View Full Document as PDF
There are thousands of felonies committed every day in Washington, D.C. Not in the places one might imagine, but in federal office buildings throughout the nation’s capital. The crime? Circumventing the power of Congress and the president to control the bureaucracy.
The U.S. civil service’s growth is limited by the budgets enacted by Congress and executed by the president. But many federal agencies do an end run around any hiring freeze by hiring contractors instead of federal employees to perform government work. Bureaucracy expands rather than shrinks, congressional oversight is lost, ethical restrictions do not apply, and government expansion continues in defiance of the laws. In the federal government, this mechanism of expansion is illegal. So how can this be happening?
Federal law generally prohibits federal agencies from employing contractors to augment the federal workforce. The prohibition on hiring contractors for their specific skills to fill ongoing federal jobs has been law since the 1880s. Without specific authorization from Congress, hiring contractors in this manner is a felony. But many agencies do it nonetheless, as these laws are nearly never enforced.
Prohibition on “Personal Services.” The prohibition on hiring contractors was first enacted in 1884, through the Anti-Deficiency Act (ADA, 31 USC §§ 1341 and 1342). “No Department or officer of the United States shall accept voluntary service for the Government or employ personal services in excess of that authorized by law except in the case of sudden emergency involving the loss of human life or the destruction of property,” reads the statute.
The Anti-Deficiency Act is a series of laws prohibiting expenditures except as appropriated and authorized by Congress. Section 1341 prohibits expending federal funds without prior appropriation and authorization by Congress. 31 USC § 1342 explicitly prohibits accepting voluntary services and “personal services,” the hiring of contractors for their particular skills in order to augment the federal staff, without express authorization by statute.
The term “personal services” means hiring a particular individual for his or her skills—nearly all positions in the federal civilian workforce are “personal services.” The term is frequently misunderstood to mean misuse of employees to benefit an individual outside their employment, such as having federal contractors build a backyard deck. That is indeed a form of corruption, but it is not the legal meaning of “personal services.”
Willful misappropriation and the employment of “personal services” without statutory authorization are both subject to termination and criminal penalties under the ADA. Federal employees do the work of the government and they may be hired for their skills. But contracting out for the personal services of non-government-employees is what the law forbids. Any federal employee who accepts voluntary services or employs personal services may be terminated, fined, and imprisoned for up to two years. But remarkably, the prohibition on personal services is rarely recognized, much less enforced.
There are very few examples where hiring personal services is authorized by law. The broadest exemption is allowance for hiring experts and consultants, who provide skills not available among federal staff. On the other hand, there are few, if any, statutory authorities for hiring staff to augment the federal bureaucracy—staff who prepare budgets, write reports to Congress, prepare newsletters, and perform other roles normally filled by federal staff. While contracting for these services is contrary to the law, this practice has become so ubiquitous in government that it passes without notice.
As a consequence, when calls to reduce the bureaucracy arise, and both the president and Congress focus on reducing the hiring of federal employees, agencies with discretionary budgets respond by simply hiring more contractors, with neither approval nor oversight from Congress. The bureaucracy grows ever larger thanks to this bureaucratic “dark energy”—an invisible force that allows government to expand at the discretion of the bureaucracy alone.
The federal government is a monopoly; lacking the forces of competition there is no way to ensure efficiency. And so often, the easiest “fix” is to simply add more staff. The only limit on the size of the bureaucracy is the budget that Congress provides for it. By ignoring the prohibition on personal services, even this “limit” can be freely exceeded, as it often is. When the prohibition is flouted, the benefits accrue mostly to the Washington, D.C. region.
A Brief History of Section 1342. The statutes collectively known as the ADA were prompted by the actions of federal employees, entrusted with Treasury funds, acting in ways Congress had not approved.
The 48th Congress in 1884 wrote the core text of Section 1342. Although the prohibition on personal services and accepting voluntary services applied to all of the federal government, it was placed in the section directing funds to correct deficiencies in the Bureau of Indian Affairs in the Department of the Interior. Apparently, the abuse of funds entrusted to Indian Affairs agents had been sufficiently egregious that the 48th Congress decided to act.
Deficiency spending had apparently become a matter of course. In addition to the Act of May 1, 1884, the 48th Congress was compelled to pass acts covering deficiencies on February 1, 1884, July 7, 1884, and March 3, 1885. In total these acts fill 59 pages of the 22ndvolume of the Statutes at Large, or approximately 10 percent of the total text devoted to Acts of the 48th Congress.
Misappropriation is, at best, a usurpation of the Article I authority of Congress and at worst, a form of public corruption uniquely available to federal employees entrusted with taxpayer funds. Yet, enforcement of the Act has been weak. By 1905 Congress established criminal penalties for both misappropriation and personal services; in addition to being “summarily removed from office” the guilty party could “be punished by a fine of not less than one hundred dollars or by imprisonment of not less than one month.” In 1950 the penalty stood at “not more than $5,000 and imprisoned for not more than 2 years” and there it remains today. Despite the effects of inflation, the real penalties for ADA violations remain being removed from employment in the federal government. But a near complete lack of enforcement makes these penalties largely moot.
The Prohibition on Personal Services Matters but Is Rarely Enforced. The statutes that constitute the ADA are the legislative embodiment of the U.S. Constitution’s Article 1, Section 9—“No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law.” The ADA’s prohibition on the hiring of personal services is key to enforcing this principle.
When any office of the federal government hires support personnel through contract, it is “employing personal services.” The case law on this subject is important to the topic and is discussed in the appendix. Although there are broad exceptions and exemptions, a large fraction of the contractor employees working in agencies in Washington, D.C. are employed in contravention of the law.
Exemptions are the rare specific authority to hire for personal services. Exceptions include arms-length contracts, in which the contractor supplies personnel and equipment and is solely responsible for supervision. For example, all the janitors in federal buildings use equipment provided by their company in order not to fall into the federal definition of employee. However, many contractors, such as those hired to manage budgets or write reports to Congress, use entirely federal equipment and are functionally indistinguishable from federal employees. (See Comptroller General decision in appendix.)
Does Congress know of these contracts, and has it explicitly or implicitly approved them? Frequently, the answer to both questions is no.
The prohibition on personal services is an anti-corruption statute. The wrong it was intended to correct was federal employees entrusted with appropriated funds using a portion of those funds to hire others to help with their work—and in some cases perform it entirely. Congress appropriates funds for specific activities; the funds may be legally expended solely for the intended purpose. When a federal employee uses a portion of these funds to hire assistants through contracts, it is almost never reported to Congress. In any case, merely reporting the illegal expenditure does not validate it; there is no such thing as “implied authorization for personal services.” Misappropriation of this type may continue as a matter of course for decades but it is still illegal.
A Case Study. The National Nuclear Security Administration (NNSA), a semi-autonomous agency within the Department of Energy (DOE), provides a good example of this phenomenon. The NNSA (where this author works as a federal employee) has no authorization to use program funds for support service contractors, and is under a cap on federal staff explicitly intended to reduce transactional oversight. Yet, within the NNSA, over $100 million per year are redirected from programs to hire support contractors just in the Washington D.C. area.
And while officials might argue that such unauthorized staff augmentations are needed for the agency to accomplish its mission, the experience of other agencies—and the rest of DOE—suggests otherwise. While the Department of Energy itself spends billions annually on contracts, this author has not found a single example of improper use of contractors to augment the DOE’s workforce. Congress has not appropriated funds for this purpose. Until very recently, the NNSA had never even officially acknowledged this practice, and then it did only when required to by statute in 2016.
The NNSA is only one example. In the modern federal government, contractors are so widely used that it is impossible to get an accurate head count. In a somewhat perverse twist, rather than prompt stricter enforcement of the law, this situation has led to calls to end this “obsolete prohibition” or “dead letter.” However, widespread violations of the prohibition do not make it obsolete.
On the contrary, ignoring the law has resulted in the growth of a shadow bureaucracy, largely invisible to Congress and to the American people. The result is increased overhead on federal programs used to enable increased bureaucracy, as federal employees use funds authorized and appropriated by Congress to hire others to do their own jobs. Far from being a “dead letter,” each violation of Section1342 flouts Congress’ power of the purse and violates the Constitution every cabinet secretary and agency head has sworn to uphold.
More to point, the ADA, from its roots in the early 1880s to today, is designed to fight corruption. Allowing federal employees to choose and hire contractors, using public funds appropriated for other purposes, to do the jobs the federal employees should be doing themselves, is the essence of waste, fraud, and abuse.
Misappropriation in the Hiring of Personal Services Contractors. Where do the funds to pay for these contractors come from? If the contractors are paid out of funds appropriated to pay for agency staffing, then that would provide a limit to the total number of employees. Most, if not all, agencies are allocated appropriations intended solely for paying for administrative staff and overhead expenses, including contractors (“administrative funding”). But for many federal agencies the majority of their budget is intended for grants (education, science or applied research and development) or acquisitions (purchasing goods or services from the private sector).
At many agencies and cabinet departments, such as the National Aeronautics and Space Administration (NASA) (a special case discussed in the appendix), the Environmental Protection Agency (EPA), and the Departments of Agriculture, Defense, Energy, and the Interior, the acquisition and R&D budgets—under the category of “program funds”—dwarf the costs of the federal staff. Program funds are entrusted to federal staff to allocate to the projects and organizations around the United States that execute the programs authorized by Congress.
However, by writing subcontracts using a portion of the budgets appropriated for other purposes to hire additional support service contractors, federal employees can avail themselves of an almost limitless supply of assistants to do much of the tedious work of the government. To obtain contract staff, federal staff do not have to go through onerous federal hiring mechanisms, fight for funds from limited administrative accounts, or grant contractors any of the protections afforded to federal employees.
These hypothetical federal employees have also just violated Sections 1341 and 1342 of the ADA, circumvented the Classification Act, the Civil Service Act, and in some cases violated additional laws intended to cap the size of the federal bureaucracy. Another example at the Department of Energy well illustrates the situation.
In the early 1990s it became evident to Congress that these abuses were widespread at DOE. This situation was summarized in congressional report language:
The conferees are aware of the extensive use of support service contractors by the Department of Energy at headquarters and the field offices. In many instances these contractors are performing inherently governmental functions such as assisting in program management and program execution duties, representing program organizations at meetings inside and outside the Department, preparing briefing materials, newsletters, and budget justifications, and providing daily administrative and clerical support.
The next section of the same report created the requirement that all budgeting for staff be put into a newly created administrative account:
Within each appropriation account, each organization should have one program direction line for all full-time equivalent employees (FTEs), both field and headquarters, and provide object class information for all expenses. No Federal employees are to be funded in program accounts.
The conference report accompanying the enacted 1996 NDAA also noted that the DOE:
… has employed support service contractors to perform inherently governmental or core governmental functions at the headquarters level. The conferees direct the Department to discontinue that practice and to transfer savings to field operations. [Emphasis added]
So, Congress became aware of the situation in 1996 and attempted to remedy it. This report language did not make the practice illegal. Rather, it put the Department of Energy on notice that Congress was aware that it was engaged in misappropriation that was already illegal.
In fact, Congress let the DOE off the hook to a great extent. No one was terminated, no fines were levied, and the Department was given a year to correct the situation. Since 1996 the DOE as a whole seems to have gotten the message. Subsequent laws have focused on reducing the size of the federal staff, particularly at the National Nuclear Security Administration, the semi-autonomous agency that comprises approximately 40 percent of the DOE budget.
Yet, as of this writing, the NNSA spends well in excess of $100 million per year of program funds to employ support service contractors in the Washington, D.C. area alone. Many of these contractors assist in program management and program execution duties, representing program organizations inside and outside the NNSA (including with foreign governments), preparing budgets, program plans, briefing materials, newsletters, and reports to Congress.
While greater ease of firing might seem like an advantage from a taxpayer perspective, hiring contractors with funds appropriated for other purposes in the first place undermines agencies’ accountability to elected officials. In practice, the advantage of at-will employment is rarely, if ever, realized. In a typical “personal services relationship” (as is the norm at NNSA), the federal employees and contractors work closely together, socialize, and become so intertwined in the operations and culture of the agency that firing a contractor is no more common than firing a federal employee.
Furthermore, if done in accordance with the law, federal staff do not have the right to terminate individual contractor employees. An agency administrator in theory could terminate a complete contract or ask the contracting company to replace a single individual on the contract for poor performance. But in practice, these are rare occurrences. In fact, there are numerous contractor employees working in place of federal staff at the NNSA who have been working there for a decade or more.
Several major contractor corporations have formed an “Enterprise-Wide Technical and Engineering Support Alliance” solely to market themselves to the NNSA and coordinate filling positions among themselves, even producing a brochure. None of these support contractor staff are counted against the statutory limit on the number of NNSA employees.
If this is a legal practice, it raises the question: Why does NNSA need most of its federal staff? The agency manages billions of dollars in program funds. If $100 million can be redirected to hiring assistants, why not $200 million or $300 million? Why have any federal staff at all? If federal agencies can contract out writing reports, preparing newsletters and press releases, budgeting, accounting, legal services, and oversight of programs, then a very much smaller federal workforce should suffice.
An internal NNSA study documented these issues. In 2014, NNSA’s practices came to the attention of the House Armed Services Committee staff. Subsequently, the Strategic Forces Subcommittee chairman requested an investigation from the DOE Inspector General (IG). After DOE IG Gregory Friedman ignored the request to report on the issue of the use of program funds to hire contractors, the Defense Authorization committees added a section to the 2016 National Defense Authorization Act that requires NNSA to report all of the contracts, the number of full time equivalent personnel employed under them, how they are funded, and the number of contractor employees who have been employed under contract at the NNSA for more than two years.
This report must be delivered with the president’s budget request each year. The first such report was submitted with the 2017 DOE budget justification. The agency was not entirely forthcoming. In response to the requirement that NNSA report the number of contractors employed over two years the following statement appeared: “NNSA does not have information to address paragraph (f)(4), it is the responsibility of individual contractors/employers to determine how to address contract requirements and who will perform the work.”
This is an astonishing statement, given that the contractor employees working at NNSA all have government-issued identification, access to secure buildings, and frequently offices and phone numbers assigned to particular units of the NNSA. Hundreds of contractor employees appear year after year on the rosters of offices and divisions throughout the agency. They are placed in hierarchies reporting to individual federal staff and perform tasks identical to many federal employees within NNSA and DOE. For the NNSA to “not have information” on who these people are and how long they have been around seems negligent at best.
Conclusion. The prohibition on personal services has been law for over 130 years. But in the last few decades it has been so thoroughly eroded that few government attorneys, much less congressional staff or members of the public, comprehend what the term “personal services” even means. The purpose of this prohibition remains as valid as it was in the 19th century, and if anything it is needed now more than ever. Any attempt to reduce the size, increase the efficiency, or even slow the growth of government requires Congress to be in control of appropriations. The executive branch must ensure that appropriations are only used for authorized purposes.
The use of funds not appropriated for the purpose of hiring contractors circumvents the control of Congress. The use of contractors on an ongoing basis for particular tasks normally assigned to federal employees evades the intent of the Civil Service Act and the Classification Act, and in each case it may be a violation of the prohibition on personal services (31 USC Section 1342).
The National Nuclear Security Administration provides an example, but the conditions that allow for this sort of abuse can and do occur at many federal agencies. Anecdotal evidence, and this author’s experience, suggests that the most widespread abuse—in terms of dollars spent if not fraction of budget—is at the Department of Defense. It can occur at any agency where the federal staff are entrusted with discretionary funds intended for contract acquisitions or grants. Those include the Departments of Health and Human Services, Homeland Security, Housing and Urban Development, and the Environmental Protection Agency, among others. Federal staff at these agencies are entrusted with funds intended for particular purposes across the United States, but if they skim these funds to hire contractors for personal services, the beneficiaries are entirely local to the Washington, D.C. region. In a very real sense, this practice shorts federal funds to every congressional district in the United States outside of Southern Maryland and Northern Virginia.
Agencies are not going to enforce the prohibition themselves. Congress must insist on enforcement of the Anti-Deficiency Act and punish civil servants who outsource their own jobs. It is essential not to reward agencies for bad behavior by converting the contractors to federal staff while keeping in place the federal employees who hired them.
Ultimately, hiring contractors for personal services is corruption, as it is funded through misappropriation. Worse, federal employees allowed to hire personal services contractors are contracting out their own jobs. The public is being double-billed for the same “work.” The bureaucracy grows without limit, and out of sight of Congress.
The key problem is the lack of enforcement of the provisions of the ADA itself. Historically, this was the responsibility of the Comptroller General. The successor of the Comptroller General’s office is the Government Accountability Office (GAO), which relies on the inspectors general of the various agencies to police the agencies themselves and report ADA violations. This system has broken down to the point that felony violations of the ADA routinely go unreported and unpunished.
To address this, Congress should impose reporting requirements similar to those imposed on the NNSA by the 2016 National Defense Authorization Act, Section 3138. This requires the NNSA to report the total number of contractors (in full-time equivalents), the source of funding used to pay for these contracts, and the number of contractor employees who have worked at NNSA for over two years. To date this has resulted in the one report, buried in the 2017 DOE budget submission referred to above.
When agencies are unwilling to police themselves, private action could fill the gap. Congress should establish a private civil cause of action for ADA violations, akin to standing provisions of the Sherman Act and Qui Tam provisions of the False Claims Act. There may be hundreds of cases at dozens of agencies amounting to billions of dollars in misappropriation. A small fraction of these sums awarded to successful plaintiffs should be a powerful incentive.
Date: Tuesday, September 19, 2017Subtitle: How the Failure to Enforce the Anti-Deficiency Act’s Prohibition on “Personal Services” Enlarges the Federal Bureaucracy via the Proliferation of ContractorsExperts: Robert J. Hanrahan, Jr.Publication Type: OnPoint
Issues: Regulatory Reform