Back in March 1997, the Park Hyatt Hotel near Foggy Bottom hosted one of those ubiquitous hotel conferences. You know the routine: Thinkers, corporate tools, and politicians mix it up in bland meeting rooms to talk about the Next Big Thing.
Sponsored by the World Research Group, an event-planning corporation, the conference promised participants an opportunity to “gain a leading edge in the market while it is still in its early stage.” A brochure suggested that the attendees—who paid up to $1,295 for the privilege—could expect to “profit from the opportunities available.” The pitch got the attention of several Fortune 500 companies, including Electronic Data Systems (EDS), Andersen Consulting, Unisys, and Lockheed Martin.
So what kind of bold new business opportunity had the country’s leading contractors lining up for bad hotel coffee? Post-Cold War defense systems? The race to Mars? A wireless Internet? Nope. Ending welfare as we know it. Participants were promised an opportunity to “capitalize on the massive growth potential of the new world of welfare reform.” There’s a lot of money to be made working with people who can’t seem to earn any money themselves—approximately $28 billion nationwide.
Lockheed apparently took good notes. When the District of Columbia decided that it didn’t have the means or the skills to help put its welfare population to work, the city awarded the bulk of the task to Lockheed Martin Information Management Systems (IMS), a subsidiary of the company better known for building menacing weapons systems than mending the social-services safety net.
So, now, in addition to schmoozing Congress and trading rounds of golf with Pentagon generals, Lockheed executives are spending quality time with folks like JoAnn Davis. Davis was in the ninth grade at the District’s Eastern High School when she dropped out. “I guess I was being crazy,” Davis, now 30, reflects.
Davis says that she worked on and off as a teenager, but exited the labor force after the birth of her eldest daughter. Eleven years down the road, she has four additional mouths to feed and has mostly relied on government programs such as the former Aid to Families With Dependent Children, now known as Temporary Assistance to Needy Families, to get by month to month.
Last January, Davis received a letter from the city’s Department of Human Services informing her that as a welfare recipient, she was required to participate in a new program that would aid her in the transition from welfare to gainful employment. Davis was already attending adult-education classes at J.C. Nalle Community School in Southeast to earn her high school equivalency degree and get some computer training. “I was really interested in getting into computers,” she says.
When she arrived at the Marshall Heights Community Development Organization for orientation, Davis expected to continue her education. Instead, she received an ultimatum. “Basically, they told us that we have to find a job,” she says. “I was upset. They told us we couldn’t continue to go to school and earn our GED.”
Davis’ clock is ticking. In the brave new world of welfare reform, she has a little more than three years left before her benefits run out permanently. Until she finds a full-time job, Davis gains “work experience” at Marshall Heights mainly by filing, taking phone messages, and making copies. In exchange for 35 hours of work a week, Davis receives her welfare check and a $100 stipend every two weeks from Marshall Heights’ partner in welfare-to-work, Lockheed Martin IMS.
Last November, the D.C. government awarded the subsidiary of the world’s largest defense concern a performance-based contract—worth as much as $33 million—to move people like Davis off welfare and into work.
It’s a startling next step in the vertical integration of government contracting. Lockheed seems to believe that if it can help put a man on the moon, it can surely figure out how to put one in a job. It is tapping into a growing belief nationwide that the invisible hand’s magic touch will somehow untie knotty problems, like welfare, that have plagued municipal governments for years. And the D.C. government—desperate for solutions to those perennial urban dilemmas—has eagerly opened its checkbook to contract problems away.
Before he assumed office in January, Mayor Anthony A. Williams trekked to Indianapolis, where he praised Mayor Stephen Goldsmith’s innovative use of competitive contracting between the public and private sectors to make government more cost-efficient. Williams vowed to bring Goldsmith’s style of government back east to Washington.
But privatization had already made its entrance into the District. Two decades ago, Lockheed saw an opportunity and decided there was room in municipal government for a contractor that had more experience engineering weapons than human beings. Welfare reform is only the company’s newest venture into Washington’s affairs—it offers a full-service government-for-hire to any city that can foot the bill. The company now does approximately $60 million of business a year with D.C. in parking meters, parking ticket processing and collections, red light enforcement, emergency vehicle billing, child support tracking, welfare case management, and food stamp disbursement.
Even though many of its contracts precede Williams’ inauguration, the company sees itself as a perfect partner in the mayor’s quest for competitive government. “It’s not a privatization effort as much as it is a competitive government initiative,” argues Audrey Rowe, senior vice president of Lockheed’s Children and Family Services Division. Rowe headed up the District’s own Commission on Social Services under Mayor Marion Barry during his third term, but she has since mastered private-
sector rhetoric. “We ask, Do we understand this problem? Can we improve the delivery and cost-efficiency of the program?…Once you do that and you can make a profit, the taxpayers win, government wins, business wins.”
Williams’ office hasn’t decided to hand over the keys to the city just yet. “I’m not going to make any sweeping statements, given past experience with the District. In all cases, there should have been a cost-benefit analysis to see whether it made sense to do it in house or contract it out,” says Norman Dong, Mayor Williams’ newly appointed interim city administrator.
Given that the city has linked arms with Lockheed for the trip to the next millennium, you’d think city officials would be full of opinions about why the company can do it better and cheaper than the District’s own.
Even D.C.’s noisiest watchdogs are silent on the subject of Lockheed. The D.C. Council, which reviews all city contracts worth more than $1 million, approved the company’s welfare contract without even a public hearing on the matter. “I don’t recall any exhaustive discussion about them,” says Ward 3 Councilmember Kathy Patterson, who sits on the council’s Human Services Committee and also chairs the Government Operations Committee.
“I’ll be honest: I need to spend more time on them,” admits At-Large Councilmember David Catania. “This is something that I really need to look at.”
There are services where Lockheed’s technological muscle could be a huge asset, but not because of any informed oversight from the people who negotiate the contracts. Once you peel back the corporate veneer, you find deals wired by the same Judiciary Square hacks, supposed innovative thinkers from Lockheed who are actually recycled veterans of city government, and subcontractors who have been doing business in the District for years. The only thing that really seems new is the expensive middleman.
Lockheed is now building weapons for a new type of war: the War on Poverty. The Personal Responsibility and Work Opportunity Reconciliation Act of 1996 replaced a federal guarantee of aid to the poor with state block grants, time limits, and work requirements. Recipients face a five-year lifetime limit on welfare benefits. Just as important, welfare reform has given states—as well as the District—autonomy over how to distribute benefits and administer programs, including the freedom to contract with for-profit corporations for all types of welfare services.
Given Lockheed’s experience in technology and information systems, it’s not surprising that the District tapped the company for two federally mandated welfare reform programs: the Directory of New Hires and electronic benefits transfer (EBT) cards. The Directory of New Hires, which all states were required to have in place by October 1997, is an employment database to track down parents who owe delinquent child support. The Office of the D.C. Corporation Counsel, which is charged locally with tracking down deadbeat parents, was undoubtedly impressed with Lockheed’s track record: The company collects more than 20 percent of delinquent child support across the country, totaling nearly $5 billion in payments.
Welfare reform also mandates that states replace paper benefits such as food stamps with EBT cards by the year 2000. Lockheed landed that five-year, $4.5 million contract with the District last year. Lockheed executives and city officials project the EBT program will save the city at least $1 million a year in administrative costs. And they offer empirical evidence to prove that privatization will dramatically cut down on fraud in the system. “Just in our initial mailing—to start the program to train individuals to come in—we were amazed about the number of 301 and 703 area codes we heard from,” notes Rowe. “The District was able to do verification and cull its rolls [as a result].”
As of last November, the District had few programs in place to ease its unemployed citizens’ transition from welfare to work, and the ones that existed were producing less-than-impressive results. Most states rely on their own employment agencies and private industry councils, which are public-private partnerships, to provide job training and placement. The District didn’t have that luxury. The U.S. Department of Labor considered D.C.’s Department of Employment Services one of the worst in the nation. And the city’s private industry council was so bad that the D.C. Department of Human Services had pulled all its job-training grants from it around the time welfare reform was implemented.
With work requirements and potential penalties hurtling toward a city that had never demonstrated an ability to find work for its chronic welfare population, the District decided to punt. D.C. awarded $52 million in welfare-to-work contracts to eight organizations, including the $33 million one to Lockheed.
Despite the company’s experience and technological prowess, local welfare advocates were shocked at the latest contract.
“It seemed like they were biting off more than they could chew,” says Sczerina Perot, a lawyer with the Washington Legal Clinic for the Homeless who works with the Welfare Advocates Group, a local consortium of family and child welfare agencies. According to its contract, Lockheed will manage a whopping caseload of up to 7,500 District residents within the year. In exchange for orientation, instruction, and successful job placement, Lockheed will receive up to $4,400 per person, based on how quickly the individual enters the work force.
Lockheed receives a stipend of $167 a month for up to a year for each District welfare recipient in its program. When the company moves a recipient into the work force, it receives a bonus of $500, minus the monthly stipends paid to date. If the person stays in the job full time for three months, Lockheed receives an additional $500. When the recipient hits the six-month mark, it gets an additional $1,000. According to the contract, the company can also charge the city $200 per month per recipient for incidental expenses, adding up to the $4,400 total.
“If you look at the process, the District’s pay points are as ambitious as we have seen anywhere,” says Steve Minnich, Lockheed’s chief of operations for its Welfare Reform Services Division. “The focus is on job placement and job retention….We accept payment only upon achievement of those milestones.”
Lockheed’s welfare-to-work approach—referred to as “work attachment” in company lingo—encourages recipients to assimilate quickly into the workplace. After recipients fill out a federally mandated “Individual Responsibility Plan,” Lockheed looks to place them in jobs as soon as possible. “It’s a very positive orientation to the basic premise that you already have some skills that the labor market needs,” notes Minnich. “Our job is to be able to get you to recognize them.”
There’s some logic to that. In the midst of the nation’s longest postwar economic boom, businesses are hungry for bodies, and they are less picky about the work histories that come attached. Minnich claims that Lockheed places 55 percent to 60 percent of its clients in less than 30 days. “The problem with long-term training is that families are still in poverty during that time,” Minnich notes. “Work attachment’s focus is about getting families out of poverty quickly.”
But the longer term is more complicated: With a hurry-up approach to getting welfare recipients into jobs—any jobs—the kind of training that might help them stay out of the system for good is unlikely to take place.
The system has clear benefits for Lockheed, allowing it to reap a profit as quickly as possible. Instead of spending valuable resources training recipients for up to a year in exchange for $2,000, Lockheed moves them into jobs, saving money on training, and collects the $2,000 in half the time. Minnich remains vague on the kinds of jobs Lockheed clients typically accept. “Many are service- and hospitality-oriented,” Minnich admits—jobs that pay just above the minimum wage, offer few if any benefits, and promise little advancement.
Observers suggest that the imperatives of the bottom line may be trumping broader public policy objectives. “There’s a rush to place people in jobs, because that becomes a source of cash flow,” argues Gary Storrs, a labor economist with the American Federation of State, County and Municipal Employees (AFSCME) who has studied Lockheed’s welfare-to-work program. “Are they in a job that’s going to last, or are they cycling back to the system in short order?”
Davis’ experience seems to suggest that the quick fix may yield profits to Lockheed, but little in the way of long-term benefits to District taxpayers. Because she lacks a high school diploma, Davis was encouraged to apply for restaurant and janitorial jobs that paid little more than the minimum wage. “They want you to find any old job,” Davis says. “I have five kids. I need benefits. I need $21,000 a year to support my family, at least.”
Welfare recipients are allowed four months in a subsidized “work experience” job. In a few weeks, Davis’ time at hers will run out. “Where do I go from here?” Davis says she asked one of the job counselors. “I don’t know,” came the response, Davis says.
Other Lockheed participants see the program as a much needed—and long overdue—catalyst. “It’s basically for the person to get off their butt and get a job,” says Ms. Young, a Lockheed participant who declined to give her first name.
Local welfare reform advocates raise other concerns about Lockheed’s approach. Liliana Garces, a Legal Aid attorney, also works with the Welfare Advocates Group. The group met with officials from Lockheed and fellow welfare-to-work contractor Davis Memorial Goodwill Industries about their programs last month. “Lockheed spoke, and they were a lot more vague about the process,” Garces recalls. “They said, ‘We don’t want to repeat what Goodwill mentioned.’…They wouldn’t tell us what the steps were.” Advocates left the meeting unsure of what Lockheed offered in terms of training, especially to the 40 percent or so of harder-to-employ welfare recipients.
It’s also unclear what Lockheed’s subcontractors offer. Lockheed has partnered with two familiar District nonprofits: Marshall Heights and the United Planning Organization (UPO).
Marshall Heights provides employment services, counseling, and job placement for all of Lockheed’s clients who live in Ward 7. The agency follows Lockheed’s “work-first” approach, but it has just two full-time staffers to implement the strategy. “We should have one administrative aide, job counselor, social worker, life-skills instructor, job-placement development counselor, and a follow-up assistant,” says John Stone, Marshall Heights’ director of social services. “In order to do the program 100 percent correctly, we would need that many people.” Of the 204 recipients who have been referred to Marshall Heights since December, 62 have been placed in work experience or unsubsidized employment.
Lockheed also directs welfare recipients to UPO, a group that welfare advocates allege has had limited success in placing people in meaningful employment. Ms.Brooks, who also declined to give her first name, participated in the UPO welfare-to-work program a few months before Lockheed contracted for its services. “They were disorganized,” Brooks recalls. “I witnessed a lot of disagreements between UPO personnel.”
Brooks landed work experience with a volunteer organization that has no opportunity for full-time, unsubsidized employment. She argued with UPO administrators for practical job training that might help her land an unsubsidized job. “I can get any teeny job,” Brooks says. “If I’m going to get something to support me and my daughter and stay out of the system forever, I need…training.
“If I immediately went into training, I would not be anywhere near this place,” Brooks says. “They say to us, ‘We just want to get you in a job as quick as you can.’ I say, ‘You would rather have me on [welfare] and not get the skills I need?’”
Welfare advocates also left the April meeting wondering why Goodwill, which had the most experience with job training, had received just a small contract of $660,000 to train 300 recipients, while other, unknown vendors had received much higher awards. The next largest contract, worth $6.6 million to train up to 1,500 District welfare recipients, went to G&S Associates. G&S operates in two rooms upstairs from owner Arthur Stubbs’ dental office. H.R. Crawford, a former D.C. councilmember, also received an $880,000 welfare-to-work contract, which he administers out of his property-management company.
The awards also caught the eye of D.C.’s Inspector General. In March, the Office of the Inspector General found that A. Sue Brown, the District official in charge of the contracting process, may have had a conflict of interest in awarding the contract to G&S. The Inspector General is now reviewing all the contracts, says Department of Human Services spokesperson Madelyn Andrews.
Lockheed is qualified in at least one significant way to oversee welfare recipients: The company knows what it’s like to be on the dole. A federally financed $250 million bailout of the Lockheed Corp. in the ’70s and early ’80s was what prompted former Senator William Proxmire to coin the term “corporate welfare.” In 1995,
the company merged with fellow defense giant Martin Marietta and consolidated its military-industrial complex on Rockledge Drive in Bethesda. The price tag for U.S. taxpayers? Thirty-one million dollars in congressionally approved “restructuring” costs, all to the benefit of company executives and stockholders.
Lockheed Martin now ranks as the No.1 contractor in the U.S. Defense Department budget, raking in almost $12 billion from the Pentagon and grossing $26 billion overall last year. Those factors helped the company snatch the No.2 spot this year in the Washington Post’s listing of the top 200 public companies in the metropolitan area.
Still, Lockheed’s gross revenue has steadily slipped as it has competed for fewer available dollars in the defense budget. The company has responded to this post-Cold War reality by grabbing more of the Pentagon’s market share. Two years ago, it proposed another corporate marriage, with Northrop Grumman, the defense department’s third-largest contractor—and requested millions in a government dowry to do it. Lockheed stepped away from the altar after Justice Department officials filed an anti-trust suit against the company.
The company had begun diversifying its book of business from aerospace to the parking space some time before. In 1984, Lockheed acquired both Datacom Systems Corp. and Brophy and Associates, a consulting firm whose president, John Brophy, had once worked as director of parking management for the D.C. government. The company used its information and technology muscle—as well as Datacom and Brophy’s political connections—to wangle municipal contracts in the processing and collection of civil parking violations.
That business blossomed into Lockheed Martin Information Management Systems in 1995. In addition to parking violations, the company now processes, collects, and distributes more than $5 billion annually in highway tolls, parking meter profits, public assistance funds, child support payments, and criminal-justice-related fees for more than 200 state and municipal clients, including the District of Columbia. So even though parent company profits dipped 2 percent last year, Lockheed Martin IMS continued to expand as the company grabbed more contracts.
Lockheed Martin IMS executives argue that they’re not just in it for the bottom line, though. “Our business is about more than child support enforcement,” states Rowe in a brochure that sells the company’s services alongside the faces of smiling, multicultural children. “It’s about preserving our country’s two most valuable resources: children and families. It’s a matter of priorities.”
Lockheed is able to find reliable revenue streams in the halls of government not just by landing big contracts, but by changing the way those contracts function. In everything from parking enforcement to welfare transition, Lockheed’s contracts are full of incentives that allow it to pull huge amounts of money out of government as long as it meets its numbers. Take Rowe’s line of work, child support, for example: According to the U.S. Department of Health and Human Services, more than 29 million children in America fail to receive an estimated $40 billion annually in court-ordered child support. Lockheed now provides child support tracking and collections for 20 states. And for every dollar it hunts down, the company pockets anywhere from 15 to 20 cents, a sweet return in any business.
Lockheed officials say the company sees important challenges in its welfare endeavors, not just the chance to sponge profits off the poor and disadvantaged. “If you are just looking at these as ways to make a profit—if a company decides, ‘Oh these are ways to make money here’—you’re doing it at your peril,” argues spokesperson Ron Jury. “These are very visible contracts. These are contracts that are going to be more visible than most things, because you’re dealing with people at the lowest end of the economic scale.”
Or, as a Lockheed glossy states, “With the quality of life for families and children hanging in the balance, only an experienced, committed, and proven provider will do.”
“Leveraging the resources of our Fortune 20 parent company, we give our clients access to unmatched technological capabilities—and provide peace of mind that we will be there to complete the job,” notes Brophy in another Lockheed brochure, Lockeed Martin IMS: The Public’s Partner in the 21st Century. “Our thirst for a better way sets IMS apart. We’re always looking for new ways to help government do things better.”
D.C. government officials had better hope that Brophy doesn’t rely on his parent company for models of cost effectiveness. Lockheed defined the term “cost overrun” in the ’70s, when the government’s order for C-5A cargo planes cost $2 billion more than originally projected. The company’s new F-22 stealth fighters have run more than $15 billion over budget. And Lockheed’s much-
heralded missile defense system failed a critical test at the end of March—the sixth time the $3.89 billion program has failed to intercept a missile—though company officials spun it into a victory. “We came very close to hitting this target—within 30 meters or less—and we’re very encouraged by that,” Lockheed Martin Space & Strategic Missiles Sector President Thomas A. Corcoran told the New York Times. “Much of the operation was as it should be.” Government bureaucrats in fields from public works to human services have been repeating that kind of statement for years.
On a sunny weekday afternoon in April, a well-dressed man walks behind his Lexus, parked on the 1100 block of G Street NW, and proceeds to feed the parking meter. He drops in one quarter. Then another. He grabs the steel beast and attempts to shake it into sense—or, at least, get it to give him the time he has paid for. After surveying the lightly populated sidewalk, he then dips into his pocket again, stares for a moment at the loot in his hand, and picks out a nickel. Then a dime. “The damn thing only registers nickels and dimes,” he says aloud, before grabbing a Cross pen out of his breast pocket and writing down a phone number from the meter head.
That number will connect to Lockheed’s Municipal Services Division. Again and again, Lockheed has stepped in when District government has imploded. Parking meters are a good example. Two years ago, anywhere from one-fifth to one-half of D.C.’s parking meters were broken, vandalized, or simply missing. The Department of Public Works (DPW) reported a 56 percent drop in meter collections from the end of 1996 through 1997; by February 1998, the city was netting an average of only $196,000 a month in meter revenues, instead of a potential $1 million.
The department blamed a citywide budget crisis and staff cutbacks for the precipitous decline in a municipal program that was once considered a national model. Yet even as the city as a whole started down the road to fiscal recovery, DPW failed to allocate more resources to its parking meter operation. Instead, it decided to privatize it, putting out a request for proposals. The story since then suggests that although the arrangement has yielded significant benefits in the short run, the city may be giving up substantial revenues over the life of the contract.
No other large city had handed over its entire parking meter operation to a for-profit corporation, though D.C. had outsourced its meter collections for some time. Even though more than 40 firms originally expressed interest, only two offered bids in the end: Lockheed Martin IMS and World Wide Parking Inc. of Rockville.
In June 1997, the city awarded the contract to Lockheed, which had tendered the lower bid. According to the agreement, the company would replace the city’s meters with 15,000 new digital ones within five months and maintain them at a
97 percent operating rate for seven years. In return, the company would pocket 30 percent of meter revenue, declining to 16 percent over time. The total is projected to be about $26.5 million over the contract period.
When the contract moved to the D.C. Council for approval, rumors spread that the deal was cooked. Conspiracy theorists pointed to a few telling signs: First, the city had asked each bidder to post a $13 million bond to qualify—mere peanuts for a $26 billion giant like Lockheed but an impossible figure for a smaller firm like World Wide Parking. A number of prospective bidders said that the bond alone had dissuaded them from pursuing the contract.
Lockheed’s hefty proposed returns raised a few eyebrows in the council as well. “We had concerns about what it would cost,” says one council staffer. “It seemed that it was excessively high for the net amount of money expected to come in.”
In order to get the lock on meters, Lockheed executives and lobbyists became frequent visitors and callers to the council’s office at One Judiciary Square. And the people walking the halls on Lockheed’s behalf knew their way around. Council sources remember seeing Lockheed Municipal Services Senior Vice President Donella Brockington, a former employee of the District’s Administrative Services Department, and fellow Lockheed Martin IMS Senior Vice President Ed Gund, a veteran of DPW’s water and sewer billing. IMS President Brophy headed the DPW’s parking division until 1981. And Rowe headed up the city’s Commission on Social Services until 1987.
Lockheed executives dismiss any notion that they have cozied up to those who control the flow of municipal business by hiring ex-District employees. And they see nothing inappropriate about former public servants revolving into the private sector. “Once you work for government, you do not commit yourself to servitude,” argues Rowe. “It’s not ‘Once a government employee, always a government employee.’”
But it’s a familiar strategy for Lockheed. At the federal level, the company has shown an unerring ability to find the levers of power and the people to operate them. On Capitol Hill, Lockheed has a phalanx of well-connected lobbyists who rarely miss an opportunity to bring home the bacon to corporate headquarters in Bethesda.
The same strategy seems to be paying dividends on the municipal front. Few have more juice or a more productive history of landing city contracts than lobbyist and lawyer Frederick Cooke Jr. According to the city’s Office of Campaign Finance (OCF), the company hired Cooke in 1997 as a $300-an-hour lobbyist to work on “legislative matters of concern” to the corporation. Cooke, who served as D.C.’s Corporation Counsel during Mayor Barry’s third term, now also works as a high-priced lobbyist for Fannie Mae and the Island Development Corp., the company interested in converting Children’s Island into a massive amusement park, according to OCF records.
In the second half of 1997, Cooke received $5,010 from Lockheed, though his OCF-filed lobbyist disclosure report lists no meetings with public officials. In the first half of 1998, Cooke listed $13,050 in receipts from Lockheed, for “approval of parking meter contract.” He did not file with the office for work in the second half of 1998. Cooke did not return phone calls about his work with Lockheed.
After it lost out on the meter contract, World Wide Parking filed suit with the city’s Contract Appeals Board, alleging that Lockheed had unduly influenced the bidding process. The suit claimed that Lockheed Martin IMS counted at least 12 former D.C. government officials on its payroll, many of whom—such as Gund and Brophy—had held key positions in DPW and maintained contacts within the department.
This wasn’t the first time a losing bidder had challenged a Lockheed contract on these grounds. In 1993, the New York Parking Violations Bureau had spiked a $150 million deal with Lockheed to process and collect civil parking fines after investigators determined that the company had improperly intervened in the contract’s awarding.
The D.C. parking meter contract kicked up such a storm that even the FBI got involved. “That’s what we hear, too,” Lockheed spokesperson Jury coyly notes. An FBI spokesperson confirms that the bureau did, indeed, look into the matter, though the case file is confidential.
Lockheed swept the mess away by offering World Wide Parking part of the deal as a subcontractor. Now the city has 15,000 new meters and reaps nearly $800,000 a month in revenue, Brockington points out. The U.S. Conference of Mayors even recognized the program with its Outstanding Achievement Award at a meeting here this past winter. Brockington claims that the company is exceeding expectations of the contract, keeping 99 percent of meters operational.
Brockington has reason to brag. In the municipal-services sector, Lockheed has made almost a clean sweep of District government contracts. In its latest deal, Lockheed just shook hands with the Metropolitan Police Department on a deal to set up 40 photo-enforcement sites around the city, where cameras will photograph license plates of cars making red light and speeding infractions. Lockheed will then bill and collect from the violators, taking $32 for each $75 ticket.
Not everybody, including those with a stake in sane driving habits, is cheering. “Is the District doing this in the name of public safety?” asks Lon Anderson of the Mid-Atlantic chapter of the American Automobile Association. Last week, Anderson wrote a letter to Mayor Williams, asking him to rescind the contract. “Are they doing it to raise revenue? Or, even worse, to enhance the coffers of the board of directors of the Lockheed Martin Corporation?”
Anderson’s concerns raise a key question: Are Lockheed’s interests the same as the District’s? For the public safety of its citizens, the District hopes to reduce the number of red-light-runners to zero. But if that happens, Lockheed will no longer have that business.
“I don’t blame Lockheed for trying to make a profit,” Anderson says. “It’s up to the mayor and the city council to ensure that what the District government does has credibility with its citizens.”
As it is, Anderson says, “It seems to me that when drivers enter Chevy Chase Circle, they should see ‘Welcome to the District of Columbia,’ and then, under the mayor’s name, it should read, ‘Lockheed Martin welcomes you and hopes you park illegally and run lots of red lights. Our board of directors thanks you.’”
Lockheed doesn’t really need the PR advice. The company has skillfully hyped the results from its first welfare-to-work contract to attract business from other municipalities. In Dallas, Lockheed placed more than 75 percent of its welfare clients in jobs paying an average of $419 weekly within one year. That pay rate adds up to just over $21,000 a year, not the kind of money that’s going to keep a family in decent clothes and eating nutritious meals. But Lockheed is quick to point out that the federal goal for former welfare recipients who are now working is just $292 a week.
Given that the job-placement goal was 48 percent, Lockheed’s results are impressive. But even Lockheed officials admit that they poured an extraordinary amount of resources into the Dallas program to make sure it shone.
And not everyone is convinced. “The symbolism of a defense contractor making money off of vulnerable people is very disturbing,” says Peter Edelman, the former assistant secretary of Health and Human Services who resigned in protest of President Clinton’s welfare bill. “But I think the bigger problem is accountability.”
Lockheed does significant business in Florida as well. “I have looked at Florida,” says Edelman, who is now a professor at Georgetown University Law Center. “The basic problem is that nobody knows how they’re doing.”
Of the 6,200 welfare recipients processed in Lockheed’s Miami/Dade welfare-to-work program from December 1997 through April 1998, only 428 found full-time work during that period. By the year’s end, Lockheed had boosted its placement rate to just above 25 percent.
The Miami contract rewards Lockheed much more for initial job placement than for retention. “Their only objective is to reduce the number of people on welfare,” George Knox, a member of the board that oversees welfare in Florida, told the Miami Herald. “They don’t think of it as growth and development for the people involved.”
Regardless of the numbers in specific states, Lockheed has demonstrated an ability to move welfare recipients off the rolls. Whether they stay off is a different matter altogether. “Although this was a primary goal of welfare reform, state governments and the federal government do not include long-term, job retention rates as a measure of success,” notes a 1998 Harvard Business School study on Lockheed’s work in welfare reform. “Whether or not IMS was successful in helping customers become self-sufficient over the long run, however, is unclear.”
Some trends are discernible, though, and they aren’t very encouraging. Lockheed’s programs in child support collections tell cautionary tales about privatization. In 1996, the state of Maryland hired Lockheed to fix the broken child support system in Baltimore. In its first year of operations, the company collected $63.1 million in delinquent child support, $18 million short of its projected goal. A review conducted by Maryland’s Child Support Enforcement Administration found that a state-run pilot program in Washington County outperformed Lockheed on collection rates.
In its second year, Lockheed was $50 million under its goal. At the beginning of March, state officials announced it would not extend the company’s contract. Lockheed blamed the results on unreliable data from the state.
“The reality is that not all their high-tech systems have worked,” argues AFSCME’s Storrs. “Obviously, they have access to capital with greater ease than governments…but when the rubber hits the road, they clearly haven’t demonstrated that their stuff works.”
Lockheed’s biggest disaster occurred in California. In 1992, the state awarded Lockheed a contract to build a statewide computer system to track child support payments. Edwina Young, the head of child support payments in San Francisco, recalls, “[Lockheed’s] system just wouldn’t perform. We’d get slime data, which was incomplete or garbled. Our productivity dropped probably 60 to 70 percent.” In November 1997, California fired Lockheed after the $99 million project spiraled up to $277 million with only 23 of 58 counties up and running on the system.
“Ultimately, I expect [this] will be viewed as one of the most inefficient expenditures of tax dollars in California’s history,” California State Assemblywoman Elaine Alquist told the Los Angeles Times. Once again, Lockheed officials blamed state officials for poor reporting of results. Wait until they get a load of the District’s notorious data-management problems.
On April 26, D.C. Auditor Deborah Nichols released a report on Lockheed’s two oldest contracts with the District government: parking ticket processing and collections. Lockheed has held the collections contract, worth an estimated $3.5 million a year, since 1981—the same year Brophy left the city payroll. Four years after that, the city awarded Lockheed a contract worth an estimated $5 million annually for processing parking violations. Both contracts have remained in Lockheed’s possession ever since.
The contracts play to Lockheed’s strong hand and the District’s weakness: technology and systems integration. The auditor’s report, though, directly challenges the assumption that privatization, even in those areas, enhances efficiency and offers the public more bang for its buck.
“The absence of performance benchmarks, measures, and standards, in addition to the failure to periodically evaluate performance, undermined the District’s ability to obtain reasonable assurance that the contractor exercised due diligence on behalf of the District government in performing delinquent parking ticket revenue collection services,” Nichols wrote. Though Nichols focused on the DPW’s lack of oversight of the two contracts, she also pointed out that Lockheed’s less-than-vigorous approach to ticket collections prevented the city from adding a minimum of $20 million to its coffers last year.
The report raises serious questions about Lockheed’s incentives and the District’s oversight in other contracts. The current mayoral administration admits that keeping big contractors like Lockheed accountable has been difficult.
“Oversight has been abysmal [in general],” notes Interim City Administrator Dong. “This is one area where the District needs to beef up.”
A little over a year ago, Nichols released another report detailing how Lockheed routinely overcharged drivers for parking tickets. The company would send multiple notices to drivers who had already paid their debt to the city. In many cases, the drivers simply paid again.
In that report, Nichols mentioned, “The collection and retention of parking ticket overpayments has been a long-standing problem that managers of this contract have failed, over many years, to effectively address.” Neither the city nor Lockheed has ever issued reimbursements for those drivers who overpaid.
Nichols’ reports highlight another reality about privatization in the District: It’s not very competitive. Even though the District has experienced shortcomings with Lockheed’s performance, it has repeatedly rewarded the company when its contracts have come up for renewal. The rubber stamp seems to defy the contracting system’s supposed focus on encouraging competitive government.
Over time, maybe the District will be happy that it got into bed with a corporate behemoth that has huge assets and an eye for the bottom line. In municipal services like ticket processing and parking meters, Lockheed’s poor performance can hurt the amount of revenue flowing into District coffers. But the stakes are obviously much higher in social services. It’s scary to think of the human consequences if the city spends millions of dollars to learn that Lockheed has no magic bullet for helping people get off welfare. If the District’s experiment with privatizing the safety net turns out to be a bust, welfare recipients like Davis may already be out of time. CP
Art accompanying story in the printed newspaper is not available in this archive: Illustrations by Jonathan Carlson.