Unjust Rewards

Image: Tim Bower

In 1994, an explosion claimed the life of a worker at an Arizona air bag factory run by TRW, the huge Ohio-based manufacturing conglomerate. The company, which had a record of violating federal workplace safety laws at the plant, paid a $1.7 million penalty in order to settle criminal charges brought against it. Later, federal environmental officials discovered that TRW, following a policy described as “clearly approved by management,” was illegally dumping chemical waste at landfills in three states. Last year, the company paid a record $24 million in civil and criminal penalties related to the dumping case.

EXPOSING THE WORST The “contractor responsibility rule” revoked by President Bush required officials to review a company’s recent history of violating federal laws before awarding federal contracts. To determine which contractors have the worst records in two significant areas covered by the rule — the environment and workplace safety — Mother Jones compared a list of 200 corporations that did the most business with Washington between 1995 and 2000 with the government’s own databases of companies cited for significant environmental or workplace safety violations. The May/June issue of Mother Jones contains information on the “Dirty Dozen,” the top 12 contractors with both environmental and workplace safety violations. However, the full list reveals much more. A total of 67 contractors have been prosecuted by the Justice Department and found liable for environmental violations, or cited by the Occupational Safety and Health Administration for posing a serious risk of injury or death to workers. The 67 companies were found liable for more than $37 million in penalties, although in some cases of environmental violations other firms were included in the citations and may share a portion of the liability. Review the data in full.

But even as TRW was repeateldy violating workplace and environmental laws, it was still earning billions under contracts awarded by the federal government. Between 1995 and 2000, the company received a total of $10.3 billion in federal business, placing TRW among the nation’s 10 largest government contractors despite its record of jeopardizing the safety of its employees and polluting the nation’s air and water.

That’s not supposed to happen. Federal contracting officers are charged with reviewing the legal records of companies that do business with Washington and barring those that fail to demonstrate “a satisfactory record of integrity and business ethics.” But officials are given no guidelines to follow in making such decisions, and there is no centralized system they can consult to inform them of corporate wrongdoing. As a result, a government report concluded in 2000, those responsible for awarding federal contracts are “extremely reluctant” to rule out potential contractors, even when they are aware of violations. And in the rare instances when the rule is enforced, it is almost always against small companies with little clout in Washington.

Shortly before leaving office, President Clinton issued an executive order providing clear guidelines for deciding whether firms should be considered for a share of the roughly $200 billion in federal contracts awarded each year. Clinton’s “contractor responsibility rule” specified that federal officials should weigh “evidence of repeated, pervasive, or significant violations of the law.” Officials were told to consider whether a company has cheated on prior contracts or violated laws involving the environment, workplace safety, labor rights, consumer protection, or antitrust activities.

The order was never implemented. In one of his first acts as president, after only 11 days in office, George W. Bush put the rule on hold, saying the issue needed further study. With big business suing to block the new guidelines, Bush quietly revoked the rule 11 months later.

Some 80,000 contractors do at least $25,000 in business with the federal government each year, and the great majority comply with the law. But a six-month investigation by Mother Jones of the nation’s 200 largest government contractors found that Washington continues to award lucrative contracts to dozens of companies that have been repeatedly cited for serious violations of workplace and environmental laws. The government’s own database of contractors was matched with lists of the worst violations documented by the Environmental Protection Agency (EPA) and the Occupational Safety and Health Administration (OSHA) between 1995 and 2000. Among the findings:

• Forty-six of the biggest contractors were prosecuted by the Justice Department and ordered to pay cleanup costs after they refused to take responsibility for environmental violations, including the illegal dumping of hazardous waste. General Electric — which received nearly $9.8 billion from the government, making it the nation’s 10th-largest contractor — topped the EPA list with 27 cases of pollution violations for which it was held solely or jointly liable.

• Fifty-five of the top 200 contractors were cited for a total of 1,375 violations of workplace safety laws that posed a risk of death or serious physical harm to workers. Ford Motor Company, which between 1995 and 2000 ranked 177th among contractors with $442 million in federal business, led the OSHA list with 292 violations deemed “serious” by federal officials.

• Thirty-four leading contractors were penalized for violating both environmental and workplace safety rules. The firms were hit with a total of $12.6 million in EPA penalties and $5.9 million in OSHA fines — costs more than covered by the $229 billion in federal contracts they were awarded during the same period.

Even contractors that commit the most obvious violations are never suspended or debarred. One federal study found that the government continues to award business to defense contractors that have committed fraud on prior contracts. General Dynamics Corp., the nation’s fifth-largest contractor, paid the government nearly $2 million in 1995 to resolve charges that it falsified employee time cards, billing the Pentagon for thousands of hours that were never worked on a contract for testing F-16 fighters. Northrop Grumman, the nation’s fourth-largest contractor, paid nearly $6.7 million in 2000 to settle two separate cases in which it was charged with inflating the costs of parts and materials for warplanes. Yet the two defense giants continue to receive federal contracts, collecting a combined total of $38 billion between 1995 and 2000.

“It is clear that, in many cases, the government continues to do business with contractors who violate laws, sometimes repeatedly,” concludes a 2000 report by the Federal Acquisition Regulatory Council, the agency that oversees federal contractors. Others put it more bluntly.

“Government should not do business with crooks,” says Rep. George Miller (D-Calif.), who has demanded that the Bush administration make public any meetings it had with corporate lobbyists during which the contractor responsibility rule was discussed. Bush’s decision, Miller says, “sends a message to contractors that the government doesn’t care if you underpay your workers, or expose them to toxic hazards, or destroy the public lands — the government will do business with you anyway.”

The complete story on federal contractors is available in the May/June issue of Mother Jones magazine.