The Public Policy

No Fault Government Contracts

Where is the accountability?

By 12.7.13

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The Navy recently christened the USS Gerald Ford in Newport News, Virginia, with considerable fanfare and the traditional smashing of a bottle of champagne across the bow of the ship — the most technologically advanced aircraft carrier the United States has built.

The fancy new ship cost taxpayers $13 billion, including a shameful $2.5 billion cost overrun! That’s an overrun of almost 20%, hardly a rounding error. 

Really? A $2.5 billion overrun. I’m sure taxpayers are scratching their heads wondering who will pay that outrageous tab. Well, since the carrier is being built under a cost-plus, incentive-fee contract , the Navy pays for most of the overruns. That means we taxpayers get stuck with the monster tab!

Meanwhile, the government has spent over $500 million on the Obamacare computer system provided by CGI Federal that malfunctioned and virtually crashed the entire Affordable Care Act program. Simply put, the rollout of the centerpiece of the president’s domestic agenda has been an embarrassment for which he has apologized to the American people on several occasions. But apologies aren’t enough. Where is the accountability?

Government has a long history of spending money unnecessarily (remember the Pentagon’s $400 hammer back in the Reagan administration?). But, in an age when the U.S. is home to the world’s largest, most successful Internet companies, how is it possible that we can’t even manage to build a functional website without blowing through hundreds of millions of dollars?

Instead of imposing penalties on CGI Federal for its failure to provide a workable computer system for the ACA, the company that created the error-plagued Obamacare exchange website has recently been awarded several other government contracts.

Since the Obamacare exchange website launched on October 1, government officials have signed at least five different agreements with CGI totaling $7 million. The contracts were for computer and software development at the Department of Health and Human Services, the Department of Commerce, and the Environmental Protection Agency.

One contract, for instance, was signed October 19 by Department of Commerce officials that gives CGI Federal $266,164 to provide "IT and Telecom Systems Development" for the Patent Office. 

So, rather than imposing contract penalties on the government contractor primarily responsible for the problem-plagued launch of the Obamacare website, the company has been rewarded with more contracts. Go figure!

Taking the issue of government contracts closer to my home, consider the disastrous launch of the Chicago Transit Authority’s Ventra computerized fare payment system. The program has been plagued with problems from the start with customers experiencing difficulty activating their cards and scanning difficulties at subway turnstile and on buses. In short, rollout of the new Ventra card has been an unmitigated disaster.

San Diego-based Cubic has a $454 million contract with the CTA to provide and operate the electronic fare collection system. Wonder what kind of penalty clauses there are for system failures like the one during a recent rush hour that cost the CTA an estimated $33,750 when a Ventra computer outage hit 60 CTA stations, resulting in 15,000 free rides.

CTA President Forrest Claypool has vowed that Cubic won’t be paid one cent until the numerous flaws in the system are corrected and the program is running properly. That is an important commitment to protect taxpayers investment in the system, but with a properly written contract that promise shouldn’t be necessary. The contract should have automatic penalties and liquidated damage provisions that are triggered immediately when the product delivered doesn’t comply to the letter with all exacting specifications.

In the mysterious world of government contracts, federal, state and local, all too often contractors are not held accountable for their failure to deliver a quality product in a timely manner. Government officials should insist on meaningful penalties and liquidated damages for cost overruns and delays in performance of the terms and conditions of all contracts.

A major reason for these glaring deficiencies in the federal contracting process is the continued revolving door that exists between government agencies and their contractors. Pentagon officials, high level officials with other government agencies, and long-time elected officials involved with Congressional oversight of procurement frequently take jobs in the private sector with government contractors. 

The result is the cozy, “good old boy” relationships that erode true arm’s-length negotiations. Existing ethic laws don’t fully protect the integrity of the government contracting process. Those laws need to be strengthened if the government contracting industry is to be held truly accountable.

Taxpayers should insist on no less than tightly written contracts with no-nonsense penalty clauses to avoid continuing to pay the tab for these staggering cost overruns.

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About the Author

Gerald D. Skoning is a Chicago lawyer who served as an officer on the aircraft carrier USS Independence from 1967-71.