Defense Contracting: Post-Government Employment of Former DOD Officials Needs Greater Transparency
Released: 2008-05-21T00:00:00

Letter

Background

Congress has long been concerned about the movement of government officials from DOD to private employers who do business with their former agencies and has passed laws that place limitations on the employment of former government officials. The laws include penalties for violations by the former government employee and civil or administrative penalties for the contractors who employ them. There are acknowledged benefits to employing former government officials for both DOD and defense contractors; for example, former DOD officials bring with them the knowledge and skills in acquisition practices they have developed at DOD which also benefit DOD when communicating with these contractor personnel. However, a major concern with post- government employment has been that senior military and civilian officials and acquisition officials working for defense contractors immediately after leaving DOD could lead to conflicts of interest and affect public confidence in the government by creating the following perceptions, among others: DOD personnel who anticipate future employment with a defense contractor might be perceived as using their position to gain favor with the contractor at the expense of the government, and former DOD personnel who work for a defense contractor might be perceived as using their contacts with former colleagues at DOD to the benefit of the defense contractor and to the detriment of the public.

Implementation of Post- Government Employment Laws

The principal restrictions concerning post-government employment for DOD and other federal employees after leaving government service are found in 18 U.S.C. § 207 (post-employment conflict of interest) and 41 U.S.C § 423 (restrictions on former officials’ acceptance of compensation from a contractor). Importantly, the laws do not prohibit an individual from working on a contract under the responsibility of the official’s former agency or even a contract that was under the official’s direct responsibility if the appropriate cooling-off periods are met or if the former officials restrict their activities to behind-the-scenes work and do not represent their new company to their former DOD employer. The laws are complex, and brief summaries here are intended only to provide context for the issues discussed in this report.

The title 18 U.S.C. § 207 provision generally prohibits an individual from representing a contractor to their former agency on particular matters involving specific parties that they handled while working for the federal government; for example, a specific defense contract. The law restricts representing the contractor to the official’ s former agency for defined cooling-off periods that vary according to the former official’s involvement and seniority (i.e., high-level) for example: former personnel are permanently barred from representing their new employer to their former agencies for matters on which they were personally and substantially involved; even if the officials were not directly involved in the matter, former personnel may not represent their new employer to their former agency on matters that were pending under their official responsibility in their last year of service for 2 years after leaving federal service; and former senior-level officers and employees may not contact their former agency on particular government matters (such as a contract) that is pending or is of substantial interest to the former agency for 1 year after leaving federal service.

The 41 U.S.C. § 423 provision more narrowly applies to the work former DOD and other government acquisition officials may do after leaving federal service. The law restricts former DOD acquisition officials from accepting compensation from a defense contractor during a 1 year cooling-off period. Specifically, this provision prohibits employment with a contractor if the acquisition official performed certain duties at DOD involving the contractor and a contract valued in excess of $10 million. However, the law permits former acquisition officials to accept employment from “any division or affiliate of a contractor that does not produce the same or similar products or services” that were produced under the contract.

The laws establish penalties for individuals and contractors who do not comply with the restrictions.

High-Profile DOD Cases Illustrate Importance of Ethics Issues

Recent high-profile cases involving former senior DOD officials’ violations of these laws or related conflict of interest law on seeking post- government employment with contractors have resulted in serious consequences for both the officials and their defense contractor employers. Examples are as follows: In July 2007, a retired Navy rear admiral pleaded guilty to a charge of violating 18 U.S.C. § 207. The former admiral admitted to signing a major contract proposal and cover letter on behalf of his new contractor employer and sending it to his former Navy command in San Diego within the 1-year cooling-off period. In his plea, the former officer admitted that his intent in sending the letter was to influence the Navy’s decision and obtain the contract award for his new company. The former admiral was sentenced to a year’s probation and fined $15,000. In response to the conflict of interest, the Navy also eliminated the contractor’s bid before awarding the contract.

In 2006, the Boeing Company was fined $615 million and had a lease contract valued at $20 billion canceled, in part, due to the failure of Ms. Darleen Druyun, a former senior Air Force procurement officer, to obey conflict of interest laws that prohibit officials from continuing to participate in work with a company while pursuing future employment. Specifically, when she was working for the Air Force, Ms. Druyun negotiated a job with Boeing for her daughter, son-in-law, and herself, while Boeing was seeking a $20 billion contract to lease tanker aircraft to the Air Force. Ms. Druyun served a prison sentence for the violations, and the Boeing Company’s Chief Financial Officer pleaded guilty to aiding and abetting fraud and was sentenced to 4 months in prison, fined $250,000, and given 200 hours of community service.

Contractors May Employ a Substantial Number of Former DOD Senior and Acquisition Officials in Assignments Related to Their Former DOD Agencies or Their Direct Responsibilities

About 86,000 military and civilian personnel who had left DOD service in a 6 year period since 2001 were employed in 2006 by the 52 major defense contractors, including 2,435 former DOD officials who were senior civilian executives, generals, admirals, and acquisition officials including program managers, deputy program managers, and contracting officers. This latter group of contractor employees, hired between 2004 and 2006, served at DOD in positions that made them subject to post-government employment restrictions. Contractors’ employment of former DOD officials was highly concentrated—1,581 former DOD officials were employed by seven of the 52 contractors. To estimate how closely related work assignments of former DOD officials were to their previous assignments at DOD, we examined in greater detail the job histories of a randomly selected sample of former DOD senior and acquisition officials employed by the contractors. While there may be proper justification for their post- government employment with a contractor, on the basis of this sample we estimate that at least 422 individuals could have been working on defense contracts directly related to their former DOD agency and we estimate at least nine could have been working on the same defense contracts for which they had program oversight responsibilities or decision-making authorities while at DOD. The information we analyzed to make this estimate was not designed to identify, nor should this estimate be used to suggest, that we found any violations of the restrictions on post- government employment. Moreover, contractors provided justification for the former government employees in our sample to work on the contracts. However, the estimated number of former DOD officials who could have worked on defense contracts related to their prior agencies or to their prior direct responsibility indicates why there is concern over how contractors monitor their former DOD employees.

Contractors’ Employment of Former DOD Officials in 2006

The 1,857,004 military and civilian employees who left DOD service over 6 years since 2001 included 35,192 who had served in the type of senior or acquisition official positions that made them subject to post-government employment restrictions if they were to subsequently be hired by defense contractors. As shown in table 1, our analysis of the major defense contractors’ employment found that contractors employed 86,181 former DOD military and civilian personnel in 2006. This tally includes 2,435 former senior-level and acquisition officials who one or more of the contractors hired since 2004 and employed in 2006.

Although the number of former DOD senior-level and acquisition officials employed in 2006 varied greatly across the 52 defense contractors, as shown in table 2, post-DOD employment was highly concentrated at seven contractors—Science Applications International Corporation, Northrop Grumman Corporation, Lockheed Martin Corporation, Booz Allen Hamilton, Inc., L3 Communications Holding, Inc., General Dynamics, and Raytheon Company. These contractors accounted for about 65 percent of the former DOD senior and acquisition officials hired at the 52 companies and for over 40 percent of the value of contract awards for the 52 contractors. Employment of former DOD senior and acquisition officials at the remaining 45 contractors was much less concentrated. Specifically, in 2006, employment of the former DOD officials totaled 10 or fewer at 24 of the contractors, and 4 of these contractors did not employ any former DOD senior or acquisition officials in 2006. Appendix III presents more detail on the employment of former DOD senior and acquisition officials in 2006 for each of the 52 contractors.

To obtain an understanding of the characteristics of the major defense contractors’ employment of former DOD senior and acquisition officials in relationship to these officials’ prior DOD positions—i.e., military or civilian, senior-level, or acquisition-related, and DOD employer (such as Air Force or Army)—we analyzed contractor employment at the 52 companies to look for significant differences, if any, across categories related to the officials’ former DOD positions.

As shown in table 3, of the total former DOD officials that the contractors employed in 2006, we found there were nearly five times as many former acquisition officials (2,021 individuals) as former senior officials (414 individuals). In their former DOD positions, these 2,021 acquisition officials served in key procurement-related positions—such as program manager, deputy program manager, or contracting officer—and generally had the type of critical responsibilities, relationships, and influence that characterize DOD’s business interactions with its contractors.

Also shown in table 3, in 2006 the contractors employed 414 former senior DOD officials. Our analysis of these senior officials’ DOD positions before their post-government employment with the contractors found they had served in a range of high-level positions—including generals, admirals, and civilian senior executives. As such, in their former positions, these DOD senior officials had served in key positions that could influence DOD’s mission-related decision-making.

We also found contractors’ post-DOD employment was almost evenly divided across former military and civilian officials, as shown in table 4. In addition, most of the former DOD officials employed by the contractors in 2006 had previously served in positions at the Air Force and Navy, followed by those who had previously served in Army positions.

Estimates Are That Many Former DOD Officials Could Have Worked on Contracts Related to Their Prior DOD Agencies and a Few Could Have Worked on Contracts Related to Their Prior Direct Responsibilities

To provide information about former DOD officials work assignments with contractors, we analyzed job histories and work assignments for a stratified random sample of former DOD officials to determine if these individuals worked on defense contracts or programs for which they had direct responsibility at DOD or which were the responsibility of their former DOD agency, office, or command. We estimate that many former DOD officials could have been working on defense contracts under the responsibilities of their prior DOD agencies and a few could have been working on the same defense contracts for which they had program oversight responsibilities or decision-making authorities while working at DOD.

It is important to keep in mind, however, that post-government employment in these instances could be lawful depending on the role the employee had with the government, the role the employee had with the contractor, and the length of time between government service or work relating to the contract and the private employment. Also, contractors responding to our survey were self-reporting on a sensitive issue dealing with circumstances that could indicate potential conflicts of interest. As such, the information we sought from contractors was not designed or expected to elicit specific cases of post-government employment violations, nor did we identify any. Further, contractors provided justifications for the former DOD officials in our sample working on the defense contracts.

Nevertheless, the results provide insight on the estimated magnitude of former officials’ post-government employment with major defense contractors tied to their prior agencies and direct responsibilities. In our view, the results also indicate the importance of careful monitoring to ensure that conflicts of interest do not occur.

To estimate how many former DOD officials were working on assignments that were the responsibilities of their former DOD agencies or for which they had program oversight responsibilities or decision-making authorities at DOD, we drew a stratified random sample of 125 individuals from the former DOD senior and acquisition officials identified by contractors as being employed in 2006. We sent a questionnaire asking the contractor for information concerning the individual’s job history, including the circumstances of the assignment if the job history showed that they were working on assignments related to their former positions while they were at DOD. (App. IV provides a copy of the questionnaire we used.) Extrapolating from the sample results, we estimate that at least 422 officials could have had contractor assignments working on defense contracts that were the responsibilities of their former DOD agencies. We estimate that at least nine could have worked on contracts for which they had program oversight responsibilities or decision-making authority at DOD.

The contractors reported other information about the sampled individuals that justified why these work assignments would not involve potential conflicts of interest or violations of post-government employment restrictions, including the following: The individuals’ cooling-off (i.e., restriction) periods had expired. The individuals were performing behind-the-scenes work and did not have direct contacts with their former DOD agencies about the particular defense contracts.

The individuals were working on different defense projects than they had worked on while at DOD but for the same agencies. For example, while the contractors reported that 20 former Navy officials in our sample worked on Navy contracts, the contractors also reported that none of the individuals were working on the same project they were responsible for when in the Navy.

Contractors Report Using a Range of Practices to Ensure Compliance with Post-Government Employment Restrictions, but Face Challenges in Providing Information for Monitoring Such Employment

Most of the 47 major defense contractors who responded to our survey on practices related to post-government employment report using a range of techniques to ensure awareness of and employee compliance with restrictions, although we found contractors were challenged to provide accurate information identifying their former DOD officials. Notably, information from the contractors showed little more than half the level of employment of former DOD officials than information we derived from matching IRS and DOD data, suggesting the information challenge defense contractors and DOD face in monitoring former DOD officials. Moreover, what information the contractors may have on former DOD officials’ assignments on defense contracts is, for the most part, not available to DOD. New legislation requiring former officials to obtain ethics advisory letters and DOD to keep them in a central database could provide some additional information, but will not give DOD the kind of information needed—that is, the names of contractor employees who are former DOD officials and are working on a particular contract and the contractor’s assurance that these employees are in compliance with their post- government employment restrictions related to the contract.

Survey of Contractors’ Post-Government Employment Compliance Practices

Post-government employment restrictions on former DOD officials can affect every aspect of defense contractors’ hiring practices, including when employment discussions may occur, who may be hired, and what tasks they may perform during a 1 to 2 year period after leaving DOD. Post-government employment laws do not require contractors to identify, monitor, or provide reports on former DOD employees regarding compliance with their restrictions. However, violating existing laws may result in civil and criminal penalties for aiding misconduct of former government officials and thus, according to contractors’ ethics and personnel representatives, provide an impetus for adopting a range of practices to ensure awareness and compliance.

In initial interviews with some of the major defense contractors on the need for and scope of corporate compliance with post-government employment practices, ethics and personnel representatives told us about a variety of ways and means for identifying, screening, tracking, training, and keeping personnel records for former DOD officials. To gain a better understanding of the scope of major defense contractors’ practices in these areas, we surveyed the 52 contractors on their practices. The following is a summary and analysis of information from the 47 contractors who responded. Appendix V presents detailed results from the contractor survey.

Reported Practices to Conduct Initial Screening

Our survey asked contractors if they seek affirmation about a potential employee’s previous DOD or other government status prior to offering employment. As shown in table 5, most of the contractors reported that they ask potential permanent hires if they were formerly a DOD official, and a majority of contractors ask the same question of independent contractors (e.g., self-employed consultants), temporary employees, and members of the Board of Directors. Contractors were about evenly split on the use of the question on a job application and use of a special form to capture this information from job applicants. Similarly, contractors were divided on the use of electronic or paper collection of an applicant’s information with some contractors citing the use of both methods.

Our survey asked contractors if they request that employees provide a copy of their written ethics advice letters and if so, how long, if at all, do they keep these letters on file once they hire these applicants. As shown in table 6, a majority of contractors responded that they request permanently hired employees, temporary employees, and members of the Board of Directors to provide a copy of their DOD ethics advice letters from the agencies’ ethics counselors detailing their DOD experience and providing an opinion on whether employment with a specific contractor is permitted under post-government employment restrictions. Nearly half of the contractors said they also ask for these letters from independent contractors they hire. Some contractors indicated that they were not sure if the DOD ethics advice letters were requested from applicants who are potential job candidates. Regarding how long the DOD ethics advice letters are kept on file, the contractors reported varying practices, with many keeping them throughout the former DOD official’s employment and other contractors keeping them for the period of restriction or for a specified time.

Our survey asked contractors to describe what steps, if any, they take to ensure that former DOD officials working for them comply with their post- government employment restrictions. As shown in table 7, a majority of contractors cited counseling/legal review and recruitment/hiring processes as the primary methods to ensure former DOD employees comply. Further analysis of contractor survey responses indicates that 12 contractors track former DOD employees’ government-project-related job assignments electronically to ensure compliance and nine indicated that such records are not kept. However, more than half of the contractors indicated that they use internal and external audits to ensure the sufficiency of their procedures to track assignments, including post-government assignments of former DOD officials.

Our survey asked contractors about training requirements to inform employees about policies regarding post-government employment restrictions for former federal employees or to reinforce them. As shown in table 8, a majority of contractors indicated that they require training for at least some employees. Further analysis of contractor responses indicates that their training is targeted to one or more employee groups such as senior-level managers, human resources staff, middle-level managers, or former federal government employees. Also, the training varies in timing and frequency. Training can take place initially upon employment with refresher training, annually or every 2 years, for example. Twelve contractors reported they mandated training for all employees; five contractors reported mandatory annual training.

Information Challenges Defense Contractors Face in Monitoring Compliance with Post-Government Employment Restrictions

As noted, most major defense contractors report using a range of practices for monitoring their DOD hires to ensure compliance with restrictions, even though no laws or regulations require them to track or provide reports to that effect. However, the contractors’ ability to access and provide information on former DOD officials’ employment and work on specific defense contracts proved challenging.

For example, contractor-provided data on the numbers of former DOD officials working with them was significantly less than what we determined through our match with IRS information. Specifically, our analysis of the status of major defense contractors’ employment of former DOD officials in 2006, which was based on matching contractor-supplied information with DOD personnel data, found that the contractors employed a total of 1,263 former DOD senior and acquisition officials, while our match of IRS information and DOD personnel data showed the contractors employed a total of 2,435 former DOD officials, or almost twice as many.

In addition, as shown in table 9, only 15 of the 30 major defense contractors who responded to our questionnaire were able to provide ethics advice letters for at least one of the individuals in our stratified random sample. Specifically, 24 of the 30 who responded to our survey on their practices said that they asked employees for their DOD ethics advice letters as one of their practices for ensuring compliance with post- government employment restrictions and many reported keeping these letters on file throughout the former officials’ employment. However, 10 of the contractors that reported asking for the letters did not provide any ethics advice letters in response to our questionnaire.

As noted earlier in this report, contractors are not required to keep copies of these letters. In the future however, information on DOD ethics advice letters for former DOD senior and acquisition officials could be more readily available to all DOD contractors as a result of a provision in the National Defense Authorization Act for Fiscal Year 2008 imposing new requirements on defense officials and contractors. Specifically, with this provision (enacted January 28, 2008), defense contractors may not knowingly compensate (i.e., employ) former DOD officials who are subject to post-government employment restrictions without first determining that the official has sought and received a written ethics advice opinion from DOD within 30 days of seeking the opinion. To implement this requirement however, defense contractors are likely to face new information challenges in keeping records that adequately document that they did not knowingly employ a former DOD official who did not seek or receive the applicable DOD written ethics opinion.

Contractors responding to our survey were generally able to provide information about DOD- and contractor-job histories for most of the former DOD officials in our sample. However, according to the corporate headquarters staff for several contractors—who had to collect the detailed job histories from information submitted from across their companies in order to respond to our survey—accumulating this information was challenging. According to these contractor staff, the absence of automated assignment tracking or standardized personnel information systems across their companies made it difficult for them to centrally compile the information. That is, to respond to our survey, for some contractors it appears the currently available information on former officials’ post-DOD work on specific pending or awarded contracts is decentralized at the various business units responsible for those defense contracts. We found that the scope and quality of the job histories contractors provided to us were sufficient for our analysis on the magnitude of post-DOD work related to prior agencies and responsibilities. However, our questionnaire was not designed or expected to elicit contractor information on specific conflicts of interest or noncompliance cases, such as whether cooling-off periods were unexpired, for example.

DOD Faces Related Information Challenges in Monitoring Compliance with Post-Government Employment Restrictions

Similar to the requirements of defense contractors, no laws or regulations require DOD ethics or acquisition officials to track or monitor former DOD employees after they begin their new contractor jobs to ensure compliance with applicable post-government employment restrictions. As discussed earlier in this report, past legislative requirements to make the employment of former officials with defense contractors more transparent to DOD by having individuals or contractors report to DOD on the post- government employment with contractors were not successful and were repealed by 1995. However, the changed requirements left DOD without a mechanism to obtain information about its former senior and acquisition officials who go to work for its contractors. In our view, and DOD ethics and procurement officials agree, the information currently available to DOD from providing written ethics opinions to former DOD senior and acquisition officials who request them regarding prospective employment restrictions has limited utility for monitoring compliance with post- government employment restrictions once former DOD officials go to work for defense contractors for several reasons: while officials have been encouraged to seek an ethics advisory opinion, they were not required to obtain them, nor were contractors required to ask for them; DOD’s record-keeping for its written ethics opinions is decentralized at the many defense ethics offices that issued them; and DOD lacks a mechanism for providing the information to contracting officers or program managers for a particular contract.

Nonetheless, for DOD’s purposes, ethics advisory opinions may now be more readily available and centrally located because of the 2008 defense authorization act provision that requires former officials to obtain written ethics opinions on applicable post-government employment restrictions from their DOD ethics officials before accepting compensation from defense contractors for a period of 2 years after leaving DOD service. DOD also has a new record-keeping requirement to retain each request and each written opinion provided in a central database or repository for at least 5 years.

While this requirement may help to increase transparency over which former officials are working with contractors and what may raise a potential conflict of interest, its utility may be limited because information is not being tied to specific contracts. Senior ethics officials in DOD’s Standards of Conduct Office and the director of Defense Procurement and Acquisition Policy and Strategic Sourcing (DPAP), for example, told us that DOD currently does not have a mechanism to link information on former officials’ post-DOD work for their new employers for specific defense contracts that are pending or awarded before their former agencies, offices, or commands. They believed that such a mechanism would be valuable to program managers and contracting officers who need to ensure that contracted work being done in their programs is free of conflicts. They also believed that such a mechanism would be relatively cost-effective to implement. After learning of the results of our data collection efforts, in fact, these officials were concerned that current mechanisms do not provide DOD a clear picture of how many former officials are working with contractors and what risks of conflicts are present.

Conclusions

The public needs to be assured that decisions related to the hundreds of billions of dollars spent each year on defense contracts comply with the applicable post-government employment restrictions and are free of conflicts of interest. But this task is highly challenging when it comes to monitoring whether former DOD officials are in compliance with these rules or have a conflict of interest by working for a defense contractor. Our review illustrated aspects of this challenge, including difficulties associated in collecting data on thousands of employees working for just 52 contractors. It is likely our surveys would have been more difficult to accomplish if they had been applied to the entire spectrum of defense contractors, which includes hundreds of small companies that may not have automated or complete information on their employees.

Further, requirements that have been imposed in the past to collect information on former DOD officials working for contractors have not been effective for a variety of reasons. These include difficulties associated with asking private citizens to report back to the government on their employment for extended periods of time and disparities in the way information was collected and reported. Moreover, when information was collected, its value was limited, according to DOD officials, because it could not be tied to specific programs or contracts, where it could inform those responsible for ensuring integrity at the front line of acquisitions. Despite these challenges, there may be ways that more accurate and useful information could be collected, for example, by asking potential contractors to certify that their employees are in compliance with post- government employment restrictions when contracts are being awarded. The results of our review—particularly results relating to the estimated numbers of former DOD senior and acquisition officials who could be working in areas that tie back to their work at DOD—show that examining such options is worthwhile.

Recommendations for Executive Action

To provide greater transparency during the acquisition process given the fact that former DOD officials can and do work on defense contracts related to their prior agencies or their direct responsibilities, the risk of conflicts of interest and the appearance of conflicts of interest, and the need to maintain public trust in the integrity of defense contracting, we recommend that the Secretary of Defense direct the Under Secretary of Defense (Acquisition, Technology, and Logistics) to consider the relevant recent statutory changes and determine if changes in procurement policy are needed to impose additional reporting requirements or other requirements to guard against violations of the government’s post- employment rules. For example, DOD could consider requiring defense contractors who are awarded a contract, within a set number of days after contract award, to (1) disclose to the contracting officer the names of employees who are certain former DOD officials (e.g., civilian senior executives, high-level military officers, or acquisition officials) who worked on the response to the solicitation and (2) certify that these employees are in compliance with the applicable post-government employment restrictions. In addition, after assessing the benefits and costs associated with the certification process, DOD could consider whether and to what extent it should apply a similar mechanism throughout the term of the contract. In responding to a recent report we issued on contractor employee personal conflicts of interest, DOD tasked its Panel on Contracting Integrity to examine issues we raised and potential solutions. It may also want to do the same with regard to post- government employment reporting.

Agency Comments

We provided a draft of this report to DOD for comment. The DPAP director wrote that DOD concurs with our recommendation. Specifically, he wrote that the recommendation will be referred to the Panel on Contracting Integrity for consideration and action. DOD’s Acting General Counsel also provided written technical comments, which we incorporated into the report as appropriate. DOD’s comments are reproduced in appendix II.

We are sending copies of this report to the Secretary of Defense, the Director of the Office of Management and Budget, the Director of the Office of Government Ethics, and other interested parties. We will make copies available to others upon request. We will make this report available to the public at no charge on the GAO Web site at http://www.gao.gov.

If you have any questions about this report or need additional information, please contact me at (202) 512-4841 or chaplainc@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Key contributors to this report are listed in appendix VI.

Appendix I: Scope and Methodology

Congress included a provision in the John Warner National Defense Authorization Act for Fiscal Year 2007 requiring us to report on the recent employment of former Department of Defense (DOD) officials by major defense contractors. In response, our report objectives were to (1) develop information on how many former DOD military and civilian personnel recently worked for major defense contractors and develop an estimate of how many of these were former DOD senior or acquisition officials who worked on defense contracts for these employers that were related to their former positions at DOD and (2) identify the practices used to monitor compliance with post-government employment restrictions and the information challenges that contractors and DOD face in monitoring the movement of former DOD employees to defense contractors. This report does not address any government employment restrictions which might be applicable when former private sector employees are employed by DOD or other federal government agencies. In November 2007, in part to meet our reporting requirement, we provided an interim briefing to the Senate and House Armed Services Committees.

Section 851 of the National Defense Authorization Act for Fiscal Year 2007 defined major defense contractors as any company that received at least $500 million in contract awards from DOD in fiscal year 2005. To identify those contractors, we analyzed data on the values of contracts awarded to all companies from DOD’s Statistical Information Analysis Division. As a result, we identified the 52 contractors meeting the major defense contractor criteria to include in our review. As shown in table 10, which ranks the 52 major defense contractors by the value of their fiscal year 2005 DOD contract awards, these companies accounted for more than half of DOD’s total contract awards in 2005—$142.8 billion of the total $269.2 billion.

We conducted this performance audit from November 2006 through May 2008 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives.

The scope and methods we used to perform this audit are described in greater detail in the remainder of this appendix.

First Audit Objective

To develop information on how many former DOD military and civilian personnel worked for major defense contractors, section 851 required us to report on employment during the most recent year for which data were available. Through initial discussions with five of the major defense contractors and the IRS, we determined that data on former DOD officials’ employment were reasonably available for 2006. To determine how many military and civilian personnel left DOD service, as agreed with committee staff, we limited our analysis to data from the Defense Manpower Data Center’s databases for all military and civilian employees who left DOD service for any reason other than being deceased in a 6-year period between January 1, 2001, and December 31, 2006 (N=1,857,004). We determined that data from the data center were sufficiently reliable to accurately support our analysis in support of this objective.

DOD’s data included personally-identifiable characteristics for each former employee such as name, social security number (SSN), end date of employment, branch of service, military rank, civilian grade, and if the employee’s job specialty was coded as any of the several defense acquisition workforce positions. To analyze defense contractors’ post- government employment for a subgroup of former DOD senior and acquisition officials, we used DOD’s personnel data to include in the subgroup the following range of former DOD officials: senior officials such as military officers ranked O-7 and above (e.g., generals, admirals) and members of the Senior Executive Service (SES) regardless of whether they also were coded as serving in a defense acquisition workforce position. Acquisition officials include military (from O-3 to O-6) and civilian (from grades GS-12 through 15) officials for which DOD coded their status as members of its acquisition workforce, including program managers, deputy program managers, and contracting officers (N=35,192 individuals).

To determine how many of the 1,857,004 former military and civilian personnel (including the 35,192 former DOD senior and acquisition officials) worked for the 52 major defense contractors in 2006, we matched DOD’s personnel data with (1) income tax data from IRS and (2) personnel data from the contractors on former DOD senior or acquisition officials they directly compensated in 2006 as employees or independent contractors.

The data obtained from IRS included Form W-2 and Form 1099- Miscellaneous information. We used data from the returns identifying the contractor who submitted the income tax data and the SSN and name for all individual taxpayers for whom the 52 major defense contractors reported taxable income for the 4-year period between 2003 and 2006. Because contractor-supplied data identified DOD officials they hired between 2004 and 2006, we compared SSNs from 2003 income tax data to the 2006 income tax data and eliminated SSNs for individuals that matched because this showed the contractors hired those individuals prior to 2004.

We also obtained data from 51 of the 52 contractors on individuals who we or they matched to our criteria for former DOD senior and acquisition officials they compensated in 2006 and hired between 2004 and 2006. Contractors were permitted to provide the SSNs for either (1) all individuals compensated in 2006 and hired in the 3-year period between 2004 and 2006 or (2) the individuals they identified as matching our criteria for being a former DOD senior or acquisition official and hired between 2004 and 2006. In either case, we analyzed the contractors’ SSN data to match against the SSNs in DOD’s personnel data.

From the matches we determined that 1,263 individuals matched our criteria as former DOD senior and acquisition officials. For each of the 51 contractors who provided us this SSN data, we assessed the accuracy and completeness of their information by analyzing how many former DOD senior and acquisition officials their information showed were employed in 2006 (N=1,263) compared with our analysis of IRS data for the same purpose (N=2,435). We based our analysis of demographic data for this objective on the IRS and DOD data.

To develop an estimate of how many of the former DOD senior or acquisition officials subject to post-government employment restrictions the major defense contractors assigned to work on defense contracts related to their former DOD agencies or their direct responsibilities, as shown in table 11, we used the contractor-identified population of 1,263 individuals. To ensure that we had adequate representation of these officials from contractors with fewer former DOD officials, we stratified the population into two strata based on the number of former DOD officials reported by each contractor as employees—contractors reporting 50 or more former DOD officials were assigned to one stratum and contractors reporting less than 50 former DOD officials were assigned to another stratum. From this population we selected a statistically based random sample of 125 individuals who worked for 32 of the contractors.

We asked the contractors to respond to a questionnaire on related DOD and contractor job histories for the sampled individuals. We analyzed responses from 30 contractors on job histories and contractor work assignments for their respective individuals in our sample. Based on the sample size and the response rate, the estimate from the results achieves a precision of ± 8 percent at a 95-percent confidence level.

To obtain the job histories, we used a Web-based questionnaire to collect data on work histories of the individuals in our sample. (App. IV reproduces the Web-based questionnaire used for this survey). The questionnaire was designed to obtain individual information for each of the former DOD senior and acquisition officials in our sample, such as his or her previous DOD assignments and contractor assignments over a 3-year period as well as to request a copy of any DOD ethics advice letters.

Our questionnaire was intended to develop information on defense contracts or programs on which former DOD officials were assigned in order to consider whether the former officials were assigned to work on contracts they or their agencies had previously been responsible for. Recognizing that the contractors responding to our survey were self- reporting on a sensitive issue, the information sought from contractors was not designed or expected to identify specific violations of post- government employment restrictions. Instead, the survey also asked contractors for information on circumstances surrounding the post-DOD work in relationship to prior DOD positions and responsibilities. To protect the confidentiality of the responses concerning these individuals, we took steps to remove personally identifiable information from our analysis and evidentiary files.

We projected the results of our sample to estimate the extent that former DOD officials in our study group population of 1,263 individuals engaged in post-government employment tied to their former DOD agencies or to their direct responsibilities. We used these estimates to assess the magnitude of such post-DOD work tied to former DOD agencies, offices, or commands or to direct responsibilities.

Second Audit Objective

To identify the practices major defense contractors report using to ensure awareness of and compliance with post-government employment restrictions for employing former DOD officials, we interviewed ethics and personnel officials with five of the contractors to gain an initial understanding of the variety and scope of information reasonably available concerning a range of practices used for these purposes. We also conducted a survey to collect additional information from all 52 contractors on personnel assignment record-keeping and practices for identifying, screening, tracking, and training former DOD officials for purposes of compliance with post-government employment restrictions To conduct this survey, we pre-tested it with three contractors before e-mailing a questionnaire to all 52 contractors to collect information on their reported practices. (Appendix V reproduces the questions used for this survey as well as the aggregated responses.) The survey was designed to obtain information on contractors’ reported practices to ensure awareness and compliance in various key ways such as (1) how contractors identified new hires with potential post-government employment restrictions, (2) how they tracked post-DOD assignments of former DOD officials during their cooling off periods, (3) whether they collected and maintained copies of DOD ethics advisory letters for former DOD officials, and (4) whether they provided training in post-government employment restrictions to various employee categories in their workforce. We analyzed responses from the 47 contractors who responded to the survey. This is a survey response rate of 90 percent. Our survey results cannot be generalized for the purpose of describing nonrespondent contractors’ practices.

To identify information challenges contractors and DOD face, we reviewed post-government employment laws and implementing regulations, prior GAO reports, and other studies; and held discussions with and obtained information from officials at the Office of Government Ethics concerning any requirements and performance problems DOD and defense contractors have had regarding the adequacy of monitoring former DOD officials’ compliance with restrictions.

To identify information challenges that defense contractors face in monitoring employees’ compliance with post-government employment restrictions, we analyzed the extent to which the 52 major defense contractors were able to submit sufficient information to us in response to our data requests. Specifically, we analyzed the extent to which the contractors were able to submit sufficient data on how many former DOD officials worked for them in 2006 and provide us with copies of DOD’s written ethics opinions and related job histories for the pre-selected former DOD officials sampled for our survey on post-government employment.

We also met with and reviewed information from ethics officials in the Office of the Secretary of Defense’s Standards of Conduct Office and Defense Procurement and Acquisition Policy (DPAP) officials from the Office of the Undersecretary of Defense (Acquisition, Technology, and Logistics). We held these discussions to obtain information and views on DOD’s practice of providing written ethics advice concerning prospective employment and restrictions to former DOD senior and acquisition officials who request them. We discussed the sufficiency of this information for DOD transparency on certain former DOD officials’ compliance with post-government employment restrictions after these officials begin their new jobs. We also discussed their views on the sufficiency of information available to DOD’s contracting officials from defense contractors regarding the names of former DOD senior and acquisition officials who are working on a particular pending defense procurement or defense contracts and whether or not they are in compliance with their post-government employment restrictions. We used this information to assess whether DOD has sufficient insight into post- government employment to reduce the risk for conflicts of interest or apparent conflicts of interest that could undermine public trust in the integrity of defense contracting.

Appendix II: Comments from the Department of Defense

Appendix III: Contractors’ Employment of Former DOD Senior and Acquisition Officials in 2006

Table 12 presents our analysis of how many former DOD senior and acquisition officials were employed by each of the 52 defense contractors in 2006, ranked in descending order according to how many they employed. In order to prevent reporting of information that could be used to identify specific former officials with post-DOD employment with contractors, the table presents summary analysis that discloses which of the 28 major defense contractors employed 11 or more such individuals in 2006. For those 20 major defense contractors who employed fewer than 11 such individuals, the table presents a limited summary that discloses that they employed “10 or fewer” such individuals. Also shown in table 12, four of the contractors did not employ any former DOD senior and acquisition officials in 2006.

Table 13 shows in greater detail our analysis of the major defense contractors who employed more than 50 former DOD senior and acquisition officials in 2006 and a breakout of their former status as DOD military and civilian employees.

Appendix IV: Questionnaire for Survey of Contractors on Post-Government Employment Job Histories for Former DOD Officials

We surveyed 32 major defense contractors for a sample of the former DOD officials with regard to their job histories at the contractor and previous assignments while still in federal service along with DOD contracts for which they worked. The questions from the survey are reproduced below.

The purpose of the questionnaire was to understand how defense contractors identify former DOD officials, maintain information about the job assignments of former DOD employees, and provide training on post- government employment restrictions.

Q1. How many individuals did your company compensate directly either as employees, independent contractors (individuals for whom a form 1099 was generated) or members of the board of directors during any part of calendar year 2006?

Q2. How many of the individuals listed in question 1, were hired directly, engaged as independent contractor, or added to the board of directors on or after January 1, 2001?

Q3. For each of the following compensated positions, does your company ask job candidates whether or not they are former DOD military or civilian employees before offering employment? a. Permanently hired employees 38 9 47 b. Directly hired contractors (Form 1099 contractors)

Asked Not asked Subtotal Not applicable c. Directly hired temporary employees Asked Not asked Subtotal Not applicable d. Members of the Board of Directors Asked Not asked Subtotal Not applicable 47 Q3e. If your company currently asks candidates whether they are former DOD employees, what means does it use to collect this information?

Application only Form only Other only App and form App and other Form and other All three Subtotal Not applicable 8 10 6 8 3 1 3 39 Q3f. If your company does collect information on an individual’s prior DOD employment status, in what form is this information maintained?

Electronic Paper only Other only Electronic and paper Electronic and other Subtotal Not applicable 47 Q4. How many of the individuals who were compensated by your company during calendar year 2006 and who joined your company in some capacity on or after January 1, 2001, were previously employed by DOD?

Do not know Number given Subtotal Not applicable Total Q5. Does your company ask individuals it is compensating or considering for each of the following positions if they have any restrictions on their employment as a result of being former DOD military or civilian employees? a. Permanently hired employees Asked Not asked Not sure Total b. Directly hired contractors (Form 1099 contractors)

Asked Not asked Not sure Subtotal Not applicable 47 c. Directly hired temporary employees Asked Not asked Not sure Subtotal Not applicable d. Members of the Board of Directors Asked Not asked Not sure Subtotal Not applicable Q6. Does your company request compensated individuals in each of the following positions who have current employment restrictions as a result of previous DOD employment to provide a copy of the written advice from DOD Ethics Counselors regarding post-government employment restrictions known as a “Safe Haven” letter? a. Permanently hired employees Requested Not requested Not sure Total 34 6 7 47 b. Directly hired contractors (Form 1099 contractors)

Requested Not requested Not sure Subtotal Not applicable c. Directly hired temporary employees Requested Not requested Not sure Subtotal Not applicable d. Members of the Board of Directors Requested Not requested Not sure Subtotal Not applicable 47 Q6e. How long, if at all, does your company keep “Safe Haven” letters on file for individuals it compensates?

Not kept Employment Other Employment + Other Subtotal Not applicable 3 23 15 2 43 Q7. What steps, if any, does your company take to ensure that former DOD employees comply with their post-government employment restrictions? N=45 (Open-ended responses)

Personnel Record Systems for Compensated Individuals Q8. Did your company compensate directly any INDEPENDENT CONTRACTORS (individuals for whom a form 1099 was generated) during 2006?

Q8a. How, if at all, does your company maintain records of which government project related assignments independent contractors worked on while paid by your company? N=42 (Open-ended responses)

Q9. In what form does your company maintain records of which government project related job assignments EMPLOYEES have worked on?

Not kept Electronic only Paper only Other only Electronic and paper Electronic and other Three forms used Subtotal Not Applicable Q10. How is information on which government project related job assignments employees’ have worked on entered into your records? N=36 (Open-ended responses)

Q11. What procedures, if any, are in place to ensure that the record of government project related job assignments for each employee accurately record ALL of the assignments the employee has worked on? N=35 (Open-ended responses)

Q11a. Are any of these procedures documented? 47 Q12. Are any audit checks performed to assure that ALL of an employee’s government project related job assignments are included in their record?

Yes No Subtotal Not applicable a. What checks are performed to assure all assignments are included?

N=28 (Open-ended responses) b. How often are these checks performed? N=26 (Open-ended responses) c. Who performs these checks? N=26 (Open-ended responses) d. What are the procedures to correct any errors found? N=26 (Open-ended responses)

Q13. How often are the records of government project related job assignments updated? N=36 (Open-ended responses)

Q14. How would you characterize the completeness of your personal data records regarding the government project related job assignments employees have worked on at your company?

Very complete Somewhat complete Not very complete Subtotal Not applicable 47 Q15. What limitations, if any, are there of the government project related job assignments data your company maintains? N=36 (Open-ended responses)

Q16. What reviews, if any, have there been of the integrity of your company’s government project related job assignments record keeping system? N=36 (Open-ended responses)

Q17. Does your company require training that informs and reinforces its policies regarding post-employment restrictions for former federal government employees?

Yes No Subtotal Not applicable Continue to question 18.

Which groups are required to take this training?

Yes No Subtotal Not applicable 47 Q17b1. about how often are they required to take this training? 1 per year < 1 per 2 yrs Other Subtotal Not applicable Continue to question 17c.

If all employees are not required to take this training, which of the following groups of employees are?

Yes No Subtotal Not applicable Q17b5. about how often are they required to take this training? 5 2 2 3 12 1 per year 1 per 2 yrs < 1 per 2 yrs Other Subtotal Not applicable 47 Q17a6. Other [please specify] Yes No Subtotal Not applicable Q17b6. about how often are they required to take this training? 1 per year 1 per 2 yrs < 1 per 2 yrs Other Subtotal Not applicable 3 4 1 6 14 Q17c. Does your company maintain records of whether people who are required to take the training have completed it?

Yes No Subtotal Not applicable 47 Q18. Has any government agency or independent entity assessed the adequacy of your company’s procedures for hiring current and former government employees?

Appendix VI: GAO Contact and Staff Acknowledgments

Acquisition and Sourcing Management

Applied Research and Methods

Office of General Counsel