Treasury Secretary Paulson waives provisions of our contracting laws for bailout

Secretary of the Treasury
Henry Paulson.
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From: Taxpayers for Common Sense

Who's Watching the Bailout?

Pub Date: Oct 10, 2008

Only a few days after President Bush signed the 2008 Emergency Economic Stability Act, also known as the $810 billion bailout, the Treasury Department announced that it will award the first contracts for private firms to price and purchase the "toxic" assets that have asphyxiated the global financial system. The bailout package gives Treasury Secretary Henry M. Paulson, Jr. unprecedented powers to draw on the private sector to run the program—with a notable absence of ground rules.

The bailout package enables the Treasury Secretary to waive "specific provisions" of our contracting laws, the Federal Acquisition Regulation (FAR), if he determines that "urgent and compelling circumstances make compliance with such provisions contrary to the public interest," despite the existence of rules on the books for handling these emergencies. The bill does not define the "provisions," and it doesn't stipulate who will be charged with drafting and monitoring the contracts.

While government watchdog agencies will have access to information, these agencies will only be able to report on contracts after they have been issued and paid. So, we will only know how much has been wasted after it has been wasted.

Sadly, we've been here before. Government skirted contracting rules when it turned to the private sector for large amounts of goods and services during Hurricane Katrina and the Iraq war. We've even used contracting in emergency financial bailouts before. The Resolution Trust Corporation, founded in 1989 to dispose of loans and other assets from the Savings and Loan debacle, was similarly empowered to contract with the private sector unencumbered by federal contracting regulations. The result was predictable: millions in unaudited billings and noncompetitive contracts, prompting one former RTC official to warn Congress that "the taxpayer is taking it in the shorts."

Whether the government is buying trailers, kitchen services, or financial expertise, it is how these things are purchased that potentially exposes taxpayers to waste. Official post-mortems of these contracting bonanzas recommend the same policy prescriptions: Start out with a clear plan for how to structure and manage contracts, and increase the number of trained procurement professionals to oversee them.

Secretary Paulson seems poised to repeat history rather than learn from it, however. Contracting announcements this week released by the Treasury Department only reaffirmed Paulson's exceptional authority, pointing out that the Secretary can limit competition on the basis of "unusual or compelling urgency" and warning "a number of contracts will be awarded through other than full and open competition." Supposedly Treasury is working on a more complete contracting plan, but it will be a day late and a millions of dollars short. Treasury solicited contracts Monday for services such as asset management and accounting, and the winners are expected to begin work this weekend.

Why, after all the time and effort spent scrutinizing past contracting mistakes, does Treasury insist on starting at square one? We know that precautionary measures such as putting trained acquisition professionals in place at the front end of this process can save taxpayers money in the long run. If these troubled assets are priced and acquired carefully and appropriately, the taxpayers may well recoup their investments and homeowners and small businesses will benefit. But, given the public's concern about moving taxpayer money to the people who helped get us in to this mess, transparency and accountability are as important as speed to maintain public confidence in the process. Being that Treasury is spending $700 billion of our money, they owe us that much.


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