While Congress was away for its August recess, the Commission on Wartime Contracting in Iraq and Afghanistan continued its work, holding a hearing on Aug. 11 to investigate deficiencies in contractors' business systems. The timing of the hearing prevented some significant problems from receiving much public attention.

The hearing explored the challenges that government oversight officials face when contractors’ systems for billing, purchasing, labor, compensation, estimates, and other activities are inadequate for providing complete, accurate, and timely information. The commission also looked at the bureaucratic infighting that can occur among government oversight agencies. Altogether, the hearing displayed troubling glimpses of a broken contracting process that wastes billions of taxpayer dollars every year.

Prior to the hearing, the commission examined contractor business systems involved with tracking company information related to some $43 billion in contracts and learned federal auditors found half of the systems for billing and compensation “inadequate.” According to the commission’s June interim report:

Significant deficiencies in contractor systems increase the likelihood that contractors will provide proposal estimates that include unallowable costs or that they will request reimbursement of contract costs to which they are not entitled or which they cannot support.

These deficiencies cost taxpayers billions of dollars each year, and, according to former Rep. Christopher Shays (R-CT), co-chair of the commission, some of these “contractors have had inadequate systems in place for years” and have not suffered any serious consequences because of it.

The lack of repercussions for contractors raised two questions for the commission: how could contractors operate with inadequate systems for an extended period, and how could those tasked with oversight allow it to happen?

Brought before the commission to answer the first question were executives of DynCorp International, Fluor Corporation, and KBR, the latter of which was the sole-source contractor for the third iteration of the Army’s Logistics Civil Augmentation Program (LOGCAP), and which now competes with the first two contractors for awards in LOGCAP IV. KBR’s widely criticized handling of LOGCAP III dogged Senior Vice President William Walter throughout most of the hearing, as the commission focused on KBR and used the company as a symbol for the broken contracting system at large.

Commission members argued during the hearing that because the company is so large and extensively integrated into Department of Defense (DOD) operations, KBR feels it can get away with almost any transgression, including the continuation of inadequate billing and compensation systems. Walter rejected this characterization and argued that, while the company disagrees with government auditors over the exact quality of its systems about half the time, KBR has always been found to have adequate business systems by the one auditing agency that matters: the Defense Contract Management Agency (DCMA).

This gets to the second question about how contractors continue to operate with seemingly deficient systems, yet repeatedly win and keep contracts with the government without consequences from those tasked with oversight. The answer lies in a tale of bureaucratic turf war between the DCMA – the contracting representative of DOD – and the Defense Contract Audit Agency (DCAA), which as the agency’s title suggests, audits and advises on defense contracts for DOD. DCAA's recommendations, however, are not legally binding on DCMA, and the management agency routinely ignores the audit agency’s suggestions. This arrangement further undermines sufficient contracting oversight at DOD, as the commission feels DCAA audits are more thorough and trustworthy compared to DCMA’s analyses.

This conflict is at the heart of many of the challenges facing sufficient defense contract oversight within the federal government. In fact, as the commission revealed during the hearing, contractors can hide from the harsh eye of DCAA behind DCMA’s admittedly soft investigations. This working relationship between the two agencies has affected defense contracting since at least 2002, according to the director of DCAA, April Stephenson.

With wartime activities declining in Iraq and contractors preparing to ramp up services in Afghanistan, the lack of regard shown DCAA by DCMA, which once had a staff of over 100 but now numbers in the teens, portends significant difficulties for oversight of contingency operations. Combine that with the warm reception given those problems by contractors, and taxpayers face the potential for sizeable dollar losses due to hamstrung oversight and contractor negligence.