USA: Are Corporations Too Big to Debar?

Inquiry into Boeing Raises the Question1310of Corporation Size in Federal Discipline
Publisher Name: 
The Wall Street Journal

WASHINGTON -- Federal inquiries into whether Boeing Co. illegally won a
multibillion-dollar military contract are sparking debate here about
whether rules to ban companies that run afoul of the law from doing
government work are ineffective in policing corporate behemoths.

The Justice Department and the Air Force are investigating whether Boeing
wrongly possessed or used documents from rival Lockheed Martin Corp. to
win a 1998 competition to build the military's next-generation rocket.
Boeing officials say they are cooperating with federal officials. In an
advertisement Monday in national newspapers, Boeing Chairman Phil Condit
defended its work on the rocket program but conceded the company "is not
always perfect" and "there have been mistakes." Also coming under scrutiny
is telecommunications company MCI, formerly known as WorldCom Inc., which
has won a handful of major government contracts in recent months despite
having committed one of the largest corporate frauds ever uncovered.

But penalizing either company is complicated by the fact that both are
among the few major players in their respective industries, and critics
fear that could result in lenient treatment. Legislators, special-interest
groups and industry officials say the rules could be clarified so there is
a concise set of criteria that determine whether a company should be
suspended or barred from government work. Such decisions often are made by
lower-level government employees on an agency-by-agency basis. Also, an
independent body could be set up that not only would share information but
would actually review agency determinations to ensure unanimity in the
process.

The government awards contracts worth hundreds of billions of dollars
annually to thousands of companies providing everything from telephone
service to toilet paper. Under the Federal Acquisition Regulation,
officials are required, among other things, to grant contracts only to
"responsible sources" with a "satisfactory record of integrity and
business ethics." If a company fails to meet this standard, it is supposed
to lose out to a rival bidder or be temporarily or permanently suspended
from work on existing contracts.

A federal database on the Internet that lists those companies and
individuals that have been banned -- either permanently or temporarily --
from government work shows hundreds of people and small firms are cut off
each year. But major corporations, which get the most money from federal
contracts, rarely meet a similar fate.


IN THE HOT SEAT

An investigation by the Project on Government Oversight cites these 10
federal contractors as having committed or allegedly committed the most
violations since 1990:

CONTRACTOR NUMBER OF VIOLATIONS/ALLEGED VIOLATIONS TOTAL FINES, PENALTIES,
RESTITUTION, SETTLEMENTS (Millions)

General Electric        63    $982.90

TRW             16    389.5

Boeing           36    358

Lockheed Martin           63    231.9

United Technologies  18    214.8

Unisys           12    182.2

Raytheon       24    128.7

Northrop Grumman       21    87.9

Fluor            19    70

AT&T           14    16.1

Source: Project on Government Oversight

"From a government-credibility standpoint, public trust is always
compromised when there are two sets of rules," says Steven Schooner,
co-director of the Government Procurement Law Program at George Washington
University Law School in Washington. "There is a regimen for enforcement,
but it's not true because we only debar or suspend irritating little firms
who aren't major players."

A May 2002 study by the Project on Government Oversight, a nonprofit
watchdog group, found 43 of the government's top contractors paid about
$3.4 billion in fines and settlements since 1990 for violating federal
laws. But only one was banned from government work: General Electric Co.,
the worst offender, which had 63 alleged or actual violations and paid the
government nearly $983 million. And the ban -- resulting from one
infraction -- affected only GE's aircraft-engine division for five days.
The Bush administration did take the unprecedented step of debarring Enron
Corp. and accounting firm Arthur Andersen after they became embroiled in a
fraud scandal, though the debarment didn't stem from work for the
government.

A major reason for the dichotomy in debarring big and small companies has
been the rash of mergers and acquisitions that swept across most
industries -- including defense, health care and telecommunications -- in
the 1990s. Where there used to be several options for obtaining a product
or service, now there are perhaps just two, three at most. Government
officials say cutting one of these companies off -- even temporarily --
hinders competition and innovation and provides the firm's rivals with
increased pricing clout. Nor is the agency doing the debarring the only
one affected: A company cut off from one federal agency is cut off from
all the rest.

That is a big deal when an industry is highly consolidated. In Boeing's
case, for example, the company is one of the Pentagon's biggest suppliers
and works for a number of different agencies. It makes fighter jets for
the U.S. Navy, builds spy satellites for the National Reconnaissance
Office and is the lead contractor on a national missile-defense system
that the Bush administration has said will initially be in place by late
2004, among other things. If the Air Force were to cut the company off
from work as a result of its investigation into the rocket competition,
all these government initiatives would be hindered.

"You don't want these companies screwing up," says Edward "Pete" Aldridge,
who recently stepped down as the Pentagon acquisitions chief. "But we have
to take into account the national-security interest."

Industry officials contend that debarring or suspending a contractor isn't
necessarily fair either, given that pockets of bad behavior are inevitable
in multibillion-dollar businesses that employ tens of thousands. "Every
once in a while there is a bad apple out there," says Richard Bednar,
senior counsel at law firm Crowell & Moring in Washington and the chairman
of the Defense Industry Initiative on Business Ethics and Conduct. "No
large company is blemish-free, but we deal with it by owning up to the
problem, addressing it and taking appropriate disciplinary action."

The Clinton administration attempted to clarify the business-ethics
standard in its waning days by adding specific criteria for agencies to
follow in deciding whether to take action against companies or
individuals. But business leaders complained and the Bush administration
scrapped the revised rule. The issue has resurfaced in recent months
because of the Boeing and MCI situations.

The investigation of Boeing , based in Chicago, remains unresolved. In the
case of MCI, the company last month agreed to pay a $1.5 billion fine to
settle charges of widespread fraud -- none of it related to federal work.
Nevertheless, MCI has won numerous federal contracts, including an
extension to an existing $750 million contract with the General Services
Administration for long-distance services and a 10-year, $360 million
contract for communications services for the State Department.

"There is a fundamental question about whether or not the federal
government should be doing business with a large corporation that has been
found to commit a serious wrong," says Sen. Susan Collins, a Maine
Republican who heads the Senate Committee on Governmental Affairs. Her
panel expects to hold hearings on the matter in the next few months. "The
current system is flawed," she says, noting that scrutinizing the MCI
situation may lead to ways to fix the process.

An MCI spokesman said, "Our performance over the past year, and the steps
we've taken to address the misdeeds of former executives, proves the
government's faith in us was not misplaced."

While there is an Interagency Committee on Debarment and Suspension that
reports to the Office of Management and Budget, this group tends to meet
once a month to share information and discuss rule changes, not to review
decisions by individual agencies. Also, while it may be unlikely that a
major contractor will be banned from all government work at this point,
rivals competing for a particular contract could be given extra points, so
to speak, for having a cleaner legal record, government and industry
officials contend.

AMP Section Name:War & Disaster Profiteering