In an August 2007 article entitled "Political Connections and the Allocation of Procurement Contracts," Eitan Goldman, Jorg Rocholl and Jongil So constructed an analytical model that, in the authors’ opinion, establishes an empirical link between "political connections" and the allocation of Government contracts. The authors’ conclusions are perhaps best encapsulated by the following passage from page 4 of their study:
…companies that are connected to the winning party experience an increase in their contracts upon a change in control of the House or Senate or upon a change in control of the administration, while those connected to the losing party suffer a decrease in their procurement contracts following these changes … The paper thus highlights one crucial way in which political contributions can have a direct influence on company value.
Readers are, of course, free to agree or disagree with the study, to disregard it, or to attack it premises and methodologies. The fact that the study exists, however, is probably reflective of an increasing cynicism with respect to the operation of Government as a whole. Those who have worked with the Government procurement system, whether as participants, advisors, or counselors, while no less cynical than the population as a whole – and perhaps more so in some respects – are not likely to embrace or applaud the study, or to compliment its methodological approach to a highly complex issue.
In this latter regard, we are pleased to provide in this issue a Guest Commentary relating to the above-referenced study. Our Guest Commentator needs no introduction to those whose Government Contracts experience predates the advent of cell phone technology, the internet and MTV. William P. Rudland is the former Chief Trial Attorney of the United States Air Force. Following his retirement from the Air Force, Bill practiced Government Contracts law, both in private practice and in the corporate world, and authored the well known book "Defective Pricing" (Federal Practice Press, 1990). Bill’s comments on the study are as refreshingly candid as those he reserved for unmeritorious appeals in his prior life.
By William P. Rudland (Col., USAF, Ret.)
The statistical premise of the model (the political affiliations of members of Government contractor boards of directors) has produced a flawed output, reminiscent of many other grant-driven pseudo-scientific studies that are the bane of our times. (Climate change studies come immediately to mind.)
I have been around the world of Government contracts a few times over the past half century or so. I have rarely encountered an attempt to fraudulently award a Government prime contract, much less a subcontract (which is totally ignored by the study.) The selection process has built-in layers of safeguards against awarding competitive acquisitions on any basis other than a fair evaluation of proposals. The very suggestion that a company’s board member may, at the very end of a multi-year selection process, be able to influence a Congressman or DOD official to skew a process that involves an array of acquisition officials to select Manufacturer A over Manufacturer B is preposterous. Think what you may of the venality of Congressional and high level Defense acquisition officials, they are not a collection of crazy people looking for the fastest route to the penitentiary.
The Boeing/Darlene Druyun affair was one of the very few fraudulently induced contracts I’ve ever seen or heard of in my life in the Government acquisition business on both the Government and contractor sides of the fence. (Recall that the Boeing leased tanker program did not involve a fraudulent selection of one contractor over another although it may be argued that the effect of the fraud was the same. Perhaps more relevant is the fact that the Druyun affair turned on old fashioned self-dealing — a high paying post-employment job in exchange for favorable procurement treatment — not "politics.")
Almost all of the so-called fraud, waste and abuse cases we used to read about in the ’80s (and which generated more heat than light) involved post-award performance issues, particularly arcane cost accounting practices, e.g., the earliest date progress payments may be billed to the Government, the proper accounting for proposal costs, etc., and not pre-award selection issues. To the extent that influence may be a factor in a source selection process (by which only a fraction of DOD’s acquisition dollars are obligated by the way), it is done in the trenches at the requirements and award criteria development levels. These people are typically highly trained and skilled engineers and acquisition professionals from a variety of disciplines. They are, almost without exception, trying to do an honest job of selecting the best weapon system they can with the money available in the interest of the defense of the United States against foreign military threats. That may come as a bizarre motivation to some, but it happens to be the keystone truth of this entire discussion. To the extent the source selection folks are influenced by competitors, the influence is bona fide and critical to the selection process.
As for contracts awarded by sealed bid or competitive negotiation, which typically involve logistical support goods and services, and where most of the procurement dollars are obligated, award is invariably made on the basis of low price, assuming the product meets well defined technical parameters and delivery requirements. If the process should go awry for whatever reason, including unnecessarily restrictive specifications, the protest route is available to the disappointed competitors. In my experience, those competitors are not reticent when it comes to availing themselves of the relatively inexpensive GAO remedy. In the occasional case where a supplier may unjustifiably gain a sole source foothold, fraud is rarely the explanation. In any case, such examples involve very low dollars in the big scheme of things, albeit the tanker case is a large dollar example of just such an instance and where criminal conduct was, indeed, involved. Bear in mind, however, that it was Sen. McCain who blew the whistle in that case — which tends to undermine the authors’ premise about improper Congressional influence.
As for subcontracts, where most of the action lies when it comes to the disbursement of federal procurement dollars, the authors provide no discussion whatever. I cannot even conceive of a scenario whereby a subcontractor’s board member influences, by way of DOD or Congressional interference, the procurement decision of the next higher sub or prime to its customer’s profit detriment.
The bottom line, if the study’s implications are true, is that the payoffs in money and favors would be enormous given the number of people on the take and the number of bribers. The U.S. acquisition process, while certainly not free of corruption, is not conducted at the level of corruption seen in the third world and posited by the study’s implicit conclusions.
Click here to view a PDF copy of the study.