Yesterday, the Congressional Oversight Panel (COP) held a hearing to examine Treasury's use of private contractors under the Troubled Asset Relief Program (TARP). According to the COP, as of August 13, 2010, Treasury has entered into more than 80 contracts with private contractors, with a current approximate obligated value of $445 million. Its agreements with Fannie Mae and Freddie Mac for the Home Affordable Modification Program (HAMP) alone total approximately $220 million.

Testifying before the COP were:

Panel One:

Gary Grippo, Deputy Assistant Secretary for Fiscal Operations and Policy, U.S. Department of the Treasury

Ronald W. Backes, Director, Procurement Services, U.S. Department of the Treasury

Panel Two:

Joy Cianci, Senior Vice President, Making Home Affordable, Fannie Mae

Paul Heran, Program Executive, Making Home Affordable - Compliance, Freddie Mac

Mark Musi, Chief Compliance and Ethics Officer, Bank of New York Mellon

Panel Three:

Scott Amey, General Counsel, Project on Government Oversight

Steven Schooner, Professor of Law and Co-Director of the Government Procurement Law Program, The George Washington University School of Law

Allison Stanger, Russell J. Leng '60 Professor of International Politics and Economics and Chair of the Political Science Department, Middlebury College

Damon Silvers, the deputy chair of COP, began the hearing by noting the resignation of the COP’s former chair, Elizabeth Warren, who was recently appointed Assistant to the President and Special Advisor to the Secretary of the Treasury on the Bureau of Consumer Financial Protection.

Mr. Silvers noted that federal use of private contractors raises a number of potential conflicts, including self-interested behavior in the management of TARP contracts, the misappropriation of information that comes into contractors’ possession as a result of working for the TARP, and the fact that contractors are immune to requests under the Freedom of Information Act. In addition, he said that contractors may hire subcontractors, and are not required to disclose those subcontractors to Treasury or to the public.

Some of the primary questions discussed during the hearing included:

  • How has Treasury determined what TARP-related functions should be contracted out?
  • How has Treasury overseen the performance of TARP contractors?
  • What measures has Treasury put in place to address contractor conflicts of interest?

The panelists discussed the process for determining that a contractor is needed, for selecting contractors and for reviewing the relevant contract terms. They also discussed ways to encourage small businesses to act as contractors, and ways to prevent conflicts of interest and manage conflicts of interest that may arise, as well as ongoing monitoring of contractor performance and compliance.

Gary Grippo, Treasury’s Deputy Assistant Secretary for Fiscal Operations and Policy, explained that the process for monitoring contractor performance and compliance is built into the relevant procurement contract. Monitoring involves routine assessments, management reviews, self-reporting, and third-party verification.

A review board comprised of Treasury personnel then regularly reviews performance data across all procurement contracts and addresses performance issues by rejecting or withholding payment, issuing cure notices for unacceptable performance, stopping work, and considering the performance as an element in future award decisions.

COP is required to report their findings to Congress monthly, and the information provided by the panelists in yesterday’s hearing will inform COP’s October oversight report.