Flim-Flam, Double-Talk, and Hustle: The Consulting Industry
Willner, Daniel Guttman and Barry
Flim-Flam, Double-Talk, and Hustle: The Consulting Industry by Daniel Guttman and Barry Willner In the past two decades the federal budget has increased from $70 billion to nearly $370 billion....
...Moreover, by writing and administering federal rules and regulations, the experts exercise the kind of profound and continuing influence that has no ready monetary measure...
...There exists an elaborate set of written rules and documents that defines how contracts are to be awarded, written, administered, and evaluated...
...The Yellow Pages merely documents the existence of the consulting industry...
...RFPs provide a general statement of the work that the agency is interested in and vary widely in content and form...
...Westinghouse, the marketing document explained, was entering the “public management” business in hopes that such experience would increase the profitability of the lagging Westinghouse divisions...
...Westinghouse acknowledged its lack of experience, but felt this to be a minor problem...
...The basic rule in pursuing government business is a simple one...
...The Office of the Secretary produced a grab bag of sole-source awards that amply demonstrated the ease with which top agency officials trample on the procureme nt process...
...The responsibility for managing a contract, on the other hand, generally lies with a “project officer,” who in turn has little understanding of contract law and who tends to be more concerned with pushing his program along than with following troublesome contracting rules...
...With dozens of offices throughout America, the large accounting firms are ideally structured to market to a growing federal government...
...Inner City Fund was a newly created firm founded by a handful of young men who arrived in the inner city via elite business schools and the Defense Department’s systems analysis shop...
...The study concluded that the procurement officials were not solely responsible for the failures of competition and documentation...
...Nonprofits are no less private than profit-making corporations...
...Contract officers” are legally responsible for the administration and enforcement of contracts and may be in charge of dozens of contracts at any one time...
...Westinghouse, the document explained, was combing the government in search of business for its new “Public Management Services” division...
...It is unique in its skills in the management of investigative teams simultaneously seeking program budget data and behavioral data concerning institutions of higher education necessary for interpreting program budget data in the field...
...This seems to mean simply that ICF was familiar with the current jargon of analysis, but the justification boldly declared that even RAND, the font of “program budget” wisdom, lacked “the skills to proceed without time-consuming model construction,” men skilled in managing investigative teams, and “personnel versed in the behavioral dimensions of institutional behavior...
...The Nonprofits Nonprofit research and consulting corporations are not on the Westinghouse list, but they do much of the same work, and they are often found competing with profit-making corporations...
...Only when he regards several companies as being highly qualified does real competition prevail...
...Green was a personal adviser to the Secretary for about three months during the trzxition period and accompanied the Secretary on his trip to Israel...
...There is,” the panel concluded, “no effective control of contract studies within the Department...
...Tax law and government contract law, for example, treat profit and nonprofit organizations differently...
...None had ever performed “job evaluations” before...
...At the lower levels salaries may be comparable to those paid by the civil service, but in the upper echelons of the more successful organizations salaries may range well over $100,000, far exceeding the $37,500 maximum that most civil servants can attain...
...Intensive review had led to the conclusion that three “functional markets” were ripe sources of income: criminal justice administration, transportation, and public administration...
...The contract process is dominated by the network of relationships that exists between contractor and agency, and these relationships are crucial to many decisions in the awarding and administration of contracts...
...By this time, the young ICF principals had worked themselves up to $254 a day, and the Department offered a similarly princely statement of the firm’s unique qualifications which, in addition to the usual time constraints, justified the award...
...They may have work statements as brief as a page and they may not even give contractors an idea of the experience required or of the “man hours” or dollar value the agency anticipates...
...select the contractor, conduct negotiations, and determine contract price, prior to submitting a request for contract to the procurement activity...
...When the balloon goes down on one end,” quipped a RAND vice president, “it goes up on another...
...And ideas are generated in this interchange...
...The Assistant Secretary for Population Affairs hired it to develop “meaningful objectives for family planning...
...These divisions are among the largest management consulting organizations in the world...
...A large part of the answer lies in the growth of an invisible bureaucracy of private corporations whose services are contracted for by the official bureaucracy...
...How does the government manage...
...With some ad qitions and exceptions, the list is as good a guide as any to the profitmaking corporations in the government contract business...
...At least one HEW contract was justified because of the friendship between the contractor and Secretary Finch...
...By 1966 34 per cent of the administrative budget was spent on contractors and only 22 per cent on full-time government employees...
...Ernst & Ernst’s success in monopolizing criminal justice planning in Indiana illustrates the point...
...A subsequent congressional investigation discovered that Westinghouse’s marketing technique was far more advanced than its public management expertise...
...A recent edition lists about 120 “economic and social science researchers,” 90 “economists,” I50 “education researchers,” 400 “management consultants,” 60 “operations researchers,” 60 “transportation consultant~,’ a~nd 15 “urban affairs consultant~.’ S~o me are tiny operations, living on one or two contracts and with histories no longer than the government programs that gave them life...
...A smaller but significant amount purchases mtnagerial or planning “expertise...
...Like most legal or bureaucratic processes, contracting operates on two levels...
...Of equal importance is the division of labor that most agencies have established...
...Others are divisions of wellknown industrial corporations, such as Westinghouse or General Electric...
...The contract itself, as Columbia’s Bruce Smith has noted, “is not of decisive importance...
...The justification also contained the usual assertion of time pressure...
...It is not possible to go to one place in the Department, or even a few places in each of the services, and get a tabulation of recent or ongoing studies, including subject, purpose, significant findings, cost, or an assessment of the quality of work...
...Inside was a document entitled “Business Strategy for 1970...
...HEW awarded University Research a sole-source contract to study the HEW R & D program...
...The pamphlet, written on contract by two employees of the Midwest Research Institute, offers helpful tips to businesses interested in entering the “promising field” of the “billions of dollars of research and development contracts”: “Continuous personal contact with the staff of the contracting agency is a means of keeping informed about proposed government R & D contracts...
...Central to this formal structure is the individual contract itself...
...Although their primary source of income is audit work, the Big Eight have developed “management services” divisions that do everything ‘from locating prospective merger partners to setting up computer systems to studying possible investments...
...Within a short period of its founding, the firm was serving in this role at the Office of Economic Opportunity, the Environmental Protection Agency, the National Security Council, and HEW...
...Little known is the amount of work that private accounting firms do as management advisers to the government...
...In PMM’s opinion, its expertise i s essential to the government in this period...
...Management Consulting Firms Booz, Allen, and Hamilton Ab t Associates Organization for Social and Technological Innovation Software Firms Computer Sciences Corporation Computer Applications, Inc...
...Clearly, as viewed by the Congress, attempts by the DOD and the FCRCs to respond to Congressional concern have not been completely successful.’’ When the Congress began to impose on the defense FCRCs financial ceilings similar to those imposed on civil service personnel, the organizations sought business from civilian agencies...
...But the legal distinction is often far sharper than the practical one...
...But one has only to examine the contracts awarded by Secretary Finch’s office in the year following the completion of the study to discover the discrepancy between rhetoric and action...
...Westinghouse Joins the Game In March 1971 the director of a major program for the Department of Housing and Urban Development received a confidential packet of info rma t io n from Westinghouse...
...HEW was “aware of no other alternative source of the required combination of skills...
...The inquiry found that Westinghouse’s management experts were idle employees pulled together from throughout the corporationrefrigerator designers and engineers, for example...
...Formal competition requires that agencies place notices of their needs in an official publication called the Conzmerce Business Daily...
...The corporations that market the expertise are largely unknown to the public, but perusal of the Washington, D. C. Yellow Pages suggests that they are the largest industry in the nation’s capital...
...Not surprisingly, those nonprofits that survive as government contractors serve the “public interest” to the extent that they simultaneously promote corporate (profit-making) growth...
...They were not interested in performing mundane studies but wanted to work directly on major policy issues...
...The bureaucracy of contractor experts is by and large invisible not only to the public but to a good many Washington insiders as well...
...Program personnel establish requirements...
...Sponsoring agencies account for FCRC expenditures as they treat civil service expenditures, providing Congress with annual totals...
...HEW requires that sole-source awards be supported by written justifications, and the justification for OS-71 -2 1 was the typical kind supplied...
...He usually succeeds...
...In a recent survey, the GAO told Congress that about 85 per cent of defense contract dollars are not advertised...
...These are the ideas that later become governmentsponsored R & D projects...
...The Department of Defense is the largest single source of contract dollars...
...Its 807 active partners averaged $9 1,400 in earnings, and the top 20 averaged well over $200,000 each...
...When the government opens an award to competition, it will normally place a notice of the issuance of the RFP in the Commerce Business Daily...
...Next came OS-71-87, a contract to study criteria for federal support of higher education...
...Large numbers of contract studies are performed for various elements of the Department of Defense by both profit-making and not-for-profit research organizations...
...The study found that “procurement personnel are seldom involved in initial decisions that affect the procurement process...
...THE WESTINGHOUSE LIST Accounting Firms Ernst & Ernst Price, W aterhouse Peat, Marwick, Mitchell & Co...
...Thus, a major Air Force contractor advertises periodically that “Mitre is a leading nonprofit systems engineering company working wholly in the public interest...
...As a 1971 Defense Department ceport acknowledged, “the tone and themes of Congressional comments ten years ago-too much growth, too great a cost to government, too little control, and poor quality products-have been repeated in almost every succeeding year...
...Popular wisdom to the contrary, the number of full-time federal civil servants has remained relatively constant...
...This is as true when the program involves industry as it is when federal monies are given out to states and localities...
...The 1971 contract log for the Office of the Secretary records that a corporation called the Inner City Fund received no fewer than five sole-source awards from the Secretary’s office alone...
...The results of the August 1969 HEW study displeased Secretary Finch, who stated that the procedure of advertised competition should be followed unless it was “absolutely necessary” not to...
...The grant and contract budget pays not only for costly weapons systems and high-technology equipment but for an incredible array of hardware and services-food and fuel, paper and paint, constniction and repair work, guard services, and trash collection...
...But over 50 years ago, Walter Lippmann perceived that another group, “known by all kinds of names...
...Planning Research Corporation Systems Development Corporation Computer Firms IB M UNIVAC Industrial Firms TRW Sperry Rand Lockheed Why was Westinghouse, one of the world’s largest corporations, hoping to make money as a public manager...
...The sole-source justifcation fixed on Green’s unique credentials...
...The book will be published in March by Pantheon...
...The clearest current definition is a traditional legal one...
...Founding member Pug Winokur explained that the Fund was patterned after the wellconnected and influential Washington law firm...
...Incidentally, negotiations were favored by HEW in its dealings with both profitinaking and nonprofit corporations...
...Until World War 11, there was a strong preference for competitive bidding to ward off corruption and promote quality and efficiency...
...Up to 20 per cent of the income of the accounting firm, reports Business Week, comes from this growing part of the practice...
...Accurate information on the nature and extent of contract studies within the Department,” noted the panel, is “difficult and often impossible to obtain...
...HEW had a “pressing need” to meet the President’s promise of adequate family planning services “within the next five years,” and the requisite experts had to be “thoroughly familiar” with HEWS management...
...NO private corporation,” asserts Peat, Marwick, Mitchell, “has experienced the degree of change in terms of growth, complexity of operations, or goals, objectives, and priorities that the federal government has during the past two decades, and in all likelihood will continue to experience in the future...
...The contracting officer is thus placed in an untenable position when he questions after-the-fact program actions, and in most cases he is powerless to remedy improper commitments made by program personnel...
...We look,” explains a top executive in the Lybrand & Cooper consulting practice, “to where the social action legislation is-that’s essentially ‘our priorityse tting mechanism...
...The public management division received a multimillion-dollar contract to redefine the jobs of over 700,000 postal employees, the largest “job evaluation” contract ever awarded by the government...
...The contract is, in theory, a written agreement that will specify the work to be performed by the contractor, the terms of payment, and the period of performance...
...It sounds to me,” marveled Rep...
...In the Social and Rehabilitative Services Agency, 98 per cent of the contract files lacked memoranda summarizing the procurement history...
...If he is confident of his judgment, he thwarts attempts to saddle his project with another contractor...
...While boards of directors govern profitmaking corporations, self-perpetuating boards of trustees govern nonprofits...
...The formal contract is merely a step in the process of interaction between agency and contractor...
...The contracting industry comprises the thousands who work on contract to the government or oscillate between government and contract employment...
...Lawyers have always been present in disproportionate number at the center of American government...
...The RFP Route The RFP, or Request for Proposal, is the keystone of competitive contracting...
...In most cases the government buys such expertise from private corporations that stock experts as if they were assembly-line commodities...
...To this basic difference have been added other legal distinctions...
...ICF, said the justification, “has exclusive capabilities to meet-the requirements of this study...
...For 25 cents, any citizen can pick up a copy of Small Business and Government: Research and Development, a little brochure issued by the Department of Commerce...
...If profit-making firms seek profits, nonprofits are no less interested in survival and growth...
...Then the same consultant gets paid to see that it is implemented, and at this point one begins to wonder what the state agency is doing...
...And of course, there js no suggestion of the role outsiders often play in the design of the government organizations represented by the charts...
...Available studies indicate that the RFP process is “informal and highly selective...
...Finally, when the Indiana planning agency was called to testify before the Congress, Ernst & Ernst served as its consultant...
...They are not likely to have any technical background in the subject matter of the awards they oversee...
...The final report was nearly a year late...
...But written contract law represents only a small part of the contract process...
...Arthur Andersen, the first Big Eight firm to issue an annual report for limited distribution, reported over $3 15 million in earnings for the year ending March 31, 1974...
...Peat, Marwick, Mitchell (PMM), another Big Eight firm, claims over 10,000 employees in nearly 300 offices throughout the world...
...Analyzing the defense and NASA procurement process, Edward Roberts, of the MIT Sloan School of Management, concluded: “The real award process is one involving long-term, person-to-person contacts between technical people in government and industry...
...Of the $7.46 billion in civilian contracts in the fiscal year ending in mid-1968, the GAO found about $1.54 billion related to advertised procurements, while about $5.3 billion were negotiated...
...The division would “use federal contracts as a basis for developing understanding of state and local needs and to gain credentials and visibility .” Westinghouse’s brochure featured a list of its potential competitors in the public management field...
...The big firm may be contracted to help Washington organize a new program, then get paid over again as it helps localities spend federal money...
...When he is convinced that an idea has solid merit, the government scientist/ engineer initiates a Procurement request...
...Nonprofits are not empowered to sell stock or to make profits and cannot, therefore, distribute profits to shareholders...
...Wartime requirements for urgent and flexible procurement, plus the unprecedented purchasing of new technical products, led to an erosion of the practice...
...The official organization charts provide no boxes for contractors...
...Unfortunately it is about the be st information available...
...ICF‘s first award of the fiscal year was OS-71-21...
...A presidential panel, itself staffed by contractors, reported in 1970 on the Department’s penchant for hiring contractors to make studies...
...Given these exceptions, the “negotiated” contract made enormous inroads...
...In 1946 the largest single portion of the federal administrative budget-30 per cent-was spent on the civil service payroll...
...Copyright@1976 by Center for the Study of Responsive Law...
...The study disclosed that 88 per cent of awards were negotiated and that, of this total, 82 per cent were sole-sources...
...Green had served with OEO’s R & D program, and “as you know, Mr...
...Ernst & Ernst won contracts to prepare Indiana’s application for a planning grant, to prepare the 1969 plan, to prepare the 1970 annual report, to prepare the 1970 plan, to prepare the 1971 planning grant application, to prepare the 197 1 comprehensive plan, and to prepare the 1972 comprehensive plan...
...and “think tanks” that have been publicly associated with defense spending, such as the Institute for Defense Analyses and the Stanford Research Institute...
...Westinghouse’s efforts met with quick success...
...In the Environmental Health Services Administration, justifications for negotiation were on file, but “tended to be stereotyped and unsupported other than by a statement from the program officer that the sole source was necessary to get the job done...
...They are not allowed to finance growth with “profits,” but they do so with “fees”-generally computed as a percentage of the cost of a given contract...
...Daqte Fascell, “as if an outsider prepares the whole plan for state operations starting at the local level, subgrantee, region, and the state, and’he gets paid for that...
...What is a nonprofit...
...Green left the government to work for a social welfare contractor, University Research Corporation...
...While the procurement laws of the late forties officially favored maximum competition, they permitted exceptions in times of national emergency and peacetime urgency-that is, when the experience necessary to perform the work is available in limited degree, where contract costs are difficult to determine in advance, or even where the contracting agency can decide that “the contract is for services for which it is impracticable to obtain competition...
...BullFinch When Robert Finch took office as Nixon’s first HEW Secretary, he commissioned a study of the $278.5 million in contracts the Department awarded in fiscal 1968...
...The FCRCs have been iust visible enough to absorb perennial congressional criticism of contracted expertise...
...as statisticians, accountants, auditors, industrial counselors, engineers of many species, scientific managers, personnel administrators, research men, scientists, and sometimes simply ‘private secretaries,’ ” would be joining the lawyers...
...So powerful is the association of tlie term “profit” with private interest, that simply by disavowing the term, nonprofits can project an image of “objectivity” and “public interestedness...
...Contractors may sue when they feel that the contracting system has operated unjustly, but as for the public interest, there are virtually no instances of taxpayer suits over money that has been spent illegally or wastefully by dint of poor or even illegal government-contractor perf or ma nce...
...Often spoken of as an “invisible branch” of government, the FCRCs are the only group of consulting contractors to appear with regularity in the public record...
...He often feels, naturally, that the work should be carried out by the people in whose capabilities he has faith...
...the Washington offices of advisers to the corporate world, such as McKinsey & Co...
...When the Law Enforcement Assistance Administration was created, millions of dollars were made available to state and local law enforcement agencies...
...Acting in what he believes to be the nation’s best interest, he tries to secure ‘his’ contractor...
...The Big Eight The accounting profession is dominated by the “Big Eight” firms, the largest profit-making organizations of professionals in the world...
...OE,” the survey found, “was in noncompliance with Federal or HEW procurement regulations and good business practice...
...The Mirage of Contracting Law There is no coherent body of law or custom that applies to government contracts, nor is there a central source of information on the contracts awarded to hundreds of different organizations by myriad government agencies...
...or Price, Waterhouse...
...The division would engage in “selling services . . . literally the time of people” to public agencies...
...At the same time that the procurement regulations try to dampen the importance of contacts, more realistic government publications explicitly recognize it...
...By choosing the negotiated-contract route, an agency is not required to advertise formally its needs and may invite a preselected list of contractors to bid on the job, or may simply award a contract to a “sole source...
...Gerson Green was an OEO employee who advised Republican welfare officials in the first months of the Nixon Administration...
...Today it takes almost 80,000 full-time employees to administer the nearly $60 billion annually spent on contractors and the more than $50 billion given in grants to state and local governments and nonprofit organizations such as univusities...
...In order to qualify for monies, the local agencies had to submit plans-which the federal government would yay for...
...Private expertise not only helps plan and manage the over $100 billion spent on grants and contracts, but virtually every other kind of federal spending as well...
...They build up common experiences, attitudes, aspirations, confidences...
...No other profession,” financial journalist John Lyons has written, “is as deeply into the guts of the American system, and no other profession is concentrated into so few units...
...Respondents may then request further information and bid on the contract...
...The figures are devastating...
...In the Office of Education, where 80 per cent of contract files had not been completed, the review found that 90 per cent of the sole-source files contained absolutely none of the required justifications for the awards...
...The importance of such contacts is illustrated by a comment sometimes voiced: ‘You are already out of the running if you first learn of a possible research contract through a proposal request.’ ” Daniel Guttman and Barry Willner are authors of The Shadow Government from which this article has been adapted...
...Nonprofits created by government agencies have been dubbed “Federal Contract Research Centers,’’ or “FCRCs...
...When the Ernst & Ernst plans were implemented, Ernst & Emst was in for more business...
Vol. 7 • January 1976 • No. 11
