The Bigger the Contractor, the Easier They Get Away With Cheating

The Project on Government Oversight (POGO) is a small Washington outfit engaged in a massive job: Keeping an eye on government contractors that collectively get paid over a half trillion dollars a year to carry out the public's business. Many of these contractors are exceptionally well-connected inside the Beltway and lubricate the political process with millions of dollars in campaign contributions. This can make it hard to ensure they are subjected to tough oversight. 

But there is another problem with some of these contractors: They are so big and undertake jobs of such scale and complexity that they are indispensable to government operations. So when they do something illegal -- like ripping off taxpayers or polluting the environment or engaging in bribery -- it is hard to effectively punish them because the ultimate sanction of barring them from government work is seen as unrealistic. Think of this problem as a variation on the "too big to fail" dilemma. 

What does this mean in practice? It means that certain large contractors get away with stealing from the government again and again. More commonly, though, it means that companies guilty of illegal behavior that is not related to their contract work continue to do business with the U.S. government. As reportedin the New York Times recently, POGO has compiled a database of contractor violations going back 15 years. And what a sorry record it is, showing that the top 100 contractors have paid nearly $20 billion in fines for a whole range of abuses, such as fraud, environmental violations, and falsifying records. (You can check out the database at www.contractormisconduct.org.)

The database includes some shocking information. The defense contractor Boeing, for example, has paid $1.6 billion in penalties since 1995 for 39 instances of misconduct -- but is still a key U.S. contractor. Other top defense contractors, like Northrup and Lockheed Martin, have also each paid hundreds of millions in penalties for dozens of illegal acts. Pfizer has paid an astonishing $2.9 billion to settle government suits, mostly related to the illegal marketing of drugs, but still gets government work. The energy giant BP has been penalized for 53 violations to the tune of $1.6 billion -- yet still gets work from Uncle Sam. 

In effect, the U.S. government is doing business with career criminals. Why? Because government officials view these contractors as indispensable. Even before the Gulf oil spill, EPA officials wanted to ban BP from government work until it addressed environmental problems. But the Pentagon objected, saying that BP was the biggest supplier of fuel to the armed forces and banning it from government work would create all sorts of disruptions. 

That seems like short-term thinking. Curbing widespread lawlessness in the corporate sector requires using all the tools that the government has its disposal. And because getting criminal convictions and sending executives to jail has proven elusive, in large part because of the complexity of these cases, disbarment from contract work is all the more important as a means of punishment.