Waxman's accusation puts contractors on defensive
Congressman's calls for increased scrutiny also find eager ears
Rep. Henry Waxman is sounding an alarm against possible widespread questionable contracting practices.
Like a lightning bolt, the accusation by Rep. Henry Waxman (D-Calif.) Feb. 8 that Booz Allen Hamilton Inc. of McLean, Va., may be involved in a "significant conflict of interest" in a Homeland Security Department contract has delivered a jolt to the federal contracting community.
Some people are gleeful that Waxman, chairman of the House Oversight and Government Reform Committee, is sounding an alarm against possible widespread questionable practices, including the potential for organizational conflicts. Waxman's immediate target is a large, politically connected global consulting firm, which is appropriately ambitious, some observers say.
"This is the beginning of looking at a big, dark hole," said a small-business federal contractor who asked not to be named because he is worried his statements may alienate clients. "This thing with Booz Allen is the tip of the iceberg."
Others fear that Waxman's remarks portend a period when federal contractors will be blamed for all manner of practices, even legitimate ones.
"Contractors feel like they are caught in the crossfire and are being unfairly maligned," said Karen Manos, a partner in the government and commercial contracting practice at law firm Gibson, Dunn and Crutcher. Although Manos declined to address the charges against Booz Allen directly, she said many large contractors are feeling the heat. "Some of the allegations [from Waxman's committee] have a kernel of truth, but are more sensational than they need to be, or there may be more to the story."
The controversy shows no sign of diminishing as Waxman continues to schedule hearings to probe scores of federal contracts. Waxman has created a list of 142 allegedly wasteful government contracts that total $764 billion. Almost every large DHS contract is on the list, including the Secure Border Initiative Network surveillance system, the U.S. Visitor and Immigrant Status Indicator Technology entry system and the Coast Guard's Deepwater modernization program.
Booz Allen has denied Waxman's allegations. Nevertheless, the claims are provoking a discussion that some contractors welcome but many others find worrisome. The question on everyone's mind is how far Congress will go in tightening the reigns, once again, against conflicts of interest and abuses.
"Within the Beltway, there is a consistent problem [with potential conflicts of interest] if you have a broad-based business platform. The question is do they need to be more regulated?" asked Stephen Ryan, partner in government and regulations at the Manatt, Phelps and Phillips law firm. "Waxman has put his finger on something worthy of attention. I'm not sure the lines are clear," Ryan said.Focus on two projects
Waxman made his statements about Booz Allen in a memo released in connection with a hearing about the $19 billion Deepwater contract and the $30 billion SBI-Net contract. SBI-Net is intended to link thousands of cameras, sensors and radars into a surveillance system that spans U.S. land borders. Boeing Co. won a contract for the initial segment in Arizona in September 2006.
At the hearing, Waxman criticized DHS' heavy reliance on outside contractors in planning, managing and overseeing the SBI-Net program. Of the 98 people assigned to the SBI-Net project office as of December, 60 are identified as contractors.
In the memo, Waxman said Booz Allen "appears to have significant conflicts of interest" by helping to oversee SBI-Net while also working as a subcontractor to Boeing on other projects. He mentioned Booz Allen's work with Boeing for modeling and simulation capabilities on a subsystem of the Air Force Multi-Sensor Command and Control Aircraft program.
Booz Allen also has worked with Boeing since 1993 to help the company maintain market share in the aircraft industry.DHS defends contractors
Gregory Giddens, DHS project manager for SBI-Net, told Waxman's committee that private contractors have been hired for advice on SBI-Net but not for oversight.
"They are support. They are not providing oversight," Giddens said. In addition, he said it would be difficult to hire enough government employees to meet the project's urgent schedule.
Booz Allen denied any conflict, and spokesman George Farrar said "Booz Allen is confident that it does not have a conflict of interest in its relationships with any companies, including Boeing, involved in the SBI-Net contract."
Attorneys active in government contracting practices say the potential for organizational conflicts of interest is rampant because many federal contractors, especially the larger ones, have numerous business relationships with other contractors. Firewalls and nondisclosure agreements between company units are required under federal acquisition regulations to protect against such conflicts.
"The situation Waxman is describing is not at all uncommon," Manos said. "As long as there is not direct oversight, I'm not sure it's a real problem."
Perceived conflicts must be evaluated in detail to determine whether they are sufficiently mitigated by firewalls and whether they meet the terms laid out in regulations, Ryan said.
The apparent lack of such an evaluation in Booz Allen's case troubles Stan Soloway, president of the Professional Services Council, an industry group.
"I understand why, to some people, this [Booz Allen conflict] raises concerns, but in reality it is very common in government and commercial contracting," Soloway said. "That is why we have regimes to mitigate those conflicts."
"Organizational conflicts of interest lend themselves to sound bites, but the reality is more complex," Soloway said. "These are dangerous and harsh allegations."Revolving door concerns
However, some contractors have a different view. They are pleased that Waxman is examining the potential for conflicts of interest because they view them as subtle, insidious and widespread despite the protections in place. "You cannot really firewall off a company from having an influence," one contractor said.
Some observers suggest Waxman should expand his scope to look at related practices such as the so-called revolving door of contractors hiring government employees, along with contractors making political contributions, building friendships with government procurement officials and hiring politically connected lobbyists.
"How do you get rid of the revolving door?" asked John Weiler, executive director of the Interoperability Clearinghouse, a nonprofit group.
After the hearings, the prospect of additional procurement legislation and regulations is also causing anxieties. Waxman's Clean Contracting Act and the War Profiteering Prevention Act proposed by Sen. Patrick Leahy (D-Vt.) are being scrutinized closely.
"Profiteering is a loaded word," Manos said. The Leahy bill would set jail sentences for contractors guilty of earning excessive profits, but those profits are not fully defined, she said. Manos added that it might be more palatable if Congress writes a provision that states that contracts can be renegotiated if there is excessive profit.
Meanwhile, Waxman's bill has a provision that would bar companies that violate regulations from contracting. The problem is that many large companies ? try as they might ? say they find it nearly impossible to keep their slates completely clean.
Manos is advising clients to sit tight, not call attention to themselves and not attack Waxman's motives, even if they suspect his real target is the Bush administration.
"There is nothing to be gained by taking him on," Manos said. "He's got the perfect forum if he wants to continue to have hearings."Staff Writer Alice Lipowicz can be reached at firstname.lastname@example.org.