January 21, 2005

New GAO Report:
Contracts Promoted by Industry Waste Money
For Immediate Release
Contact: Danielle Brian or Scott Amey (202) 347-1122 or email scott@pogo.org

A new Government Accountability Office (GAO) report finds that contracts which allow private industry to finance capital energy projects for government waste money. The finding is significant because the government and some in Congress have sought to expand the use of such private contract financing mechanisms through an initiative known as Share-in-Savings (SIS).

Promoted by contract "reform" proponents as a "risk-free" strategy to fund government projects, SIS contracts allow the government to receive financing for capital projects from contractors directly. At the urging of large technology and defense contractors, House Government Reform Chairman Tom Davis has spent a considerable amount of time and energy promoting legislation to expand the use of the SIS contracts. The General Services Administration has also promoted the program (see http://www.gsa.gov/Portal/gsa/ep/contentView.do?P=T&contentId=14409&contentType=GSA_BASIC).

But not everyone has agreed that the SIS contracts are good business. Angela Styles, the Bush Administration's first administrator for federal procurement policy in the Office of Management and Budget, has expressed strong concerns about the SIS contracts, stating: "The allure of [SIS] financing will attract unsophisticated government buyers into bad deals for the agency and bad deals for the taxpayer - contracting arrangements that neither Congress nor the administration will be able to control" (see http://www.pubklaw.com/papers/ShareInSavingsContractg.pdf).

POGO's criticisms of the SIS contracts are:
  • SIS contracts may violate the U.S. Constitution, federal law, and limit congressional oversight;
  • SIS contracts require uncertain projections;
  • SIS contracts will increase direct spending by at least $450 million, and potentially billions of dollars according to the Congressional Budget Office; and
  • SIS contracts will create a non-competitive contracting environment.

The GAO report (GAO-05-55) found that energy savings performance contracts (ESPC), a contract vehicle that mirrors SIS contracts, increased government's costs "8 to 56 percent by using ESPC's rather that timely, full, and up-front appropriations."

"The GAO has confirmed what POGO has been saying for years - contracting 'reforms' are placing taxpayer money at risk," said POGO Executive Director Danielle Brian. Brian added, "share-in-savings contracts and similar contract types are the brain-child of contractors who do not have the public's interest in mind. The government's program to promote SIS contracts should be ceased and agencies should contract with the checks and balances built into our system - they receive appropriations from Congress."

POGO investigates, exposes, and seeks to remedy systemic abuses of power, mismanagement, and subservience by the federal government to powerful special interests. Founded in 1981, POGO is a politically-independent, nonprofit watchdog that strives to promote a government that is accountable to the citizenry.

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