When Claire McCaskill set out to crack down on waste and fraud in wartime contracting six years ago, the newbie senator from Missouri figured that finding ways to save taxpayer dollars in Iraq and Afghanistan would be a no-brainer project, even in the highly partisan halls of Congress.
“Like most who come to Washington for the first time, I assumed that this would not be a heavy lift,” McCaskill said in a recent interview with McClatchy. “I assumed that cleaning up war contracting and profiteering would be a consensus item that would fly through the process, and I learned quickly that that was very naive.”
This month – after half a dozen years of hearings, reports, overseas fact-finding trips, painful compromises and some last-minute, round-the-clock negotiating – the first substantial overhaul of the federal government’s wartime contracting practices since World War II finally became law, with McCaskill as its chief architect. The president signed it Jan. 2 as part of the 2013 National Defense Authorization Act, the day before McCaskill, a Democrat, was sworn in for her second Senate term.
In the end, McCaskill didn’t get everything she wanted. Some of her proposals were dropped or scaled back, and she acknowledges that one consequence of the new law will be additional paperwork for the federal bureaucracy – without any additional funding. But she said the bill was among the most satisfying accomplishments of her Senate career.
Among the worst examples of waste, fraud and abuse that the new law was designed to prevent were an ineffective water plant that Iraqis couldn’t operate or maintain, a still-unfinished highway in Afghanistan that’s wildly over budget at $176 million and a $300 million power plant near Kabul that Afghans can’t afford to operate because the diesel fuel required to run it is too costly.
The power plant was a project by Black & Veatch, an engineering and construction firm based in Overland Park, Kan.
Black & Veatch referred questions about the feasibility of the plant to the U.S. Agency for International Development, which funded the project.
"Afghanistan is a very difficult place to work. We put our lives on the line for the government and the people of Afghanistan every day and we are proud of the work we’ve done in the region," the company said in a statement.
The plant typically runs at less than 10 percent capacity, according to USAID. Sheikeb Nesar, the head of operations for Afghanistan’s national power utility, said the plant was used only during emergency situations when other power sources to Kabul were cut off.
“It is a big, hulking, overpriced, oversized generator, and you don’t pay almost $300 million for a generator,” McCaskill said.
But the senator defended Black & Veatch, a company that contributed $6,000 to her campaign in 2006 through its political action committee, and $1,000 in 2008. The PAC didn’t donate to her 2012 campaign.
“They didn’t do anything wrong,” McCaskill said. “What was wrong was the analysis in the first place. . . . There was not an adequate sustainability analysis prior to the decision to build it.”
Such an analysis is mandated by the new law, which should help prevent flawed ventures such as the plant, McCaskill said.The law requires government agencies to prove that taxpayer dollars won’t be wasted on futile or ill-conceived projects before they allocate funds, strengthens the powers of inspectors general who investigate cases of fraud and abuse, and establishes a clear chain of authority for contracting oversight in the Defense Department, the State Department and USAID.
“Now someone has to take responsibility for the contract at the front end, so that if things go badly we know who to call on the carpet,” McCaskill said.
The law also requires the three agencies to conduct risk assessments to evaluate their use of contractors, to reduce reliance on private security firms and to establish databases to better track contractors’ performance and pricing.
Some of the measure’s provisions got watered down over time or cut entirely. The final version dropped language that would automatically refer companies accused of violating the law for suspension from government contracts, as well as a provision that would have forced firms that use subcontractors for more than half the work to identify the subcontractors in writing.
McCaskill had hoped to restrict the use of subcontracting, which can make it difficult to trace problems or pin blame. It also can add to costs, as primary contractors hire subcontractors who hire more subcontractors in turn, expenses ballooning with each new layer.
McCaskill said lobbyists for large contractors had successfully fought to exclude those provisions, however. The Obama administration also opposed a provision that would have required the president to provide Congress with a financial plan for any future war, and it threatened to veto the bill in part because of the language that mandated automatic suspension referrals for contractors charged with wrongdoing.
“Sometimes it’s boxing shadows,” McCaskill said of the push-back she encountered. “There’s big money in these contracts and there’s a lot of people who have made big money off these contracts, and clearly we are trying to stop the gravy train and I’m sure that there are people who wanted to keep it going.”
Ultimately, the changes appear to address many of the contracting irregularities that hampered America’s war efforts in the past decade, said Michael O’Hanlon, the director of research for the foreign policy program at the center-left Brookings Institution, a research center in Washington.
“Certainly the emphasis on competition, the emphasis on transparency with subcontractors, the emphasis on inspectors general, these are all welcome ideas,” O’Hanlon said. “I guess the hard part is going to be implementation.”
One unintended consequence might be to make it harder for the U.S. government to hire local companies for contracting work in war zones, a key counterinsurgency strategy, he said.
“Developing the intelligence on local subcontractors is actually fairly hard to do initially if you’re in a place you didn’t expect to go,” O’Hanlon said. “Those are the kind of practical issues that I would want to at least see if there could be ways to consider, assess or redress if it turns out in a future mission that they prove to be problems.”
Another criticism McCaskill acknowledged is that the revisions add red tape without adding funding, meaning that military commanders and other federal officials will have more paperwork to complete during wartime, but no new resources with which to do it.
“What we had in place wasn’t working, so having to cross a few T’s and dot a few I’s is a very small price to pay to save billions for taxpayers,” McCaskill said.
For the largest contractors, the new regulations probably will be “a little bump in the road,” but extra bureaucracy could harm small or midsize contractors, said Simon Brody, a spokesman for the National Association of Government Contractors, a trade group.
“There is a need for these regulations because there has been abuse, but more regulation always hurts smaller contractors first,” Brody said. “It’s off-putting, especially for businesses that are trying to get into government contracting.”
The new law also skirts the problem of cost-plus contracting. Under a cost-plus contract, a contractor bills the government for expenses and is given a margin as profit. That means the more money a contractor spends, the more profit it makes.
Primary contractors with cost-plus contracts frequently hire subcontractors on fixed-price contracts to do most of the work, said Paul Hinks, the chief executive officer of Symbion Power, a Washington-based company that has experience on projects in Iraq and Afghanistan, including as a subcontractor hired by Black & Veatch to build the Kabul power plant.
“They shouldn’t even be giving out cost-plus contracts to do this type of construction work in a war zone. It’s just madness,” Hinks said. “There’s no incentive to save any money.”
McCaskill’s crusade to overhaul contracting dates to her first Senate campaign, when she cultivated a thrifty image based on her identity as a former state auditor who was determined to curb Washington’s wasteful spending habits.
As a freshman senator in 2007, McCaskill led a Senate delegation to Iraq to scrutinize the management of defense funds. She returned to Capitol Hill shocked by lax oversight and convinced that what she saw as the Pentagon’s over-reliance on private contractors in the war zone was squandering billions of taxpayer dollars.
McCaskill joined forces with then-Sen. Jim Webb, D-Va., to create the Commission on Wartime Contracting in Iraq and Afghanistan, a bipartisan panel modeled after President Harry Truman’s campaign to curb war profiteering during World War II.
In a report published in 2011, the commission revealed that as much as $60 billion had been lost to contract waste and fraud. It concluded that the U.S. government no longer can conduct large or sustained military operations or respond to major disasters without over-relying on contractors.
McCaskill and several other senators drafted a bill, the Comprehensive Contingency Contracting Reform Act, based on the commission’s recommendations. Major components of the act were included as an amendment to the defense authorization bill that the president signed recently.
The revisions mean that at least some lessons have been learned from Iraq and Afghanistan, despite resistance to change from powerful interests in the contracting community, said commission member Charles Tiefer, a professor of government contracting law at University of Baltimore.
“The contractors would have been very happy to keep the status quo, and they would have been very happy if this bill had not gone through,” he said. “I’m much more impressed by what got into the law than what didn’t.”
McCaskill said she knew that laws on the books weren’t going to be enough. Continued scrutiny from Congress is necessary to ferret out bad contractors and poor performers, she said.
“I’m not going away,” McCaskill said. “I’ve got six more years to stay on these guys about the way they spend money.”