How government agencies avoid competitive bidding

Are you an Eskimo from Alaska?  Are you part Eskimo?  Do you know an Eskimo?  (That term, by the way, according to Wikipedia is NOT pejorative when referring to the Alaskan tribes.)  If so, you can start a company and get a government contract without having to compete for it.  Then you can sub-contract the actual work to other companies, pocketing millions for yourself.

That’s one of the ways the federal procurement process avoids having to comply with time-consuming but money-saving laws about taking the lowest bid .  From The Washington Post:

United Solutions and Services, known as US2, had just three employees and several small contracts for janitorial services and other work. It was based in a four-bedroom colonial, where the founder worked out of his living room.

But the firm had one quality the Army prized: It was co-owned by an Alaska native corporation (ANC) and therefore could receive federal contracts of any size without competition, under special set-aside exemptions granted by Congress to help impoverished Alaska natives.

On Sept. 2, 2008, US2 was granted a deal worth as much as $250 million – 3,000 times the $73,000 in revenue the firm claimed the year before. The contract enabled the Army to quickly fund a wide array of projects, including a global campaign to prevent sexual assault and harassment, without seeking outside bids.

US2 could not do the work by itself, though. With the Army’s knowledge, the firm subcontracted the majority of it to more established companies, a Washington Post investigation has found.

Federal rules generally require prime contractors on set-aside deals to perform at least half of the work, something US2 did not do on more than $100 million worth of jobs, according to interviews with Army officials and an analysis of federal procurement data.

via Alaska native status gave tiny, inexperienced firm a $250 million Army contract.

About Gene Veith

Professor of Literature at Patrick Henry College, the Director of the Cranach Institute at Concordia Theological Seminary, a columnist for World Magazine and TableTalk, and the author of 18 books on different facets of Christianity & Culture.

  • http://lutherama.blogspot.com Dr. Luther in 21st Century

    Could we please get rid of wasteful guidelines such as race? If we are to be a true color blind melting pot society race shouldn’t even be a question. All they truly need to know in assigning a contract is competence, quality, and price. It is no different then when we take bids to fix our own homes.

  • http://lutherama.blogspot.com Dr. Luther in 21st Century

    Could we please get rid of wasteful guidelines such as race? If we are to be a true color blind melting pot society race shouldn’t even be a question. All they truly need to know in assigning a contract is competence, quality, and price. It is no different then when we take bids to fix our own homes.

  • http://facebook.com/mesamike Mike Westfall

    Waste, fraud and abuse is OK if you can find a loophole (or, as in this case, a big gaping hole) in a law that was conceived to make guilt-wracked elitists feel better about themselves.

  • http://facebook.com/mesamike Mike Westfall

    Waste, fraud and abuse is OK if you can find a loophole (or, as in this case, a big gaping hole) in a law that was conceived to make guilt-wracked elitists feel better about themselves.

  • DonS

    Liberal government elitists are the modern day racists. And these special interests are entrenched in our elite institutions, ensuring that it will be generations before Martin Luther King’s ideal is reached.

  • DonS

    Liberal government elitists are the modern day racists. And these special interests are entrenched in our elite institutions, ensuring that it will be generations before Martin Luther King’s ideal is reached.

  • http://www.toddstadler.com/ tODD

    I suppose it’s to be expected at this point that “conservatives” would read this story and only come away complaining about the racial side of this (even as they typically accuse liberals of being the ones obsessed with race).

    Still, hello? Anyone? The Eskimos are not the sole actor here. Did you notice the part about the Army intentionally subverting federal rules on no-bid contracts, the entire point of which is to save money. But the Army found those rules inconvenient and, apparently, didn’t care a bit about saving money. But does the Army come in for criticism by “conservatives”? No. (To say nothing of the fact that the Army was scrambling to respond to a crisis of sexual assault … whee!)

    Oh, and the US2 founder who “worked out of his living room”? That would be one Stephen Hadley. Who is not only not an Alaskan native, but that 49% owner of the company was also — gee! — National Security Advisor under George Bush. Again, I am absolutely shocked — shocked! — that someone from a Republican administration would find himself setting up a sort of shell company to fleece the federal government out of money via a private corporation doing work for the military. Shocked, I tell you. But did anyone mention Hadley here? Nope.

    No, it’s all about the Eskimos. See how race-focused those liberals are?

    (P.S. Yes, I think the Alaskan native laws need to be repealed. And that “conservatives” are just as focused on race as are “liberals”, inasmuch as both are fairly obsessed with laws like these. But it wouldn’t hurt if “conservatives” occasionally said something about military waste, military privatization, and Republican complicity therein.)

  • http://www.toddstadler.com/ tODD

    I suppose it’s to be expected at this point that “conservatives” would read this story and only come away complaining about the racial side of this (even as they typically accuse liberals of being the ones obsessed with race).

    Still, hello? Anyone? The Eskimos are not the sole actor here. Did you notice the part about the Army intentionally subverting federal rules on no-bid contracts, the entire point of which is to save money. But the Army found those rules inconvenient and, apparently, didn’t care a bit about saving money. But does the Army come in for criticism by “conservatives”? No. (To say nothing of the fact that the Army was scrambling to respond to a crisis of sexual assault … whee!)

    Oh, and the US2 founder who “worked out of his living room”? That would be one Stephen Hadley. Who is not only not an Alaskan native, but that 49% owner of the company was also — gee! — National Security Advisor under George Bush. Again, I am absolutely shocked — shocked! — that someone from a Republican administration would find himself setting up a sort of shell company to fleece the federal government out of money via a private corporation doing work for the military. Shocked, I tell you. But did anyone mention Hadley here? Nope.

    No, it’s all about the Eskimos. See how race-focused those liberals are?

    (P.S. Yes, I think the Alaskan native laws need to be repealed. And that “conservatives” are just as focused on race as are “liberals”, inasmuch as both are fairly obsessed with laws like these. But it wouldn’t hurt if “conservatives” occasionally said something about military waste, military privatization, and Republican complicity therein.)

  • http://www.toddstadler.com/ tODD

    Okay, probably got one part of that wrong (@4). Different Stephen Hadley, maybe (no one seems to say, either way, but I have to assume so). Strike that part.

  • http://www.toddstadler.com/ tODD

    Okay, probably got one part of that wrong (@4). Different Stephen Hadley, maybe (no one seems to say, either way, but I have to assume so). Strike that part.

  • DonS

    tODD @ 4: If the set-aside laws weren’t in place, the Army could not use them to subvert competitive bidding. By definition, regardless of the race angle, set-aside laws are poor stewardship of public funds. Public projects should be open to bidding by everyone, in order to ensure that you get the best value for the taxpayer’s dollar. If there are exigencies requiring a more rapid process than the usual public bid process, then they should be dealt with directly, through suitable legislation and oversight, rather than by mis-using racial set-aside laws.

    I’m not excusing the Army in this case. They are just like other federal bureacracies — they waste money and mis-use laws and regulations to achieve their objectives in many instances. But the vehicle for their misdeeds was a bad law, which frequently allows for the unjust enrichment of the few at the expense of the taxpayer.

  • DonS

    tODD @ 4: If the set-aside laws weren’t in place, the Army could not use them to subvert competitive bidding. By definition, regardless of the race angle, set-aside laws are poor stewardship of public funds. Public projects should be open to bidding by everyone, in order to ensure that you get the best value for the taxpayer’s dollar. If there are exigencies requiring a more rapid process than the usual public bid process, then they should be dealt with directly, through suitable legislation and oversight, rather than by mis-using racial set-aside laws.

    I’m not excusing the Army in this case. They are just like other federal bureacracies — they waste money and mis-use laws and regulations to achieve their objectives in many instances. But the vehicle for their misdeeds was a bad law, which frequently allows for the unjust enrichment of the few at the expense of the taxpayer.

  • http://www.toddstadler.com/ tODD

    DonS (@6) said, “I’m not excusing the Army in this case.” Okay, but one might have noted that you didn’t actually say anything about them in your comment (@3), preferring to open with “Liberal government elitists are the modern day racists.”

    You say that “public projects should be open to bidding by everyone”, but clearly the Army disagrees. You seem to think that repealing this “set-aside” law would be a good thing, preventing the Army from wasting money (and, furthermore, that laws requiring the military to get multiple bids are good things and not yet more federal bureaucracy?), but no one here is noting that there already was a law in place that should have prevented much of this particular scenario. I will quote from the article:

    Federal rules generally require prime contractors on set-aside deals to perform at least half of the work, something US2 did not do on more than $100 million worth of jobs, according to interviews with Army officials and an analysis of federal procurement data.

    That law didn’t stop US2 or the Army from doing the run-around. So I would submit that the issue in this particular case isn’t a problem with laws, but the Army. But that’s not a topic people really want to focus on, for some reason.

  • http://www.toddstadler.com/ tODD

    DonS (@6) said, “I’m not excusing the Army in this case.” Okay, but one might have noted that you didn’t actually say anything about them in your comment (@3), preferring to open with “Liberal government elitists are the modern day racists.”

    You say that “public projects should be open to bidding by everyone”, but clearly the Army disagrees. You seem to think that repealing this “set-aside” law would be a good thing, preventing the Army from wasting money (and, furthermore, that laws requiring the military to get multiple bids are good things and not yet more federal bureaucracy?), but no one here is noting that there already was a law in place that should have prevented much of this particular scenario. I will quote from the article:

    Federal rules generally require prime contractors on set-aside deals to perform at least half of the work, something US2 did not do on more than $100 million worth of jobs, according to interviews with Army officials and an analysis of federal procurement data.

    That law didn’t stop US2 or the Army from doing the run-around. So I would submit that the issue in this particular case isn’t a problem with laws, but the Army. But that’s not a topic people really want to focus on, for some reason.

  • DonS

    tODD @ 7: Again, the reason I didn’t mention the Army in my comment @ 3 is because the federal agency was not the focus or the issue — the problem is endemic to all federal agencies because the issue of set-asides is universal. Note this quote from the Washington Post article “In response to The Post’s findings, officials at the Department of the Interior, which managed the contract for the Army, said proper procedures were followed in the contract award. But they said in a statement that they have asked the department’s inspector general to investigate. ” See? It was the Department of the Interior which managed the Army contract. So, I guess I should also condemn the Department of the Interior? Fine, I condemn them all.

    The bottom line, despite your obfuscation, is that the problem wouldn’t exist if government policy was not to insist on racial quotas and set-asides, despite the fact that they create unfair and needlessly complicated problems and cost the taxpayers substantially more than would otherwise be the case.

  • DonS

    tODD @ 7: Again, the reason I didn’t mention the Army in my comment @ 3 is because the federal agency was not the focus or the issue — the problem is endemic to all federal agencies because the issue of set-asides is universal. Note this quote from the Washington Post article “In response to The Post’s findings, officials at the Department of the Interior, which managed the contract for the Army, said proper procedures were followed in the contract award. But they said in a statement that they have asked the department’s inspector general to investigate. ” See? It was the Department of the Interior which managed the Army contract. So, I guess I should also condemn the Department of the Interior? Fine, I condemn them all.

    The bottom line, despite your obfuscation, is that the problem wouldn’t exist if government policy was not to insist on racial quotas and set-asides, despite the fact that they create unfair and needlessly complicated problems and cost the taxpayers substantially more than would otherwise be the case.

  • http://www.toddstadler.com/ tODD

    DonS (@8), how, exactly, am I “obfuscating”?

    Anyhow, here’s your summary: “the problem wouldn’t exist if government policy was not to insist on racial quotas and set-asides”. Keeping in mind that “the problem” here has been defined as “government agencies avoiding competitive bidding”, are you really saying that such waste “wouldn’t exist” if “racial quotas and set-asides” went away? That the sole reason we have uncompetitive bids is, again, “racial quotas and set-asides”? That seems like a bit of an overreach.

  • http://www.toddstadler.com/ tODD

    DonS (@8), how, exactly, am I “obfuscating”?

    Anyhow, here’s your summary: “the problem wouldn’t exist if government policy was not to insist on racial quotas and set-asides”. Keeping in mind that “the problem” here has been defined as “government agencies avoiding competitive bidding”, are you really saying that such waste “wouldn’t exist” if “racial quotas and set-asides” went away? That the sole reason we have uncompetitive bids is, again, “racial quotas and set-asides”? That seems like a bit of an overreach.

  • DonS

    tODD @ 9: The obfuscation is that the federal department involved was secondary to the issue at hand, which applies across the board to all federal departments. As I pointed out, even in the example given, it was the Interior Department that was administering the program. The Defense Department has, perhaps, more than its share of procurement problems, but that is not the primary issue here.

    “Keeping in mind that “the problem” here has been defined as “government agencies avoiding competitive bidding”, are you really saying that such waste “wouldn’t exist” if “racial quotas and set-asides” went away? That the sole reason we have uncompetitive bids is, again, “racial quotas and set-asides”? That seems like a bit of an overreach.” — Of course not. As long as we have government, especially big government, with its loyalties to political rather than economic considerations, we will never be able to circumvent waste and abuse. But, allowing some people to win contracts with otherwise uncompetitive bids, which occurs all the time because of set-asides, certainly doesn’t improve things.

  • DonS

    tODD @ 9: The obfuscation is that the federal department involved was secondary to the issue at hand, which applies across the board to all federal departments. As I pointed out, even in the example given, it was the Interior Department that was administering the program. The Defense Department has, perhaps, more than its share of procurement problems, but that is not the primary issue here.

    “Keeping in mind that “the problem” here has been defined as “government agencies avoiding competitive bidding”, are you really saying that such waste “wouldn’t exist” if “racial quotas and set-asides” went away? That the sole reason we have uncompetitive bids is, again, “racial quotas and set-asides”? That seems like a bit of an overreach.” — Of course not. As long as we have government, especially big government, with its loyalties to political rather than economic considerations, we will never be able to circumvent waste and abuse. But, allowing some people to win contracts with otherwise uncompetitive bids, which occurs all the time because of set-asides, certainly doesn’t improve things.

  • http://www.toddstadler.com/ tODD

    DonS (@10), it seems that “the federal department involved was secondary to the issue at hand” pretty much because you say so. The Army/Interior Dept. are equal actors in this problem along with the “Alaskan native” law. You are choosing to focus mainly on the racial aspect. This is, obviously, a difference of opinion as to what is important, but it’s hardly accurate or fair to call my position “obfuscating” — that is, intentionally evasive or confusing.

    I also think you need to be more careful with your words, as they are clearly not saying what you intend. Compare:

    As long as we have government, especially big government, with its loyalties to political rather than economic considerations, we will never be able to circumvent waste and abuse.

    with:

    The problem wouldn’t exist if government policy was not to insist on racial quotas and set-asides

    You’ve moved the goalposts from “government agencies avoiding competitive bidding” to “circumventing waste and abuse” and consequently gone from “the problem wouldn’t exist” to “we will never be able to [solve the problem]“.

    I had only asked you if specifically getting rid of “racial quotas and set-asides” would specifically end the problem of “government agencies avoiding competitive bidding”, which appeared to be your claim (@8), though now (@10) you say “of course” it isn’t. I’m not asking about ending all “waste and abuse”, just if this particular solution of yours would have the effect you claim it would.

  • http://www.toddstadler.com/ tODD

    DonS (@10), it seems that “the federal department involved was secondary to the issue at hand” pretty much because you say so. The Army/Interior Dept. are equal actors in this problem along with the “Alaskan native” law. You are choosing to focus mainly on the racial aspect. This is, obviously, a difference of opinion as to what is important, but it’s hardly accurate or fair to call my position “obfuscating” — that is, intentionally evasive or confusing.

    I also think you need to be more careful with your words, as they are clearly not saying what you intend. Compare:

    As long as we have government, especially big government, with its loyalties to political rather than economic considerations, we will never be able to circumvent waste and abuse.

    with:

    The problem wouldn’t exist if government policy was not to insist on racial quotas and set-asides

    You’ve moved the goalposts from “government agencies avoiding competitive bidding” to “circumventing waste and abuse” and consequently gone from “the problem wouldn’t exist” to “we will never be able to [solve the problem]“.

    I had only asked you if specifically getting rid of “racial quotas and set-asides” would specifically end the problem of “government agencies avoiding competitive bidding”, which appeared to be your claim (@8), though now (@10) you say “of course” it isn’t. I’m not asking about ending all “waste and abuse”, just if this particular solution of yours would have the effect you claim it would.

  • DonS

    tODD @ 11: Gee, it’s been a long time since we’ve had a conversation like this, especially simultaneously on three different threads. Good stuff. Not so good for productivity, however.

    “DonS (@10), it seems that “the federal department involved was secondary to the issue at hand” pretty much because you say so. The Army/Interior Dept. are equal actors in this problem along with the “Alaskan native” law. You are choosing to focus mainly on the racial aspect. This is, obviously, a difference of opinion as to what is important, but it’s hardly accurate or fair to call my position “obfuscating” — that is, intentionally evasive or confusing.” OK, fair enough. I see your point and I didn’t mean to imply that you were being intentionally evasive or confusing. My apologies for a poor word choice.

    The bottom line is what you said. You are focusing on one issue and I’m focusing on another. That’s fair — there are seldom matters that aren’t worthy of review from different perspectives. And there is no way that I want to be seen as defending federal procurement practices, whether in the defense department or in other departments. I was a federal government employee for eight years, and a lawyer for a defense contractor for four years — I have some clue as to how the sausage is made, and it isn’t pretty. From my perspective, I didn’t focus on the fact that the example happened to be a defense agency because it didn’t seem to be the kind of matter that is unique to the Defense Department. I have seen these kinds of arrangements, where contractors seek to find a minority company or small business to serve as prime for a contract, and then become the principal subcontractor, in order to gain a procurement advantage, frequently. I have a problem with the government picking favorites, and putting other, perhaps more worthy people or businesses, at a disadvantage. I don’t think that is good for our society and it’s also not good for the taxpayer. I hate it.

    As for my word choices, my reference to “waste” was specifically a response to your question about waste. I used the word because you did. Addressing the first statement you pulled, the first one is a global statement, acknowledging that, regardless of whether set-asides or other specific provisions favoring some bidders over others are put aside, government will engender waste and abuse at some level. It can’t be helped, because it is motivated by politics rather than efficiency. The second statement is directed specifically to the problem addressed by the post, that of abuse of set-asides, stating that the problem of bidders using minority businesses as fronts to gain bidding advantage would go away if set-asides were eliminated.

    Both statements are correct and consistent, in their respective contexts.

  • DonS

    tODD @ 11: Gee, it’s been a long time since we’ve had a conversation like this, especially simultaneously on three different threads. Good stuff. Not so good for productivity, however.

    “DonS (@10), it seems that “the federal department involved was secondary to the issue at hand” pretty much because you say so. The Army/Interior Dept. are equal actors in this problem along with the “Alaskan native” law. You are choosing to focus mainly on the racial aspect. This is, obviously, a difference of opinion as to what is important, but it’s hardly accurate or fair to call my position “obfuscating” — that is, intentionally evasive or confusing.” OK, fair enough. I see your point and I didn’t mean to imply that you were being intentionally evasive or confusing. My apologies for a poor word choice.

    The bottom line is what you said. You are focusing on one issue and I’m focusing on another. That’s fair — there are seldom matters that aren’t worthy of review from different perspectives. And there is no way that I want to be seen as defending federal procurement practices, whether in the defense department or in other departments. I was a federal government employee for eight years, and a lawyer for a defense contractor for four years — I have some clue as to how the sausage is made, and it isn’t pretty. From my perspective, I didn’t focus on the fact that the example happened to be a defense agency because it didn’t seem to be the kind of matter that is unique to the Defense Department. I have seen these kinds of arrangements, where contractors seek to find a minority company or small business to serve as prime for a contract, and then become the principal subcontractor, in order to gain a procurement advantage, frequently. I have a problem with the government picking favorites, and putting other, perhaps more worthy people or businesses, at a disadvantage. I don’t think that is good for our society and it’s also not good for the taxpayer. I hate it.

    As for my word choices, my reference to “waste” was specifically a response to your question about waste. I used the word because you did. Addressing the first statement you pulled, the first one is a global statement, acknowledging that, regardless of whether set-asides or other specific provisions favoring some bidders over others are put aside, government will engender waste and abuse at some level. It can’t be helped, because it is motivated by politics rather than efficiency. The second statement is directed specifically to the problem addressed by the post, that of abuse of set-asides, stating that the problem of bidders using minority businesses as fronts to gain bidding advantage would go away if set-asides were eliminated.

    Both statements are correct and consistent, in their respective contexts.

  • http://www.toddstadler.com/ tODD

    DonS (@12), thanks. Keep in mind that, from the beginning (@4), I have not been arguing for the “set-asides” but in fact said they “need to be repealed.” That said, I still cannot agree that the problem of government agencies avoiding competitive bidding “wouldn’t exist” if such set-asides were to be banned. And that is because you’re ignoring the demand side — that is, the Army, et al., who would still want to avoid going through the bidding process. After all, both Halliburton nor Blackwater seemed to have no problems obtaining no-bid contracts (or, at least, they avoided competitive bidding) without racial “set-asides”. That is why I think it is naive to ignore the demand from the Army/Interior for such outlets.

    Finally, criminy, can I introduce you to <blockquote>Foo</blockquote>? ;) Put your lengthy quote there instead of the word “Foo”, and it will show up rather more readably than what you did in your previous comment (@12). Style guidelines recommend doing this for any extensive quote, roughly defined as one that would otherwise take up several lines. If you’re not going to do that, may I then note that style guidelines recommend single quotation marks for quotes within a quote? Because, man, reading a quote spanning seven lines, offset by double quotes and containing a series of double-quote-laden phrases … man, that is hard on the eyes!

  • http://www.toddstadler.com/ tODD

    DonS (@12), thanks. Keep in mind that, from the beginning (@4), I have not been arguing for the “set-asides” but in fact said they “need to be repealed.” That said, I still cannot agree that the problem of government agencies avoiding competitive bidding “wouldn’t exist” if such set-asides were to be banned. And that is because you’re ignoring the demand side — that is, the Army, et al., who would still want to avoid going through the bidding process. After all, both Halliburton nor Blackwater seemed to have no problems obtaining no-bid contracts (or, at least, they avoided competitive bidding) without racial “set-asides”. That is why I think it is naive to ignore the demand from the Army/Interior for such outlets.

    Finally, criminy, can I introduce you to <blockquote>Foo</blockquote>? ;) Put your lengthy quote there instead of the word “Foo”, and it will show up rather more readably than what you did in your previous comment (@12). Style guidelines recommend doing this for any extensive quote, roughly defined as one that would otherwise take up several lines. If you’re not going to do that, may I then note that style guidelines recommend single quotation marks for quotes within a quote? Because, man, reading a quote spanning seven lines, offset by double quotes and containing a series of double-quote-laden phrases … man, that is hard on the eyes!

  • DonS

    tODD @ 13: We agree on that point. There is no way the problem of government agencies avoiding competitive bidding “wouldn’t exist” if such set-asides were to be banned. You would just be giving them one less tool for doing so.

    Thanks for the tip. I always forget exactly how to type the blockquotes, so I wrote down what you typed above. I’ll try it the next time the issue comes up (if I can find the paper).

  • DonS

    tODD @ 13: We agree on that point. There is no way the problem of government agencies avoiding competitive bidding “wouldn’t exist” if such set-asides were to be banned. You would just be giving them one less tool for doing so.

    Thanks for the tip. I always forget exactly how to type the blockquotes, so I wrote down what you typed above. I’ll try it the next time the issue comes up (if I can find the paper).