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Newsletter | August 23, 2023

Overbilling, Underdelivering, Labor Violations: We Need More Accountability for Federal Contractors

Corporate CrackdownDepartment of Justice
Overbilling, Underdelivering, Labor Violations: We Need More Accountability for Federal Contractors

DOJ’s penalty for Booz Allen Hamilton ripping off the government is tens of millions less than a whistleblower thinks the company stole. 

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The $377 million settlement between the Justice Department and military contractor Booz Allen Hamilton didn’t go nearly far enough, according to a whistleblower, whose complaint led the DOJ to uncover hundreds of millions of dollars in overbilling by the firm, Politico reported this week

The controversy over the settlement – its size, and the slow process by which it was reached – highlights a systemic issue with government oversight of federal contractors, despite the massive size of the federal contracting industry. 

When the DOJ, and other agencies, fail to proactively enforce regulations to address and discourage corporate wrongdoing, they allow and even incentivize corporations to continue taking advantage of people. As we’ll argue here, making federal contracting reform part of a broad Corporate Crackdown agenda should be a top priority for President Biden and agency leadership.

What happened at Booz Allen Hamilton? 

Whistleblower Sarah Feinberg, who worked at Booz Allen from 2010-2016, “noticed that the company was overbilling the U.S. government for its defense and national security contracts.” 

Feinberg claims she personally recorded $250 million in overbilling over that period, which makes up only half the time period (2011-2021) that DOJ investigated. Feinberg estimates that the amount of the overbilling was closer to $500 million, and speculates that the DOJ may lack the technical financial capabilities to “understand what they were looking at” in calculating the extent of the contract fraud and overbilling. With this assessment, she suggests that “this settlement…really represents an interest-free loan from the government rather than a penalty for the fraud.”

Another sobering figure is the total amount that Booz Allen Holding Corporation has received from the federal government. In FY22 alone, the company took in $6.4 billion in federal contracts. Between 2011-2021, the period covered by the DOJ investigation (which took “six or seven years” to complete), the company received over $48 billion in such contracts. The massive amount of revenue that Booz Allen received from federal contracts puts the $377 million penalty for a decade of misconduct into perspective, as less than 1% of the federal money Booz Allen pocketed over that period of time. 

The Federal Government Contracting System Has Been Broken For a Long Time

The issue of overbilling costing taxpayers money extends far beyond the Booz Allen incident, because government contracting is a huge industry. The federal government spent $694 billion on contracts in FY 2022, up $3.6 billion over the previous year, according to figures the Government Accountability Office published last week

As we’ve written about previously, harms perpetrated by federal contractors can be categorized into three core issues: overbilling, underdelivering on contracted services, and abuses of workers. In overbilling cases like the Booz Allen Hamilton settlement, contractors can bill administrative costs and costs associated with other work to the federal government, relying on lax auditing and enforcement to get away with fraud. In other cases, federal contractors fail to provide the full services they’ve been engaged to provide — which can range from the F-35 fighter “debacle” to failures with IRS technology that go back to the Clinton Administration — with few steps taken to hold them accountable.

Finally, employment law advocates and others have found that federal contractors routinely abuse workers. As my colleague Toni Aguilar Rosenthal has written, “Years of examinations by the National Employment Law Project (NELP) have found the current contracting system to be riddled with abuse, with a culture defined by “poverty wages, little to no benefits, and labor policy violations that are difficult for workers to redress,” in violation of contracting policy and other federal labor-related laws.” Further,  “the Center for American Progress revealed that between 2014 and 2019, contractors were barred from new federal contracts in less than 2 percent of cases in which they were found in violation of contracting policy.”

While the federal government theoretically has laws requiring contractors to live up to certain labor standards, these laws are only useful if they’re enforced, and too often, inactive procurement processes by agencies and specifically procurement officials means these regulations only exist in theory, not in practice. 

Consider Amazon as one example. In April 2022, as we wrote last year, “the NLRB found that Amazon had been engaging in illegal anti-union activity. And yet the company was awarded a $10 billion dollar NSA contract that same month.” Even more egregious examples include allegations of human trafficking on U.S. military bases by contractors with Department of Defense contracts. 

When violations of labor law (and other basic human rights protections) are not directly translated into lost business for profit-hungry corporations, the federal government is effectively underwriting such abuses with taxpayer dollars, and allowing similar abuses at other corporations to continue unchecked. 

Finally, as we’ve argued, there isn’t adequate competition among federal contractors, many of whom act as monopolists in their areas of specialization, which allows these abuses of workers and taxpayer dollars to continue. 

Contracting is an Area Ripe for a Corporate Crackdown

The needed reforms in government contracting represent an area ripe for a Corporate Crackdown of the kind we’ve been calling for. That is to say, in the realm of contracting there are existing regulations on the books that could prevent the kinds of labor and financial abuses corporations are carrying out, and they aren’t being adequately enforced. Contracting agencies must leverage these regulations to better protect consumers, and to prevent taxpayer dollars from being squandered by exploitative corporations. President Biden and top agency officials should use their platforms to focus attention on these endemic issues. 

A whole-of-government effort to substantially reform the contracting system could lead to improvements in many areas, from labor law to environmental protections, while incentivizing better behavior from companies seeking taxpayer dollars. And cracking down on profiteering contractors is a good focus to counter bad faith centrist and Republican arguments about the deficit.

Addressing these issues in contracting reform also has the potential to benefit a large share of U.S. workers. As we’ve noted before, 25 percent of working US adults are employed by companies with federal contracts. Enforcing labor protections on contractors thus has the potential to improve working conditions for a large share of Americans, not just those carrying out contracted work. 

Contracting reform may sound niche and wonky, but under the umbrella of a broader crackdown on abuses and misconduct by corporations, it has the potential to ensure better protections for millions of workers, and improve services provided to millions more Americans. Delivering these kinds of materials wins is both good governance and good politics, which Biden and administration officials should be focused on at all times, but particularly headed into election season. 

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Corporate CrackdownDepartment of Justice

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