Thursday, December 1, 2011

WASHINGTON - Senator Chuck Grassley said today that the Senate has accepted an amendment he offered with Senator Barbara Boxer of California to limit taxpayer reimbursement for defense contractor salaries. The legislation will be included in a larger bill to authorize $662 billion in Pentagon spending for the next fiscal year.

Grassley said their reform amendment is aimed at runaway federal spending on contractor salary reimbursements.  Cost-reimbursement type contracts are used extensively by the Department of Defense.

"We can't afford to waste increasingly limited defense dollars," Grassley said.

Between 1998 and 2010, the benchmark for reimbursing executive salaries - separate from what these executives are paid by their private-sector employers - grew 53 percent faster than the rate of inflation.

Here is Grassley's statement to the Senate regarding the Boxer-Grassley amendment.

Grassley Statement

The Congressional Record

Thursday, December 1, 201

At a time when the national security budget is under immense pressure, it is vitally important that we spend our defense dollars more wisely.  The Boxer-Grassley amendment will contain runaway spending in contractor salary reimbursements.  Notice that I said "salary reimbursements" not salaries.  Someone not familiar with government contracting might ask why it's any of our business what government contractors get paid, and I would agree if we're talking about what their company pays them out of its own pocket.

When most people hire a contractor to renovate their bathroom or re-shingle their roof, they find the one that does the best work for the least cost.  Having done that, you're not likely to ask or care what their cut is or what they pay their crew.  To the extent that government contracts work the same way, the same principle applies.  Unfortunately, not all government contracts do work that way.

A large proportion of government contracts actually reimburse the contractor directly for the costs they incur, including for the salaries of their employees.  These types of contracts are risky because contractors lose the incentive to control costs.  They are only supposed to be used when a fixed price contract is not possible, for instance if the scope or duration of the work is not possible to determine at the outset.

Nevertheless, cost-reimbursement type contracts are used extensively by federal departments and agencies.  The Defense Department alone accounted for over $100 billion in cost reimbursement type contracts in fiscal year 2010.  President Obama has criticized the widespread use of these types of contracts and has set a goal of slowing the growth and ultimately reducing their use.  He's made a little progress.  However, we're talking about a small dent in a large bucket.  It's clear that cost type contracts are going to account for a major proportion of the dollars spent on federal contracting for the foreseeable future.  As a result, we must take steps to limit unreasonable expenditures under these types of contracts.

Senator Boxer and I worked together to try to head off this problem back in 1997.  At that time, we proposed capping salary reimbursements at the salary level of the President of the United States.  However, a compromise was ultimately enacted that capped how much the top 5 highest earning contractor executives could charge the federal government for their salaries.  The cap was set at the median salary of the top 5 executives at companies with annual sales over $50 million, which must be recalculated annually.  Since that time, the cap has more than doubled from $340,650 to $693,951.  That's 53 percent faster than the rate of inflation.

The House-passed version of the National Defense Authorization Bill expands the current cap to all contractor employees, not merely the top 5 executives, closing a loophole that was being exploited.  The version of the National Defense Authorization Bill before the Senate extends the cap only to the top 10-15 executives.  However, Senator Boxer and I think it's time to reconsider a fixed cap at the level of the President's salary, which I should add was doubled by Congress to $400,000 since our previous proposal.  That's more than generous.  Surely the taxpayers shouldn't be asked to pay the salary of a contractor more than the President makes, which is twice what any cabinet secretary makes.  Keep in mind that this cap just limits how much Uncle Sam can be billed for, which is on top of whatever the company chooses to pay its employees out of its own pocket.

Not only would our straightforward cap save man-hours in the Office of Federal Procurement Policy, which has to gather the data every year to determine the current convoluted cap, but it would save millions of dollars that need not be spent.  Again, we cannot afford to go on wasting our increasingly limited defense dollars.  We have to be more aggressive in weeding out waste in defense spending and this is one unnecessary expenditure that we can easily eliminate in favor of higher priorities.  I urge my colleagues to join us in this commonsense cost cutting measure.

Connection Between Wide Receiver and Fast and Furious

Assistant Attorney General Breuer to Senator Grassley: "I regret that in April of 2010 that I did not draw the connection between Wide Receiver and Fast and Furious."

FACT

In the spring of 2010, Criminal Division staff considered Operation Wide Receiver and Operation Fast and Furious related components of the same case.

On February 22, 2010, Gang Unit prosecutors Laura Gwinn and Joe Cooley, assigned respectively to Wide Receiver and Fast and Furious, emailed back and forth with each other about the connection between the two cases when some of the guns being trafficked in Fast and Furious were tracked to a stash house of one of the targets in Wide Receiver.

Because of those overlapping targets, Wide Receiver and Fast and Furious were considered associated cases.  When the ATF Phoenix Field Division assembled a PowerPoint presentation on Fast and Furious in March 2010, one of the slides listing "Associated Cases" with Fast and Furious listed Operation Wide Receiver.  This same PowerPoint was presented at ATF headquarters on March 5, 2010.  According to a March 11, 2010, memo from Gang Unit Chief Kevin Carwile, Gang Unit member Joe Cooley attended that briefing.

Concerns about those overlapping targets also led to delay in unsealing the indictments in Wide Receiver, as the U.S. Attorney's Office in Arizona had concerns that when the Wide Receiver indictments were unsealed it would tip off targets in Fast and Furious.  As the department wrote in its October 31, 2011, letter to Senator Leahy:

The documents produced today reflect that the Gang Unit prosecutor was ready to indict the Wide Receiver cases and unseal them beginning in the spring of 2010, but that the Assistant U.S. Attorney in the U.S. Attorney's Office in Arizona handling Fast and Furious believed that if the Wide Receiver indictments became public at that time they would negatively impact his case.  The Assistant U.S. Attorney therefore requested that the indictments and/or the unsealing of the indictments in Wide Receiver be delayed.  As a result of that request, Wide Receiver 1 was indicted under seal in May 2010, Wide Receiver 2 was indicted under seal in October 2010, and both cases were unsealed in November 2010.

In a July 1, 2010, memo to DAAG Weinstein and others, Gang Unit Chief Kevin Carwile described Fast and Furious as "a gun trafficking case with apparent ties to the Tucson case already indicted by [the Gang Unit]," which was a reference to Wide Receiver.

Finally, an October 18, 2010, memo under Assistant Attorney General Breuer's name that is addressed to the Attorney General and Acting Deputy Attorney General reads: "On October 27, the Organized Crime and Gang Section (OCGS) plans to indict eight individuals under seal relating to the trafficking of hundreds of firearms into Mexico.  The sealing will likely last until another investigation, Phoenix-based 'Operation Fast and Furious,' is ready for takedown."

Given all this evidence that the cases were seen as related by Criminal Division staff, Breuer's claim that he failed to "draw the connection" between the cases is not credible.  Since Breuer knew of gunwalking in Wide Receiver, if he knew that the cases were related then it's difficult to understand why he would not have prevented gunwalking in Fast and Furious.

Senate Judiciary Committee Oversight Hearing with Attorney General Eric Holder, Nov. 8, 2011

Connection between Fast and Furious and Agent Terry's Death

Attorney General Holder to Senator Cornyn: "It is not fair, however, to assume that the mistakes that happened in Fast and Furious led directly to the death of Agent Terry."

FACT

According to the FBI, two weapons were found at the murder scene of Border Patrol Agent Brian Terry.  The bullet removed from Agent Terry matched the caliber of those two weapons, not the caliber of the weapons in possession of the Border Patrol agents, so it appears he did not die from friendly fire.  Congressional investigators have asked the FBI to explain its theory of the case, since if there was no third gun at the scene and the bullet didn't come from the Border Patrol, there must still be an unknown third gun which law enforcement has not yet recovered.  It is possible that that third gun is not related to Fast and Furious.  However, since two guns walked in Fast and Furious were present, it is possible that a third may have been as well.  The two found at the scene were both part of a lot of three weapons purchased by known straw buyer Jaime Avila on the same day in January 2010.

Prior to the purchase of the weapons found at the Terry murder scene, Avila had already been identified by the ATF as a likely straw purchaser at least two-and-a-half months earlier.  In November 2009 Uriel Patino, the largest purchasing target in Operation Fast and Furious, brought Avila into a cooperating gun dealer to buy five weapons.  ATF received real-time notice from the gun dealer and knew the purchases were significant enough that agents rushed to the store to follow them.  However, they arrived too late.  Yet rather than going to Avila's address to question him, ATF opted to sit back.  Avila continued to purchase through December 2009 and into January 2010.

When the weapons found at the Terry murder scene were bought by Avila on January 16, 2010, the cooperating gun dealer gave the ATF same-day notice via fax.  One business day later, the ATF entered the purchases in their Suspect Gun Database.  Nevertheless, the ATF still failed to question Avila the day of the purchase, the day the purchase was entered into the Suspect Gun Database?or at all, until Avila was arrested 11 months later in direct response to Agent Terry's death.  The falsification of forms charge for which Avila was arrested on December 15 could have been made months earlier.

Regardless, by using the word 'directly,' Holder seems to be echoing the statement of Assistant Attorney General Lanny Breuer: "The tragic truth is that if those criminals who killed Agent Terry had not gotten the guns from this one source, they would have gotten the gun from another source."  That is hardly an excuse for federal law enforcement to watch criminals collect more than a thousand firearms without acting to stop them.

On Thursday (tomorrow), the Senate Committee on Agriculture, Nutrition and Forestry will hold a hearing examining derivatives reform that will feature testimony from Gary Gensler, chairman of the Commodity Futures Trading Commission, and Mary Schapiro, chairman of the Securities and Exchange Commission.  Committee members are likely to ask questions about the agencies' work leading up to the MF Global bankruptcy, which has left farmer clients in the lurch.  Sen. Chuck Grassley, a member of the Agriculture Committee, made the following comment on the hearing.  Grassley has a scheduling conflict with the Judiciary Committee, where he serves as Ranking Member, but plans to attend the Agriculture Committee hearing as much as possible.  If he can't attend, he will pose any questions he thinks were not asked to the witnesses for written responses for the hearing record.  Also, the Agriculture Committee has scheduled an investigative hearing on the MF Global case for Dec. 13, so there will be continued opportunities to ask questions.

"I appreciate the committee leaders' attention to this issue.  It's been weeks since MF Global's bankruptcy.  The public is still in the dark on basic facts.  Unanswered questions include who discovered that client money was missing, how much of that money is actually missing, and how much of the client money can be recovered.  I hope the committee will be able to get some direct answers from Chairman Gensler and Chairman Schapiro.  It's a good opportunity to ask the questions our constituents would ask if they could be there."