Sole Sourcing: Handing Out Tax Dollars at the Labor Department

Over the past year a good deal of attention has been paid to the explosion in federal sole-source contracting. According to reports issued by the Government Oversight and Reform Committee, non-competitive contracts totaled $206 billion last year, up from $145 billion in 2005 and only $67 billion in 2000. As troubling as that may seem, another practice was recently brought into question that seems, at least on the surface, to be even more problematic than sole-source contracting. That practice is something called “sole-source grants.”

What, you may ask, is a sole-source grant? From the sound of it, one might presume that it means an official in control of federal funds can write checks to people based on whether or not he likes them. As outrageous as that sounds, a new report by the Department of Labor Inspector General indicates that is pretty much what Emily Stover DeRocco, the Assistant Secretary of Labor for Employment and Training and her underlings at the Employment and Training Administration have been doing with about a quarter of a billion dollars from the U.S. Treasury under the High Growth Job Training Initiative.  

The IG found that over the previous six years, DeRocco’s agency awarded 157 grants totaling $271 million under that program. Only 23 grants totaling $29 million were awarded competitively. Fully 87 percent of the funds were handed out without any competition.

Even worse, 90 percent of these non-competitive grants that the IG examined in detail (35 out of 39) were done in a manner that did not conform to proper procedures for awarding such grants. The IG identified 69 procedural errors, including:

  • Failure to adequately justify the decision to award a non-competitive grant
  • Failure to consistently document the reviews of such proposals
  • Failure to document conflict of interest certifications
  • Failure to ensure that matching funds required as a condition of the grant were actually provided by grantees

The IG report indicates that DeRocco used a “Business Relations Group” formed within the Employment and Training Administration to administer the disbursement of these funds. Among the awards that this group made was a grant of $5,065,000 to the National Retail Federation Foundation in May of 2003, and a second grant for $99,900 was made the following year to the same foundation, which is a non-profit organization affiliated with the National Retail Federation, an industry group comprised of retailers, manufacturers, and trading partners in the retail industry.

According to the IG, Labor Department officials stated “they did not have a required standard of documentation” for the decisions that were made to award sole-source grants. The Business Relations Group, however, established a “practice” of preparing an “abstract” to document the initial review. These abstracts, according to the IG, were supposed to address:

  • The quality of the proposal
  • The relation of the proposal to the program from which the funds were provided (The High Growth Job Training Initiative)
  • Whether the proposal clearly defined its objectives and outcomes
  • The amount requested
  • The viability of the proposals

The abstracts, according to the IG, were also supposed to contain “specific language describing the proposal as unique and innovative, highly cost effective, or meritorious.” But in neither instance in which funds were given to the National Retail Federation was the Department of Labor able to produce an abstract that documented any of the above criteria.

A $235,500 grant to the Associate General Contractors (the trade association of the construction industry) was justified by an abstract which the IG found to be incomplete, as was the case with a $695,000 grant to the Geospatial Information and Technology Association (the trade group for infrastructure professionals), a $4,268,000 grant to the Home Builders Institute (an affiliate of the National Association of Home Builders), and a $1,877,000 grant to the Evangelical Lutheran Good Samaritan Society.

Department of Labor procurement regulations also specify that “The program official responsible for an ‘other than full and open competition’ request or a request for contracted advisory and assistance services shall, as part of the request, explain any past or existing business or personal relationships with the proposed recipient or certify that none exist.” The IG found that no such certification was provided for 19 of the 39 sole-source grants that were examined.

In a memorandum to the IG, De Rocco stated that she “strongly disagrees” with the report. She argued that there “is no prohibition against awarding grants non-competitively,” and that there are “no express requirements for documenting” such decisions. Whether or not her actions were formally prohibited by law or regulation, however, begs the question of whether they represented good administrative practices and whether they amounted to proper stewardship of public funds.

Finally it should be noted that the “High Growth Job Training Initiative” represents less than one percent of the almost $10 billion a year budget under DeRocco’s control, and appears to represent only a small portion of the total non-competitive grant activity in which DeRocco has been engaged. It is equally disturbing that these practices have apparently been taking place for most of the nearly seven years that DeRocco has served as Assistant Secretary for Employment and Training and are only now being uncovered.

Rumors of widespread contract and grant abuse at the Employment and Training Administration have circulated for years. They have been the subject of questions in hearings before both House and Senate committees.

Yet only this month did the Department IG come forward with documentation. Further it should be noted that this report was not initiated by the IG but instead conducted at the request for the probe by Sen. Tom Harkin (D-IA), the chairman of the Senate Appropriations Subcommittee responsible for funding the Labor Department.

Still, many questions remain unanswered. How did the organizations that received these grants actually spend the money? How widespread is the awarding of non-competitive grants within the Employment and Training Administration? Were there conflicts of interest on the part of staff or supervisors that awarded these grants?

Finally one has to wonder what the real function of the “Business Relations Group” has been and why so much money intended to help disadvantaged youth and workers struggling to adjust to the many changes that have taken place in the American economy in recent years is ending up in the hands of organizations tied to business. The IG and the Labor Department’s overseers in Congress clearly have more work to do.