It was rather sobering to read about blank check buying of government contracting firms in this morning’s Washington Post. One of the issues we don’t hear about from either party (except for the occasional, ritualistic invocation of the specter of Halliburton) is the extent to which government has become dependent upon and even defers various responsibilities to the private sector. The recent prescription drug plan is a case in point — while the Secretary of Health and Human Services may not be permitted to negotiate with pharmaceutical companies to get discounts in drug prices, those private companies that offer the myriad plans are allowed to negotiate discounts to their hearts’ content. Indeed, all those prescription drug benefit plans are a species of government contract: The federal government pays private companies money to administer a program (the Medicare Part D benefit).
Needless to say, these companies are not in federal contracting solely because of their patriotism. It’s a lucrative business, one in which they believe they can turn a profit, and it draws in quite a few people with government experience. Here’s a profile of one of the blank check firms that the Post mentioned, written by Matthew Goldstein of The Street.com:
A case in point is Fortress America Acquisition Corp., a Bethesda, Md., start-up whose only products are the resumes of its politically connected board and backers.
The six-month-old concern, which recently filed plans for an initial public offering, hopes to raise $42 million so it can purchase a company that “contracts directly with the government on homeland security projects.”
The company is the brainchild of C. Thomas McMillen, a former Maryland congressman, NBA player and Rhodes Scholar who has morphed into a Wall Street entrepreneur during the past several years. Besides Fortress, McMillen is involved with a number of start-ups in the security sector and was once an officer with Sky Capital, a New York- and London-based investment firm.
Fortress America plans to sell 7 million shares at $6 apiece.
McMillen, who will own 6.6% of Fortress America’s stock after the offering, appears to be banking on the company’s political connections to generate investor interest, a strategy he’s employed before at other ventures with mixed success.
One of Fortress America’s directors is former Sen. Don Nickles (R-Okla.), who was once chairman of the Senate Budget Committee. Asa Hutchinson, former undersecretary for the federal Department of Homeland Security, is a special adviser to the company. Hutchinson also is a former Republican congressman from Arkansas. Both Nickles and Hutchinson are stockholders in the fledgling company.
For McMillen, a Democrat, Fortress America’s quest for IPO gold clearly is a bipartisan effort.
But that’s not all the political muscle Fortress America is bringing to bear.
The main institutional investor in Fortress America is Paladin Homeland Security Fund, a $235 million investment fund established by Paladin Capital, a Washington-area private equity firm that’s led by a number of executives with ties to the defense and intelligence communities. Two of Paladin’s principals include former Central Intelligence Agency Director R. James Woolsey and former National Security Agency Director Lt. General Kenneth Minihan.
Meanwhile, Walter Pincus of the Washington Post informed us Sunday of the extent to which some intelligence operations are now being performed, not by government agents, but by private contractors:
Last year, contractors were “a significant majority” of analysts working at the new National Counterterroism Center (NCTC), which has primary responsibility for providing the White House and others with analysis based on foreign and domestic information, Gannon said. The proportion is even greater at CIFA, the Pentagon’s new agency coordinating “force protection” at Defense Department facilities. CIFA officials have told The Washington Post that 70 percent of their workers are contractors.
And why not? It’s a lucrative business. Just look at what they charge taxpayers for labor.