Blog - Commentary

Has privatisation gone too far in the US? Reuben Guttman discusses the current government dependency of private contracters and how to address this.

Private contractors are a major part of US government strategy Spirit of America

In his Gettysburg Address of 1863, United States President Abraham Lincoln spoke about a "government of the people, by the people and for the people." Fast forward 151 years, and the meaning of that phrase is not so clear. Who runs government? Is the United States Federal Government run in all instances by those who have been elected by the people? As the government struggles to govern and enforce regulatory compliance in an era where technological advancement and globalisation have created new challenges, its reliance on the private sector or private contractors has reached new peaks.

Extensive use of private contractors

Private contractors, of course, were used by the Union Army during the Civil War; they built the nation's nuclear weapons complex during World War II and have supplied the military with armaments from guns to fighting vessels. That the government buys things from the private sector is no surprise. Nor is it a surprise that the government buys discrete services from the private sector. Government buildings, for example, are cleaned by private contractors.

Yet, how much can the government contract out before it is delegating functions that it should perform itself? Political scientists talk about the problem with contracting out "inherently governmental functions" but what does that term really mean? Is it like what former Supreme Court Justice Stewart said about obscenity, "I know it when I see it"? Or is there some objective definition?

Delegating to the private sector

It may be easier to answer these questions after looking at how much has been delegated to the private sector. Wake up in the morning and drive to work in a hurry and you may be turned in for a speeding ticket by a private contractor that operates and, in theory, calibrates equipment that clocks drivers and photographs speeders. If your infraction is markedly more serious than a speeding violation and prison time is mandated, you may find yourself in a jail run by a private contractor and staffed with private prison guards. While your criminal case will still be heard by judge who is a government employee, the same cannot be said for all civil cases as civil dispute resolution is actually being privatised.

Decisions by the United States Supreme Court in American Express Co. v. Italian Colors Restaurant, 133 S.Ct. 2304 (2013) and AT&T Mobility LLC v. Concepcion, 131 S.Ct. 1740 (2011), have -- in many cases -- eliminated the right to have a dispute heard in a government run court in favor of adjudication by private judges known as "arbitrators." These proceedings are not public, there is no requirement that these arbitrators adhere to precedent, and the ability to challenge their decisions in a real court of law is severely restricted. Judicial review of an arbitrator’s decision “is limited only to those exceedingly rare instances where some egregious impropriety on the part of the arbitrators is apparent, but where none of the provisions of the [Federal Arbitration Act] apply.” Duferco Intern. Steel Trading v. T. Klaveness Shipping A/S, 333 F.3d 383, 389 (2d Cir. 2003).

Most Americans know that the Food and Drug Administration (FDA) approves drugs for particular uses. Perhaps what is not so obvious is that the Centre for Medicare Services (CMS) will pay for drugs used for purposes or in ways not approved by the FDA if there is substantive support in the compendia. What are the compendia? They are publications of private entities which rely on committees staffed by doctors who are often also on the payroll of the pharmaceutical industry.

In United States v. Science Applications Int’l Corp 626 F.3d 1257 (D.D.C. 2010), the United States Department of Justice brought a suit under the Federal False Claims Act against SAIC, a large government contractor. The suit alleged that at the time SAIC secured a contract to help the Nuclear Regulatory Commission with its efforts to make a rule on how clean recycled radioactive metal had to be before it was released into commerce, SAIC was also a subcontractor to British Nuclear Fuel which had a prime contract with another government agency, the Department it Energy, to recycle - and place into commerce - nickel from the gaseous diffusion plant at the Oak Ridge K-25 bomb factory. It turns out that in securing the contract with the NRC, SAIC failed to disclose this potential conflict of interest. Conflict of interest aside, why was a contractor even playing a role in helping a government agency make a regulation with the force and effect of law?

Remember Edward Snowden? No doubt there must be people in the Obama Administration who would like to forget him. He worked for a private contractor and, by the way, his security clearance check was performed by a private contractor.

The Department of Education gives student loans to finance education at for-profit schools that market themselves as "distance learning" institutions. You can even work toward a degree at home on your computer while wearing pajamas. While the Department of Education will only loan money for schooling at licensed institutions, it relies on the private sector licensing entities to establish standards and grant licenses. At least one of these entities is run by the very schools that it is licensing.

Dependency culture

The government is so dependent on contractors that it continues to rely on some that it has prosecuted or is prosecuting. The CMS, for example, hired Northrop Grumman – a repeat violator of the False Claims Act – to create a predictive model designed to catch Medicaid fraudsters. And while the Department of Justice (DOJ) is presently engaged in the civil prosecution of Lockheed for alleged derelictions at its Paducah, KY Gaseous diffusion plant, the DOJ itself continues to award Lockheed millions each year in contracts. (I must disclose here that I represent the whistleblowers who initiated this case.)

All of this raises the question of who is minding the store? Has privatisation gone too far?

This June when the American Constitution Society convenes in Washington, DC for a convention that will bring together legal scholars and prominent practitioners from across the US, the "privatisation of America" will be a matter addressed by one of the panels. What are the constitutional and practical concerns? Has the government abdicated its responsibilities to contractors? What concerns exist with regard to conflicts of interest? And - by the way - do we really have a modern day United States Government "of the people, by the people, and for the people"?