Climate Money Watchdog

How Oversight Works, and Didn't Work in the Case of Solyndra - Eric Thorson

May 12, 2022 Eric Thorson Season 1 Episode 5
Climate Money Watchdog
How Oversight Works, and Didn't Work in the Case of Solyndra - Eric Thorson
Show Notes Transcript Chapter Markers

Eric Thorson has extensive experience exercising federal government oversight, including  as Treasury IG for 11 years, a Congressional oversight Investigator serving on 3 different committees over 10 years. His perspective is also deepened by having been a successful entrepreneur. He is now lecturer at College of William & Mary.

We discuss the importance of oversight in the context of government spending anticipated with the Biden administration's infrastructure bills, and how things can go wrong quickly when safeguards are bypassed, as they appear to have been in the case of Solyndra, a solar panel manufacturer that was given a $1/2 billion loan guarantee as part of the Obama administration's American Recovery and Reinvestment Act.

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Greg Williams:

I'm Greg Williams and I'm here with Dina Rasor and Eric Thorson. And we're going to talk about By way of introduction, Dina and I met I think, about 30 years ago, when I was an intern for her in college. And she gave me my first job at the project on government oversight. Since then, I've spent most of my career in private information technology management. But I'm delighted to be doing something once again, to try to help the way the government works. Dena, do you want to say a few words about yourself?

Dina Rasor:

Yeah, so I founded the project on government oversight in 9019 81. So I've had about 41 years of investigations, kind of a jack of all trades, I was trained as investigative reporter. And I did some of that. And I also did a lot of advocacy work with nonprofits. And I've also worked on qui tam False Claims Act cases. And I met Eric through my work with the Pentagon. And I've known Eric for probably 35 years about it. Right? That. I remember. When I first met him, he was the the was a political appointment to be the boss of Ernie Fitzgerald, saying that more and nobody was ever the boss of Bernie. When I first met Eric, I thought what a job. But he, he really did a good job. And I'm very impressed with his background. So we are doing this now because we all have experiences and other other areas of government. But we are all concerned about anytime the government starts a big a big spending program, and the climate money that is coming up the climate and infrastructure money is probably some of the most important money that's going to be spent in the last four or five decades. You know, because it is the lot is riding on it is hugely important and controversial. And we just want to make sure that the spent money is spent correctly, that much money. There's all kinds of people laying in wait with boondoggles schemes and everything. So that's why Greg and I are starting the climate money watchdog. And that's what this podcast is about. And so I'll let either Greg introduce Eric or Eric introduce himself.

Greg Williams:

So Eric, I understand you were a treasury IG for for 11 years and spent 10 years as a congressional oversight investigator across three different committees, as well as being an entrepreneur yourself. Is there anything else you'd like to say about your background before we jump down?

Eric Thorson:

As Dana pointed out, I've been involved in oversight work for an awful long time, I was also Inspector General of the Small Business Administration, which is always interesting. And so this is oversight and correct. Administration of money and operations is a really big part of my life. So that's, that's why I think this kind of work is so important.

Greg Williams:

So I know, Dina and I both spent a fair amount of time on, let's say, sensational stories that at some level, make the point that oversight is important, but sometimes don't really convey the nuance of what oversight really means. And so they the example that, that Dina and I share together is overpriced spare parts, you know, the $435 hammers and $999 pliers. But I certainly know that there's a lot more to it than that. And the the example that occurred to Dina and I that seems relevant to climate expenditures, but which doesn't really tell a very instructive story about the regulatory process is that of Solyndra, the solar panel solar panel manufacturer that secured a I think about a half billion dollar government loan guarantee, and then didn't go on to to create either the the solar panels or jobs that the Uh, the expenditure was, or the the loan guarantee, I should say was intended to provide for now it's, it's easy to sort of get riled up and say, you know, somebody's got to go go to jail for that something, you know, terribly dishonest must have happened. But I think what would be great to illustrate today is how things like that happen without anyone ever having anything but the best of intentions and how the the people and systems that are in place are designed to protect us against outcomes like that.

Eric Thorson:

Well, before we get into that, well, you've made one really good point just a minute ago, when you talked about the spare parts. The reason those stories are so important is it's very difficult for the public to understand if you say $5 billion was wasted on this program that bill, fighter jets or whatever, it most people can't really picture that they don't know. But when you tell them a toilet seat, even if it was for an aeroplane cost 600 bucks, that resonates with people, they understand that. And that's what made those small, the ones you just mentioned, so important. You're still talking about it today. And it shows the average guy can say, Hey, that's not right. And that's really, the purpose of one of the purposes of oversight is to get people that's not right, we need to look at this, we've got to do something about this. And they get riled up a little bit. And if it takes a $600 toilet seat to do it, well, that's okay. But anyway, going back to the issue of Solyndra, and you're right, the way that was, it's an example that can be used in a lot of different areas, one you just pointed out, is you can rail against it because the money was gone. I mean, that died. Why? Why did that happen? You've got one side wants to throw people in jail. Another guide says no, we had the best of intentions, as you just said, but it is an example of, of how you can try and do something, right. But it's an point I'll make all the way through that the interference, or even perceived interference of politics left or right, doesn't matter, it happens on both sides, it can really destroy a program or the perception that something is being done right. And, and especially if it isn't being done, right, it gives you some cover. Wow, that's just them complaining about. So it's, there's some real good examples within Solyndra that you can use to carry forward into what you're looking at.

Dina Rasor:

And I also think that it's a cautionary tale for this next tranche of money that's going to be spent on climate. And that is the is Eric will take us through, there were things that appear to be okay. But, you know, things that dropped through the cracks and didn't, you know, the system didn't work, right. And once that happens, whether it's a Republican looking at a Democratic proposal or democrat looking at a Republican proposal, unfortunately, once something goes wrong, it can become a cudgel for the people who don't want that spending done anyway. And so in two to four, on this situation, because it was done in the Obama administration, the Republicans picked it up and used it as a cudgel it and you know, they come up with a one, one term bumper sticker, and then Solyndra a meant everything about climate is is wrong. And Democrats do the same thing. And it's part of the whole Washington game. But unfortunately, it is, when you get it in that area of politics, it begins to lose, you begin to lose the nuances that of why it happened. And why can we can make it not happen again. And to this day, the Republicans are still using it. They just recently put out a report on why we shouldn't be spending money on climate, ants and instead of oil and gas. congressmen have mean Senator Barrasso. So it's still after all these years, it's still used as a as a symbol of why we shouldn't do this and why this is the all of the climate studies have been idle. So I wanted to put that in there so that now Eric can explain to us realistically what did happen, and mistakes were made and how we can how you can prevent this kind of thing from as much as possible being a political football.

Eric Thorson:

But the point you made I think, is a good one in the sense that, but what you're really talking about is the period before the money starts going out. In other words, for a politician to say we shouldn't be spending money on this, we should do this or we should do that. Well, once that bill is passed, or isn't Really the authorization to spend that money is made, then you enter into a different phase because it's going to be taken in a number of different ways. federal projects, for instance, rebuilding of bridges, doing all that kind of thing under the federal control, then that will be result in actual federal contracts and regarded federal contracting laws. It may be done, where states have applied to do certain things, climate wise, infrastructure, whatever. And that money will have been granted to the states. And I am getting to a point here about Solyndra. It also could be local governments that the money is granted to them. What happened with Solyndra was the money, it was in the form of a loan guarantee. Meaning, of course, that the government was on the hook for the money was given to a company that was pretty much a startup, it wasn't brand new, but it was just a couple of years old, I guess three or four by that time, the money got spent. But within six months, I think the the actual loan approval was in 2009. And September, then by March of 2010, that's, I guess, a year and a half. By about six months. They were already auditors were showing that they were running into trouble. The so you've got a number of different things here. Some some good indicate the fact that auditors were able to pick that up and put it out there that shows that one that system was working, who decided this is where I get to current things that you're talking about Dean, who decided that this would be a really good company to put that kind of money into? What did you need? Before you make a decision like that? Well, first of all, you better have a stable company, one that's not kind of brand new. What is their product? This was not innovative. It's you know, the Chinese were building these solar panels. They had been around, it wasn't exactly a new technology. But what is the what are the Proform of representations being made by the come? How many this was supposed to create jobs? That was one of the things that employment was at 9%? At that point? What how does this money relate to an increase in jobs? They were going to build a factory with it. And that then opens another door? If okay, if I'm going to build this factory, granted, there's a short term gain of about I think it was about 3000 people to build this thing. And, okay, that's designed and the whole idea is to so you can produce more solar panels? Well, a is there a market for solar panels? And if there isn't, what are you going to do with this building? And how are you going to pay for it? Nobody seemed to have asked that question. So the lead in here is Who who is it that is supposed to make that assessment? OMB approved the money. But who, what government agency is really designed to do that kind of work? Gao could. But they're, they're part of Congress. They're not part of the executive branch. Part of the approval process was treasury and that was the part the my office did a look at. And the reason for that was the award was not supposed to be made to the government guarantee until within consultation of Treasury. Well, what we found was nobody could a defined consultation. What did that mean? And nobody really did any consulting, even if you do find it really loosely. I think part of it was there was a lot of pressure. And this gets into the overall of political interference. And I don't think interference isn't necessarily the right word, but certainly political influence, pressure, whatever. But who was supposed to do that? And who will do that in the cases of future money? Now, you got another problem. And if you're giving it to the states for grants to do as you're talking about here, climate infrastructure work, whatever, you're not going to have much control, the states are not going to, first of all, you can't assess the state as to how capable they are of dealing with this kind of money. How much are they going to that that won't work, you also don't have much oversight, once the money goes to the state, then they're not going to want that they have their own oversight groups, effective or ineffective. That's where that'll be be done. So the federal government tends to lose control at that point. And certainly that's true with local governments. But that's a different situation. We should have the big one. I think the biggest problem was Solyndra was nobody really did an assessment is to what were they going to do with this money and how well were they going to manage? And would it accomplish the goal of what this money He was supposed to be four, I don't see anybody really who would have done that. But as opposed to accompany if you're giving this for government grants, you can't, you can't really go on assess the state to see how well they're going to do this. I mean, they can give you a report of what they want to do, but you don't really have the right to say you can't do that. They may be technically you might, but isn't, that's not going to happen in a literal sense. So that's a that's a big part. And that's part of the lesson, I think that a Solyndra taught. Yeah, so

Greg Williams:

maybe it's a, it's a good time to talk a little bit about how loan guarantees are supposed to work and how the government tries to use. So Eric, and I both run small businesses, we both taken loans, or at least, you must have at least considered taking loans. And yeah, and you know, for anyone who's who's bought a car or house, you know, that people don't just hand you money, they, they, they want to assess the risk associated with your potentially not being able to pay that money back. Now, ordinarily, you go to a bank for a loan, and they are the ones who assess the risk. And they are pretty careful about not giving money to risky people. And, you know, we can have another whole podcast about the financial crisis of 2008. But and how it departed from that tradition, but so what is a loan guarantee? A loan guarantee is when a third party, you know, somebody who's not taking the loan and who's not providing the upfront capital, says, I want to make my own assessment of the risk. And I'm willing to put my money behind that assessment of the risk. So if you, Mr. or Mrs. Bank, can make the loan and if it doesn't get paid back, I'll pay it back

Eric Thorson:

for is another way of putting as your dad just cosign for your first house.

Dina Rasor:

That's exactly what I was thinking. Same thing like that is the federal government, what do you want, and you know, your parents were sitting there the whole time saying, okay, they got a job, they seem to be pretty responsible. So the bank doesn't care, because we may end

Unknown:

up pulling back, go ahead. But most

Greg Williams:

importantly, your parents have an interest in your success. And they are willing to put a certain amount of their resource at risk, to promote that success. And what the government does in these cases is they decide that the We the people have an interest in the success of something, you know, in this case, you know, is either straight up job creation, or more specifically, the success of the solar panel industry. And so they are going to very intentionally put their thumbs on the scale to try to shift some of the private capital that's available through banks in the direction of these, you know, industries or other endeavors that they think are in the electorate's interest. And that's great, it's a great way for the government to have a big influence on what business does, especially since if they do it well and carefully. It doesn't cost anything, because they they identify enterprises that not only are going to do something that's of benefit to the, to the taxpayers, but ones that are ideally not very risky. But the whole value proposition gets thrown out the window if the government doesn't do that risk evaluation, because then the government winds up paying back the loan.

Dina Rasor:

And I think one of the risks that I wonder what, what, whether they did their due diligence on is that if my memory serves, right, that was about the time the Chinese decided to dump very cheap solar panels below cost onto the American, you know, into the American market, and almost all the competing things were Chinese trying to get into the market where they lowered the price. And so they they, I wonder how much how much the when you're looking at the loan guarantee, you have to also look at the competition with this company be able to survive the fact that you're in America paying higher wages, and you're going up against a monolithic kind of Chinese Chinese decision to you know, sell solar panels.

Eric Thorson:

That's exactly what Greg was saying when he talked about due diligence is you have to go through a marketing plan. What what is it and of course marketing plan involves, what is your competition? What is the price, what are you going to have to charge. What is if you're going to end in this case, they had to charge more. Well, yeah. How's that gonna work? And it didn't. And but that it really comes back again to a thorough, especially when you're talking about a half a billion dollars, a very thorough due diligence, which involves all kinds of variables and data analysis have any number of different viewpoints on I don't know, I've never seen anything that that was ever really done.

Greg Williams:

Yeah, so we can talk about better and worse risk assessments. But I think we all ought to agree that any risk assessment is better than no risk is,

Eric Thorson:

or yeah, there is one thing worse, and that's a phony one. All right. And I don't know that that was ever done. I never saw one. It. I'd be surprised if it was there was an accurate risk assessment ever done on this.

Dina Rasor:

And why was that? Eric? Why do you what do you think happened? It was it? Was it because they're trying to push this out the door, get the jobs, politics? What was it? Do you have any ideas? Or

Eric Thorson:

there was there was evidence that they certainly wanted to get it out the door and get it done? There was a, I guess, a number of things that happened that came out during that time. But you know, I'm not saying there was one phony risk, I said, I'm saying that is another possibility where they needed one, and they drew it up making all rosy assessments. And a again, that's a pretty subjective thing to do is risk assessments, you're looking at it, you can be very hard nosed about it. And you know, like a bank, like Greg was point out like a bank would do. So you're not gonna make this you can't charge more than or you can say, oh, you know, this is great, we'll make our dent in the market. And they'll take off. It just depends. It's a very subjective thing. But I'm saying as far as was there an accurate and well done impartial risk assessment or marketing plan ever looked at for this? I don't know that there was.

Greg Williams:

Yeah. And so I'm fond of a quotation of Dwight Eisenhower, who I believe in the context of planning the D Day invasion, and somebody asked them, you know, how can you possibly predict, you know, let alone control how all these millions of details are going to play out? And I believe his response was, there is nothing so useless as a plan, you know, for all the reasons mentioned. But at the same time, there is nothing so useful as planning, and just getting a loan applicant to go through some scenarios, like what happens if the Chinese flood the market can go a long way, either to identifying important risks, but But oftentimes, more importantly, creating contingency plans Exactly. Or, you know, affecting the payment schedule of the loan,

Eric Thorson:

or various scenarios, which is really what you're talking about, what if this happens? And better than that? What if this happens, and each case the profit may go up? But go back? And look at the worst case? What's going to happen? Well, they ended up closing their doors. When did they do that? Well, they they approved the loan in September of Oh, nine by December of 210. So one year later, they're out of cash. And by January or February of 11, they're close the doors.

Dina Rasor:

So you're at once you go through and and talk about you know, this was the DoD the department of energy that was supposed to have done this loan and and gone to Treasury and done it in a thing. How did this end up in your lap? And what did you find? And what did you do?

Eric Thorson:

Well, as I mentioned, and the OMB actually approves the thing, not DOA, but doe was pushing it, I guess, and one of the staffers for Secretary Chu even complained that he had kind of announced it before was really approved. As a part of this, evidently, the approval was that Treasury had to be consulted. And I've mentioned that a little bit ago. Well, what is consultation? Maps, what Treasury relied on when we went in and did an audit of it? Well, we were asked to do can be consulted. They did consult us and but we don't feel that that required us to do ABCD. And in fact, they really didn't. But again, you got caught up on what what is, what did they mean when they said we had to be consulted? And that's what Treasury relied on was to say, well, we didn't we didn't have to do it. Oh, they told us what they were doing. They consulted with us and we're okay. And that was that. It still comes down again, looking at future stuff that you're doing is going back to what Greg's in a really hard nosed if you're going to give government loans, which is what this was a government guarantee. You really have to have a good understanding of what are what are the risks? That's really what it comes down to? What is the odds that this company is going to succeed is useful given the light of Chinese involvement? And were they pretty much cornered the market on solar panels? And what's the market for solar panels anyway? It never really took off to be, you know, I think Tesla's put more cars out than well, not literally, but you know what I mean? I mean, it, it did, what was the market? How was the market shaped? What, what was the influence of the Chinese sales in the market? None of that evidently, seemed to bother people.

Dina Rasor:

And so what happened when you got it? I mean, when they asked you to take a look of it, find out what's wrong and kind of go take us through that process, so that whence the horse is out of the barn?

Eric Thorson:

It always is, when were brought in, I mean, it you have to go in and look at what happened, not what's going to happen. And I forget who requested it from the hill, but I got a letter from you probably was a chairman or ranking because those are the two we most often responded to. And what was Treasury's role in this? Well, Treasury's role was simply as a consultant, they were to consult on this and approve it or sign off on it, it's probably a better way of putting it. And they did sign off on it. And they said, we we were consulted, and we did consult. So Well, what did you do? Didn't do much because they relied on what is consultant mean? What can what were they relying on us as Treasury? What did they want us to do? Well, we didn't feel that was much they consulted with us. Yep, they did. We signed off. That was it.

Dina Rasor:

When you started going in and asking Doa and OMB Office of Management Budget, for people who don't know all the alphabet soup, was there was there hostility resistance? No excuse making from what happened? As

Eric Thorson:

I mentioned, our role was really what a treasury do. And no, they they were? I mean, that's the long ways ago. So I'm trying to remember, I don't think there was a lot of hostility or anything. I think they, and by then I think they were certainly smart enough and aware of the way we work. If we were met with hostility we would that was not a smart thing to do to my office. No, they were cooperative, because they didn't have anything really done. We were consulted. We did it. There we go. When you were What did you do?

Dina Rasor:

Were they panicked at that point? Because they realize that things were going downhill? Why not?

Eric Thorson:

I don't know. I mean, they they felt they had done what they were asked to do. They were asked to consult they consulted

Dina Rasor:

about I'm talking DOD and OMB when they that was 1000 Our role? Did they did they end up panicking about that? Or are they just so used to that kind of government waste that they just said, Well, whatever?

Eric Thorson:

Well, I imagined by then it was already over. So I don't think it really matter. To know I mean, most of the people they don't panic when we come in and do something, you know, it's always somebody else's fault. And they may or may not withhold, you know, the full story or isn't not worried about that. But they The One Thing treasurer was always worried about is don't mess with our authority. Don't, Don't ever lie to us, don't. And we they were great, whether you're talking about Hank Paulson or Tim Geithner, or even Steven Mnuchin Bay, and I was there for all those guys. They didn't, they didn't ever really cause us any problem. So

Dina Rasor:

there were congressional hearings on Solyndra, but you were never called No, no, or had anything to do with that.

Greg Williams:

No. I mean, I imagine that that is a classic example of a very unsatisfying hearing, because as far as we can tell, no walls are broken.

Eric Thorson:

That's the real point. That's exactly right. So how do you how do you do good oversight when that is the case and you're hitting right on it?

Dina Rasor:

They talk about fraud waste. And this sounds this sounds like it very solidly went into the waste program that was wasted because of mistakes, not because someone was actually trying to skim money or the usual, the usual inflate prices, or all the things that they usually try to do when they're doing fraud.

Eric Thorson:

Right. And I think it's important to note too, that nobody was ever accused or never actually alleged to steal any money pocket any money out of this. So that didn't happen. And that's important because in so many of these stories, you get to the point where somebody was pocketing the money and may have gotten away with it. Maybe that did not happen in this case. As you say, this is really in the waste category. And that doesn't make it right either. And neglect act is probably a good word to put in here too. Did they neglect to do the kind of analysis, market analysis, cash flow analysis, job retention programs, all of that stuff that should have been all these data points that should have been used? Did anybody look at that stuff? I don't think so.

Dina Rasor:

So even though there wasn't any fraud, and there was waste and mistakes were made, it became a real political football. I mean, it's still is. It was one, I guess, it was one of the biggest failures of the first spending and climate money right.

Eric Thorson:

Now, not really, that was remember, the original thing I was on the board for it was $700 billion. This was a half a billion. And so there were a lot of bigger stories out there too.

Greg Williams:

I, for me, that the takeaway is that generally speaking, there are systems in place to prevent this kind of thing. And by and large, it's, you get into trouble really fast when you bypass those, those checks. And you know, the the bigger the program, the more important those checks are now, for anyone who's ever applied for a government grant or contract. The process is infuriatingly complicated. pages upon pages of references to Federal Acquisition Regulations and set aside requirements and minority and women owned business. Consider considerations. It's if you're the person trying to get the money, and you believe you know what to do with the money, it all seems like a waste of time. But if, if you're the person, you know, who's wondering, you know how $500 million got spent? Effectively on Solyndra, that's, that's when all of that stuff begins to have value. It amazes me how long it took the American medical industry, for example, to accept the basic notion of checklists. You know, but before American surgeons started going through checklists and writing in Sharpie, not this leg on patient's legs,

Eric Thorson:

States

Dina Rasor:

lost sponges lost scissors. Yeah, I mean, now they have now they checked on next year, all the tools are in all tools are out, you know, yeah, I understand that. And a lot. You know, it's just amazing to me that a lot of people think these these kinds of things aren't as important. But when you're dealing with that situation. And even though there wasn't any fraud proven, there, it sounded like it was loose enough that if somebody wanted to try to defraud, it might have been pretty, it might have been easier to do because there was not this, this check of checks and balances put in where it was supposed to be put in.

Eric Thorson:

True. But Greg made two really good points. One was that in the contracting world, and what he's describing, of course, is applying for a grant or which is a form of contract. And you've got to fill out all these things. The people who do it, the real bureaucrats that get in there and do that stuff. And who knows the FAA are the Federal Acquisition regs and all the rest of these things. And a lot of these, this money coming up will be done in the form of contracts, they're really your first line of defense, because they're going to put in all kinds of things that you're going to have to be adhering to in order to. The other point is, and they're connected here, you've got to keep the politics out of it left, right or middle doesn't matter. You've got to keep a because you allow the contracting Oh, again, your first line of defense to do their job and do it properly. But you also rely on you're able to rely on their systems, which are, as you said, so they're so profound all the stuff you have to do. But if you let them do their job and do it, right, and with, you know, without any interference, it'll work out, okay. And it does. I mean, we do 1000s and 1000s of contract big ones all the time. And they work out pretty well. But the So those two things, to me are the trusting good contracting people well trained with the right attitude and the right integrity. And then the other side of it is keep somehow and I don't know how you do it in this particular environment, but keep the political pressure out of it. And if you do that, you could do okay.

Greg Williams:

Yeah. I think of like, on the private side of the the government, private interaction over contracts or grants or whatever they may be. They, the contractor will have lawyers that review the contracts and If payments aren't made in a timely fashion, they will engage those lawyers immediately. And they say those lawyers are very, very handsome. And they pay very close attention to what those lawyers say they may not do what the lawyer suggests in every single circumstance, but they give those those attorneys who understand the law and understand the the intricacies of the contract, a lot of appropriate respect. And they, the person on the other side of that equation, in many respects, is that contract officer you keep mentioning, and at least, you know, based on my experience with with people in that role, they tend to be extraordinarily knowledgeable, every bit as knowledgeable as any contract attorney I've ever dealt with. But they are not paid as well. And it's very easy for an appointee, or, or somebody in the executive branch in the, in the agency that's making the acquisition, who's only going to be in that position, you know, for an 18 month rotation or something, to not pay so much attention to that contracting officer.

Dina Rasor:

Yeah, and one of the problems is to is that that after, you know, after certain amount of time, one of the big, big problems that we've seen over time and these kinds of contracts, is that the contracting officer, we have, you know, mail, saying literally billions of dollars, he or she, or is in the situation where every that company has gone out, especially if it's a large company, and found members of Congress where they make the stuff and the subcontractors and everybody else and so that, they know that if they book the contractor too hard or too hard on the contractor, they're gonna start hearing it from members, Congress, that's where we talk about the politics of it. And one of the problems with that is, is that they become concerned of, oh, you know, if I really pressure this big company, I'm gonna get, I'm going to hear it from my boss, again, like What the hell's going on, they're all upset, they're going to Congress, we don't want to go to Congress, you know, we'll get oversight hearings, and that kind of thing. And then there's the also the revolving door where they, especially with people who are actually in the plant, you know, the plant representatives who are there every day, making sure the government's money is being spent right right there on the plant floor, they have an office, well, they tend to get wined and dined and play golf and everything else. And when the old term used to be in the Pentagon was they go native. And it's very common that these people just happened with Boeing, these people end up spending a couple of years overseeing something, and then they get offered a job looking at the contractor. And sometimes the very next day, they just go work for the client.

Eric Thorson:

That's true in some regards, but like, I did the one on the C 17. And the contracting officer was the guy who screamed the loudest it was the it was the head of this program. The program had a two star who was the one who was doing what you were describing, but it was the contracting officer. Now that's in the military world. But in the civilian world, the contracting officer generally, is not the guy that they want to go higher than that. But it comes back to this word I used a little while ago, integrity, you got to find these people who are well, first of all, they're the guy with the warrant. So it's not like their boss can come in and sign that contract.

Dina Rasor:

Eric, explain what a warrant is, because that is just an extremely important thing. Yeah, it

Eric Thorson:

is because a warrant is basically the authority for me to spend or commit the government of the United States just to a certain amount of money. And not everybody has that. And so it's actually quite rare. And it's it takes a lot of years and a lot of training and a lot of all kinds of stuff to have a government warrant. But that's part of that. Thought authority is to stand up to whatever it is that's putting pressure on you. And the they need to do that because it's there, the boss usually doesn't have the warrant. If you're talking about in the political world under that law, they almost always don't. So they can come scream and yell all they want. But the truth is, you know, you can't sign that contract. And I'm not going to so unless it's done this way, I do know of cases where that happened and where and I won't, I won't I'm not gonna mention it, but huge contracts where the contracting officer was virtually threatened and stuck to their guns. And

Dina Rasor:

they do. Then there's other parts of it that you have Part of it is they may have the warrant to, you know, approve certain things. But one of the problems is, is that sometimes they give waivers and one of the things I found out by going through a lot of qui tam cases is that they gave waivers that they really didn't have a warrant to do.

Eric Thorson:

The way the warrant is for money got the waiver of elements of a contract is something different.

Dina Rasor:

Even if they had the warrant, they would do the waiver. And I remember so clearly that you cannot obligate the government against the rule and regulation of the government. And unfortunately, a lot of them that I ended up taking to court had done that.

Eric Thorson:

Contracts can be negotiated, all kinds of things can happen. But the truth is the only a Yeah, it's it's a fine point. But the it still comes down to if the if the contract, waiver even even the waiver or even an amendment to the contract, which what you're talking about, it's an amendment, which lowers the standard, for instance, they don't have to sign off on that. And because it still comes down to you need the money, and I'm the guy that authorizes the money. And other people can negotiate stuff, but only the guy with the warrant can release the funding. And that's that's where the power comes from. And that's how it was meant to be. But they have to learn and accept the fact and have the guts to stand up to a lot of the things that go on.

Dina Rasor:

The other thing I wanted to bring up, when we were talking about the people that you know, you've got to have good contracting people at the front end, so that you don't end up having to do enormous amount of oversight at the other end. But when you look at this, these two bills, and we don't know how, if this, if this date, we don't know exactly how much it's going to be. But it's those two bills together are going to be either, you know, 2 trillion or $2.5 trillion, which is a lot of money. And it will not obviously go in at all at once it's a you know, over 10 years, are they talking about five years in the shoving this money into the system. And one of the and the climate money is very, you know, Biden said it was all hands on deck. It was a full it's a full government effort. So doe, you know, Department of Interior, there's just going to be, you know, Department, Department of Transportation, there's going to be a lot of money shoved, rarely quickly in in contracts. Let, and I'm wondering if you feel that the procurement corps, you know, the procurement Corps, the people that actually have to processes? Are there enough people hired because they have been letting people go? Are there? Are there enough people to to to deal with this giant tranche of money coming in? Who are well trained?

Eric Thorson:

Well, I think there is because in, among other things, what you get down into the real nitty gritty of a lot of these contracts, even the IGs are getting inspectors general are given more money to hire people for the oversight role, without asking for it, then it's included. But the it can't

Dina Rasor:

filter, there's not right now, not money to increase the securement corps?

Eric Thorson:

Well, I think it's very difficult to at this point be able to see to that depth. But the The truth is, that's a normal function, when you have these kind of big bills, there is it's way down there in the weeds, but you have, and it's not much money. I mean, it is big money, if you're my office and get to hire 20 more people, but I don't, I don't really see that as a problem. And I also think the money can't go out all that fast, whether they want it to or not. A simple RFP request for proposal takes months before just to get it out the door. And that's just requesting proposals and then you have to give it minimum 90 days to respond to it. I mean, it's not like this stuff is gonna go out tomorrow, once the bill gets signed, there are going to be all kinds of things done, those contracts will be written there. A lot of that is standard boilerplate type you know sections to it. And many of those do provide for the oversight the allowances they when you sign the contract as the contract or you were giving them the government the right to come in and look at what you're doing or look at whatever but yeah, I mean it to me it's not so much the the number of contractors to me it's Are they good are they are they have the guts and the integrity to stand up to whatever pressure they might see. And how does that flip when if there's an administration change of party? How does that work? How did well they shouldn't be affected by that at all, any more than I Geez are. That's why we don't change over that it didn't ministration we just keep right on rolling. because it doesn't make any difference, what party's in charge and a contracting officer and his core has to feel exactly the same.

Greg Williams:

Okay, so I think there may be a way to reconcile the perspectives that the two of you are taking. It seems like you both agree that in order to do good, in order to do our best to avoid ineffective spending, we need to devote appropriate time and skill and integrity to the contracting process. And it seems as though, I think you would both agree that in many cases, when additional funds are to be expended, some of those funds are written in by legislation allocated towards increasing the capacity of the contracting staff. But I feel like Dina and I are getting mixed signals on whether or not that is expected to be the case in in these infrastructure bills. And so, you know, I think we can agree that it's, it's important that, you know, if you increase the amount of expenditure and expenditures, that, you know, either slowdown, the expenditure process, or increase the capacity of the staff. And so, especially as horse trading goes on, towards the end of the the negotiation around the legislation, time would be well spent ensuring that, that the additional funding for for, for procurement staff doesn't get missed.

Eric Thorson:

No, that's, that's true. And what you just said, is another good point too, because even if there isn't, you're just gonna slow it down. And the one thing I've found is, when you slow it down, and you're trying to get a lot of money in, you're probably gonna do all right, by doing that, so that it doesn't get just shoved as dean and shoved out the door with nobody watching, you're gonna have to, again, you can't go around the guy with the warrant who's gonna put together and sign the contract. So if it slows down, it slows down. But you're right, that's another factor. And the truth is, it'll probably be both. It almost would have to, so you can't hire and plug people into those jobs off the street, you they require a certain number of years experience and training.

Dina Rasor:

And then another part of that is the best money you make in it, you know, you're really going to get your money back. I know this. I just saw recently that for every dollar that you put into the Inspector General, the oversight, the you get on the average $7 back. And so this is not something that's going to cost you money, it's something that's going to save you money, but when it comes down to actually everybody trying to get their piece of the money, sometimes that kind of stuff gets shoved to the side.

Eric Thorson:

How does it get shoved to the side?

Dina Rasor:

Right now, as far as I know, no one in no one in the negotiations is addressing this. I mean, then there's enough people coming forward concerned about it. On the other hand, I think that there was a fair amount of money. I think when when Obama did the they did the, you know, ramping up with the big tranche of money that he had there was it they seem to put a lot of oversight and procurement stuff, stuff in and paid for it. That was the people that oversight at the time. Obama's spending all the money after the after the crash, were Joe Biden was in charge of it, his vice president and his chief of staff, who's his chief of staff, now, Ron Klain are the ones who want it. So they have they have had a they've had a roadmap of how to do this. And so we're just hoping that there are people who are thinking about this and putting it but right now, nobody wants to talk, you know, they're negotiating and how much they can eke out and they're all fighting, nobody wants to look at this kind of stuff. This is kind of the stuff that it's not very sexy. It doesn't get people excited, oh, we're gonna have all these oversight people, or we're gonna have all these contracts,

Eric Thorson:

but actually go back and look at what they did with the pandemic money. Not only did they give each one of them, the IG is involved a lot more money, they created a brand new separate IG and a panel of IG so and that did get a lot of publicity. So it isn't very sexy. And certainly pandemic money isn't all that sexy either. In the sense that, you know, all these projects and places that it's going to do, but they just wanted to watch where the money went, but it got a lot of publicity and what they did, and it obviously works. It still comes back though and the Ara money, you're talking about the 700 billion that Obama did, it still came back down to the individual department IGS they're the people who did the investigate Asians, it wasn't a, you know, a separate group or something, you had people kind of overseeing it. And that was the oversight board that, but it still it still came down to the individual department IGS. And that's really what's happening. But as far as, as nobody's paying much attention, all I can say, look what happened with the pandemic money. That was a ton of money, too. They created all kinds of new oversight for it, how effective that'll be. We'll see.

Dina Rasor:

Well, there's been a good track record so far. But one of the things that Greg and I and starting the climate money watchdog is for us to take our knowledge and our sources and everything else, and make sure the Congress and the OMB and everybody doesn't miss this, you know, put the money, put the money in up front to prevent, you know, fraud, waste and abuse. And that is in the long run. Because when once the money is spent, I've spent a good portion of my career going after money that was ill spent or misspent. And let me tell you something, you're lucky if you can get 10 cents on the dollar.

Greg Williams:

Two things. One, I think we all agree that if if you want to spend more money quickly, you need more contracting staff. If you don't hire that contracting staff that will slow down how quickly you can spend the money. But let's return to the Solyndra example and point out that there can be tremendous temptation to speed up the expenditure, despite not having the adequate contracting bandwidth to do it well. And so point number one is let's make sure not to make that mistake again. And to when we're talking about IGS. We're talking about people who chase horses that have already left the barn. When we talk about contracting officers, we're talking about people who build good barns, right, exactly. Building the good barns is by far more cost effective than hiring more people to chase horse. And

Eric Thorson:

remember in Solyndra, there were no contracting officers. It wasn't a car, it was a loan guarantee, there were no, there was no contract, contract core to oversee this. And to make sure all those little paragraphs in the contract that gave you all this oversight stuff. That didn't happen. They were they didn't exist. Do you think

Greg Williams:

we legislated or regulated away those kinds of strict requirements for that particular program so that it can be executed quickly?

Dina Rasor:

You think loan guarantees are much more hazardous than going through the contracting route?

Eric Thorson:

I do? Absolutely I do. I don't know who approves the loan guarantees? And I don't know I guess so. MB technically did. I don't know what they looked at a contract. If you and I are going to contract to spend a billion dollars rebuilding a big bridge, you're going to have an army of contracting people to watch over that. That's not true and alone guarantee. Or worse yet, how about a grant to a state? You've lost all control basically.

Dina Rasor:

Right? There's all right now in the Department of Energy, there's a new guy named jigger Shaw, I don't know if you've ever heard of him before. And he's in charge of the loan guarantee program for DOA. And he is everyone thinks he's great. And he's, you know, making a lot of suggestions, and we're gonna get this stuff done and whatever. And we're hoping to also try to get him on just to talk about okay, how are you? How are you going to make sure it'll Solyndra then happen? Again,

Eric Thorson:

I don't I don't think a whole lot of this money is going to be done in loan guarantees, I think it'd be done in grants to the states grants to locals, and and contracts. And I really don't think they're, whether it's because of Solyndra or any other reason, I don't think you're going to see a whole lot of the money being handled by loan guarantees.

Dina Rasor:

I think the areas that the loan guarantees are going to be looking at right now is that there? There are, for example, if you take hydrogen in, which is a very complex thing, I know we won't get into it, but there's green hydrogen and blue hydrogen and brown hydrogen in blue and brown hydrogen, really aren't very good at stopping pollution. And the green hydrogen could be, but the problem is, you're going to have to have a big r&d program Research and Development Program because you kind of have to have a breakthrough to make green hydrogen work. And so I think those areas where you're going to be doing big research, a lot of times they've done, they could give them an r&d budget, but they could also, you know, do the basic research, they might do some loan guarantees to companies to do that.

Greg Williams:

Well, it's Eric correct me if, if I'm wrong or you have a different perspective, I'm not familiar with loan guarantees being used very often to fund research. The way loan guarantees are more typically employed is If somebody has a business venture that just needs a capital, and they're going to pay it back,

Eric Thorson:

and especially a technology that is kind of on the edge that it needs out there.

Dina Rasor:

That's what I'm talking about. I guess I respect with it. But you know, Elon Musk comes along and comes say, I got this great new thing. They might want to give him a loan guarantee, even though it's companies now worth it.

Eric Thorson:

But I don't think that's a big part of what these bills are about. Okay.

Dina Rasor:

Well, he did your your shop seemed to talk about there was going to be quite a bit of it. But of course, that was his department, of course, you'll think there's a lot of it. It's something something to watch. Definitely.

Greg Williams:

So we've talked a fair amount about what the the ways we can spend money wisely or carefully through contracting officers in the case where the federal government is letting a contract directly. And you've hinted at the greater difficulty there is ensuring efficient use of funds when it's passing through a state or local government. Is there anything you'd like to share with us in terms of what what the government what, what can the federal government do

Eric Thorson:

what I think they do, one thing they do is they probably preserve the right to go in and look at whatever they're doing, but is that actually exercise because now here's a case where you would have probably some pretty strong influence and, and maybe good or bad, but if I give a grant to the state of x, and I have the legal right, to go watch over their shoulder, but if I'm the governor of that state, I don't want you doing that you gave me the grant, I have plenty of oversight capability, I trust my people, and I'm going to do it now. And they may be even better than yours. So that we're not talking about whether they're good or bad, it's the matter of you don't really have the oversight role anymore, even though maybe technically on paper you do. But those, you're really kind of out of once that grant is made to a state or to a local government, your effective oversight role is pretty much over.

Dina Rasor:

But you can actually come in and do a qui tam case false claims case, or a qui tam called false claims case against the states. And I remember because the lawyers that I work with said there's one penny of federal money we can we

Eric Thorson:

there's no question. But again, you're talking about a very unique situation and finding somebody a citizen who says I finding this wrong, they have to be the original source for the information they have. And those cases take years. And they do so I don't see that as your major source of oversight.

Dina Rasor:

Yeah, Department of Justice has ability just to go in under the False Claims case on their side. One of the things I'm concerned about with the states is that and actually, this was something that the federal government actually did step in. If you get if you send money to a state, for example, I think it was Alabama, they sent a huge amount of Alabama is having a terrible COVID COVID outbreak, one of the worst in the country. And they sent the federal government sent them this big tranche of money to for abatement. So in other words, what put things in that will prevent, you know, COVID from being spread and everything. And the governor of the state, she just got up and said, Well, I don't really, really want to spend money on that. Because for her as a Republican and in Mississippi, it's not going to do her a lot of good until they get criticized for spending money on that. And so she just decided and announced, I'm going to spend it on building new prisons. And when she wants, she did that. There was a lot of people running back to Washington saying what the hell, you know, this is supposed to be for abatement, you know, for, you know, making sure that people don't get sick. And it actually they actually actually had to back down from that, from once it became public. The federal government went to her and said, No,

Eric Thorson:

you're just making a good case for oversight and how it works. That's really the point. And that's but that's political and public influence is you just by using your own words, that that works. And that's it's a you and I both know, embarrassment of a department is one of the best weapons you have in doing oversight. But that's what happened there and that is a form of oversight in a way is to call them out on it make it public. But Did Did you have a right to send in a some team of I don't know have you probably have the right but did they? Probably not. They used another way of doing it.

Greg Williams:

All right. Well, we've covered a lot of ground like we've we've touched on all of the time. topics that I'd put together no analysts before this. Is there anything that either one of you want to cover before we would call it a wrap for this? For this podcast?

Eric Thorson:

The only thing I would say is, you both set a really I think the systems are in place to exercise very strong oversight over this or any other money, they prove it day in and day out. Do you know you said, you make seven bucks for every dollar spent? The systems are in place if you get to use them, and you get to use them without any interference, and that includes the contracting world. So that's people should feel pretty good about that.

Greg Williams:

All right, well, here's the better days and thank you both very much for taking part in this today.

$600 Toilet Seats and The Complexity of Government Inefficiency
Who Does Oversight When Spending Is Spread Among Federal, State and Local Governments?
How Federal Loan Guarantees Work
The Danger of Rushing to Get Money Spent
The Difference Between Fraud and Waste
Properly Staffed Federal Agencies Are Our First Line of Defense Against Waste
Normally, More Spending Means More Oversight Staff - Not This time
Why It's Better to Prevent Waste Than Recover It
Federal Oversight Ends When Grants Are Made to States
Conclusion