Contractors Complain That U.S. Sometimes Forgets to Pay Them

When a prime defense contractor or a small machine shop is supposed to get paid in California or seven other Western states, the government check comes from the Defense Contract Administration Service Region office in El Segundo.

But sometimes it doesn’t.

Complaints about late payments and lost paper work at the regional headquarters have been growing for some time, especially among small contractors who have trouble coping with the increasingly complex federal acquisition system.

The problems with late payments and lost paper work have paralleled the dramatic growth in the complexity and volume of the federal procurement bureaucracy. In recent years, Congress has enacted eight major reforms of the procurement system and the Pentagon has added its own new regulations.

Meanwhile, Pentagon business offices, such as the DCAS regional headquarters, are struggling with inadequate resources, high personnel turnover and growing administrative incompetence.

What begin as ordinary requests by small contractors for contract payments from DCAS or other routine administrative tasks all too often degenerate into bureaucratic nightmares. The DCAS payment center in El Segundo pays out $28 million a day on defense contracts in the West, such a large payout that glitches mean that many contractors do not get paid.

“Our problems with them paying us have been horrendous,” said Dave Soto, vice president of Omohundro, a small plastic parts producer in Costa Mesa. “When my secretary calls over there, she has to try many, many times and then when she does get through, they put her on hold and never come back on.”

Carolyn Johnson, the director of administration at Eidetics, a small aerospace firm in Torrance, recently described how she mailed a payment request to DCAS last year. The request was lost. So, she mailed a second request, which was also lost. As were a third request and a fourth. All the requests--20 in all, because they were mailed in quintuplicate--disappeared. Now, Johnson has mended her ways.

“I hand-carry copies around from person to person (at the DCAS office) to make sure things don’t get lost,” she said. “I follow our progress payments all the time. I call two or three times just to make sure. If I didn’t keep up with it, nobody would ever know.”

Sonfarrel, an aerospace metal and rubber fabricating company in Anaheim, has had so many problems with DCAS officials that company Chief Executive Frank Power said giving such authority to the agency is “like giving a Stradivarius to a monkey.”

“We have had over a quarter-million dollars that has been sitting out there for an incredible period of time,” Power said. “When we inquired, they responded they couldn’t find it and that we must have misbilled it.”

The DCAS office is commanded by Air Force Brig. Gen. John Serur, who declined requests for an interview. Serur also ordered his staff not to provide an organizational chart of the office after a reporter asked for one.

But a copy of the chart was obtained from internal sources at the office, and it shows that 20 management positions were vacant as of January and that many other top management positions were being filled by temporary personnel. One Los Angeles defense firm said it went six months without having an administrative contracting officer assigned to its contracts.

‘Rather Brusque’

The regional DCAS office experienced turnover of 22% last year, according to a DCAS spokesman in El Segundo, but internal sources said the agency’s turnover in the entire Los Angeles area was closer to 46%. The DCAS regional office has 13 branch offices and defense plant offices under its jurisdiction.

In addition to the administrative snafus, a clerk at the office was convicted earlier this year in a scheme to embezzle $9.5 million from the Department of Defense. Some insiders have said that lax internal controls were to blame.

Serur was decribed by one Los Angeles industry official as “a rather brusque man.” A high-level civilian at the DCAS office said Serur avoids interaction with contractors and even with his own staff.

Friction between civilian and military officials in the system is nothing new, however. Some military officers assigned to DCAS, from the Navy in particular, have little or no background in contract administration.

“I used to plead with my superiors to send letters to the Navy to please send us somebody who knew something about business, even a few business terms,” a former DCAS official said. “Instead, they would send us boat drivers.”

Typically, such military officials are rotated into new jobs every several years. “I met a new deputy at DCAS and two weeks later he was gone,” said James Southerland, a Torrance-based consultant who has attempted to help small contractors with their DCAS problems.

Executives at small defense firms say it is almost impossible for an outsider to comprehend the problems in dealing with the local DCAS office.

“When you call over there, the phone rings and rings,” one small contractor said. “If somebody answers, they can’t find anybody. If you leave a message, the person may or may not call you back. Nobody has any pride in their work. It’s like a bother if you call them.”

Committed Civilians

The House Armed Services Committee and the House Committee on Small Business have both heard numerous complaints by small contractors about DCAS offices across the nation, committee staff members said.

A congressional hearing last year by a Small Business subcommittee on procurement found pervasive problems in late payments to contractors. A related General Accounting Office report found that 25% of the time the Pentagon failed to pay its bills within the required 30 days.

“Small business shouldn’t have to finance the government,” subcommittee staff director Russell Orban said. “We’re scaring away good businesses who just can’t get paid and have had enough of it.”

That the system works at all is attributable to a core of committed government employees who take their work seriously.

“They are overworked,” said Eleanor Spector, deputy assistant secretary of defense for procurement. “They are working overtime an awful lot without getting paid. And they are, by and large, a very dedicated group of people.”

But with high turnover and inadequate resources, the Pentagon is losing some of its best workers. Turnover is blamed in large part on low government salaries, especially in Los Angeles, where the cost of living is high.

“I was totally frustrated and burned out with the mess,” said William Lisec, former director of contracting for DCAS in Los Angeles.

Despite much-ballyhooed efforts to streamline the procurement system, the paper work never seemed to stop growing, he said. “There was a paper-reduction act in 1984--and (as a result) they sent me a huge stack of paper to read,” he remarked.

At the same time, top Pentagon officials and Congress have a growing intolerance for mistakes, forcing workers to avoid risks.

Fear of Mistakes

“The real problem is that the system is designed so that at each level people are mainly interested in protecting their fanny,” former Undersecretary of Defense Donald Hicks said.

Retired Gen. Lawrence A. Skantze, former chief of Air Force procurement, said: “We have created a climate where somebody at the plant level is afraid to make a mistake. So, he looks for a risk-free decision. He knows he will be audited by the Defense Contract Audit Agency and they will kill him if they find an error or omission. That has slowed down the process.”

Top defense executives say simply that the government bureaucracy fails to meet industry standards.

“I can tell you without exception that industry has more capable people to handle the problem than the corresponding service agency does,” General Dynamics President Herbert Rogers said. “They are outmanned and outgunned, and yet at the same time they are trying to take on a bigger and bigger workload.”