Citing concerns about the growing “shadow government” of contractors who cost American taxpayers $377 billion in 2005, the House of Representatives this winter passed H.R. 1362 to reform acquisition practices in the federal government.

The bill, sponsored by Rep. Henry Waxman (D-Calif.), would impose strict limits on the amount of non-competitive and sole-source contracts awarded by federal agencies that gave out at least $1 billion in the previous fiscal year.

The limits on sole-source contracting would not be applied to “contract preference groups,” including small disadvantaged businesses.

The bill next moves to the Senate, where Sen. Joe Lieberman (I-Conn.), chair of the Senate Homeland Security and Governmental Affairs Committee, said he might take up the subject of federal contracting late this year.

In writing the bill, the House Committee on Oversight and Government Reform focused mostly on contracts for reconstruction in Iraq and rebuilding on the U.S. Gulf Coast, citing many instances of poor management and possible fraud or abuse.

Compared to Iraq or the Katrina contracts, Department of Housing and Urban Development (HUD) spending is a miniscule budgetary concern, but according to the Government Accountability Office (GAO), HUD’s contracts also may involve a high proportion of wasteful spending.

If the GAO’s examples are any indication of HUD’s typical contracting practices, the department is wasting millions of taxpayer dollars every year.

The GAO only sampled a small number of the $1 billion per year in HUD contracts, but it found cases where substantial amounts of money were spent without adherence to HUD’s rules for contractors, and where HUD paid for work and services that were not completed or even started.

While the problems were found in only a small sample of contracts, the systemic weaknesses that the GAO found suggest that they could very well be the tip of the iceberg.

In a 2002 report, HUD Management: Actions Needed to Improve Acquisition Management, the watchdog agency said HUD’s efforts to improve its procurement methods still fell short of what was needed after previous GAO reports had urged improvements.

A review of 43 active contracts administered by HUD’s Office of Multifamily Housing found that the managers on 30 of these contracts—70 percent—did not make use of any of the tools in HUD’s Procurement Policies and Procedures Handbook. The manual provides a framework for the monitoring of contractors and establishes various monitoring tools.

The GAO also found that HUD employees responsible for oversight of property disposition activities said they were unable to make regular site visits, citing a lack of time and resources. Although HUD’s disposition handbook calls for quarterly on-site inspections, the specific guidance related to that requirement had not been developed at that time.

“Weaknesses in HUD’s monitoring processes limit the department’s ability to identify and correct contractor performance problems, hold contractors accountable, and assure itself that it is receiving services for which it pays,” said the 2002 GAO report. The GAO noted one case where one of HUD’s multifamily property management contractors blatantly bypassed HUD’s controls. It said that “over 18 months, HUD authorized and paid for approximately $10 million of renovations, of which each invoice was less than $50,000,” the threshold at which invoices require HUD approval. “HUD did not verify that any of the construction renovations were actually performed or determine whether the emergency expenditures constituted such a classification,” the report said.

The GAO found that HUD “does not strategically manage its acquisition workforce to ensure that individuals have the appropriate workload, skills, and training that allows them to effectively perform their jobs.”

It said that HUD’s own records showed that 89 percent of HUD’s contracting officers, contract specialists, procurement analysts, and purchasing agents do not meet federal training requirements. An official, however, said that many probably have met the requirements.

The GAO cited a study that found that the Office of the Chief Procurement Officer in headquarters was badly understaffed and called it “an organization in crisis.”

Finally, the GAO reported that the data in the HUD procurement system are not reliable. The GAO found that HUD’s system had difficulty generating an accurate list of active multifamily contracts, and that for 4 percent of HUD’s active contracts, its database showed HUD had obligated $197 million more than the stated total value of the contracts, although the discrepancy did not necessarily mean that HUD overpaid.

The GAO called on HUD to make a number of improvements. In a follow-up report, the watchdog agency duly noted HUD’s claims that it had improved its operations, but said that it was unable to verify that the improvements were effective. The GAO staffer in charge of the HUD reports did not return AHF’s call requesting comment.