An Incentive to Buy High | Uncle | Non, je ne regretted rien

An Incentive to Buy High—If the General Services Administration is the government’s “Office Depot Catalog,” as attorney Victor Kubli describes it on page 1 of this issue, the Industrial Funding Fee is an enticement for vendors listed in the catalog to gouge the government. The fee funds the agency, which receives no appropriation to operate. Once called the “Industrial Impact Fee,” it is a .75 percent tax paid by contractors on the revenue from all goods they sell to government agencies through the GSA. As the Project on Government Oversight points out in a legal brief, the GSA has little incentive to negotiate a lower price from the vendor (contractor) because lower prices result in less revenue for the agency. “For example, the GSA will collect more revenue from the .75 [percent] fee on a $200 per hour service contract in comparison to the one on the same schedule that only bills the government at $100 per hour for the same service,” POGO’s lawyer writes. Former Rep. Tom Davis (R-VA) did some good in 2004, reducing the fee from 1 percent to .75 percent. Regardless of the rate, the fee in no way encourages a contracting officer to negotiate a lower price for the taxpayer.

Uncle Sucker?—Scott Lilly at the Center for American Progress writes that he was perplexed by a Securities and Exchange Commission filing from a small Maryland pharmaceutical company. The company had one product, a vaccine, and one customer, the federal government. The SEC filing listed the cost of the product at $46 million and revenues from the previous year’s sales of the product at $217 million. “Even if you allow a generous amount for administration and overhead above the $46 million ‘cost of product sales,'” Lilly wrote, “the $217 million in revenue from those sales would indicate a markup in the neighborhood of 300 percent.” The company, Emergent BioSolutions, had won the contract for the vaccine for anthrax and was billing the government at those same bloated profit margins for four years. When the Center for American Progress contacted Emergent and asked company officials to explain the high profit margins, they responded that the cost reflected the substantial risk of developing, manufacturing, and securing licensure for the vaccine. The price paid was fair market value and based on “independent negotiations with two agencies of the U.S. Government,” both of which “determined the price to be fair and justified.”

The full report, Getting Rich on Uncle Sucker, is available at www.americanprogress.org/issues/2010/10/uncle_sucker.html. In it Lilly observes that the 9/11 attacks created a boom for contractors, who found it easy to cash in on the public’s fear at a time when government gatekeepers were willing to ignore procurement safeguards. “The Iraq War and Hurricane Katrina extended that boom,” Lilly concludes. “But there has been no systemic effort to examine how big a mess was created and what steps are necessary to get government procurement back on an even keel.”

Non, je ne regrette rien—As we go to press, Tom DeLay goes on trial in Texas. Given that Karl Rove will probably come close to raising $100 million for the 2010 elections, DeLay’s indictment for money laundering a half million dollars seem quaint.

A former Hill staffer observed that, “Tom DeLay looks like a bit player dealing in small potatoes. I wonder if he regrets that he could go down for such small dealing?”

DeLay will have some regret if he is convicted and sentenced to serve time in Texas, even if it’s unlikely that he will end up with a randy cell mate named Bubba. And conviction is a possibility, as it appears that the Travis County D.A. has outsmarted DeLay and his defense team, led by Houston legend Dick DeGuerin.

DeLay was indicted on election code charges, which guarantee a defendant a trial in the county in which he resides. And also indicted for money-laundering, on which defendants are usually tried in the county in which they were indicted. The D.A. dropped the election code charges, leaving DeLay to face a judge and jury in Austin rather than back home in Fort Bend County.

DeLay has no regrets about the money he raised for election campaigns when he was the Republican majority leader and one of the most feared elected officials in Washington. “I think there ought to be more money in political campaigns, not less,” he said after a pre-trial hearing. He gets his wish with this election, even if he will be sitting in a Travis County courthouse when the country goes to the polls on November 2. (The Spectator will be sitting there with him, for a full report to follow the trial.)

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