In February 2012 the Inspector General (IG) at the US Department of Defense released a report [PDF] finding that DOD had awarded hundreds of millions of dollars in Service-Disabled Veteran-Owned Small Business (SDVOSB) program funds to potentially ineligible contractors. The IG also found $1.3B worth of additional contracts that were inaccurately coded in the Federal Procurement Data System–Next Generation (FPDS-NG) federal procurement database. This reflects two sets of issues that have plagued federal and defense contracting for years.

The first issue relates to federal acquisition rules that start from good intentions but do not end up being fully enforced, in their spirit or letter. The US government has failed to meet its self-imposed goals on SDVOSB since they were put in place almost a decade ago, not to speak of the 1953 Small Business Act. The American Small Business League was noting very recently how large businesses keep being awarded set-asides they are not eligible for. One way to do just that often in use in the defense space is by contracting Alaska Native Corporations (ANCs). Overall, the FY12 report by the Small Business Administration IG shows some of amount of progress by bureaucratic standards that do not necessarily translate into “well now we actually stick to the rules we set for ourselves.”

The second issue is one of transparency and accountability. The federal government has piled up several databases over time to keep track of requests for proposals, contract actions, contractors et. al. To this the Department of Defense and the services have added their layers of poorly integrated software to track program costs, performance, and other overlapping data. Despite occasional claims to the contrary, these tools remain a morass of confusing, often poor data. It is not rare to find contract actions worth dozens of millions of dollars in FPDS-NG that have a missing or garbled description, if they have a description at all. Whether set-aside status is properly documented in FPDS is unfortunately not that database’s most pressing data quality issue.

In recent years the Obama administration has made compelling claims of transparency and did overhaul some of the websites that relay federal spending information to the public. However, behind the web 2.0 veneer of USAspending,org are the same old data sources. This gives the unsuspecting user the ability to easily generate nice maps and charts that can be quite misleading if not outright false. Development of FPDS-NG has stalled to version 1.4 about two years ago, while GAO’s funding of a consolidation effort known as the System for Award Management (SAM) seemed to have faced difficulties in recent months, despite a $74M award to IBM to consolidate federal acquisition databases (8 or 9 of them, it is hard to keep up without a database of databases). SAM’s rollout plan has already been delayed and it will take years before it reaches completion.

In the meantime, the same old endemic issues will keep resurfacing until fundamental changes are made. In short, while waiting for GAO’s SAM, DID tells DOD IG: GIGO.

It is a situation that has raised some eyebrows: the Coast Guard commandant last weekend honored a contractor accused of fraud by the Justice Department.

But several experts say the apparent disconnect between agencies is fairly common and reflects the complex realities of federal contracting. It is not unusual for an agency to continue work with a contractor who is being investigated or sued by another arm of the government, at least until the case is resolved, the experts said.

“It actually is business as usual and does happen on a fairly regular basis,” said Gary Therkildsen, federal fiscal policy analyst for OMB Watch watchdog group.

“It isn't unheard of for Justice, Congress, or the public to have a negative view of contractor operations and performance while the government continues doing business with that entity,” agreed Scott Amey, general counsel for the Project on Government Oversight, a watchdog group.

On March 2, Coast Guard Commandant Admiral Robert Papp praised contractor Bollinger Shipyards at a ceremony attended by about 500 people in Lockport, La. The event was held by the Coast Guard to accept delivery of the latest cutter built by Bollinger.

Meanwhile, the Justice Department in August 2011 went to court to accuse Bollinger of making false statements to the Coast Guard on a related contract. The DOJ’s unresolved False Claims Act lawsuit against Bollinger seeks unspecified damages expected to be in the millions of dollars from the company.

The U.S. attorney general claimed Bollinger made false statements about the eight patrol boats it was lengthening for the Coast Guard. The completed boats were rejected as unsound.

Nonetheless, the Coast Guard has continued to award contracts to Bollinger. The agency signed a $180 million contract with Bollinger for the production of four more fast-response cutters in September 2011.

“When DOJ brings a suit like that, it is kind of a big deal, but contractors are accused, and in process of working out claims, all the time,” Therkildsen said. Because of the “innocent until proven guilty” presumption, work generally continues until, and unless, the contractor is suspended or debarred.

The competitiveness of the market for the particular service or product is a major factor in how the situations are handled, he added.

“With a lot of these large contractors, they are ‘too big to debar,’” he said. “The government ends up relying on their services and no one else can provide the services that they can. The government is caught in a Catch 22 situation where, sure, they’d like to go after the contractor, but they cannot be too harsh because in the end they end up needing their services.”

“The fact that there is a False Claims Act case does not mean the company is guilty. In contracting, there is still a principle of ‘innocent until proven guilty,’” said Alan Chvotkin, executive vice president of the Professional Services Council.

Furthermore, for specialty work in fields with few alternatives, federal agencies often continue to work with accused contractors, Chvotkin added.

In Bollinger’s case, “I suspect there is not a lot of competition, so it would not be unusual to continue to do business unless they are suspended or debarred for future work,” Chvotkin added.

Furthermore, since False Claims Act cases often take several years to resolve, activities can continue as normal for quite a while under the cloud of an accusation, he said. For example, the ceremony that Papp attended to accept delivery of the cutter that Bollinger built is a standard ceremony performed upon delivery of such vessels, and it would be typical to hold such a milestone ceremony.

The DOJ typically gets involved in only about a dozen large False Claims Act cases a year, Therkildsen said. Even so, work continues for the contractor until the case is resolved.

Watching a federal official honor a company accused of fraud can be off-putting. “When you see these things, it is jarring,” Therkildsen said. “As far as the question of ‘When is it going over the line?’ It’s subjective.”

And other factors may be in play, said Amey, of the project on government oversight group, which maintains an online database of federal contractor misconduct.

For example, the agency may be satisfied with previous work by the contractor, or may not want to jeopardize the timing of a program by starting over, Amey said. Also, a key lawmaker may wield influence over agency funding while also striving to support an important employer in a particular district, he suggested.

Despite all those factors, in the best case scenario the government agencies should consider misconduct allegations when awarding contracts, said Amey.

“When it comes to contract-related fraud or misrepresentations, the government should think twice about providing any new taxpayer dollars to those abusing the public trust,” Amey said.