of crude oil into the sea. The biggest minority holder, with a 25 percent share, is Anadarko Petroleum, which is a major offshore driller in its own right and has ties to major controversies in the energy industry. The company is worth a closer look.

Anadarko was formed in 1959 as a subsidiary of Panhandle Eastern Pipe Line Company, which used the entity to get around Federal Power Commission limitations on the price it could charge on natural gas produced from properties it owned in the Anadarko Basin in Texas, Oklahoma and Kansas. Anadarko got involved in offshore exploration in 1970. Among its early project partners was Amoco, which would later (1998) be acquired by BP.

By the 1990s Anadarko was a major player in the Gulf of Mexico. During the following decade the company became better known (and much larger) after acquiring Union Pacific Resources and then Kerr-McGee, which had pioneered offshore petroleum exploration in the late 1940s. The latter acquisition, in particular, saddled Anadarko with a dubious legacy.

In the 1970s Kerr-McGee was embroiled in a scandal over accusations of serious safety violations and falsification of records at its nuclear fuel plant in Oklahoma. The controversy escalated after the whistleblower in the case, technician and union activist Karen Silkwood, died under suspicious circumstances in 1974.  Silkwood’s family sued the company for causing her to be contaminated with plutonium.  In 1986 Kerr-McGee paid $1.38 million to settle the case after a jury award of $10.5 million had been overturned on appeal.

Two decades later, Kerr-McGee mounted a court battle to prevent the federal government’s Minerals Management Service from restoring royalty rates paid by offshore drillers to reasonable rates after they had been reduced by Congress when energy prices were low in the mid-1990s. The case, which was resolved after Anadarko completed its acquisition of Kerr-McGee, could cost U.S. taxpayers, according to a Government Accountability Office estimate, more than $50 billion.

While Kerr-McGee was pursuing its case it was also defending itself against a whistleblower suit charging that the company had cheated the federal government out of millions of dollars in offshore drilling royalties by underreporting its output. In January 2007 a federal jury found the company guilty, but the judge in the case later overturned the verdict on a technicality.

Anadarko’s own record is not unblemished. Last year it and two related companies paid $1.05 million in civil penalties and agreed to spend $8 million in remedial actions to resolve charges that they violated the Clean Water Act by discharging harmful quantities of oil from a production facility in Wyoming. Two years earlier the company was fined $157,500 by the EPA for destroying wetlands in southwest Wyoming. Anadarko is also heavily involved in natural gas drilling in the Marcellus Shale in the northeastern United States, which is viewed as a serious threat to drinking water supplies. Its joint venture partner in the shale operations is Mitsui, which is also the third partner (with a 10 percent stake) in the Macondo well.

Anadarko does not appear to have had any role in operational decisions at that ill-fated Macondo well, but the company is separately involved in its own deepwater drilling activities in the Gulf of Mexico that were temporarily shut down as a result of the moratorium announced by President Obama. While BP rightfully remains the primary target of legal and other responses to the gulf disaster, Anadarko – both by virtue of its ownership interest in Macondo and its own risky drilling – also deserves to feel some of that pain.

Misbehaving Contractors are Recovery Act Winners

ARRA logoThe federal government has awarded about $17 billion in direct contracts under the various provisions of the American Recovery and Reinvestment Act (ARRA). Given the Administration’s commitment to accountability, one hopes that the contractors were chosen with the utmost care and that any companies with serious blemishes on their record were excluded.

If the timing had been a bit different, such a review could have been accomplished much more easily. The General Services Administration is in the process of implementing legislation passed by Congress last year that mandates the creation of a database on the integrity and performance record of federal contractors and grantees. In September GSA published a notice in the Federal Register about its plans for what is being called the Federal Awardee Performance and Integrity Information System, or FAPIIS. The comment period on the plan ended earlier this month. Perhaps the system will be operational before ARRA reaches the end of its two-year life.

Unfortunately, the public will never know the details of how FAPIIS is used to vet contractors for ARRA or any other program. The reason is that Congress caved in to pressure from the contractor community and prohibited public disclosure of the database, which will be available only to federal agencies for internal use.

Fortunately, the public still has access to the Federal Contractor Misconduct Database (FCMD), which was created and is maintained by the non-profit Project On Government Oversight (POGO). It served as the inspiration for FAPIIS, though POGO and other watchdog groups pushed for a public version of the federal database. The FCMD, which covers the 100 largest federal contractors, documents more than 700 cases of misconduct since 1995 that resulted in more than $26 billion in fines and penalties. It covers a wider range of misconduct than will FAPIIS.

Apparently, most federal agencies did not pay close attention to the FCMD in awarding their ARRA contracts. An examination of the national Recovery Act contractor spreadsheet shows that many of those companies appear in POGO’s database as having been involved in cases of misconduct. They account for more than $6 billion in Recovery Act contract awards.

There are 12 contractors with more than one instance of misconduct and ARRA contracts of at least $150 million.* Here they are (listed by volume of ARRA contracts):

  • CH2M ($1.8 billion in ARRA contracts; 6 instances of misconduct with penalties of $2.8 million)
  • URS ($737 million in contracts; 4 instances and $2.4 million in penalties)
  • Northrop Grumman ($596 million in contracts; 29 instances and $821 million in penalties)
  • Battelle Memorial Institute ($522 million in contracts; 7 instances and $1.3 million in penalties)
  • Honeywell International ($472 million in contracts; 31 instances and $641 million in penalties)
  • Fluor ($469 million in contracts; 23 instances and $198 million in penalties)
  • SAIC ($312 million in contracts; 10 instances and $14 million in penalties)
  • Bechtel ($270 million in contracts; 15 instances and $359 million in penalties)
  • University of California ($270 million in contracts; 25 instances and $67 million in penalties)
  • Lockheed Martin ($180 million in contracts; 50 instances and $577 million in penalties)
  • University of Chicago ($163 million in contracts; 4 instances and $22 million in penalties)
  • Jacobs Engineering ($161 million in contracts; 2 instances and $37 million in penalties)

When the nation’s largest contractors have track records such as these, it is not surprising that Congress chose to keep its misconduct database a secret.

* In the case of joint ventures, the amount of the contract award is divided equally among the companies or institutions involved.

Is the Recovery Act Stimulating Privatization?

AFSCMEKey portions of the $787 billion American Recovery and Reinvestment Act, especially the state fiscal stabilization fund, are designed to prevent job loss among teachers and other state and local government employees. But what about the rest?

The assumption seems to be that most of the job creation and retention will take place in the private sector. Yet one question that has received little attention since ARRA was signed by President Obama in February is whether the spending will contribute to the process of privatization and contracting-out of functions previously performed by public sector workers.

On October 15 the Recovery Accountability and Transparency Board released the first batch of recipient reporting data covering some $15 billion in direct federal contracts. Although this is a small portion of overall ARRA spending (information relating to the much larger realm of federal grants to states and others will be released on October 30), it begins to shed some light on the privatization question.

My colleagues and I at Good Jobs First have been examining the universe of around 9,000 recipient reports summarized in a national spreadsheet available on the Recovery.gov website. Many of the entries are unremarkable. They involve contracts for functions such as manufacturing and construction that have traditionally been concentrated in the private sector. It is not surprising that the federal government gave an ARRA contract to Chrysler to supply vehicles and one to Clark Construction to build a new headquarters for the Coast Guard.

Yet many of the other entries appear to be part of the contracting-out phenomenon. You can tell this, first, by looking at the names of the contractors: one firm called Federal Contracting Inc. leaves little doubt as to its orientation. There are others that have a reputation for being involved in high-profile outsourcing deals. An example is IAP Worldwide Services, a politically connected firm (former Vice President Dan Quayle is on its board of directors) that got a controversial contract to take over management of the Walter Reed Army Medical Center in Washington.

Or else you can look at the description of the projects. A company called 4W Solutions got a contract from NASA for “administrative activities, configuration management of documents, procurement-related analysis and support for report integration/administrative support for Cross-Agency Support construction contracts.”

To be a bit more systematic in our analysis, my colleagues and I decided to match the Recovery.gov list of contractors to the membership list of the Professional Services Council, the leading trade association for the federal outsourcing industry.

PSC’s members range from large and notorious contractors such as KBR (formerly the Halliburton subsidiary Kellogg, Brown and Root), Xe Services (formerly Blackwater) and CACI International (linked to the Abu Ghraib torture scandal) to small and obscure consulting firms. During its 27-year history, the association has sought to banish the use of the term “Beltway Bandit” to refer to federal contractors and has pushed for legislation that would maximize the amount of federal work that gets outsourced. It has also resisted the recent move toward insourcing.

We found that, of the 382 PSC members listed on the association’s website, about 50 are on the list of ARRA federal contract recipients (name variations make an exact count difficult). In all, these members and their affiliates have been awarded about 250 ARRA contracts with a total value of more than $800 million.

Some of these involve engineering and construction services, but others deal with functions that are more inherently governmental, such as a contract given to Deloitte Consulting to provide “program management oversight” for ARRA grants made by the Federal Aviation Administration.

In an economic crisis such as the current recession, all job creation is to be welcomed. But it would be a shame if some portion of Recovery Act money is being used in ways that do little more than shift work from the public sector to the private sector.

(Thanks to Tommy Cafcas, Caitlin Lacy and Leigh McIlvaine for their research help.)

Update: I should have mentioned that KBR and Xe Services are not among the recipients of ARRA contracts, but CACI has two.

Further update: We spent more time analyzing the spreadsheet and found many more ARRA contracts that can be attributed to PSC members through joint ventures, affiliates, etc.  Our tally is now about 470 contracts worth a total of about $3.5 billion. These include some huge contracts associated with clean-up projects at Department of Energy nuclear facilities.

Newly released RAND report on Iraq Misses the Boat on Contractors

A RAND Corporation report written in 2005 but withheld until this week paints an unflattering portrait of U.S. government planning for postwar Iraq. The Army, which commissioned the report, reportedly kept it under wraps to avoid antagonizing then-Defense Secretary Donald Rumsfeld.

The 273-page document also looks at the role of contractors in the initial period after the U.S. invasion (through June 2004), but for some reason it is much gentler in its treatment of the private-sector participants in the disastrous reconstruction effort. The report notes the slow progress in restoring Iraq’s oil industry and its output of electricity, but the contractors in charge of those efforts—KBR for oil and Bechtel for power, with additional work on electricity commissioned from Washington Group International, Fluor and Perini—are not directly blamed. Instead, the Coalition Provisional Authority and U.S. Agency for International Development come out looking bad, and delays are attributed to the poor security situation.

Stuart BowenThere is, however, one company that RAND does not handle with kid gloves—Bechtel, in connection with a school building contract. Military commanders, the report says, “complained that school reconstruction under the Bechtel contract was proceeding too slowly, that work was sometimes substandard, and that subcontractors were overpaid” (p.227).

RAND can perhaps be excused for largely missing the boat about contractor screw-ups in Iraq, given that the main revelations came to light after the study was drafted. It was right after RAND completed its research that Stuart W. Bowen Jr. (photo), the special inspector general for Iraq reconstruction, issued the first in a series of scathing audits about both the contractors and the agencies that were supposed to be overseeing their work.

The RAND report reinforces what we know about the shortcomings in the U.S. government’s handling of postwar Iraq, but it will take another account to tell the whole story of the role of contractors in that debacle.

Federal Database of Contractor Misconduct Now One Step Closer

The effort to centralize information on federal contractors that have broken the law or violated regulations took an important step forward today when the House approved by voice vote H.R. 3033, the Contractor and Federal Spending Accountability Act. The issue now goes to the Senate, where Claire McCaskill (D-Mo.) today introduced a companion measure.

The bills would require the federal government to take over a function that until now has been unofficially handled by the Project On Government Oversight. POGO’s Federal Contract Misconduct Database has been an immensely valuable pilot effort covering the 50 companies doing the most business with Uncle Sam.

First on that list in terms of contract dollars is arms maker Lockheed Martin, for which POGO has found 42 instances of misconduct—resulting in $553 million in fines and settlement costs—since 1995. Number two contractor Boeing has 24 instances and $863 million in misconduct dollars, followed by Northrop Grumman with 23 instances and $450 million. While Lockheed leads in the number of misconduct instances (followed by General Electric and Exxon Mobil and Honeywell International before Boeing and Northrop), it ranks 9th in misconduct dollars. The winners in that category are Exxon and BP Amoco. POGO defines “misconduct” as cases in which contractors “violate laws or regulations or are the subject of misconduct allegations in their dealings with the government, individuals, or private entities.”

H.R. 3033 would mandate the creation of a public database that would reveal whether any recipient of a federal contract or grant had, within the past five years: been involved in any civil, criminal or administrative proceeding resulting in a finding of fault of $5,000 or more; had a federal contract or grant terminated because of default; or been suspended or debarred from doing business with the federal government. This would enable federal agencies to weed out bad actors before awarding future contracts.

If it passes, the contractor database would represent the second instance in recent years in which a disclosure initiative pioneered by a non-profit became an official federal program. The recently launched USA Spending database of federal contracts and grants, mandated by bipartisan legislation sponsored by Sen. Barack Obama (D-Ill.) and Sen. Tom Coburn (R-Okla.), was directly modeled on the FedSpending database that had been created by OMB Watch.

Private Debt Collectors Can’t Reach IRS’s “Low-Hanging Fruit”

The Washington Post article this week on the poor performance of the private debt collectors working for the Internal Revenue Service is a classic story of wrong-headed federal outsourcing. The paper reported that the companies, set loose in 2006 to collect $1 billion owed to Uncle Sam by deadbeat taxpayers, “have rounded up only $49 million, little more than half of what it has cost the IRS to implement the program. The debt collectors have pocketed commissions of up to 24 percent.”

What makes the story more galling is that the contractors were handed the work on a silver platter. By the early 2000s, the IRS was being underfunded to the point that it had to ignore many scofflaws. Rather than allowing the agency to hire more employees, who typically bring in much more than they cost, the Bush Administration and the Republican-controlled Congress gave in to long-standing lobbying (and ample campaign contributions) by the private debt collection industry to get a piece of the action. The private collectors were to be given the “low-hanging fruit”—taxpayers who had not disputed their debt but were slow in paying. Nonetheless, there were widespread misgivings about giving private parties access to personal financial information and having them represent the government in an activity so prone to abuse.

The initial companies chosen by the IRS in 2006 to participate in the program included one firm that had a particularly questionable track record: Linebarger Goggan Blair & Sampson LLP, an Austin-Texas based law firm that became a leading figure in outsourced debt collection for government agencies around the country. The Houston Chronicle once wrote (10/13/2002) that the firm was frequently criticized for its “political rainmaking and hardball collection tactics.” In 2004 a former name partner in the firm was convicted in a bribery case involving payments to city councilmen in San Antonio to secure a debt collection contract. Around the same time, the Linebarger firm privately settled a lawsuit in which a competitor alleged it had engaged in bribery and bid rigging in various locations. A collection contract awarded to the firm by New Orleans was reported to have been the subject of an FBI investigation.

The IRS removed the Linebarger firm from its private debt collection program last year without explanation. That left two contractors: CBE Group of Waterloo, Iowa and Pioneer Credit Recovery of Arcade, New York. Both companies have been sued multiple times over aggressive tactics in their efforts on behalf of clients other than the IRS.

Pioneer is a unit of SLM Corporation, otherwise known as Sallie Mae, which started out as a government-sponsored enterprise but was subsequently privatized and started trading on the New York Stock Exchange. It was to have been taken private in a leveraged buyout last year but the deal collapsed. The company, which has been suffering heavy losses, is being investigated by New York Attorney General Andrew Cuomo.

Leave it to the Bush Administration: Not only does it contract out functions that by all rights should be done by public employees, it makes highly dubious choices in selecting the companies to carry out the work. So it should come as no surprise when we end up with the worst outcome, which in this case means abuse of taxpayers and poor financial results. Ah, the magic of private enterprise.

More on EG&G Technical Services & Controversial Parent URS Corp.

From what I can tell, almost no one in the media is paying attention to the fact, reported yesterday by the Dirt Diggers Digest, that inventory and distribution activities at Hill Air Force Base in Utah, where nuclear missile parts were mistakenly shipped to Taiwan in 2006, are under the control of a contractor—EG&G Technical Services. The one exception I could find is Matthew LaPlante of the Salt Lake Tribune, whose article today notes he was unable to get responses from officials at the company, at Hill AFB or at the Defense Logistics Agency (DLA), which was made to appear the responsible party when the Pentagon revealed the snafu earlier this week.

It’s not as if there is nothing to report. The Taiwan screw-up appears to be part of a pattern of inventory problems at various contractor-operated DLA distribution depots. In November 2006, the Defense Department Inspector General issued an audit report finding that at the depots overall:

Government and contractor personnel did not properly perform physical inventory counts during the execution of statistical sampling plans to measure dollar value and supply record accuracy; the Distribution Standard System contained inaccurate inventory information for individual storage locations; depot personnel did not complete research of inventory discrepancies in a timely manner, retain adequate supporting documentation, or use the proper error codes to identify underlying causes; and accountable officers did not perform consistent or adequate quality checks of completed inventory counts.

What also makes this story interesting is the identity of EG&G’s parent company—URS Corporation. URS is a $5 billion company that “serves” the federal government, not only through EG&G but also with its engineering services. Those latter activities expanded last year when URS took over one of its rivals, Washington Group International. Both URS and Washington Group have participated in the dismal reconstruction effort in Iraq.

The award of the Iraq contract to URS was particularly controversial, given that the company was controlled at the time by Richard Blum, husband of U.S. Senator Dianne Feinstein of California. Feinstein came under fire last year from critics who charged her with conflict of interest for sitting on a military appropriations subcommittee while her husband had financial interests in URS as well as in Perini Corp., another Pentagon contractor. In April 2007 anti-war activists protested outside the San Francisco home of Feinstein and Blum to highlight the issue. Blum ended his relationship with URS in 2005.

Was A Contractor Responsible for Snafu on Missile Fuses?

When the Pentagon admitted yesterday that high-tech electrical fuses for Minuteman nuclear warheads were mistakenly shipped to Taiwan from Hill Air Force Base in Utah in 2005 2006, military officials gave the impression that the Defense Logistics Agency was responsible for the snafu. What the Pentagon did not bother to mention is that three four years earlier, management of distribution activities at Hill was placed in the hands of a private contractor—EG&G Technical Services. The contract was awarded after the company was deemed to have won an A-76 public-private competition for the work. Shortly after the contract award, EG&G was acquired by URS Corporation, which later consolidated EG&G’s operations with its Lear Siegler Services operation.

In June 2002 the Defense Logistics Agency put out a press release that reads in part:

DLA Affirms Distribution Depot A-76 Competition Result

Fort Belvoir, Va. — The Defense Logistics Agency announced today the final decision on the public-private competition for performance of distribution operations at Defense Distribution Depot Hill, Utah (DDHU).

On April 5, 2002 a tentative decision was announced selecting EG&G Technical Services Inc., headquartered in Manassas, Va. to perform the distribution operations at the depot.

The DLA Administrative Appeal Authority received and considered appeals of the tentative cost comparison decision from the DDHU employees, AFGE Local 1592, and EG&G Technical Services, Inc.

A few weeks earlier, after a tentative decision to award the contract to EG&G had been made, the company issued its own release, which specifically referred to Minuteman missiles:

EG&G Technical Services, Inc. Selected To Perform Distribution Operations Contract At Utah’s Hill Defense Distribution Depot

MANASSAS, VA — April 16, 2002 — EG&G Technical Services, Inc., Installations and Logistics Division, is pleased to announce it has been tentatively selected by the U.S. Defense Logistics Agency (DLA) to provide storage and distribution services at Defense Distribution Depot Hill, Utah (DDHU).

Under the proposed contract, EG&G will provide parts and materials storage and distribution services to support the U.S. Air Force, Hill Air Force Base, Ogden Air Logistics Center and other military customers. Specifically, EG&G will store and distribute parts and materials for F-16 “Fighting Falcon” and C-130 Hercules aircraft; Minuteman and Peacekeeper missiles; the Emergency Rocket Communication System and other general maintenance functions.

EG&G previously has won three similar contracts at DLA Depots at San Antonio, Texas; Warner Robins, Georgia; and Barstow, California. As at the other locations, EG&G anticipates that virtually all employees at the Utah depot would come from the existing Department of Defense workforce and the local community.

Lex Allen, Vice President and General Manager of EG&G Installations and Logistics Division, said, “We are very excited about being selected for the Hill Depot award. It represents another key step in fulfilling our strategic vision to be the premier provider of logistics support to the Defense Logistics Agency. We are eager to work with the current Government employees at Hill and our plans include offering them jobs first – the workforce at Hill Depot is known for its work ethic and commitment to customer satisfaction. We have demonstrated success at other depot operations in offering employment to all existing employees who were interested in joining EG&G.”

Following a routine contract process, expectations are that the DLA will finalize the contract award sometime in June.

Like the passport scandal of last week, this may turn out to be another case of contractor mismanagement.

Contractor in Passport Scandal Called Anti-Union

Stanley Inc., one of two federal contractors implicated in the scandal over unauthorized viewing of the passport records of presidential candidates, has also been embroiled in a controversy over its labor practices. The United Electrical workers union (UE), which got involved in organizing Stanley workers who process immigration records, called the company’s opposition to the drive “one of the most intense and brutal anti-union campaigns UE has faced.” UE is a rank-and-file-oriented union not affiliated with the AFL-CIO or Change to Win.

Stanley, a $400 million company that depends entirely on the federal government for its business, won a contract last year to take over operations at a 400-employee processing center of the U.S. Citizenship and Immigration Services (USCIS) in St. Albans, Vermont. The contract also covered another center in Laguna Niguel, California. The facilities handle citizenship applications for USCIS, which is part of the Department of Homeland Security.

As it was about to assume control late last year, Stanley announced that it would be changing job classifications at the facilities, resulting in a pay decrease of about 12 percent for up to half the workers. Vermont Sen. Bernie Sanders called on the Labor Department to investigate what he charged was a violation of the Service Contract Act.

Stanley’s move also prompted the union organizing drive. The National Labor Relations Board scheduled nine different elections to reflect the fact that some of the workers are employees of subcontractors such as Northrop Grumman. UE official Chris Townsend told me that Stanley employed a variety of union-busting tactics—from hiring the union-avoidance law firm Seyfarth Shaw to forcing workers to watch propaganda videos. Townsend says workers were held in captive-audience meetings for up to one-quarter of their shifts in the period leading up to the elections—this at a time when the backlog of citizenship applications remains a serious problem. Stanley also pressured its subcontractors to adopt the same tactics of intimidation, Townsend added.

Given these conditions, it is remarkable that UE won six of the nine elections held at various times over the past two months. Townsend estimates that his union now represents about 714 of the 950 workers at the two facilities.

Stanley’s website brags about its inclusion on the Fortune magazine list of the “100 best companies to work for.” Most of the workers in St. Albans and Laguna Niguel apparently beg to differ.

Passport Scandal Linked to Security Contractor Operating in Iraq

It’s bad enough that employees of a military contractor, Stanley Inc., were taking unauthorized looks at the passport records of presidential candidates. Now it turns out that the other company involved, The Analysis Corp. (TAC), is a contractor for intelligence agencies and is a subsidiary of a larger foreign-based security company that has been involved in Iraq.

Many of today’s news stories depict TAC as just another contractor, though the Wall Street Journal notes that its CEO John Brennan is the former head of the National Counterterrorism Center. TAC, the Journal adds, has done work on the State Department’s terrorist watch list.

What the Journal does not mention is that TAC, based in McLean, VA, was acquired in 2003 by SFA Inc., whose website says: “We support national security initiatives across the world by leveraging our deep domain and analytical expertise in security and defense to rapidly develop and transition technologies and systems into operational solutions.” Among its specialties is “counter-terrorism and intelligence.”

Last year, SFA was acquired by Global Strategies Group (known as GLOBAL), a British-owned “international provider of security and risk mitigation strategies.” Among other things, GLOBAL is one of the controversial private security contractors operating in Iraq. Its main activity there has been to provide security for Baghdad International Airport. In 2005 it showed its commitment to that mission by shutting down the airport for a period of time to pressure the Iraqi government in a billing dispute. Last year, the U.S. branch of Global Strategies named as its president John Hillen, who had just left his post as Assistant Secretary of State for Political-Military Affairs–the same State Department involved in the passport affair.

What’s next—will it turn out that Blackwater is also involved?