Improper Business Practices and Conflicts of Interest in Government Contracting

Introduction

Government operations, although well intentioned, often harbor conflicts of interest within their respective structures. These conflicts frequently result from incongruent needs and demands on the part of lawmakers and those subject to the law. In addition, efforts such as lobbying and other influence methods have allowed certain communities to skew government oversight and regulations in their favor. In certain rare instances, lobbying has created incentives that ultimately undermine the entire purpose of a given law or regulation. This ultimately leads to improper business practices and personal conflicts of interest.

Improper business practices typically result from a lack of government oversight and regulation. Furthermore, large amounts of bureaucracy can generate additional conflicts of interest. For example, a large bureaucratic organization may have no incentive to expedite the resolution of particular problems, preferring instead to maintain the status quo rather than innovating internally to make processes smoother and more efficient. This dynamic recently manifested within the Joint Theater Support Contracting Command (JTSCC), which demonstrated an inability to properly oversee its operations — causing significant fraud, waste, improper business practices, and conflicts of interest.

Background: The Joint Theater Support Contracting Command

The Joint Theater Support Contracting Command is a government organization designed to help reconstruct and revitalize areas ravaged by war or conflict. Its mission is primarily centered on economic development within foreign lands. Typically, due to conflict, many of a nation's most talented individuals — doctors, lawyers, engineers, and others — flee to safer countries that can offer them greater opportunities and security. What remains is often a population of poorer and less-educated citizens who are frequently unable or unwilling to leave. This low-skilled workforce often lacks adequate capital or business acumen to reestablish commerce in a war-ravaged area.

The literature also shows that foreign direct investment in these countries is particularly low due to the heavy risks associated with conducting business operations there. The individuals with the wealth, capital, and skills needed to redevelop the country have left, while overseas investors with capital are unwilling to deploy it given the risks involved. As a result, the JTSCC was created to help bridge this gap between capital deployment and economic growth.

The literature, however, shows that the JTSCC is riddled with conflicts of interest and improper business practices. Much of this stems from the very nature of the command itself. As a United States-based organization, the command must use taxpayer funds to hire foreign contractors to reconstruct a given country — an activity that is highly prone to waste, fraud, and abuse. Government employees were found not to have reviewed contracts and contractor documentation properly, and contractors were not adequately vetted, resulting in contracts being awarded to businesses that inflated their prices and engaged in improper business practices. These improper practices manifested through incomplete work, inflated costs, and other forms of fraud.

Contracting Failures in Afghanistan

A prominent example of improper business practices within the JTSCC occurred beginning in 2001. The United States had appropriated more than $85.5 billion to the Departments of Defense, the U.S. Agency for International Development, and other U.S. agencies for reconstruction in Afghanistan. The JTSCC was tasked with deploying these funds for the establishment of security and development assistance projects (Brown, 2012). Due to the foreign nature of business activities in Afghanistan, it was difficult to accurately police contractor data and properly oversee contractor operations and pricing.

Operations during this period were rife with improper business practices. It was difficult to properly ascertain fair contract prices in Afghanistan, creating a litany of issues related to waste, fraud, and abuse throughout the system. Foreign contractors had an incentive to raise prices, knowing that funds would be backed by the United States government. The JTSCC also lacked knowledge of the best local suppliers and contractors given the unfamiliar operating environment. As a result, contracts were highly overstated and heavily influenced by fraud, leading to widespread improper business practices.

Further compounding these issues, improper oversight led to administrative failures such as indirectly funding the Taliban through a contract awarded to an Afghan trucking company (Ariosto, 2017). Government employees were awarding and processing contracts with incomplete documentation (Commission on Wartime Contracting in Iraq and Afghanistan, 2011). These contracts inflated values and resulted in large overpayments, bloated cost structures, and incomplete reconstruction activities. Outside the organization, fraudulent and misleading documentation was used by contractors to obtain government contracts, resulting in ineffective and inexperienced operators being awarded work they were unlikely to perform effectively — ultimately undermining the very concept of reconstruction (Schwartz, 2013).

Conclusion

The literature indicates that the Joint Theater Support Contracting Command, much like similar government agencies, exhibits large amounts of waste, fraud, and abuse. Large amounts of bureaucracy and improper oversight led to improper business practices both within and outside the organization. Internally, these improper practices were rooted in poor document management, weak auditing standards, and inadequate supervision — ultimately resulting in approximately $2.6 billion in awarded contracts based on inflated prices and incomplete documentation.