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‘Oversight Cubed’

Why contractors who plan to help out the Treasury Department might want to prepare to work under a microscope.

Federal News Network Staff

October 7, 2008 5:51 pm

3 min read

By Dorothy Ramienski
Internet Editor
FederalNewsRadio

The $700 billion bailout plan is now law, and federal officials are working to try and stimulate the economy.

So, how will this new law impact the contracting community?

More importantly, what about the issues of conflict of interest and oversight?

On Tuesday’s Daily Debrief, hosts Christopher Dorobek and Amy Morris spoke with Michael Lent, editor and publisher of the Government Services Insider.

He says now that the law has passed, the federal government is trying to figure out what exactly it needs in terms of contracting work.

They were not very distinct in the law, as it was signed by the President Friday afternoon, but yesterday Treasury issued some guidance that began to peel the onion of what’s in the program. The analysis shows that the usual suspects — some of the fine firms that use federal clients every day in the government services arena — are not going to have much of a piece of the action.

Lent says this is because of stipulated definitions.

Even though Treasury is looking for financial institutions to help it, it draws a distinction between what we call a financial agent and a contractor. They say specifically contractors are not what they want and the whole Federal Acquisition Regulation does not apply. They want companies who are basically various kinds of financial institutions to serve as fiduciary agents of the U.S. government and work only in the interest of the United States.

This, in his opinion, might create a bit of a problem.

Well how could that possibly work . . . if these firms, who actually understand these instruments and have bought and sold them are the ones whose expertise is necessary to work for the United States. There were some vague guidelines issued yesterday on conflict of interest. Companies would have to propose how they would mitigate conflicts of interest as they compete to be one of the so-called asset managers — one can easily think of non-disclosure agreements, so-called Chinese walls or firewalls that would have to be built around groups of people, or whole units within large financial institutions, but a lot is left to be discussed.

According to Lent, one of the biggest problems so far is that some of the “usual suspects” simply don’t have the needed experience.

[The firms] in government services, even those who were deeply into financial management and economics and cost analysis, they just don’t have the skills of firms, say, in the bond world, like Pimco, which is certainly a favorite of many to be one of the asset managers at Treasury. It’s going to be interesting to see . . . how Pimco can run reverse auctions and buy and sell securities for the government to meet the public purpose, while it also has a need to unload some of the toxic assets that it itself has accumulated.

Lent calls this conundrum the 800 pound gorilla in the room.

What he does think is clear, however, is that whoever does get the job will be in the spotlight.

The program within Treasury and any financial institutions who work with it are going to be in the hottest visible seat in town and we’ve all heard contractors complain — or just grouse — about oversight. This is going to be oversight cubed. There’ll be a lot of transparency and we as a country, I think, have a pretty good view of how good the program is and how fair it is and we’ll have some insight as to how these necessary conflicts of interest have been mitigated.

Lent says the first milestone will involve the new administration. He believes it will come after Nov. 4 but before Inauguration Day.

I think even before taking office, whoever the next president is and wherever his shadow OMB Director is are going to have to suggest, with plenty of political help, what programs –perhaps ones promised dearly in the election campaign — may need to be slow-rolled or even cut.

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On the Web:

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