Government Contracts Monitor

The Stimulus Package: What About Contract Integrity?

February 17, 2009

Does the stimulus provide effective mechanisms for the responsible procurement of the hundreds of billions of dollars worth of goods and services it plans to deliver? 

Obviously, the Obama Administration seeks to preserve the integrity of these huge expenditures - hopefully distinguishing this spending from the "emergency" procurements in support of U.S. operations in Iraq and in response to Hurricane Katrina. 

But the question remains: will the government rush to spend these funds - potentially bearing the burden of an inefficient use of this huge sum of money - or will it institute the oversight necessary to prevent fraud, waste, and abuse?

In passing the stimulus, the Obama Administration aspires to ensure that: 

• Recovery funds are awarded and distributed in a prompt, fair, and reasonable manner;
• The recipients and uses of all recovery funds are transparent to the public, and that the public benefits of these funds are reported clearly, accurately, and in a timely manner; and
• Recovery funds are used for authorized purposes and every step is taken to prevent instances of fraud, waste, error, and abuse.

In the end, the effectiveness of the stimulus’ procurement oversight provisions will be judged on whether the Act satisfies the objectives essential to all successful procurements: competition, transparency, and integrity.

Competition: fixed-price, competitive awards required

• Fixed-price, and
• Awarded using "competitive procedures."  

This provision marks a break with current policy and, accordingly, was almost excluded from the bill (it was omitted from the Senate version before winding up in the final legislation).  However, the federal procurement system appears to be headed in this direction. For instance, the 2009 National Defense Authorization Act contained a provision calling for regulatory changes to limit the inappropriate use of cost-reimbursement contracts in defense procurements.

Transparency: significant new reporting obligations

• The amount of stimulus funds received;
• The amount of stimulus funds expended by the contractor;
• A list of projects stimulus funds were expended on, including a description and evaluation of the project’s status;
• An estimate of the number of jobs created; and
• Detailed information on any subcontracts or subgrants awarded by the recipient.

The new contractor reporting requirements and oversight mechanisms imposed by the ARRA are in addition to the already existing panoply of ethics and compliance requirements imposed by the Federal Acquisition Regulation (FAR) and other federal laws and regulations.  

Under the ARRA, any contract not awarded using competitive procedures or not on a fixed-price basis will be posted on a special section of the law’s corresponding website – www.recovery.gov.  By mid-March 2009, the website will also contain “detailed data” on contracts awarded with stimulus funds, including information about the competitiveness of the contracting process, information about the award of the contract, and a summary of certain high-value contracts.  The awarding agency will also be required to provide a summary of how they are using their Federal funds on a quarterly basis beginning in July 2009.

Such transparency and reporting obligations (although somewhat reminiscent of websites like www.usaspending.gov) are largely unprecedented in federal contacting.  And according to an internal Obama Administration memorandum, this new level of transparency and oversight may even become a benchmark for future government-wide reforms.  The Administration expects new government-wide transparency guidelines to be developed within the next 30-60 days. 

Integrity: establishment of new oversight mechanisms

Due to the unprecedented government expenditures, and the fierce opposition of many in Congress to the ARRA, it is expected that contractors accepting stimulus funds will be subject to intense scrutiny from all sectors - the public, the Department of Justice, agency Inspector Generals, the Comptroller General, and Congress.  

The ARRA allocates $84 million for a new oversight board – the “Recovery Act Accountability and Transparency Board” – to coordinate and conduct oversight of stimulus spending and to prevent waste, fraud, and abuse of stimulus funds. The Board will be composed of a chairperson (either the Deputy Director of Management at the Office of Management and Budget or another person appointed with the advice and consent of the Senate) and six inspectors general and deputy secretaries from federal agencies receiving stimulus funds.  The Board will be responsible for:

• Reviewing whether the reporting of contracts and grants using covered funds meets applicable standards – including whether it specifies the purpose of the contract and measures of performance, and whether competition requirements applicable to contracts and grants using covered funds have been satisfied;
• Auditing or reviewing covered funds to determine whether wasteful spending, poor contract or grant management, or other abuses are occurring and referring matters it considers appropriate for investigation to the inspector general for the agency that disbursed the covered funds;
• Reviewing whether there are sufficient qualified acquisition and grant personnel overseeing covered funds and whether this personnel receive adequate training; and
• Reviewing whether there are appropriate mechanisms for interagency collaboration relating to covered funds.

The Board will make published recommendations to agencies on measures to prevent fraud, waste, and abuse relating to covered funds.  Like the agency Inspectors General, the Board will have the power to conduct audits and reviews related to covered funds, including the power to issue subpoenas to compel the testimony of witnesses. 

Under the ARRA, the Comptroller General will also conduct bimonthly reviews of stimulus spending and prepare reports on the States’ and localities’ use of covered funds. These reports, along with any audits conducted by the Comptroller General, will be posted to www.recovery.gov. Importantly, the ARRA §902(a)(2) and §1515(a)(2) grant the Comptroller General and Inspectors General permission to interview any officer or employee of a government contractor or subcontractor awarded a contract with stimulus funds.

It will be important for any firm who chooses to accept a Recovery contract to understand fully the totality of requirements under that contract. The unprecedented level of contract oversight and reporting obligations imposed by the ARRA means it is essential for government contractors and subcontractors to have effective compliance programs in place prior to seeking or receiving ARRA funding.