New President Faces Powerful Federal Contractors President-elect Obama has said he wants public employees to take back some of the work that the Bush administration has given to private contractors — and he wants to crack down on contractors' abuses. But Obama could find it difficult to shake things up.

New President Faces Powerful Federal Contractors

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It's Morning Edition from NPR News. Good morning, I'm Steve Inskeep.


And I'm Renee Montagne. In one of our memos to the incoming president, we reported yesterday that the Bush administration has hired corporations to do more of the government's work than ever before - twice as much in fact. And the government's own investigations reveal that some of those corporate contracts have wasted money or bungled the job. President-elect Barack Obama says he wants public employees to take back some of that work. But as NPR's Daniel Zwerdling reports, Mr. Obama can expect to face obstacles.

DANIEL ZWERDLING: The Bush administration had barely invaded Iraq and there were controversies swirling around its contracts.

(Soundbite of CBS News broadcast)

Unidentified Reporter: This document, part of a whistle-blower lawsuit obtained by CBS News, alleges a blueprint of contractor abuse in Iraq detailing how the government was billed 10 times more than it should have been.

ZWERDLING: Of course, the military has always hired contractors to support the troops. They make tanks and planes and ready-to-eat meals. But the administration has gone way beyond that. There are more contractors handling the war in Iraq than U.S. troops. Some are making the kinds of decisions that government employees used to make. And the dependence on contractors in Iraq echoes what's happening here at home.

For instance, guess who's helping coordinate the nation's strategy at the Centers for Disease Control to fight the flu and food-borne outbreaks. A recent government report said that more than half the employees in the office that handles it are corporate contractors. Homeland Security depends so much on contractors that they hired contractors to supervise the other contractors.

Professor CHARLES TIEFER (Law, University of Baltimore School of Law; Commissioner, Commission on Wartime Contracting): We've always thought of the government as motivated by a sense of service to the people. We're getting away from that.

ZWERDLING: Congress appointed Charles Tiefer earlier this year to a new commission that oversees Pentagon contracts. Tiefer says obviously some government employees do a bad job, and some contractors do a great job. But he says federal workers have to swear an oath to defend the Constitution, just like soldiers do. Not contractors.

Professor TIEFER: These contractors, they're not under the normal democratic accountability at all. Contractors are motivated by the dollar.

ZWERDLING: As you might have heard yesterday, I went to one of the president's top aides, and I asked, why have you turned so much to industry?

Mr. CLAY JOHNSON III (Deputy Director for Management, Office of Management and Budget): It has not been the result of a philosophical mandate to contract out more of the government's work.

ZWERDLING: Clay Johnson says President Bush has turned to contractors because it's pragmatic. Johnson is deputy director of the Office of Management and Budget. He says, think about the war in Iraq, the war on terror, Hurricane Katrina. He says the administration has faced all kinds of crises. They've needed help fast. And corporations can give it.

Mr. JOHNSON III: The most important thing is the mission. What are we trying to accomplish? And if we're trying to accomplish something and the federal government does not have the personnel at that point to do it, I believe it would be appropriate to pull in outside people under close supervision of government people to accomplish that mission.

ZWERDLING: And what mission is more important than collecting your income tax? So a few years ago, officials at the IRS hired commercial collection companies to help them. And today if the IRS thinks you owe them money, you might get a company call on your answering machine like this one.

(Soundbite of answering machine)

Unidentified Man: Please leave a message. I'll get back to you as soon as I can. Thanks.

(Soundbite of answer phone beep)

HEIDI(ph) (Collection Company Representative): This is Heidi. Please call me back at 8...

ZWERDLING: You know that voice. It's the kind that pursues you when you're late on a car loan or a doctor's bill. The House Ways and Means Committee got this recording from one of the collection companies last year. The committee was investigating these IRS contracts. And the recordings show the company barraged a puzzled taxpayer with calls.

(Soundbite of answering machine)

Unidentified Man: Please leave a message. I'll get back to you as soon as I can. Thanks.

(Soundbite of answer phone beep)

BRANDY(ph) (Collection Company Representative): This is Brandy. Please call me at 8...

ZWERDLING: Administration officials say, look, businesses and individuals owe the government billions in back taxes, and the IRS can't track them all down because they don't have enough employees. Then why doesn't the IRS just hire more employees? The answer has to do with politics. President Bush and Congress have competed over who's the most against big government. Not many people have been willing to say, hey, let's hire more civil servants.

So officials at the IRS turned to industry. They said, if your company can track down taxpayers and collect what they owe, you can keep up to 25 percent of it. That means the IRS doesn't pay the companies out of its budget, but it also means the collection companies have a financial incentive to hound people. That taxpayer with the answering machine, he finally called back.

(Soundbite of telephone conversation)

JENNIFER(ph) (Collection Company Representative): Thanks for calling CBE. This is Jennifer, number 100. How can I help you?

Unidentified Man: Yes. I have been getting harassing phone calls from your company. I've gotten many of these from people with names like Brandy and Heidi and so on calling me. They don't tell me what it's about.

ZWERDLING: Now when you talk to a federal agent, they have to tell you, I work for the IRS. Here's exactly why I'm calling. The contractors don't.

(Soundbite of telephone conversation)

JENNIFER: But sir, I do have to verify a Social Security number and mailing address.

Unidentified Man: No, I'm not going to give out my Social Security number or mailing address to somebody who I don't know.

JENNIFER: Is there any portion of it you are comfortable with verifying?

Unidentified Man: You can't just call me incessantly and say you're handling a business matter and not tell me...

ZWERDLING: And by the way, most of the people the companies called didn't even owe back taxes. But the IRS still uses those firms, even though calls like this made some officials cringe.

Ms. NINA OLSON (U.S. National Taxpayer Advocate): Well, when I was listening to it at the hearing, all I wanted to do was hit my head against the table.

ZWERDLING: Nina Olson is the public's official ombudsman of the IRS. She says industry shouldn't collect the nation's taxes. Public servants should do that crucial job. And studies even show that government employees are more efficient.

Ms. OLSON: The former commissioner of Internal Revenue testified before Congress and said undoubtedly IRS employees do a better job of collecting the tax.

ZWERDLING: IRS calculations show that government workers collect three times as much taxes as the corporations do for every dollar they spend trying to collect them. In the big picture, nobody knows how many contractors that work for the government are doing a bad job or a good one. Administration officials don't keep track of that information. But investigations have exposed bungling or scandals in scores of contracts, like at Veterans Affairs and Homeland Security and Transportation and, of course, the Pentagon.

Back during the campaign, Senator Obama said he wants contracts to be transparent and he wants to give back some of the work to federal employees. He's worried about the same threats that President Eisenhower warned about almost 50 years ago.

(Soundbite of vintage recording)

Former President EISENHOWER: In the councils of government, we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military-industrial complex. The potential for the disastrous rise of misplaced power exists and will persist.

ZWERDLING: President Obama will have a tough time trying to control it. Since 1990, Congress and the presidents have eliminated almost 400,000 jobs from the government. Meanwhile, the amount of contracting has exploded. So researchers say the government doesn't have enough employees anymore who can monitor what contractors are doing, let alone take back much work. Given the economic and political realities, nobody's betting the new president will go on a hiring spree. Daniel Zwerdling, NPR News.

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