Federal contract law: Disaster reveals cracks in procurement process

Joseph J. Petrillo

The federal response to Hurricane Katrina was a fiasco and, unfortunately, procurement was part of the problem. As time goes on, more and more contracting issues come to light.

First, there weren't contractual vehicles in place to provide many of the necessary resources for relief and repair. Without such vehicles, the Federal Emergency Management Agency and others had to award contracts on a sole-source basis, sometimes orally. Given the critical urgency, some sole-source contracts were probably unavoidable. But there were too many, and too many of them weren't limited to immediate stopgap measures. Public outcry forced a reassessment, and a commitment to compete the contracts soon. Without this pressure these noncompetitive buys might have stretched on into the distant future.

Perhaps it is unfair to judge the system by its reaction to Katrina, an extraordinary event by any measure. But stress often reveals weak points. The government departments involved are the ones we turn to in extreme circumstances. They are supposed to plan for catastrophe and to know how to respond when catastrophes hit.

The first instinct of the Defense Department was hardly encouraging. Rather than expect the procurement workforce to meet the need, DOD made every holder of a purchase card into an instant contracting officer with a $250,000 warrant. The purchase card program is mired in well-deserved controversy, and expanding it in this way hardly improved confidence that the public's money was well spent.

More recently, questions were raised about the levee construction process. The walls failed long before they were supposed to. This means poor construction, faulty design or both. Contractors built the walls for the Army Corps of Engineers and may have designed them, too. Faulty administration of these contracts raises questions that go far beyond New Orleans, since the Corps is the nation's largest public works entity. How many other critical projects are at risk?

How did we get here? The foundation for this mess goes back to the procurement changes of the 1990s. Maybe it's high time to focus on the unspoken premises behind those changes.

The changes sacrificed competition to achieve efficiency, assuming that market forces aren't important in procurement. The new procedures posited that faster is always better. And they focused only on the cost of making a transaction, not whether the transaction itself was a good deal. All these assumptions are wrong.

Focusing on transaction costs had particularly corrosive effects. Streamlining the buying process justified cutting acquisition personnel. Now these decimated contracting departments are stretched too thin to do a proper job, much less add value to the process.

The former chief procurement officer at the Homeland Security Department, Greg Rothwell, understood that you couldn't have good contracts without an adequate workforce. He had announced plans to hire 400 to 500 new procurement people. It's a start.

Let's hope we get some good people at DHS. It might help if the politicians stop vilifying federal workers. The best way to get elected, it seems, is to blame everything on an inept bureaucracy. This is not a great way to encourage quality staff to join the government.

The procurement changes of the 1990s never delivered on their promise to focus on results rather than process. Instead, they have given us an anemic system without safeguards, transparency or accountability. It's a house of straw.

Joseph J. Petrillo is a lawyer with the Washington law firm of Petrillo & Powell. E-mail him at jp@petrillopowell.com.

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