Contracts

There's been some stir lately about how contracting for Engineering services in government agencies is being abused. I don't think abused is the right concept. What's really happened is that the people involved have developed a well oiled system that maximizes profits while minimizing risk. I'd call it a conspiracy, emphasis on piracy.

Agencies and consultants will both insist that contracts are procured competitively. But it's not really competition, it's a beauty show. Well trained and rehearsed marketeers strive to convince agency people, government workers in the main, that they should be hired for a particular project. They dissemble, usually with a flashy power point program and sleek graphics, about their experience, dedication, and abilities. Sometimes they even lie. What always amuses me is how similar these presentations are. There's really nothing of substance on which to make a decision, so the race usually goes to the best theatrical show.

After the big decision is made, the marketeers generally are replaced by the financial types. Remember this: cost is not a factor in determining who gets selected. A selection is made and then the cost is negotiated. This racket still is protected by law in many states. The rationale is that the services are so specialized that there is only one firm who is best qualified to do the work. Price competition gives the managers heartburn. Contracts are usually negotiated on a cost reimbursement basis, in other words any costs incurred by the consultant must be reimbursed. These include all overhead costs. Consultants prefer to negotiate billing rates for their workers, thereby keeping their true costs hidden. A contract negotiated between a skilled consultant and a uninformed government employee can yield profits as high as 25%. Other times actual, verifiable cost plus a fee, another word for profit, are what is paid. The consultant is virtually assured a profit no matter how well or poorly he performs.

And it gets worse. I many cases consultant has a positive incentive to run up costs, particularly if billing rates are used. Since each unit billed increases profits, the more units, the more profit. Items purchased by the consultant are often also marked up for no reason other than to increase profits.

This is a lucrative business. Is it any wonder that Haliburton moved into this from riskier oil exploration?

Finally the actual contract itself generally shields the consultant from liability for all except the most egregious mistakes. Frequently, negligence is the measure that trips liability. Just know this: among the three large engineering firms active in Iraq, Haliburton, Bechtel, and Parsons, over $20 billion was billed to the U.S. government and precious little was actually built. Of that amount, at least a billion, and probably a lot more was pure profit. In previous wars, profiteering on this scale was considered treasonous and dealt with accordingly. This has not been the case under this administration in this war.