Government by Contract and the Structural Constitution

Beginning of article

Although private parties have performed government functions throughout most of Western history, mainstream administrative law scholarship is dotted with concerns over the extent to which modern federal government activities are outsourced to private contractors. Federal contractors routinely exercise authority that is classically "executive" in nature. They write regulations, interpret laws, administer foreign aid, manage nuclear weapons sites and intelligence operations, interrogate detainees, control borders, design surveillance systems, and provide military support in combat zones. Administrative law places few constraints on private contractors, and prevailing constitutional principles--the state action and private delegation doctrines, in particular--are either inept at holding private contractors to constitutional norms or utterly moribund. A common theme that appears in the vast literature on privatization, therefore, is accountability. There is no recognized constitutional theory that meaningfully prohibits Congress or the President from transferring significant amounts of discretionary governmental power to wholly private entities that operate beyond the purview of the Constitution, and there is relatively sparse scholarly analysis of the subject. This Article searches for a constitutional principle that could be employed to address hypothetical outsourcing arrangements that go too far for the American appetite. In that pursuit, it looks to the law governing independent agencies as a natural starting point for evaluating the propriety of outsourcing relationships from the standpoint of the structural Constitution. It then introduces two ideas with an eye toward sparking fresh thinking about the constitutionality of privatization: first, the notion that all actors exercising federal government power should be viewed along a constitutional continuum and not as occupying separate private/public spheres; and, second, that a democratic accountability principle may be derived from the Supreme Court's recent decision in Free Enterprise Fund v. Public Co. Accounting Oversight Board, as a constitutional hook for addressing government-by-contract gone awry.

INTRODUCTION
   I. THE CONSTITUTIONAL DISCONNECT
      A. Private Contractors: The Problem
      B. The Shortcomings of Current Constitutional Doctrine
  II. BRIDGING THE DEVINE
      A. An Overlooked Constitutional Continuum
      B. Outsourcing and the Constitutional Text
 III. GOVERNMENT BY CONTRACT, INDEPENDENT AGENCIES, AND
DEMOCRATIC ACCOUNTABILITY
      A. Independent Agencies and Private Contractors: A Comparison
      B. Free Enterprise Fund v. Public Co. Accounting
         Oversight Board
      C. Accountability and the Constitutional Continuum
CONCLUSION

INTRODUCTION

"If the founding fathers were to return to observe the organizational landscape of the [modern] national government ... they would undoubtedly conclude that their constitutional design had been scuttled entirely.... [S]urely a revolution must have occurred." (1)

Of course, in the most common sense of the term, no American revolution--no overt unwinding of the tripartite political regime created by the United States Constitution--has succeeded in the history of our constitutional government. (2) No President or Congress has been overthrown by a popular movement. No segment of the historical American populace has fallen subject to an extraconstitutional form of national government. The constitutional provisions establishing the core levers of power--Articles I through III--survive in virtually identical form to those that were ratified in 1789. (3) Yet scholars have expounded on a "drive to shear the federal government of power" (4) that might qualify as a revolution of sorts. Over the last century, the American populace and its national political institutions have come to tolerate a steady transfer of important government functions from the Congress, the President, and his cabinet, (5) to a vast hodge-podge of quasi-governmental and private actors that evade the oversight mechanisms that bind the political branches of government. Under a broader definition of revolution, therefore--one that encompasses efforts "to transform the political institutions and the justifications for political authority in a society" (6)--this massive reshaping of government is historic.

The term "privatization"--or "the range of efforts by governments to move public functions into private hands and to use market-style competition" (7)--covers a broad spectrum of public-private relationships, from the mundane to the extraordinary. The use of common procurement and service contracts for routine supplies and maintenance is uncontroversial. But government contracting is much more audacious, encompassing some of the most highly sensitive functions within the core responsibilities of government. For example, since September 11, 2001, the federal government has hired the Rand Corporation to create a national emergency management strategy for the entire federal government; (8) entered into billions of dollars in no-bid contracts with the Halliburton Corporation to conduct logistical planning and other support for the U.S. invasion of Iraq; (9) injected private military contractors into CIA paramilitary units hunting Al Qaeda in Afghanistan; (10) outsourced flood water drainage and the building of 300,000 temporary shelters after Hurricane Katrina; (11) and approved the wholesale replacement of Transportation Security Administration (TSA) personnel by private contractors at sixteen U.S. airports. (12) The federal government routinely hires private contractors to find and supervise other private contractors. (13) At the state level, (14) criminal prosecutions, prison management, and police authority are regularly outsourced in many jurisdictions, (15) while a private firm runs the entire city government of Sandy Springs, Georgia. (16)

The annual federal dollars spent on government contracting are also rapidly increasing. The Office of Management and Budget (OMB) reports that federal contracts accounted for more than one-sixth of all federal spending in 2009, or in excess of $500 billion a year, which is "more than double the amount that was spent in 2001." (17) Today, there are 1,931 private companies working in national security fields, including counterterrorism, homeland security, and intelligence--approximately twenty-five percent of which were created in the past ten years. (18) General Dynamics alone collected $31.9 billion in 2009 for intelligence contracting with the federal government, which outsources approximately twenty-nine percent of all U.S. intelligence jobs at a cost of fifty percent of its intelligence personnel budget. (19)

The burgeoning federal contracting business is so impressive that it has attracted substantial venture capital. (20) In the words of one investor: "Every fund is seeing how big the trough is and asking, How do I get a piece of that action?" (21) In 2005, Fortress America raised $46.8 million in an IPO--with "no product, no revenue, and certainly no profits" (22)--merely promising to become a holding company for homeland security private contractors, with former Congressional Representative Tom McMillen at the helm. (23) McMillen raised another $100 million on the same premise for a firm he founded in 2003. (24) Other start-ups are doing the same thing. (25)

Taken together, such anecdotes signal a shift in the very structure of the "federal government" as we know it. If the outsourcing trend were to progress to its logical extreme--if Congress and the President were to cede the majority of their respective powers to a parallel "private" government designed to operate beyond the purview of electoral accountability, constitutional constraints, and judicial review--complacency with government outsourcing would likely falter. Under this scenario, private lawyers employed by a "Justice Corporation" would operate with different incentives than Department of Justice (DOJ) attorneys who take an oath to support and defend the Constitution in their enforcement of the federal criminal laws. (26) A private Justice Corporation would be self-directing--able to perform more efficiently, unencumbered by presidential oversight and bureaucracy. Yet its lawyers might well feel duty-bound to compromise the public's interest in criminal law enforcement if it conflicted with the corporation's primary objective: maximizing profits. (27)

Many Americans would likely assume that the Constitution would have something to say about whether our federal government could be outsourced in toto--that, to some degree at least, the government must perform certain core governmental tasks and, if it fails to do so, "We the People" could hold our leaders constitutionally accountable. But the Supreme Court, in "its role as protector of the constitutional design," (28) has failed to develop a doctrinal framework for meaningfully scrutinizing transfers of governmental power to private parties. There is no accepted constitutional theory that prohibits Congress or the President from handing off significant swaths of discretionary governmental power to wholly private entities that operate beyond the purview of the Constitution. And despite prolific scholarship on the topic of privatization, (29) there has been relatively little contemporary analysis of whether the structural Constitution--the "use of structural devices" such as "[c]hecks and balances, separation of powers, and federalism" to enable government "by men and over men 'to control itself" (30)--restrains Congress and the President from handing off powers to private actors with impunity. (31)

This Article begins a dialogue about how one might draw support from the structural Constitution for confining the ability of Congress and the executive branch to pass government powers on to extraconstitutional actors. It rejects the sharp public/private divide that shapes prevailing law and unveils a new way of looking at outsourcing relationships: a constitutional continuum. Having indulged the supposition that the Constitution would foreclose the federal government from delegating its powers to private actors, closing up shop, and going home, it then embarks on a search for constitutional authority that undercuts the abdication of constitutional duties and obligations by elected officials and their subordinates.

Finding no clear answer in the constitutional text, the Article turns to the law governing independent agencies, which have long been the subject of analysis and critique for their structural insulation from direct presidential oversight, and identifies overlooked parallels between private contractors exercising significant federal authority and independent agencies. The Article suggests that the Supreme Court's most recent decision regarding the constitutionality of independent agencies--Free Enterprise Fund v. Public Co. Accounting Oversight Board (32)--implies a democratic accountability principle that could be extended to the privatization context. (33)

Part I describes the general trend toward increased delegation of federal powers to private entities and the swelling consensus that accountability is a central problem with outsourcing. It then addresses the prevailing constitutional approaches to government outsourcing--the state action and private delegation doctrines, in particular--as well as pertinent common law and statutory law, and suggests that current law is ad hoc and ineffective at ensuring proper execution of government power by private actors, particularly where sensitive public functions are concerned. What is missing is a systematic approach to outsourcing that takes into account the relationship between private contractors exercising government powers and the tripartite constitutional structure of government, which is designed to promote accountability.

Part II rejects the sharp distinction that prevailing doctrine draws between the public and private realms and proposes a new way of looking at government outsourcing: viewing private contractors along a constitutional continuum that begins with the President and his cabinet and includes independent agencies. If private contractors are perceived as bearing some anatomic relationship to established government entities exercising similar powers, the structural Constitution becomes relevant to the task of evaluating the propriety of outsourcing arrangements. Part II then analyzes privatization from the standpoint of the structural Constitution in an effort to identify textual arguments for drawing outer constitutional boundaries on outsourcing in the extreme. Although answers to the outsourcing conundrum do not lie in the constitutional text alone, the Court has drawn powerful inferences from Article II that may prove helpful in shaping a new constitutional doctrine for privatization.

Part III posits that the law governing independent agencies offers a promising template for analyzing the structural propriety of government outsourcing, introduces a functionalist accountability principle drawn in part from the majority opinion in Free Enterprise Fund, and suggests that such an accountability principle could be extended to the privatization context where the structural Constitution has largely escaped the debate to date.

I. THE CONSTITUTIONAL DISCONNECT

This Part begins with a description of the flourishing privatization trend and a central concern that surrounds it: insufficient oversight and accountability. It then reviews the recognized constitutional doctrines that bear upon privatization, and suggests that their inability to address perceived abuses stems from a myopic view of the relationship between private contractors and the structural Constitution.

A. Private Contractors: The Problem

Much has been written about the increasingly pervasive phenomenon of privatization, or what leading scholars have called "government by contract." (34) Although privatization takes many forms, this Article concerns itself with the particularly common phenomenon known as outsourcing--where "the government contracts with a private entity to render goods or services previously provided by the government." (35) Under such arrangements, the government retains the ultimate responsibility for the matters that are outsourced; (36) it provides the funding, establishes programmatic goals, and sets parameters and requirements. (37) Instead of a government officer or employee implementing those goals, however, a private party does so by contract. (38) A private contractor and its government counterpart might perform identical tasks. What distinguishes them is their respective employers--the government actor is an employee of the government and bound by the constitutional, statutory, regulatory, and personnel limitations that apply to government employees, while the private actor is employed by a private company; his primary obligations to the government--and thus to the populace it serves--are defined by contract.

The mere notion that private parties are paid to perform work that the government would otherwise do is not controversial; private actors have performed governmental functions throughout Western history. (39) For most of the nineteenth and twentieth centuries, however, federal and state governments' engagement of private actors was largely indirect--through subsidies designed to encourage private initiatives for the public's benefit, such as efforts to protect the environment or improve public safety. (40) In contrast, as Martha Minow explains, "the government now uses contracts with private providers to accomplish tasks specified by the government." (41)

Thus, what many find troubling about the current outsourcing trend is the "scope and scale" of the use of private contractors in modern government. (42) In fiscal year 2009, agencies paid over $541.3 billion--twenty-three percent of federal discretionary spending dollars--to private contractors. (43) Of that sum, $38 billion went to Lockheed Martin alone, (44) which has contracted with the government for goods and services ranging from military sales to the running of welfare offices. (45)

Of course, outsourcing has its benefits, (46) and many federal contracts--such as procurement contracts for laundry services or office supplies for Veterans Administration hospitals--are routine and well-accepted. (47) It is when private contractors are hired to perform sensitive government functions--"activities that fall closer to the 'core' of what the public in the twentieth century came to identify as the state's responsibility in a democratic society" (48)--that deeper concerns arise. Contractors now carry out activities that were once considered the exclusive responsibility of government, (49) such as "writing regulations and budgets for government agencies, producing statutorily required reports, interpreting laws, delivering social services, administering foreign aid, and managing nuclear weapons sites," among other tasks (50)--many of which entail the discretionary spending of federal taxpayer money. Private contractors support military operations in Iran and Afghanistan, provide security for American diplomats, "certify[] that hazardous waste cleanups conform to statutory requirements," (51) and perform TSA's recently-enhanced search techniques at sixteen U.S. airports. (52) It is when private contractors perform especially sensitive government functions that the need for a constitutional approach to outsourcing is most pressing. (53)

To be sure, government contracting is governed by myriad rules and procedures. The President controls the outsourcing process through the Office of Management and Budget, which in 1976 put in place Circular A-76 to govern the competitive sourcing of federal jobs. (54) Circular A-76 forbids the outsourcing of "inherently governmental" functions, which it defines to include activities that determine, protect, or advance U.S. interests by military action or contract management; that significantly affect the life, liberty, or property of private persons; or that exert ultimate control over the disposition of federal property. (55) As Paul Verkuil has observed, "[t]he use of private military contractors such as Blackwater clearly fails this test," (56) and it is not difficult to see that other contracts are falling through the cracks, as well. (57)

Although the established procedures work for some contracts, they fail for others. In practice, some agencies ignore the A-76 guidelines, (58) which are not legally binding. As a consequence, billions of dollars in government contracts have been made "literally off the books," "awarded under suspicious circumstances, hurriedly and without competition," and executed under terms that "are so underspecified as to afford contractors almost unlimited discretion." (59) Information about the contracting process and associated costs is difficult to obtain, (60) leaving the public largely in the dark--unable to meaningfully influence the privatization trend, despite the high stakes involved …