Problems Brewing

The government contracting process is notoriously transparent, and although Treasury appears to have performed well on a comparative basis, significant transparency concerns remain. For example, contractors and agents are immune to requests under the Freedom of Information Act. Contractors may hire subcontractors, and those subcontracts are not disclosed to the public. Important aspects of a contractor‟s work may be buried in work orders that are never published in any form. Further, The Treasury publishes no information on the performance of contractors during the life of the contract. In short, as work moves farther and farther from Treasury‟s direct control, it becomes less and less transparent and thus impedes accountability.

The contracting process has also created confusion about the role of small businesses in administering the TARP. In one case , Treasury awarded a contract to a “small disadvantaged business,” which in turn delegated roughly 80 percent of the contract to a “large business.” Thus, although on the surface it appears that the contract is being performed by a small business,in actuality a large business is essentially responsible for performance. Additionally, the Panel is concerned by the lack of outreach by Treasury to find qualified minority-owned businesses to participate in the TARP. The largest TARP financial agency agreements were those with Fannie Mae and Freddie Mac to provide administration and compliance services for Treasury‟s foreclosure mitigation programs.

As described in detail in the case study accompanying this report, these agreements raise significant concerns. Both Fannie Mae and Freddie Mac have a history of profound corporate mismanagement, and both companies would have collapsed in 2008 were it not for government intervention. Further, both companies have fallen short in aspects of their performance, as Fannie Mae recently made a significant data error in reporting on mortgageredefaults and Freddie Mac has had difficulty meeting its assigned deadlines.

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