Sequester update: contractors’ edition

Government contracting is under-reported terrain--and story-rich, for reporters who know where to look

Because of the budget sequester, food banks cut some Meals on Wheels, day care and Head Start workers were laid off, and FBI agents were furloughed. So how are government contractors—companies whose bottom lines rely, sometimes entirely, on money from the federal government—faring under sequestration?

In an enterprise piece Friday, Washington Times reporter Luke Rosiak described the lucrative recent history many of these companies have enjoyed. Wrote Rosiak:

As lawmakers take up austerity measures and the Defense Department and other agencies grapple with difficult budget choices, some contracting companies that derive their income entirely from the federal government have grown increasingly fat.

Last year, 59 major publicly traded government contractors earned a combined $36 billion in profits nearly entirely from taxpayers. That was up from $35 billion in 2011 and $33 billion in 2010, The Washington Times found in a review of financial disclosure records.

And what is the outlook for these companies now, in the sequestration era? “Because sequestration did not kick in until March and long-term contracts still exist,” Rosiak reported, “effects from sequestration won’t be felt [among government contractors] right away.” But while Lockheed Martin, Rosiak notes, “just had its most profitable quarter ever,” it also “laid off 650 employees and threatened furloughs for hundreds of others in response to sequestration.”

Some contractors sped up work to get paid ahead of the sequester, two veteran advisers to big federal contractors told me, actions they touted as smart. Most workers for the government and organizations it funds do not have that option, however, because they work continually, not on projects that end at completion.

In his piece, the Times’s Rosiak also gave a telling, if brief, look at how the federal government treats contractors who engage in misconduct—even egregious misconduct like selling military secrets to China:

Aerospace and military contractor United Technologies Corp. had a net income of $5.5 billion last year, up from $4.7 billion in 2010. Last year, United Technologies pleaded guilty to illegally selling sensitive military software to China and lying to cover it up. It agreed to pay $76 million in fines, $20 million of which was suspended.

Gretchen Morgenson of The New York Times has long tried to get journalists to notice that, as she said on The Diane Rehm Show in 2011, federal “fines typically are relatively small, a rounding error” in financial statements, at least for big Wall Street firms. In other words, journalists looking for stories about the high cost of government—as well as the trifecta of “waste, fraud and abuse,” and insignificant penalties—will find easy pickings if they focus on contractors and their work. The government contracting world, generally, is under-reported terrain—and story-rich, for reporters who know where to look and what to look for.

To that end, here are some tips and resources for reporters covering this topic:

The Project on Government Oversight (POGO), a “nonpartisan independent watchdog that champions good government reforms,” offers on its website a searchable database of contractor misconduct reports, among other useful information.

Some contractors do little to nothing for their fees, as POGO showed Friday in its report on $450,000 of do-nothing work by a just-ousted Congresswoman (who later repaid most of the money). Per the report:

A recent Department of Energy (DOE) Inspector General (IG) report found that four nuclear facility contractors paid Heather Wilson and Company, LLC (HWC) over $450,000 without requesting or recording a single deliverable.

While a US Representative, Heather Wilson (R-N.M) promoted herself as a supporter of the two nuclear labs in New Mexico, Sandia National Laboratories (Sandia) and Los Alamos National Laboratory (LANL). Just a scant month after leaving office in 2009, Wilson created her company and entered into her first government contract with Sandia.

• A good starting point to understand how and why contractors cost much more than civil service workers are the research papers of Professor Paul C. Light, the Paulette Goddard Professor of Public Service at New York University, including this handy chart (scroll to the end) titled, in part, “The True Size of Government”—also the title of Light’s terrific book published in 1999.

• An excellent primer on how budgets are made, demystifying the sausage-making in government spending, is The Politics of Public Budgeting: Getting and Spending, Borrowing and Balancing, 6th Edition, by Irene S. Rubin, professor emeriti at Northern Illinois University. (Disclosure: I blurbed one of her budget books.)

• A list of the biggest contractors is available at Government Executive magazine.

• An enormous—and unwieldy, but detail-rich—database that generates spreadsheets of government contractors is at, an official federal government website.

• Another place to look for news that has yet to break is performance reports. When a government contract is finished, the relevant federal agency often requires a review of what was done. Many such reports are slapdash— some that I have read in the past were boilerplate done so cheaply you could see the lines left by cut-and-paste jobs run through a photocopier—but that fact can be valuable for reporters. File a Freedom of Information Act request with the federal agency in question.

Inspector general reports are also a valuable source for critical looks at contractor performance. A list of state inspectors general can be found here, and federal inspectors general here.

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David Cay Johnston covers fiscal and budget matters for CJR’s United States Project. He is a reporter with 46 years of experience, including 13 at The New York Times; a columnist for Tax Analysts; teaches tax and regulatory law at Syracuse University Law School; and is president of Investigative Reporters & Editors (IRE). Follow him on Twitter @DavidCayJ. Tags: , , , , , ,