Many HUD users and current and former staff think that contracting is being done for the wrong reasons, is overused, and is rarely cost-effective.
“I have carefully tracked the impact and cost of HUD’s contracting. Overall, the agency contracts out more than $1 billion per year, almost all of which has involved no cost-benefit analysis,” said Carolyn Federoff, president of American Federation of Government Employees Council 222, the largest employees’ union at HUD.
The agency estimates that with this money, it buys the equivalent of 4,500 full-time equivalents (FTE), Federoff said. By contrast, HUD’s Salaries and Expenses budget is about $1.1 billion. “For that sum, we maintain about 8,600 FTE at HUD. By that estimate alone, contracting out is not cost-effective,” said Federoff. “And the $1 billion contracting-out figure doesn’t include contracts paid from the Sec. 8 fund, such as the more than $200 million spent on Sec. 8 Contract Administrators.”
Former HUD Secretary Henry Cisneros agreed that contracting as practiced by HUD generally saves little or no money and often does not produce results equal to what government employees can obtain. During his tenure as secretary from 1991 to 1995, contracting was used primarily for IT and other tasks that are not directly related to the daily operations of housing and community development programs, he said.
“Republican administrations have had the view that one purpose of government is to take care of private-sector friends, holding the erroneous view that contractors can do it better or cheaper,” Cisneros charged. “They give contracts to friends who share their views and ideology. It’s like opening the door to the Treasury. It’s not cheaper or more efficient. The private sector is not geared to do the basic functions of government.”
The question of cost-effectiveness has also been raised in Congress in view of the heavy reliance on sole-source or no-bid procurement methods in the Bush administration. At HUD, the maximum use of these methods is an explicit part of Jackson’s procurement policy.
In fiscal 2005, HUD let $1.017 billion in contracts, but only $253 million, or 25 percent, were subject to full and open competition. That’s less than a third of the amount subject to full competitive bidding just five years earlier. About $355 million, or 35 percent, were not awarded on a competitive basis. The balance, 40 percent, was awarded with competition after exclusion of sources or by methods that were “unknown” according to FedSpending.org, a project of OMB Watch, a nonprofit government watchdog group. HUD’s own data shows total 2005 contracting of $1.150 billion.
In fiscal 2006, HUD had full and open competition on $459 million out of $989 million in contract awards, or about 46 percent, according to FedSpending.org, In the year 2000, the last year of the Clinton administration, the same site reports, HUD had full and open competition for contracts totaling $809 million out of $1.127 billion, or 72 percent. The department had only $24 million in contracts that were not available for competition, about $33 million that were not competed, and zero classified as unknown.
The increase in no-bid contracts is a cornerstone of the efforts Jackson implemented as deputy secretary under former Secretary Mel Martinez and expanded when he became secretary in 2004. His objective was to increase contracts awarded to small businesses, and particularly businesses owned by African-Americans, Hispanics, Asian-Americans, or others who can show they are “socially disadvantaged.”
In a policy adopted in March 2005, Jackson directed HUD staff to make “maximum use of set-asides and noncompetitive procurements” to give more contracts to “small business procurement preference groups.”
The avoidance of competitive bidding is perfectly legal and widely used. Companies that are owned by small disadvantaged businesses (SDBs), which are certified by the Small Business Administration (SBA) under its Sec. 8(a) program, can and routinely do get contracts of up to $3 million with no bidding. Contractor preference groups enjoy other advantages, including set-asides and complex methods for helping them compete even when competitive bidding is used.
Many companies that are not in a contractor preference group also land sole-source contracts. One of the most adept among large firms is Lockheed Martin Corp., which won contracts worth $65.4 million in fiscal 2006 but only went through full and open competition for about 20 percent of that amount, or $12.9 million.