Science and Government

The State of the Scientific Estate

Time for a 21st Century Re-envisioning of 20th Century Government Contracting Rules

Since 9/11, Americans have discovered that contractors are doing much of the public’s basic work. In Iraq, Halliburton tends to the mess halls, Blackwater to armed security details, CACI to Abu Graib prison. On the homefront, the Coast Guard bet its future on an out-of-control multibillion dollar contract with Lockheed known as “Deepwater Port” to develop a whole new coast guard system. The Department of Homeland Security watched a $100 million contract to hire baggage checkers balloon to $700 million. And the Federal Bureau of Investigation’s $100 plus million contract with SAIC to bring FBI case information management into the 21st century came closer to bringing the agency to a halt.

When and how did the U.S. government become so dependent on contractors to do its basic work?

When and how did the U.S. government become so dependent on contractors to do its basic work? Some said these developments reflect Bush administration policies; others traced them back to Reagan and Thatcher-era distrust for big government. In fact, the reliance on contractors to do the government’s basic work is neither new nor an accident. It is the predictable and predicted outcome of a mid-20th century bipartisan decision to grow government through the use of contractors. What’s more, this decision was made in the name of science and was seen at the time by the science policy elite as a reform of truly constitutional dimensions.

This far-from-accidental reform yielded civilization-shaking developments—the Manhattan and Apollo projects, innumerable breakthroughs in biomedical research, and, of course, the Internet. But, as is now apparent from the day’s front page headlines, the 21st century legacy of this reform is a government dependent on contractors to do its most basic work, such as feeding our soldiers, protecting our diplomats, and collecting intelligence on the battlefield, often with too little official control or even awareness.

To begin to understand how we reached the point where dedicated contracts for specific scientific projects with profound national security implications morphed into a default determination to meet new challenges by deploying contractors instead of civil servants, we must start with the perspective of mid-20th century science policy. For it is there that the reliance on contractors to do the government’s work was conceived as a profound reform in the way the government does its business,with those present at the creation understanding the strengths and limits of reform with acute foresight of relevance today.

From the Manhattan Project to the Military Industrial Complex

America entered World War II with a small government and a tradition of distaste for Big Government. The war, however, required rapid deployment of the nation’s scientific and industrial resources. The Manhattan Project to develop the first atomic bomb, and the further wartime research sponsored by the famed Office of Scientific Research and Development showed that the genius of America lay not only in its natural scientists and inventors, but also in its management genius—the ability to use the contract to organize private enterprise to public tasks of enormous complexity.

Thus, the atomic bomb was built in secrecy and speed by a combination of universities and industrial giants working on contract at secret government-owned contractor operated sites throughout America. As Office of Scientific Research and Development historian Walter A Macdougall observed, OSRD established the practice of “state funded but privately executed R & D. In a matter of minutes, patterns that had characterized American research throughout its history were undone.”

Scientists, with their world-shattering public-private research-and- development projects, were providing the elixir that would make the world safe for a new kind of government.

That wartime success of the public/private partnerships led OSRD director and presidential science advisor Vannevar Bush to recommend to FDR, in the classic report “Science: the Endless Frontier,” that the government continue contract relationships with non-federal organizations after the war. Incomprehensible today, but plausible in the shadow of mid-century totalitarianism, Bush needed to explain to corporate colleagues why taking money from Washington was okay. As Bush’s memoir explains, his good friend the president of Bell Labs “was sure that we were inviting federal control of colleges and universities, and of industry for that matter, that this was an entering wedge for some kind of socialistic state.”

Two decades later, in his 1965 The Scientific Estate, science policy eminence Don Price, first dean of the Kennedy School of Government at Harvard University, provided a classic explanation for developments calculated to satisfy their corporate and science beneficiaries. The United States, Price argued, needed more government to prepare to fight the Soviet Union, develop infrastructure, provide social welfare, and cure disease. The use of private contractors would permit the federal government to draw on private expertise, provide corporations with funding that would allay corporate fears that America was turning socialist, and would provide a force to countervail against the dead hand of a central official bureaucracy.

Price hailed the transformational import of the “fusion of economic and political power” and the “diffusion of sovereignty,” both chapter headings in his book. Specifically, he argued:

The general effect of this new system is clear; the fusion of economic and political power has been accompanied by the diffusion of sovereignty. This has destroyed the notion that the future growth of the functions and expenditures of governments would necessarily take the form of a vast bureaucracy.

American government was undergoing a reform of constitutional dimensions. Scientists, with their world-shattering public-private research-and-development projects, were providing the elixir that would make the world safe for a new kind of government.

But even before Price championed public-private contracting as reform of benign constitutional dimensions, other (less flattering) perspectives were also emerging. Most famously, in his 1961 Farewell address, President Eisenhower declared the new public-private contract-based R&D partnerships to be the “military-industrial complex.”

President Kennedy early in his presidency waded into this debate by commissioning a cabinet-level report to examine the implications of the contract-dependent R&D. The 1962 “Bell Report” (after Budget Bureau Director David Bell) served as springboard for the first public congressional hearings on Rand and other government-created contract “think tanks” and “systems managers” spawned at the nexus of government and aerospace industry. It is the last, best, and indeed only (save for Ike’s speech) White House review of the wisdom of government by contract, and foretold much of what has since come to pass.

The Bell Report put its finger on the problem: the disparity between the rules of law governing officials and contractors.

The report declared that the “blurring of the boundaries between public and private” raised profound questions about the axiom that officials must be able to account for the work of government. In the short term, the report said the use of contractors to respond to Cold War emergencies made sense. But over the longer term, the axiom of official government control over contractors to the federal government would be challenged unless corrective action were taken.

The Bell Report put its finger on the problem: the disparity between the rules of law governing officials and contractors. Americans, ever concerned with big government, have enacted over two centuries of laws to protect against official abuse. These began with the Constitution and its Bill of Rights, which define the limits of government and provide for individual rights against government abuse, and now include laws on ethics, pay, Freedom of Information, and political activity.

By and large these laws do not apply to those outside government—even contractors doing government work on taxpayer dollars. They do not apply on the dual premise that officials will have the capacity to oversee contractors, and that the qualities for which contractors are valued may be constrained if they are subject to rules governing officials. Yet as the Bell report prophesied, when the decision to rely increasingly on contractors for key government work was coupled with the freedom of contractors from rules limiting government officials, the predictable effect would be the erosion of some (if not all) official capability to oversee contractors.

Why, the Bell Report’s logic foretold, should experienced government officials choose to remain in government service when they can work as contract employees who are not governed by official pay caps and the stringent constraints of official ethics rules—and do work no less interesting than that in government?

But the Bell Report backed away from answering the basic questions it raised. The new public-private mix, it found, was essential to Cold War programs. “Philosophical issues,” the report said, needed be deferred to a later date. Thereafter, as government grew, third party government grew without pause, on autopilot driven by bipartisan limitations on civil servants.

From the Bell report to Abu Graib

Cold War agencies such as the Atomic Energy Commission, the Department of Defense, the National Aeronautics and Space Administration, and the U.S. Agency for International Development, provided the initial template for the deployment of contractors as a permanent workforce for the performance of central public tasks. From the get go, and in its present incarnation in the Department of Energy, the nation’s nuclear weapons complex has been essentially government-owned and contractor-operated.

“NASA,” the Washington Post observed following the Columbia tragedy, may hire the astronauts,” but “at the Johnson Space Center, the contractors are in charge of training the crew and drawing up flight plans. The contractors also dominate mission control, though the flight directors and the ‘capcom’ who talk to the crew in space are NASA employees.”

Post-war contracting was a “new form of federalism.”

With each new agency, or program, contractors were trained and deployed to do the basic work. In this fashion, federal funding gave birth to information technology and the Internet and also to an increasingly sizable contract (and university and further nonprofit grant) workforce. In the 1960s and 1970s these contracting models were transferred from Cold War agencies to civilian agencies as the Great Society programs initiated by President Johnson rushed to embrace contractor-generated management products, such as PERT (Program Evaluation and Review Technique) and PPBS (Planning, Programming, Budgeting and System) systems, incentive contracting, and systems analysis. All these products promised to solve the problems of the inner cities as well as those in Vietnam.

In 1971, looking back on developments, John Corson, who opened McKinsey’s Washington office, marveled at what had been wrought. “There is,” he wrote in Business in the Humane Society, “little awareness of the extent to which traditional institutions, business, government, universities, and others, have been adapted and knit together in a politico-economic system which differs conspicuously from the venerated patterns of the past.” Post-war contracting, he said, was a “new form of federalism.”

From the perspective of the Nixon White House, to be sure, what had been invented was not a new way of government, but a new way of patronage. The “Political Personnel Manual” uncovered by the Senate Watergate investigations showed that Nixon White House staffers, seeking to catalog ways to control the presumably democratic-leaning civil service, were bemused to discover that, under the guise of efficiency, JFK and LBJ had used cutbacks in the civil service to hire friends as contractors—with, the Nixon staffers noted, of course, higher taxpayer costs. Turning the tables, at the Office of Equal Opportunity, the central war on poverty agency, two young administration officials named Rumsfeld and Cheney turned the tables and hired their own contractor, Booz Allen, to help take control of the agency, shuffling civil servants under guise of agency reorganization.

In the 1980s and 1990s a new generation of reformers—the Privatizers, Downsizers and Reinventors—came to argue for the reform of Big Government, often with little evident knowledge of the history or legacy of the reform that had been ongoing for decades in America. When, in 1993, the Clinton administration announced its intention to “reinvent government,” it declared it would reduce Big Government by further reducing the numbers of civil servants, with little demonstrable recognition that this had long been the means for growing, not reducing, government.

Thus, in context, the contracting scandals of the Bush administration are not an aberration but rather the predictable and predicted consequence of a half century of government contracting reform.

Ironically, the eponymous book that heralded the Clinton administration reform, Reinventing Government, was itself focused on local government reform and noted that many of the “public-private” partnership methods advocated had long been in use at the federal level. Reinventing Government followed in the footsteps of the Price logic—the diffusion of sovereignty was a good thing that could be kept under control by modern management techniques such as “performance contracting.” The task was to cut red tape and make the use of contractors simpler and more efficient.

Thus, a key reform was to centralize purchasing in the General Services Administration, so that other agencies could essentially buy from a catalog without need for further competition. As Iraq showed, however, an effect of the reform was to maximize potential for unaccountability. When the public learned that a contractor called CACI had been at work interrogating prisoners at Abu Ghraib, there was a scramble to find out extacly how the Army hired the contractor. It turned out that the contract was originally awarded by the GSA, assigned to the Department of Interior for administration, and then used by the Army in Iraq.

With responsible GSA officials evidently unaware of what was happening with their contract, the Army used the contractor for purposes that were (unlawfully) beyond what the GSA contract provided for, contrary to the Army’s own prohibition against the use of contractors to perform such intelligence gathering and contrary to the rule against using contractors to serve, in essence, as integrated members of the government workforce. Thus, in context, the contracting scandals of the Bush administration are not an aberration but rather the predictable and predicted consequence of a half century of government contracting reform.

President Bush entered the White House committed to paring back the federal government, but, as with his predecessors, the means was not to reduce the size of government, but to increase the number of contractors. Thus, one of the pillars of the Bush “Management Agenda” was to put out for competition up to 850,000 civil service jobs. After 9/11, the new Department of Homeland Security was born aloft on a contractor workforce, with limited official oversight capacity.

Or consider Iraq. In March 2002, before the war began, the Secretary of the Army sent a troubled memo to top Pentagon officials explaining that Pentagon Army planners had little clue as to the size of the contractor workforce, the costs associated with it, “and of the organizations and missions supported by them.” In April, 2002 the Army told Congress that its own estimates of the size of the civilian support workforce varied from 100,000 to 600,000. In short, assuming the Iraq war were to be waged, contracting was the predictable means to be used—and inability to oversee contractors the predictable consequence.

From Today’s Headlines to a Re-Envisioning of 20th Century Reform: Alternative Visions

The domestic “diffusion of sovereignty” that Price foresaw, and indeed urged, has now meshed with a global diffusion of sovereignty. Research and development is now a matter of networks of multinationals, “global universities,” and numerous governments. But at home, Price’s vision has (as the Bell Report prophesied) left a legacy which must now be addressed. We can no longer assume that the official workforce has the capacity to understand and control the basic work of government. We have the diffusion of sovereignty, but we do not have the rule of law to match it.

In short, 20th-century reform has taken a remarkable journey, but is now adrift from its moorings—and we are in need of a map for the future of reform.

We now have two alternative frameworks or visions or maps for viewing the government system that science policy helped create. In practice, neither of these is adequate to hold contractors to account.

As for transparency—again it is nice in theory—the contract workforce too often remains largely invisible within agencies, never mind the public at large.

First, governing law and policy enshrine what might be called the “presumption of regularity/rule of law” vision—in keeping with longstanding legal tradition that officials may be presumed to act with the good faith, diligence, and competence expected of them. Under the Western rule of law tradition, the presumption of regularity envisions that officials must be subject to rules that define and limit government authority and protect against government abuse. This is known as public law. If the presumption of regularity is valid, then these rules need not apply to contractors because contractors will be accountable to officials.

The problem, as the front pages increasingly tell us, is that this presumption of regularity does not reflect reality where contractors have long since been engaged to do the government’s basic work. When it became apparent, at the dawn of contract reform, that the presumption was imperiled, the Eisenhower White House issued a policy that only officials can perform “inherently governmental” functions. That policy (now found in Office of Management and Budget Circular A-76) has become a fiction or figleaf. It has been dutifully reiterated by every White House since—most recently by the Bush administration virtually coincident with the start of the Iraq war—and the wholesale deployment of contractors on the battlefield.

Second, while formally reiterating legal principles, bipartisan governing policy embraces what might be called the “governance/accountability” vision. This vision, a modern day version of Price’s “diffusion of sovereignty” idea, holds that the work of the public is best done by a mix of government, civil society and market organizations—with attention to results, and not to who does the work or the “boundary between public and private.” This vision premises that it does not matter so much who is doing the public’s work, but rather on whether there is “accountability” for that work. In the world of governance, accountability is to be provided in three interlocking ways:

• Modern management and social science techniques, which will align public and third-party interests by structuring contract performance standards and incentives properly
• The force of competition between or among contractors and interest groups, which will help keep the system honest
• Transparency as an aid to the first two tools

While not forsaking the premise that officials must be able to account for all government work, proponents of this governance and accountability model suggest that the civil service workforce must be transformed into a workforce that functions substantially, or even primarily, to manage third parties. The problem, as the front pages once again tell us, is that the tools of governance are insufficient and can even be counterproductive, especially in the age of diminished official oversight.

Thus, though competition in procurement is a key tenet of procurement law today, the reality is that it is often limited because competitors may be few (particularly in security areas where workforces must have clearances), competition costly, and competition further restricted by socioeconomic preferences. Similarly, performance measures are hard to come by for often novel public tasks that require often unavailable resources to police, which in turn makes poor performance hard to penalize. Because the work has to get done, and because too harsh a penalty may eliminate a competitor needed if there is to be competition, performance measures are often mostly useless. As for transparency—again it is nice in theory—the contract workforce too often remains largely invisible within agencies, never mind the public at large.

Government contracting is an insider’s game. Public watchdogs have been few and far between.

By consequence of the limits of these two visions, the evolution of the rules of the game often owes more to what might be called the “muddling through, common law” model. When crises arrive, they are handled with limited regard for the big picture. In the absence of coherent congressional and executive oversight, this model has, by default, become the primary means by which new rules of law are set to govern contractors and other third parties who perform the basic work of government.

This model accepts that rules of public law should apply to those who perform public tasks, and applies them on a piecemeal basis to nongovernmental actors who perform the public’s work. In doing so, it draws from the Anglo-American legal tradition, which (as in the case of public utilities regulation) has long applied public obligations to private entities who perform public purposes and in public procurement law itself.

“The Science of Muddling Through,” as Yale professor Charles Lindblom’s classic article explained, is the American way—but it has its weaknesses, as the evolution of reform by contract well illustrates. First, successful muddling through requires a healthy crew of diverse and well-funded nongovernmental watchdogs to keep policy and practice honest. Government contracting is an insider’s game. Public watchdogs have been few and far between.

For example, the history of the ethical standards applicable to contractors illustrates the difficulty of developing a rule that works in the public interest. At the onset, there were no conflict-of-interest rules at all that were applicable to contractors. As Price observed, during the 1950s, “no Congressmen chose to make political capital out of an investigation of the interlocking structure of corporate and government interests in the field of research and development.”

The concept of “organizational conflict of interest,” or OCI, was conceived only when some contractors felt that other contractors were using their inside track to unfair competitive advantage. It said nothing about circumstances in which collective contractor interest is served, but public interest disserved.

In the late 1970s the notion of “public interest,” as well as competitor interest, was added to the OCI concept. Even so, contractors may be hired where conflicts exist. Moreover, while civil servants can go to jail if they work for the Department of Transportation and General Motors, there are no criminal conflict of interest rules that govern contractors. But the real problem is that disclosures of potential conflict are exempt from disclosure under the Freedom of Information Act, and there is no routine independent audit of the integrity of the disclosure and review process.

Most importantly today, as Lindblom explained, the science of muddling through produces change by increment that serves the interests of those pushing the change, often with little regard for a Big Picture that may be increasingly off-kilter. Where, as is the case with government contracting, incremental changes have been at the neglect of the Big Picture— the fundamental and continuing erosion of official oversight capacity and the disconnect between law and reality—muddling through may be the problem and not the answer.

Reform in Need of Revision

The presumption of the regularity, governance, and muddling through visions (or models) all represent essential frameworks—or maps—for understanding how the ship of state got to where it is. But none of them, individually or collectively, provide a chart for today’s waters. There is no current vision to replace that which kicked off reform over a half-century ago, but there are steps that should be taken to address its legacy and re-envision the reform.

First, the time is long overdue for truth-in-government budgets and organization charts and basic data on the contract workforce. The White House and Congress and the public must be able to view the workforce doing the basic work of government as a whole. Second, in tandem with basic truth in government, it is time to take bearings through targeted analysis that addresses the premises of the two visions to address questions now apparent, including:

• How many government functions vital to national security and wellbeing are now, or are in danger of being, contracted beyond official oversight capability?
• In the awarding of contracts to perform the work of government, are there competitive markets, and can competition be relied on where official oversight is limited, and can performance measures be relied on as used and useful?
• Where contractors work for multiple agencies, and multiple components within agencies, and where they boast workforces that oscillate between government and private sector, how well do—and can—contractors perform the role of networks in a world moving toward networked government, and what conflict of interest problems are presented?
• With consideration of the role of contractors and other third parties, such as whistleblowers, in contractor oversight, what is the scope and adequacy of the procurement oversight workforce, and how should its organization be shaped for the future?

Finally, there must be effort to harmonize the law of public service with the current reality—and to consider the possibility of a broader new ethic of public service. Today, dual sets of laws and policies govern the use of contractors who may work side by side, performing the same work. By consequence, the laws enacted over two centuries to define and limit government and protect Americans against abuse increasingly do not apply to those doing the real work of government.

There must be public review and comparison of the differing rules that apply to federal employees and to non-governmental actors in the performance of the government’s work. The rules to be reviewed would include, at least, those governing constitutional protections afforded citizens in relation to official conduct, ethics, political activity, and transparency. As Blackwater has shown, the review must include relevant international, as well as domestic, rules.

In many cases—because of personnel ceilings—the only experts on a subject are those in the contracting sector.

What’s more, it should be understood that this task may not produce clear cut answers, and will not be a panacea. The procurement system, again, has its own body of complex laws, rules, and policies. Generations of procurement law reform have had mixed results, and the attempt to relate procurement and personnel law will be all the more difficult. More to the point, mechanical application of uniform rules to officials and contractors may be counterproductive and negate qualities for which contractors and civil servants are valued.

Thus, at the same time, there needs to be consideration of the development of ethics principles—an ethics of public service—to be applicable to all those paid by taxpayers to serve the public. This effort should identify common ethical problems posed by the current degree of reliance on contractors to do the basic work of government and consider whether there may be principles that can be applied practically to protect the public interest.

It is a tenet of modernity that information asymmetries dog relationships between experts and non-experts, or, in a related vein, principals and agents. Unless controlled, the actor with more information may be able to take advantage of the client or principal who has called on him or her for help. In the present setting, the problem is not that contractor employees are unethical but, as the Supreme Court explained in its classic explication of conflict-of-interest rules applicable to civil servants, the purpose of such codes is to prevent honorable men from succumbing to temptations posed by their circumstances.

A primary legacy of 20th-century contract reform is the increasing potential for abuse of information asymmetry. In many cases—because of personnel ceilings—the only experts on a subject are those in the contracting sector. The dual sets of rules governing officials and contractors provides incentives for those experts the government does possess to join, and inform the work of, the contractor workforce. Information asymmetry is further amplified by the compartmentalization of the procurement process, especially as amplified by 1990s contract reforms.

Finally, where officials operate within a single agency, and there often within a single component of the organization chart, contractors often operate at multiple locations within an agency, across agencies, and for agencies and non-federal entities (be they states, businesses, or foreign governments) with relation to a particular subject or mission. Again, the ability to work on a problem from many perspectives is a reason for valuing expertise; the question is how to assure that it works in the public interest.

Professional codes have evolved to limit the abuse of information asymmetry by experts, most famously doctors and lawyers, in their dealings with clients. However, there are not generally applicable ethical principles that govern special ethical problems faced when private citizens do public service on taxpayer dollars. In part, the very need for such principles has been obscured by repeated official proclamations that officials—in contrast to patients or legal clients—must be in control.

The American system appears to be unique among modern governance systems in its scope of reliance on contractors to do the basic work of government.

In contrast to a patient or a legal client, the U.S. government might be thought to have the resources (authority, people, knowledge, money) to make decisions and protect itself—and this thought is given legal form in the presumption of regularity and the inherently governmental principle. Thus, in turn, the ethics problem is compounded, because governing law permits contractors may “presume regularity” even where it is known that regularity does not exist.

The very notion of ethics principles for a group as disparate as the contract workforce, and in a setting as complex, is implausible. At the same time, at least as a thought experiment, it is an essential piece of the puzzle if 20th century reform is to be re-envisioned.

Principles of ethics govern the disparate official workforce. Moreover, the contracting system has a comparative advantage in the development of ethical principles that remains to be put to use. The Revolving Door that famously characterizes the system ensures that there will be a steady flow of senior contractor officials with the perspective from the other side (government) essential to understanding and addressing problems that might not be easily captured in law or rule.

Finally, there is America’s role as the pioneer of modern government by contract—to uses of history-making importance. The American system appears to be unique among modern governance systems in its scope of reliance on contractors to do the basic work of government. At the same time contracting for government services appears to be a growing global phenomenon, for which the American system may be a model for study and, with appropriate local modifications, adaptation.

In sum, the ability of the American system to creatively address and solve the difficult questions that are the legacy of 20th century contract reform may be an activity of importance in the globalized world that is in best keeping with the genius that was the spirit of mid-20th century reform.

Dan Guttman, is the co-author of The Shadow Government, and is on the faculty at the Center for the Study of American Government at Johns Hopkins University and  teaches at Shanghai Jiao Tong and Peking Universities.

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