STIMULUS WATCH

No-bid contracts mean higher costs

[July 17, 2009]  WASHINGTON (AP) -- The Defense Department frequently awards no-bid work to small contractors for repairs at military bases under the new economic stimulus law, costing taxpayers millions of dollars more than when businesses compete for the work, according to an Associated Press analysis of 570 such contracts.

The Pentagon saves more than three times as much money when companies compete, the AP analysis showed. Yet more than $242 million in federal contracts -- representing more than one-fourth of the military's stimulus contract spending so far -- has been awarded under the recovery program through no-bid contracts for repairs and maintenance.

President Barack Obama promised last month to save money through competition.

"By ending unnecessary no-bid contracts and reforming the way government contracts are awarded, we can save the American people up to $40 billion every year," Obama said, as he announced new procedures to increase competition.

In many of the cases, the military bases are eager to spend the stimulus money. Speed is an important element of the Obama administration's effort to jump-start the economy. Bidding and its delays can be avoided by federal rules that permit contract awards to small and disadvantaged businesses without competition, said Navy Cmdr. Darryn James, a Pentagon spokesman.

Across the government, more than $543 million in federal contracts have been awarded so far without competition under Obama's $787 billion stimulus program.

Much of the spending is for common construction work at a time when contractors crippled by the recession are offering steep discounts. State governments are taking advantage, reporting millions in savings as road and construction contracts come in under budget after making companies bid for the work.

The Defense Department can do that, too, and "ensure that we're getting the best deal possible," said Scott Amey of the Project on Government Oversight, a watchdog group that tracks government spending and waste.

"It's not surprising because of the economic times, that guys are actually taking jobs at a loss," said Eric Moore, who helps run Vanguard Construction in Arroyo Grande, Calif. The company has received competitive and no-bid stimulus contracts for maintenance work at Edwards Air Force Base.

Obama's recovery program includes about $7.4 billion for military construction, repairs and improvements at bases put off in recent years because of wartime expenses. The Defense Department also is seeing big savings in its construction contracts, but it is saving far more money when making businesses compete.

The AP reviewed project estimates and actual contract amounts for $420 million in stimulus projects given to contractors hired by military bases. Military bases have awarded about 1,445 contracts totaling $955 million for maintenance and repairs, but only $420 million could be readily compared to earlier Defense project estimates sent to Congress.

The 570 projects reviewed by the AP included $284.4 million in competitively bid contracts and $135.5 million in no-bid contracts.

The work that was competitively bid saved $34 million, with contract costs coming in about 11 percent less than budget estimates. The no-bid work saved $4.4 million, with contract costs coming in about 3 percent less than estimates, the AP's analysis shows.

Military bases have a long list of undone maintenance projects, and some used smaller contractors already working for them or already approved for no-bid work to spend stimulus money efficiently and effectively, said James, the Pentagon spokesman. Some bases also assigned the maintenance work without competition to eligible small contractors before Congress approved the stimulus program, he said.

Small businesses are receiving the bulk of the construction work, and most of that work is being awarded to the lowest bidder, James said.

The Pentagon doesn't have to rely on no-bid contracts to help small businesses. About $138 million of military maintenance contracts awarded through some type of competition went to small, disadvantaged or minority businesses, saving about $22.7 million, or 14 percent, the AP analysis shows.

The difference between some contracts is striking.

• Elmendorf Air Force Base in Alaska estimated spending $9.2 million on paving jobs, but approved $9.4 million in contracts without competition. Arnold Air Force Base in Tennessee estimated its paving work at $650,000, and awarded $400,815 in contracts after receiving competing bids, or about 38 percent under estimate.

• Tyndall Air Force Base in Florida figured it would spend $638,000 in sewer repair work and awarded the contract without bids for $629,118, slightly under its estimate. Travis Air Force Base in California estimated a sewer repair job at $3.7 million, and awarded a $2.5 million contract after bids, or about 32 percent under estimate.

• Glendale Luke Air Force Base in Arizona estimated it would spend $2.7 million on a heating and air conditioning conversion job but awarded the contract without bids at $3.1 million, or about 17 percent over estimate. The base estimated two other electrical jobs to replace and repair transformers to cost $440,000, but the actual contract was awarded through competitive bids at $454,990, slightly over its estimate.

Some agencies may follow the military's lead -- turning to approved small businesses that can win contracts without bidding -- so they can meet a requirement of Obama's stimulus program to spend the federal money fast, said Michael Pain, a lawyer who heads the federal construction practice of Cohen Seglias Pallas Greenhall & Furman in Philadelphia.

"The agencies are under some pressure to get this out as quickly as possible," he said.

But that shouldn't lead to waste, said Amey, with the watchdog group.

"There is a premium paid for working with these small companies," Amey said. "But that's where, to the extent possible, the government should entice as much competition as possible."

[Associated Press; By BRETT J. BLACKLEDGE]

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