Of the $38.6 billion worth of contracts and grants obligated to Iraq and Afghanistan during fiscal year 2008 and the first half of fiscal year 2009 by the Department of Defense (DOD), the Department of State (State), and the U.S. Agency for International Development (USAID), roughly $1 billion went to contractors to help administer some of the contracts and grants. A recent Government Accountability Office (GAO) report finds that DOD, State, and USAID often enter into these administration contracts haphazardly without checking for potential conflicts of interest or ensuring adequate oversight.

The government's extensive reliance on contractors throughout the wars in Iraq and Afghanistan is nothing new. DOD, State, and USAID have used contractors for everything from reconstruction efforts to providing security for government officials, all with mixed success. As this most recent GAO report shows, sometimes the government even turns to contractors to help with administering other contracts and grants. This can include "on-site monitoring of other contractors' activities, supporting contracting or program offices on contract-related matters, and awarding or administering grants."

Clearly, conflicts of interest could arise, as government decisions on contract and grant administration, which represent "the government's primary mechanism for assessing whether it is getting the expected products or services from contractors or whether grantees are performing in accordance with grant programs," might be "inappropriately influenced by, rather than independent from," a contractor's actions.

GAO found that these three agencies lacked any sort of overarching strategy in deciding when to use contractors to support contract and grant administration. It turns out that more often than not, "individual contracting or program offices within the agencies" made the decision "on a case-by-case basis." Moreover, contracting officials within DOD, State, and USAID often chose to outsource administration functions because they lacked a sufficient number of government personnel or in-house expertise to oversee the contract or grant.

Because none of the three agencies has a strategic workforce plan that incorporates how, when, or why they should outsource the administration of a contract or grant, GAO also found that DOD, State, and USAID often did not do enough to mitigate conflicts of interest or oversight risks. Although the three agencies "generally complied" with statutory and policy guidelines, they often did not utilize their broad discretionary powers to limit these risks as much as they could.

One example cited in the GAO report is illuminating:

Joint Contracting Command - Iraq/Afghanistan (JCC-I/A) awarded a $1 million contract to support the Armed Contractor Oversight Directorate in Afghanistan. The contractor, which itself was a private security contractor, was assigned a number of responsibilities related to oversight of private security contractors...[N]o clauses were included in the solicitation or contract that precluded the contractor from bidding on other contracts. After the support contract had been awarded and performance begun, the support contractor competed for and won a separate contract to provide armed guard services in Afghanistan.

Eventually, JCC-I/A counsel became aware of the situation – that a contractor would be responsible for its own oversight – and canceled the administration support contract, but the event sheds light on the lack of effort by the agencies to prevent conflicts of interest.

The other problem that GAO found with DOD, State, and USAID not employing a strategic workforce plan that reflects the outsourcing of contract and grant administration was a lack of sensitivity to contractors performing tasks closely related to inherently governmental functions. Without adequate oversight, administering contracts or grants can inappropriately influence the "government's control over and accountability for decisions that may be based, in part, on contractor work." Not only can performing those functions present a conflict of interest for a contractor, but the government can easily lose control of critical decision making processes, as well.

GAO also found that the three agencies have made improvements to their lackluster policies on outsourcing administration duties. DOD is currently working on policies to better address both organizational and personal conflicts of interest for contractors. DOD acknowledged that the Army’s contracting workforce is 55 percent of what it was in the mid-1990s, while the amount of work outsourced has jumped from $11 billion to $165 billion. On April 19, DOD told the Commission on Wartime Contracting that it would hire more contracting specialists and increase training for those overseeing contracts. State is examining a better policy on organizational conflicts, and USAID already has a decent system for addressing a contractor's personal conflicts. But the bigger question seems to be whether the government can ever adequately control accountability and oversight risks when outsourcing functions like this.

The Office of Federal Procurement Policy is currently reviewing a change to the inherently governmental policy. Good government groups like OMB Watch would like to see tasks so closely related to inherently governmental functions like contract and grant administration in-sourced by default, if not completely removed from the list of tasks the government can outsource. It seems that the government only perpetuates its inability to in-source a function by continuing to outsource it. Moreover, there is too fine a line between performing an inherently governmental action and one that is only closely associated. Bringing contract and grant administration under the "inherently governmental" umbrella would bring much-needed oversight to government contracting.