Defense bill proves lucrative for biggest firms

There's an old theory in Washington that since the competitive bidding process tends to favor the largest contractors, congressionally appropriated earmarks are necessary to allow smaller firms access to the federal procurement market. But the premise of that argument, used for decades by lawmakers to justify directed appropriations to favored home-state businesses, may be somewhat overstated.

An analysis by Government Executive of the 2008 Defense Appropriations bill, signed earlier this month by President Bush, shows that the 20 biggest federal contractors received at least 80 earmarks worth more than $212 million. (See the chart below for a full list of the companies and their earmarks.)

That figure is almost certainly understated because a significant percentage of earmarks fail to list a designated recipient -- a legislative loophole carved out by the Senate. Earmarks directed to subsidiaries of large contractors also may not have been attributed to the parent company.

While a relative drop in the bucket compared to the more than 2,100 earmarks worth nearly $8 billion sprinkled throughout the bill, the analysis shows that congressionally appropriated pork is by no means limited to mom-and-pop operations or nonprofit research laboratories.

"What you see with these numbers is that the big guys are getting these earmarks too," said Steve Ellis, vice president for programs at Taxpayers for Common Sense, a nonprofit budget watchdog in Washington that analyzes and publishes databases of earmarks in appropriations bills. "They are getting contracts; they have lobbyists and make [campaign] contributions," he said. "They know how to work the system."

Earmarks refer to funds that a member of Congress directs to be spent on a specific project. They are not subject to competitive bidding. Until recently, discovering the beneficiary of these earmarks was a complicated task, even for the most adept researcher of public documents.

But in light of earmarking scandals that helped send former California Republican Rep. Randy "Duke" Cunningham to prison and ensnared lobbyist Jack Abramoff and several of his associates in a separate investigation, Congress moved this year to shine a light on the process.

The House passed a provision that for the first time required lawmakers to publicly certify their authorship of earmarks as well as their intended beneficiaries. The Senate passed a similar provision, but in July, the chamber's leadership watered down the rule, requiring only that senators certify that the earmarks they requested would not result in personal financial gain.

Consequently, the 80 earmarks in the Defense appropriations bill discovered by Government Executive represent only those that were sponsored or co-sponsored by a member of the House. Meanwhile, roughly 40 percent of the earmarks -- worth a whopping $5.3 billion -- were sponsored only by one or more senators, and the intended recipient of those funds remains unknown.

The available data shows that 13 of the 20 biggest contractors secured lucrative earmarks, often with a value of several million dollars. Those 13 firms combined to receive more than $131 billion in federal contracts last year, representing more than 30 percent of the total contracts awarded to all companies.

The biggest beneficiary among the industry goliaths was L-3 Communications, the New York City aerospace and defense systems provider. L-3 received 19 earmarks worth more than $54 million -- nearly double that of the second-highest dollar value recipient, Northrop Grumman of Arlington, Va. San Diego-based SAIC received a total of 11 earmarks, the second-most among the top 20 firms.

Interestingly, former Halliburton subsidiary KBR, the sixth-largest Defense contractor and the biggest recipient of federal contracts for work in Iraq and Afghanistan, did not receive a single disclosed earmark in the appropriations bill.

L-3's earmarks cut across a number of sectors, including aerospace ($2 million for an airborne infrared surveillance system); missile defense ($15.2 million for the Affordable Weapons System program) and intelligence collection ($2.4 million for modifications on the RC-135 Rivet Joint aircraft). L-3 would not comment about the earmarks.

Members of the House initially intended to direct significantly more funds to the nation's largest contractors. The original 2008 House Defense Authorization bill directed nearly $250 million to the top 20 contractors, but that figure was trimmed slightly in conference with the Senate. Only one earmark to a top 20 firm was eliminated altogether: a $1 million award to Computer Sciences Corp. of El Segundo, Ca. for a wireless blade monitoring system.

Democrats were slightly more generous than their Republican counterparts, doling out 54 percent of the earmarks to the top contractors.

But party affiliation had far less impact on which companies received earmarks than did geography. Lawmakers distributed 85 percent of earmarks to firms that will perform the work in the legislator's home state.

Critics of the system suggest that this kind of deal-making does not always result in the best deal for taxpayers or the government.

Kevin Carroll, who recently retired as Army's program executive officer for enterprise information systems, said the majority of Defense earmarks go to large companies that know how to work the system, promising to bring jobs and improve infrastructure in a legislator's district.

"These large firms have more professional lobbying operations and wield more influence than the brand new startup guys," Carroll said.

Ellis of Taxpayers for Common Sense said the system is set up so that the largest firms continue to grow through contracts and earmarks while the "little guys get table scraps. . . . People see earmarks as a way to short-circuit the competitive bidding process."

However, that free ride soon could be coming to an end. A provision in the Senate version of the 2008 Defense authorization bill would make earmarks subject to competitive bidding regulations. But the provision may never make it to the president's desk.

Earlier this month, Taxpayers for Common Sense, along with nine other watchdog groups, sent a letter to every member of Congress suggesting that the leadership of the House Armed Services Committee was working to strip the provision from the bill. The committee refused to comment.

In a perfect world, Carroll said, all earmarks would be competitively awarded, thereby reducing prices and potentially improving innovation.

But, since many earmarks are actually continuations of ongoing contracts that may have lost some funding or did not receive the infusion of cash originally expected, competition could, in fact, confuse the process. For example, if a company holds a contract to build mine resistant tanks for the Army and a portion of that project is earmarked and competitively awarded to another firm, the result could be that two contractors, with vastly different procedures and design plans, would be forced into an uncomfortable partnership.

"It could screw up the systems integration concept," Carroll said. "We would have to build solutions with another systems integrator and force the contractors to work together."

Earmarks for Top 20 Contractors, 2008 Defense Appropriations Bill