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No-Bid Contracts Driving Up Government Waste

Monday November 6th, 2017   •   Posted by Craig Eyermann at 5:53am PST   •  

If someone wanted to stop the U.S. government from wasting so much money, a very good place to begin would be to end the power that bureaucrats have to award multi-million dollar contracts without seeking any form of competition among the businesses they will rely upon to deliver results for U.S. taxpayers.

Writing in The Hill, David Williams of the Taxpayers Protection Alliance describes how the system is supposed to work, and what bureaucrats are doing to subvert practices that promote transparency for their own convenience.

Federal law requires “full and open competition” for most government procurements. Here’s how the bidding process traditionally works. The government publicly announces its need for a specific product or service — such as a year’s worth of public-school lunches or a new naval vessel. Companies submit sealed proposals, and the government chooses the lowest-cost, highest-quality bidder.

Naturally, there are exceptions to the open-bidding process. If there is only one company (a “sole source”) capable of providing a particular product or service, an agency can contract with that firm directly. Agencies can also forego open bidding if they deem it “necessary in the public interest.”

But at many agencies, no-bid contracts have become the rule, not the exception. The share of Pentagon contract spending awarded competitively has fallen almost every year since 2008. In fiscal year 2016, more than half of Defense Department procurement spending — totaling more than $100 billion — was on noncompetitive contracts.

The widespread adoption of no-bid contracting practices at multiple government agencies is a bureaucratic recipe for both bureaucratic corruption and failure.

So it is perhaps no surprise to find that such an arrangement has come to light in the U.S. territory of Puerto Rico, where it is contributing to keeping the lights off across the hurricane-wrecked island’s electrical infrastructure. Robert Walton of the utility industry trade publication UtilityDive provides a brief that the Puerto Rico government-owned utility company PREPA sought to avoid federal government oversight in placing a no-bid contract with a tiny Montana-based utility company.

Dive Brief:

  • As Puerto Rico struggles to restore power to its citizens, a leaked recovery contract awarded to Montana’s Whitefish Energy appears to reveal one-sided commitments and stipulations that government agencies cannot review the project’s finances.
  • Whitefish’s contract has been under increasing scrutiny. In the days after Hurricane Maria struck the island, the Puerto Rico Electric Power Authority (PREPA) declined mutual aid offers from other utilities, opting for a $300 million contract with the little-known Montana firm for power restoration.
  • And with most of Puerto Rico still without power, Rhodium Group has run the numbers and determined that Hurricane Maria’s hit on the island has caused the largest blackout in the United States’ history. The storm has so-far disrupted 1.25 billion hours of electricity supply for American citizens, and three quarters of the island still has no power. To date, that’s about twice the length of outages caused by Hurricane Katrina in 2005.

The Federal Emergency Management Agency (FEMA) has specifically disavowed having any role in the no-bid contract between PREPA and Whitefish. On October 30, 2017, the Puerto Rico government-owned utility cancelled the contract, just ahead of the announcement that the Federal Bureau of Investigation (FBI) was launching a criminal probe into the arrangement.

In Puerto Rico’s case, one could make the argument that the need to establish a no-bid contract to restore electrical power to the territory is “necessary in the public interest”, if only the firm being contracted to do the recovery work were capable from Day 1 of rapidly executing its role. But these kinds of contracts are also being made for non-emergency situations by federal government agencies. John Crudele of the New York Post has been following the money for no-bid contracts placed by the U.S. Census Bureau.

Government investigators found problems with 90 percent of the no-bid contracts awarded by the Census Bureau.

That finding, after combing through just 28 deals, determined that Census probably overpaid contractors by about $9 million.

The U.S. Census Bureau does a lot of valuable work, but none of it can be considered to be any form of emergency response requiring rapid action that can only be arranged through no-bid contracts with outside entities. And yet, it is spending millions of dollars without providing any evidence that it is delivering the best value for U.S. taxpayers.

Crudele does offer a solution:

Here’s what I think — put a couple of government officials in prison for fraud and the nonsense will end. Up until now, all the government does is criticize unethical practices and allow the offenders to slink away quietly into retirement.

It’s time for the Justice Department to investigate the sort of thing the IG — and I — found and treat it as the crime that it is.

You and I wouldn’t get away with this sort of fraud and public servants shouldn’t either.

No they shouldn’t.

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November 2017