Panel to probe contractor business systems, rules on subcontracting

A bipartisan panel investigating procurement abuses in Iraq and Afghanistan will examine this week whether billions of taxpayer dollars are at risk from inadequate contractor business systems and deficiencies in the government's subcontracting rules.

On Tuesday the congressionally appointed Commission on Wartime Contracting will explore the challenges federal oversight officials face when systems some of the largest wartime contractors use for billing, compensation, cost estimates and purchasing fail to provide timely and accurate information. Business systems and subcontracting rules -- which will be the subject of an oversight hearing on Wednesday -- emerged as issues in the panel's interim report to Congress in June.

While conducting research for the interim report, the commission reviewed audits of contractor business systems used for $43 billion in federal work. The panel found investigators had deemed half the systems for billing and compensation inadequate and prone to unallowable costs. Panel staffers uncovered somewhat smaller problems with the systems used for accounting, budget, electronic data processing, indirect and overhead costing, labor and purchasing.

Christopher Shays, co-chairman of the commission, said self-interest should compel contractors to implement more effective business systems.

"Private businesses have much more flexibility than federal departments in changing procedures," said Shays, a former Republican congressman from Connecticut. "Yet some contractors have had inadequate systems in place for years without suffering serious consequences. We need to understand why this is happening and how we can identify changes that will promote better oversight to ensure accurate payments and to reduce waste, abuse and fraud."

The hearing, scheduled to last five-and-a-half hours, will focus on three of the largest companies operating in war zones: DynCorp International, Fluor Corp. and KBR Inc. The panel selected those contractors partly because they hold pieces of the Army's massive 10-year, $150 billion LOGCAP IV contract, commission spokesman Clark Irwin said.

William Ballhaus, president and chief executive officer of DynCorp; William Walter, senior vice president and director of government compliance at KBR; and David Methot, chief compliance officer with Fluor Government Group, are scheduled to testify.

Agencies have the authority to withhold payment if a company's business system is determined to be inadequate. "But, those requests are not often made, and even if they are made, they are rarely heeded," Irwin said.

A "judgment of inadequacy" is generally made by the Defense Contract Audit Agency, while the Defense Contract Management Agency determines how the contractor should implement the recommended changes, Irwin said. But the two agencies often disagree on the assessments, Irwin said.

DCAA Director April Stephenson, DCMA Director of Contract Business Operations David Ricci and Jeff Parsons, executive director of the Army Contracting Command, also will testify at the hearing.

Wednesday's hearing will examine the five-year, $4.5 billion Translation and Interpretation Management Services contract that provides translators and linguists to support American operations in Iraq.

The Army's Intelligence and Security Command awarded the contract to Global Linguist Solutions in 2008. One of the losing bidders -- former contract holder L-3 Communications -- protested the award initially, but later withdrew its challenge and entered a subcontracting arrangement with Global Linguist Solutions. Other vendors such as Northrop Grumman Corp. also serve as subcontractors.

"Contractual arrangements like this are in compliance with federal rules, but they need to be evaluated to determine if the practice results in substantially increased contract cost with minimal added value," said commission co-chair Michael Thibault.

Among those scheduled to testify during Wednesday's hearing are John Houck, president of Global Linguist Solutions; Thomas Miller, general counsel of L-3 Communications; Gregory Schmidt, vice president of Northrop Grumman Technical Services; John Isgrigg, deputy director of contracting at INSCOM; Forrest Evans, deputy program manager and contracting officer's representative at INSCOM; and DCAA's Stephenson.