Is the Recovery Act stimulating privatization?

By Phil Mattera, Dirt Diggers Digest

Key portions of the $787 billion American Recovery and ReinvestmentAct, especially the state fiscal stabilization fund, are designed toprevent job loss among teachers and other state and local governmentemployees. But what about the rest?

The assumption seems to be that most of the job creation andretention will take place in the private sector. Yet one question thathas received little attention since ARRA was signed by President Obamain February is whether the spending will contribute to the process ofprivatization and contracting-out of functions previously performed bypublic sector workers.

On October 15 the Recovery Accountability and Transparency Boardreleased the first batch of recipient reporting data covering some $15billion in direct federal contracts. Although this is a small portionof overall ARRA spending (information relating to the much larger realmof federal grants to states and others will be released on October 30),it begins to shed some light on the privatization question.

My colleagues and I at Good Jobs First have been examining the universe of around 9,000 recipient reports summarized in a national spreadsheet availableon the Recovery.gov website. Many of the entries are unremarkable. Theyinvolve contracts for functions such as manufacturing and constructionthat have traditionally been concentrated in the private sector. It isnot surprising that the federal government gave an ARRA contract toChrysler to supply vehicles and one to Clark Construction to build anew headquarters for the Coast Guard.

Yet many of the other entries appear to be part of thecontracting-out phenomenon. You can tell this, first, by looking at thenames of the contractors: one firm called Federal Contracting Inc.leaves little doubt as to its orientation. There are others that have areputation for being involved in high-profile outsourcing deals. Anexample is IAP Worldwide Services, a politically connected firm (former Vice President Dan Quayle is on its board of directors) that got a controversial contract to take over management of the Walter Reed Army Medical Center in Washington.

Or else you can look at the description of the projects. A companycalled 4W Solutions got a contract from NASA for "administrativeactivities, configuration management of documents, procurement-relatedanalysis and support for report integration/administrative support forCross-Agency Support construction contracts."

To be a bit more systematic in our analysis, my colleagues and I decided to match the Recovery.gov list of contractors to the membership list of the Professional Services Council, the leading trade association for the federal outsourcing industry.

PSC's members range from large and notorious contractors such as KBR (formerly the Halliburton subsidiary Kellogg, Brown and Root), Xe Services (formerly Blackwater) and CACI International(linked to the Abu Ghraib torture scandal) to small and obscureconsulting firms. During its 27-year history, the association hassought to banishthe use of the term "Beltway Bandit" to refer to federal contractorsand has pushed for legislation that would maximize the amount offederal work that gets outsourced. It has also resisted the recent move toward insourcing.

We found that, of the 382 PSC members listed on the association'swebsite, about 50 are on the list of ARRA federal contract recipients(name variations make an exact count difficult). In all, these membersand their affiliates have been awarded about 250 ARRA contracts with atotal value of more than $800 million.

Some of these involve engineering and construction services, butothers deal with functions that are more inherently governmental, suchas a contract given to Deloitte Consulting to provide "programmanagement oversight" for ARRA grants made by the Federal AviationAdministration.

In an economic crisis such as the current recession, all jobcreation is to be welcomed. But it would be a shame if some portion ofRecovery Act money is being used in ways that do little more than shiftwork from the public sector to the private sector.

(Thanks to Tommy Cafcas, Caitlin Lacy and Leigh McIlvaine for their research help.)

Update: I should have mentioned that KBR and Xe Services are not among the recipients of ARRA contracts, but CACI has two.

Further update: We spent more time analyzing thespreadsheet and found many more ARRA contracts that can be attributedto PSC members through joint ventures, affiliates, etc.  Our tally isnow about 470 contracts worth a total of about $3.5 billion. Theseinclude some huge contracts associated with clean-up projects atDepartment of Energy nuclear facilities.