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Welch in Washington

Vermont's congressman cracks down on war contractor fraud


Published April 22, 2008 at 9:01 p.m.

Peter Welch
  • Peter Welch

It's Tax Day, and a gorgeous spring morning in the nation's capital. The tulips and cherry blossoms are in full bloom, and suit-and-tied lobbyists are sharing the sidewalks with schoolchildren ambling along like ducklings.

The shrill whine of an emergency siren, a perpetual annoyance in downtown Washington, D.C., pierces the air - a nearby fire engine, perhaps, or the security detail for Pope Benedict XVI, who's due to arrive shortly. Given the day, it might also suggest an alarm for U.S. taxpayers, more and more of whom are struggling to make ends meet in a perilous economic time.

At about 9:30 a.m., in Room 1404 of the Longworth House Office Building, Vermont Rep. Peter Welch and his staff are preparing for a seminal day. In a half-hour, Welch plans to join fellow House Democrats at a Tax Day press conference to detail the true cost of America's mission in the Middle East. Then, at 2 p.m., he's scheduled to be at a subcommittee hearing on an issue that has garnered international media attention: a legal loophole that makes it easier for some overseas private contractors to defraud the federal government.

Welch's communications director, Andrew Savage - a 26-year-old Calais native and Middlebury grad who began his career as an intern when Welch served in the Vermont Senate - is practically ebullient. That morning, the Associated Press reported that the Bush administration had abruptly "reversed course" on the loophole and, in a rare concession to congressional displeasure, would now require contractors to notify the government if they discover violations of federal contracting laws or payments for work that was never performed.

Savage is clearly pleased that the AP credited Welch with sparking an inquiry on the loophole earlier this year by introducing H.R. 5712, a bill that demands greater accountability of government contractors, particularly those doing business in Iraq and Afghanistan.

Like many new House members, Welch was elected in 2006 to take decisive action on the war and the ensuing looting of the national treasury, which went virtually unchecked during six years of a Republican-controlled Congress. Welch, who was first elected to public office in 1980 in Vermont, has received high marks from the Washington press corps for disclosing the loophole. But the story has gotten only modest press coverage back home in Vermont.

In fact, Welch is just as likely to take heat from his constituents as receive any credit. Some of them complain that he's failed to move more aggressively toward ending the war or bringing articles of impeachment against President George W. Bush and Vice President Dick Cheney. About a year ago, six demonstrators were arrested in Welch's Burlington office for protesting his support for additional war funding - a decision protestors believed flew in the face of assurances Welch made when he campaigned for his congressional seat. More recently, a group called the Coalition for a Peace Economy launched an online petition calling on Welch to return a $3500 campaign contribution from Burlington defense contractor General Dynamics, or at least to donate the money toward more peaceful pursuits.

For his part, Welch understands and respects this dissent. "How can you not be frustrated?" he says. "We're in a war we should never be in. Innocent people are dying. It's wrecking our economy, and this president won't move an inch. When people are frustrated, believe me, I hear 'em!"

Down in Washington, Welch seems to be choosing his battles with care. He's been to Afghanistan, and has made two trips to Iraq. During his second tour, in January, he got a firsthand look at some of the more egregious examples of contractor abuses that, on Tax Day 2008 in Washington, D.C., are the focus of his time and passion.

One such boondoggle involved the reconstruction of the Baghdad Police College, a project conceived in 2005 to house and train some 4000 Iraqi nationals to take over security duties from U.S. forces. Three years and $73 million later, the reconstruction, by U.S. construction company Parsons Corp., has turned into a shit storm: Raw sewage seeps from one floor to the next in a building plagued with structural problems. Two backup generators were supposed to be installed but never were; a third, which was removed for an overhaul, simply disappeared.

Welch is also angry over a February 2004 contract for Iraqi police training by Dyncorp International. A report by the Special Inspector General for Iraq found that the project was so badly managed that government auditors couldn't determine where most of the $1.2 billion in expenditures had gone. Dyncorp had brought in hundreds of trailers to house trainees. But the trailers ended up parked, unused, at the Baghdad airport. When that embarrassing fact came to light, the U.S. State Department suggested the trailers be redeployed for Katrina victims.

"As I asked a state department official at the time, 'Was it your plan to move the trailers from Baghdad to New Orleans,'" Welch recalls drily, "'or to move the Katrina victims from New Orleans to Baghdad?'"

Meanwhile, the Bush administration has shown little interest in holding private contractors' feet to the fire. It wasn't until last November that the White House's Office of Management and Budget (OMB) proposed regulations that would require contractors to adopt a code of professional conduct and ethics and implement internal controls to detect and report waste, fraud and abuse.

Two months ago, someone in the executive branch - Welch won't say who - tipped him off to an overlooked provision in the OMB's proposed rules: Firms operating overseas were exempt from that requirement. In effect, government contractors working domestically would be held to a higher ethical standard than those working abroad - a curious distinction given the largely lawless and unregulated environments in Iraq and Afghanistan.

Welch, who serves on the H.R. 5712 - the "Close the Contractor Fraud Loophole Act." Within days, Waxman scheduled a hearing of the Subcommittee on Government Management, Organization and Procurement for April 15.

The Bush administration claims the loophole was an honest mistake. Welch and Waxman aren't so sure. While they investigate the possibility that it was slipped into the federal rules by design, the two congressmen are pressing for a floor vote on the bill as quickly as possible.

"They're denying conspiracy," Welch says of the White House's explanation, "by pleading incompetence."


At the corner of New Jersey and Independence avenues, the phalanx of microphones and TV cameras is already assembled as Peter Welch quietly slips in amongst the House Democrats and flashes his best press-conference smile.

With the Capitol dome as their backdrop, the representatives and about 20 reporters stand around an oversized 1040 tax form, inscribed with the names "John and Jane Q. Public" from "Everytown, U.S.A." One line of the tax form indicates that Mr. and Ms. Public owe Uncle Sam $16,500 - the actual sum that an American family of four will contribute to the Iraq war.

For the next 45 minutes, the members try to put that cost - projected to rise to $2.4 trillion by 2017 - into terms that Americans can wrap their heads around.

Rep. Lloyd Doggett, whose congressional district in the Texas Hill Country leans in the same political direction as does Vermont, explains how the United States is spending as much in Iraq in two weeks as it does in one year at the National Cancer Institute. A week's worth of spending on Iraq, Doggett adds, "could have paid for a year of college for 1.25 million Americans to be on the dean's list, instead of the casualty list."

After Ohio Rep. Dennis Kucinich, who pounds the lectern as though he was still running for president, comes Massachusetts Rep. Jim McGovern. He's been fighting "tooth and nail" to add food and nutrition programs for low-income Americans to the 2008 farm bill. McGovern notes that the cost - roughly $1.2 billion - equals what the U.S. Treasury spends in Iraq in four days. House members Carolyn Maloney, Maxine Waters and Barbara Lee offer similarly depressing analogies.

Welch is then introduced as Vermont's "freshman" congressman and "an articulate and outspoken opponent" of the Iraq war. As the cameras whirl and click, he explains that taxpayers from his home state of 660,000 have already invested $760 million in Afghanistan and Iraq, and no one is quite sure where it all went. "There's a point where honesty in budgeting is required," he says, "and we're long past that day."

Earlier, as he hustled from his office to the press conference, Welch shared other frustrations about the Iraq war and Congress' determination to address them. "In the big things that really matter to Vermonters, like ending the war and restoring fiscal accountability, you don't do that overnight," he admitted. "But I've been very fortunate that Chairman Waxman assigned me to this oversight committee and I have had the opportunity to keep pounding away at it."

A big part of the problem, Welch says, is ideological: The Bush administration has privatized and outsourced government operations to unprecedented levels. Between 2000 and 2006, the congressman notes, procurement spending rose from $203 billion to $412 billion - the highest level in U.S. history. Many of those jobs were awarded through noncompetitive, or "no-bid," contracts. These, too, have ballooned during the Bush years, from $67.5 billion in 2000 to $206.9 billion in 2006.

The Bush administration has argued that the stricter oversight and regulation of contractors proposed in Welch's bill is unnecessary. So has a consortium of business groups, including the U.S. Chamber of Commerce, which favors a more voluntary approach to monitoring fraud in government contracts.

Also opposed to Welch's bill is the Professional Services Council (PSC), a trade group that represents more than 300 government contractors, including Dyncorp, Boeing, KBR and Blackwater Worldwide. In a 2004 "media briefing," PSC argued that government overseers were not "well-versed in the "on-the-ground realities" of the Iraq war, and that oversight was "ubiquitous."

"Given the scope, tempo and dollars involved," the PSC briefing added, "we should expect mistakes, but mistakes do not equal fraud or abuse."


Shortly before 2 p.m., Welch, running late for the House subcommittee hearing, stops outside his office to greet a group of visiting Vermonters. "Is it mud season there yet?" he asks, while posing for a quick photo.

A few minutes later, he winds through the labyrinthine halls and back stairwells of the Rayburn House Office Building to Room 2247. The high-ceilinged hall is packed with more than 100 people, including four members of Congress, their staffers and four witnesses seated before the horseshoe-shaped dais. There are also about a dozen print reporters in the room, but no TV cameras.

The hearing's first witness is Paul Denett, the OMB's administrator for federal procurement policy. It was his agency that apparently included the loophole in the proposed regulations. For the next 10 minutes, Denett tries to explain, using a plethora of acronyms, the procedures the OMB has implemented that make Welch's bill redundant. Denett assures the committee, "The administration is committed to an acquisition process with high standards of integrity and effective management controls to reduce fraud, waste and abuse in government contracting."

Barry Sabin, deputy assistant attorney general in the U.S. Department of Justice, has five minutes to summarize his seven pages of written testimony. Pointing out the administration's "proactive leadership role" against contractor abuse, Sabin cites "more than 300 cases of procurement fraud" his office has identified and investigated.

According to Sabin, the DOJ "welcomes the enactment of new tools" to fight contractor fraud, but he concludes that - with all due respect to the gentleman from Vermont - the executive branch would prefer to clean up its own mess.

Up next is David Drabkin of the General Services Administration (GSA), whose explanation of the government rule-making process is virtually incomprehensible. However, he claims it is one of the government's "unheralded great success stories," and that the career civil servants who carry it out are the "truly unsung heroes of government."

The final witness is Colleen Preston, the PSC's executive vice president. She outlines the various reasons why mandatory reporting of waste, fraud and abuse is unnecessary for law-abiding companies operating in Iraq and Afghanistan. "We all share the goal of reducing unethical behavior," Preston tells the subcommittee. "The question is how we best do that."

Welch's bill, she insists, is not the way. H.R. 5712 will have "significant unintended consequences and costs far beyond its benefits," Preston argues. To require military contractors such as Blackwater and KBR to report the slightest whiff of malfeasance will cause "a potential landslide of unnecessary reports" that will drive government contractors out of business - or at least away from doing business with the federal government. "Voluntary programs," Preston concludes, "are far more effective tools."

Welch appears to fight the urge to laugh out loud during Preston's remarks. He quickly takes the floor and recites some of the many abuses he's turned up, including the 118 overseas contracts, valued at more than $745 billion, that his committee determined were corrupted by "significant waste, fraud and abuse."

Welch then begins questioning the witnesses with the aggressiveness of a veteran litigator. His opening salvo is directed at the OMB's Paul Denett:

Welch: In your mind, does a taxpayer dollar spent abroad deserve any less protection from waste, fraud or mismanagement than a tax dollar spent here in the United States?

Denett: As I said in my opening remarks, I'm inclined to remove the exemption, but I'm not comfortable . . .

Welch: I'm asking you a simple question. Does that taxpayer dollar spent abroad deserve the same degree of protection as that tax dollar spent here at home?

Denett: All our tax dollars, regardless of location . . .

Welch: We all agree on that . . . Isn't it your job, among other things at OMB, to take appropriate action, including rulemaking, to protect all taxpayer dollars, regardless of where those tax dollars are being spent?

Denett: That's, in fact, what we're doing.

Appearing puzzled, Welch begins reading from a list of 18 federal agencies that were asked to weigh in on the new rules. Is it true, he asks, that only the Social Security Administration expressed concern with the overseas contractor loophole?

"That's what I'm told," Denett says sheepishly.

A bit later, Welch turns his questions toward Preston of the PSC.

Welch: Why would any of the contracting entities that you work for - Blackwater, Triple Canopy, KBR, companies that receive billions in taxpayer dollars - have any reservation about sharing with the government knowledge that they have, when they have it, that taxpayers are being ripped off?

Preston: There isn't any question that they would share that information, if they knew of it. The question is, how is it drafted in terms of the legislation, and what are the risks they incur?

Welch: So, you want no statutory or rulemaking obligation. You want them to have voluntary capacity to do this, so, when in doubt, they make the final decision?

Preston: If they can report, they'll report it when they understand something.

Clearly, not everyone on the subcommittee shares Welch's distrust of contractors. Virginia Rep. Tom Davis, the committee's ranking Republican and a former attorney for government contractors, suggests that Welch's bill "applies a blunt instrument to a process that requires delicate surgery."

Davis asks Preston if she thinks the bill's "self-reporting regime" will cause companies to walk away from the federal government in droves. Preston agrees. "The cost of doing business with government is increasing," she replies, "and the time will come when there's the straw that breaks the camel's back."

Davis then asks the GSA's Drabkin if the loophole was slipped into the regulations "nefariously" as a favor to overseas contractors.

"No, sir," Drabkin replies indignantly. "And, frankly, I'm offended that the suggestion was made without a scintilla of evidence that that was the case . . . The truth is, they made a drafting error."

But Welch seems far from convinced. He notes that no one seemed interested in plugging the loophole until the House scheduled hearings on the matter. As for the contractors - who, according to government figures, have been paid close to $400 billion on Iraq and Afghanistan projects - he said, "They don't want 'the burden' of having to share with the government in a timely way their knowledge that taxpayers are being ripped off."

The hearing lasts about an hour and a half. Afterwards in the hallway, reporters cluster around Welch, who is due on the House floor for a vote on an unrelated bill. Nonetheless, he sticks around for a half-hour to answer their questions. As of press time, H.R. 5712 was due to be voted on by the full House of Representatives on April 23, and Communications Director Andrew Savage says the congressman expects the bill to pass "with strong bipartisan support."

How much impact it will have remains to be seen, of course. Before heading back to the Capitol, Welch acknowledges that H.R. 5712 doesn't address some of the most egregious criminal charges leveled against overseas defense contractors - including accusations that Blackwater security forces killed as many as 17 Iraqi civilians in an unprovoked attack, and that KBR employees in Baghdad kidnapped, drugged and raped a female employee.

Indeed, private contractors will continue to profit from the country's military commitment in the Middle East. But, Welch says, taxpayers should have some assurance that at least some of them are being held accountable.

"There is a cop on the beat," Welch says. "And, the fact that we got the Bush administration to back down on this one egregious loophole is a success. Now, they know we're watching."