Outsourcing Walter Reed
Outsourcing Walter Reed
Philip Mattera
March 06, 2007
Philip Mattera heads the Corporate Research Project, an affiliate of
Good Jobs First.
Reports of substandard conditions at the Walter Reed Army Medical
Center have outraged the country. But that anger should not be
directed only at the callous Army officials running the facility.
The full story behind the scandal involves a misguided program to
"reinvent government" through outsourcing, a company that botched the
delivery of ice to victims of Hurricane Katrina and a giant hedge fund
led by a former member of President Bush's cabinet. The private sector
has indirectly had a hand in converting the once legendary Walter Reed
into a symbol of the shameful treatment of people who have been maimed
in the service of their country.
The dismal state of some facilities at Walter Reed cannot be directly
attributed to poor performance by a contractor. After all, it has been
only a few months since a politically connected firm called IAP
Worldwide Services started taking over many of the management
functions at the medical center.
Yet a battle over whether to outsource those functions has been going
on since early 2000, when the Army commenced a cost-comparison study
of support services at the medical center. Such studies—which were
being promoted by the Clinton administration's "reinventing
government" initiative led by Vice President Al Gore—forced groups of
federal workers to compete with potential contractors to figure out
which could perform a given function more efficiently.
The process dragged on for several years, and finally it was
determined that the bid by federal civilian employees at Walter Reed
was the better one. However, that decision was overturned by the Army
Audit Agency, which was upheld by the GAO on a technicality. This
allowed IAP to get a five-year, $120 million contract.
Rep. Henry Waxman, chairman of the House Committee on Oversight and
Government Reform, has been gathering evidence that the prospect of
outsourcing (and likely job cuts) had a detrimental effect on morale
and efficiency at Walter Reed. That idea is not just theory. Last
September, Walter Reed Garrison Commander Peter Garibaldi sent an
internal memorandum to his superiors warning that substantial numbers
of skilled workers were leaving because of the impending takeover by
IAP.
It is also possible that managers at Walter Reed were letting things
slide, knowing that any problems would soon be dumped in the lap of a
contractor. While it may not be possible to quantify, there is every
reason to believe that the drawn-out outsourcing process and the
controversial reversal of the initial finding in favor of the federal
workforce contributed to the deterioration of physical conditions at
the medical center.
And all this was to create a new revenue opportunity for IAP. The
company is an odd choice to help manage one of the nation's premier
military medical facilities. It was founded in 1989 by a South
Carolina entrepreneur who enlisted the help of a logistics expert who
had recently left the Army. They rode the rising wave of military
outsourcing in the 1990s, specializing in supplying electric
generators, while also getting federal civilian contracts for prosaic
functions such as providing ice in natural disasters (a responsibility
it later botched during Hurricane Katrina). Last year IAP got a $103
million contract to handle file management at the IRS but was unable
to get up and running by the specified start date.
Management of the company is now in the hands of Al Neffgen and David
Swindle, two former executives with Halliburton subsidiary Kellogg,
Brown & Root—one of the giants of military outsourcing and the subject
of numerous allegations about overcharging the federal government.
Today, IAP's board of directors includes former Vice President Dan
Quayle, a former commandant of the Marines and a former vice chief of
staff of the Air Force. Such connections have undoubtedly helped the
company rise up the ranks of federal contractors. Its volume of
business with Uncle Sam has grown from about $222 million in 2000 to
some $1.2 billion in 2005.
IAP's growth has also been aided by the fact that it is controlled by
the giant hedge fund Cerberus Capital Management, which has taken over
dozens of companies and is now more of a conglomerate than an
investment fund. Cerberus, like IAP, is no stranger to the revolving
door. It is surely no coincidence that the hedge fund chose former
Bush Treasury Secretary John Snow as its chairman a few months ago
while IAP was intensifying its effort to take over a
multi-billion-dollar military logistics contract now held by
Halliburton.
The entire situation is a remarkable illustration of how the federal
government has become a vehicle for the promotion of private
interests. The zeal with which large contracts are awarded to a small
universe of companies, with little attention paid to performance,
suggests that outsourcing is less an effort to improve efficiency and
more a matter of enriching those with the right connections.
But this time the privatization game may have backfired in the face of
the Bush administration and its friends in the corporate world. It is
one thing to screw workers—unfortunately, that's now considered
business as usual—but in the case of Walter Reed the ultimate victims
are a much more revered group. The stark evidence that the Bush
Administration, for all its rhetoric about supporting the troops, is
much more interested in supporting the contractors, could be leading
to a political earthquake.
Philip Mattera
March 06, 2007
Philip Mattera heads the Corporate Research Project, an affiliate of
Good Jobs First.
Reports of substandard conditions at the Walter Reed Army Medical
Center have outraged the country. But that anger should not be
directed only at the callous Army officials running the facility.
The full story behind the scandal involves a misguided program to
"reinvent government" through outsourcing, a company that botched the
delivery of ice to victims of Hurricane Katrina and a giant hedge fund
led by a former member of President Bush's cabinet. The private sector
has indirectly had a hand in converting the once legendary Walter Reed
into a symbol of the shameful treatment of people who have been maimed
in the service of their country.
The dismal state of some facilities at Walter Reed cannot be directly
attributed to poor performance by a contractor. After all, it has been
only a few months since a politically connected firm called IAP
Worldwide Services started taking over many of the management
functions at the medical center.
Yet a battle over whether to outsource those functions has been going
on since early 2000, when the Army commenced a cost-comparison study
of support services at the medical center. Such studies—which were
being promoted by the Clinton administration's "reinventing
government" initiative led by Vice President Al Gore—forced groups of
federal workers to compete with potential contractors to figure out
which could perform a given function more efficiently.
The process dragged on for several years, and finally it was
determined that the bid by federal civilian employees at Walter Reed
was the better one. However, that decision was overturned by the Army
Audit Agency, which was upheld by the GAO on a technicality. This
allowed IAP to get a five-year, $120 million contract.
Rep. Henry Waxman, chairman of the House Committee on Oversight and
Government Reform, has been gathering evidence that the prospect of
outsourcing (and likely job cuts) had a detrimental effect on morale
and efficiency at Walter Reed. That idea is not just theory. Last
September, Walter Reed Garrison Commander Peter Garibaldi sent an
internal memorandum to his superiors warning that substantial numbers
of skilled workers were leaving because of the impending takeover by
IAP.
It is also possible that managers at Walter Reed were letting things
slide, knowing that any problems would soon be dumped in the lap of a
contractor. While it may not be possible to quantify, there is every
reason to believe that the drawn-out outsourcing process and the
controversial reversal of the initial finding in favor of the federal
workforce contributed to the deterioration of physical conditions at
the medical center.
And all this was to create a new revenue opportunity for IAP. The
company is an odd choice to help manage one of the nation's premier
military medical facilities. It was founded in 1989 by a South
Carolina entrepreneur who enlisted the help of a logistics expert who
had recently left the Army. They rode the rising wave of military
outsourcing in the 1990s, specializing in supplying electric
generators, while also getting federal civilian contracts for prosaic
functions such as providing ice in natural disasters (a responsibility
it later botched during Hurricane Katrina). Last year IAP got a $103
million contract to handle file management at the IRS but was unable
to get up and running by the specified start date.
Management of the company is now in the hands of Al Neffgen and David
Swindle, two former executives with Halliburton subsidiary Kellogg,
Brown & Root—one of the giants of military outsourcing and the subject
of numerous allegations about overcharging the federal government.
Today, IAP's board of directors includes former Vice President Dan
Quayle, a former commandant of the Marines and a former vice chief of
staff of the Air Force. Such connections have undoubtedly helped the
company rise up the ranks of federal contractors. Its volume of
business with Uncle Sam has grown from about $222 million in 2000 to
some $1.2 billion in 2005.
IAP's growth has also been aided by the fact that it is controlled by
the giant hedge fund Cerberus Capital Management, which has taken over
dozens of companies and is now more of a conglomerate than an
investment fund. Cerberus, like IAP, is no stranger to the revolving
door. It is surely no coincidence that the hedge fund chose former
Bush Treasury Secretary John Snow as its chairman a few months ago
while IAP was intensifying its effort to take over a
multi-billion-dollar military logistics contract now held by
Halliburton.
The entire situation is a remarkable illustration of how the federal
government has become a vehicle for the promotion of private
interests. The zeal with which large contracts are awarded to a small
universe of companies, with little attention paid to performance,
suggests that outsourcing is less an effort to improve efficiency and
more a matter of enriching those with the right connections.
But this time the privatization game may have backfired in the face of
the Bush administration and its friends in the corporate world. It is
one thing to screw workers—unfortunately, that's now considered
business as usual—but in the case of Walter Reed the ultimate victims
are a much more revered group. The stark evidence that the Bush
Administration, for all its rhetoric about supporting the troops, is
much more interested in supporting the contractors, could be leading
to a political earthquake.
