Federal Contracting: Timely Actions Needed to Address Risks Posed by Consultants Working for China
Fast Facts
Federal agencies often use consultants to conduct their work. But when the Defense Department and other agencies with sensitive missions contract with consultants also working for potential U.S. adversaries such as China, it can pose risks to national security.
Existing regulations and policies don't specifically address consultant contracting activity with China prior to awarding most contracts. Congress has enacted laws aimed at strengthening assessment of consultant risks. But as of July 2024, agencies have implemented 2 of the laws, but missed the deadlines for the remaining 3.
Our recommendations urge prompt action on this issue.
Highlights
What GAO Found
From fiscal years 2019 through 2023, federal agencies obligated over $500 billion on contracts associated with consulting services. The Departments of Defense (DOD) and Homeland Security (DHS) accounted for over half of this amount. Given these agencies' missions, contracted consulting services can include work related to U.S. national security such as defense analyses or intelligence. Consultants that contract with the U.S. government may also provide services to foreign governments, including governments that are potential adversaries, such as China.
Some federal acquisition regulations and national security policies address risks such as
- organizational conflicts of interests (OCI), and
- foreign ownership, control, or influence (FOCI).
Nevertheless, GAO found that these regulations and policies do not specifically address if, or how, acquisition personnel should consider consultants' contracting activity with China or other foreign governments prior to awarding most contracts.
From 2019-2023, Congress enacted several laws to revise federal acquisition regulations and policies in ways that could affect the way agencies assess the potential risks of awarding contracts to consultants that provide services to both the U.S. and foreign governments. Agency efforts to implement these provisions are mostly ongoing.
As of July 1, 2024, two of the five laws—the National Defense Authorization Act (NDAA) for Fiscal Year 2022 § 855 and the Small Business Innovation Research and Small Business Technology Transfer Extension Act of 2022—had been implemented. Three laws had yet to be fully implemented, and DOD and the Office of Management and Budget's Office of Federal Procurement Policy (OFPP) missed their statutory deadlines to do so.
NDAA for Fiscal Year 2020 § 847. This law requires DOD to update its processes and procedures related to FOCI risk assessments for certain defense contracts valued over $5 million. A subsequent NDAA required DOD to revise the Defense Federal Acquisition Regulation Supplement (DFARS) and internal guidance to reflect these changes by July 1, 2021. As of July 2024, this law had yet to be fully implemented. However, DOD issued a policy in May 2024 that will inform rulemaking for this law.
Preventing Organizational Conflicts of Interest in Federal Acquisition Act. This act requires the Federal Acquisition Regulation (FAR) Council to update the FAR with definitions, guidance, and illustrative examples related to contractor relationships with, among other things, foreign entities that may cause potential OCI by June 27, 2024. As of July 1, 2024, the FAR Council, which is chaired by the Administrator of OFPP, has yet to issue a proposed rule—one of the first steps to updating the FAR. OFPP told GAO that this particular update is highly complex and has required more time than is typical.
NDAA for Fiscal Year 2024 § 812. This law generally prohibits DOD from contracting with vendors that provide some types of consulting services to China unless certain requirements are met. The law directed DOD to update the DFARS with these requirements by June 19, 2024. As of July 1, 2024, these updates had yet to occur.
Aspects of these laws target the national security risks posed by contractors working with the U.S. and China. Without DOD and OFPP taking timely action to implement these laws while following applicable rulemaking procedures, acquisition officials will continue to operate without full knowledge of potential risks to FOCI and OCI when awarding contracts.
Why GAO Did This Study
Members of Congress have expressed concern about the potential risks that could arise from companies that consult for both the U.S. and foreign governments. GAO was asked to review the national security risks posed when contractors consult for both the U.S. and Chinese governments. This report describes existing pending regulations and policies related to this issue and steps that DOD and DHS take to collect information, and assess and mitigate national security risks when awarding contracts to firms that provide consulting services to foreign governments.
To select agencies for review, GAO analyzed federal procurement data on contract obligations for contracts that agencies identified as work generally involving consulting services from fiscal years 2019–2023, the most recent years with complete data. DOD and DHS were selected because of their high consulting service contract obligations and national security-related missions. GAO reviewed relevant laws, existing and proposed acquisition regulations and agency policies, and risk assessments. GAO also interviewed DOD and DHS acquisition and intelligence officials.
Recommendations
GAO is making three recommendations including that the Secretary of Defense take steps to ensure prompt updates are made in response to legislation on (1) how acquisition personnel use information on foreign ownership, control, or influence when awarding or modifying contracts, and (2) new requirements for contracts involving certain consulting services; and that the Director of the Office of Management and Budget ensures prompt updates are made to the FAR that are responsive to recent legislation. DOD and the Office of Management and Budget concurred with our recommendations.
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Department of Defense | The Secretary of Defense should direct the Office of the Under Secretary of Defense for Acquisition and Sustainment to take steps—including establishing milestones—to ensure the DAR Council develops DFARS updates responsive to NDAA for Fiscal Year 2020 Section 847, in a timely manner while also following applicable legal rulemaking procedures. (Recommendation 1) |
When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
|
| Office of Management and Budget | The Director of the Office of Management and Budget should ensure that the Administrator of the Office of Federal Procurement Policy takes steps—including establishing milestones—to ensure the FAR Council finalizes FAR updates responsive to the Preventing Organizational Conflicts of Interest in Federal Acquisitions Act, in a timely manner while also following applicable legal rulemaking procedures. (Recommendation 2) |
When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
|
| Department of Defense | The Secretary of Defense should direct the Office of the Under Secretary of Defense for Acquisition and Sustainment to take steps—including establishing milestones—to ensure the DAR Council develops DFARS updates responsive to NDAA for Fiscal Year 2024 Section 812, in a timely manner while also following applicable legal rulemaking procedures. (Recommendation 3) |
When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
|