Defense says extensive outsourcing on Iraq linguist contract is jacking up costs

Subcontracting by DynCorp's Global Linguist Solutions to provide language specialists in Iraq could cost the U.S. government millions of dollars, witnesses told the Commission on Wartime Contracting on Wednesday.

According to Defense Contract Audit Agency Director April Stephenson, GLS has awarded $2.9 billion -- or 64 percent -- of a $4.64 billion contract to 18 subcontractors. Twelve of those subcontractors perform payroll functions for GLS linguists exclusively and have received almost all of that money.

"These 12 subcontractors do not hire, manage or interact with the linguists other than to pay the amount stipulated by GLS," Stephenson said.

So far, GLS has billed the government for $816 million of the contract. Of the money billed, $81.8 million represents add-on costs such as fringe, overhead and general administrative profits attributable to the subcontractors. If that trend continues, DCAA expects that as much as 12 percent -- or $556 million -- of the total contract could go toward add-on expenses for subcontractors performing payroll functions.

Given the cost-plus award fee structure of the contract, members of the commission questioned the need for this extensive subcontracting structure.

"There is certainly nothing wrong with a prime contractor calling in subcontractor assistance for a surge in work or for special skills, capabilities or support," said commission co-chairman Michael Thibault. "In the case of GLS, there is the question whether the contract's extensive outsourcing of administrative work represents business necessity or some other consideration."

Stephenson said she has never before seen this degree of prime-subcontractor integration to perform primarily payroll functions.

"If you look at the numbers and the functions that are being performed by the subcontractors, one does have to ask what is the value … the numbers do jump out and you have to ask, 'Is that an appropriate amount to pay for that function?' " Stephenson said.

While commissioners criticized GLS for what commissioner Charles Tiefer, a professor at the University of Baltimore's law school, called the "ridiculously set up subcontracting structure," government representatives said their main concern is keeping costs down.

"I don't care if they subcontract all the work out, but they're going to stick to the cost deemed fair and reasonable at the time of the award, or something similar to that," said John Isgrigg, deputy director of contracting for the Army Intelligence and Security Command, which manages the linguist contract. "That's the only way I have to manage this monster."

GLS President and General Manager John Houck said the way the contract has been set up minimizes the risk of conflict between subcontractors and linguists, which could endanger U.S. troops.

"If a subcontractor was to not pay their linguists, if they were to not manage the linguists properly and a linguist decided to leave the contract, that would have a direct impact on the mission," Houck said. "This is why we've adopted this unique, somewhat unorthodox, management approach, to mitigate the risks to the warfighter on the ground."