by Joe Davidson

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Copyright 2008, The Washington Post Co. All Rights Reserved

When -- maybe that should be if -- Congress passes legislation to bail out floundering financial institutions, the Treasury secretary likely will be granted unusually broad power to waive regulations covering the government's hiring of outside contractors.

But not as much power as he wanted.

While the nation's current economic situation gives everybody a headache, this provision, even though restrained when compared with the original, gives federal employees heartburn.

Treasury Secretary Henry M. Paulson Jr. wants the ability to move quickly to smooth the very rocky road that is now Wall Street. He proposed granting his office essentially unlimited authority to hire outside firms to help manage the assets of companies the government basically nationalizes.

He didn't get that. But under the legislation the House rejected yesterday, he still would have had extensive authority to ignore regulations on federal acquisitions. That provision, or a similar one, probably will be in whatever legislation finally passes.

That's anathema to federal workers who recoil at Bush administration efforts to give public business to private companies.

"We are not comfortable with Treasury being granted authority to waive contracting procedures," said Richard N. Brown, president of the National Federation of Federal Employees, with some bit of understatement. "It is an unnecessary power grab and we can envision this authority being abused."

The bailout bill says Paulson can disregard the regulations "upon a determination that urgent and compelling circumstances make compliance with such provisions contrary to the public interest."

Federal acquisition regulations generally can be waived in other cases, but this authority is "much broader" than what officials normally have, according to Alan Chvotkin, executive vice president of the Professional Services Council, the trade association for companies with government contracts.

The government did not use such broad authority even after Hurricane Katrina or during the war in Iraq, he said.

But the power Paulson would get would not be unfettered. He would have to tell Congress what he is doing and why.

Federal regulations now require officials to follow certain procedures when paying contractors to do the government's business. That can be time consuming, by design, because officials must follow specific guidelines for soliciting contracts, seeking broad competition, reviewing proposals and ensuring participation by small, disadvantaged and minority businesses.

When Paulson tried to explain, at a Senate committee hearing last week, how the purchase of services related to the buyout would work, he left committee members wanting.

Consider this exchange with Sen. Daniel K. Akaka (D-Hawaii):

Akaka: Mr. Secretary, you mention about needing the right group of experts to help in this huge effort. Has there been any consideration, Mr. Secretary, given to specifically what parts of the Federal Acquisition Regulations would need to be waived to get contractors and consultants to establish this program?

Paulson: Yeah, we -- we've given a -- a lot of thought to that. We've got -- worked it through very carefully with our -- with our general counsel.

Akaka: Do you plan to have competitive bidding? And if not, why not?

Paulson: Well, we -- we -- we have procedures that are designed to -- to mitigate against conflicts, but we need to move very quickly here. And so we can't go through all of the -- the normal processes or it won't work for the markets.

He won't have to go through the normal processes, but he would have to reassure Congress that he won't flaunt them too much.

For example, if Paulson decided he was not going to follow established rules regarding minority participation in the hiring of outside contractors, the legislation says he still would have to "develop and implement standards and procedures to ensure, to the maximum extent practicable, the inclusion and utilization of minorities."

Chvotkin isn't worried about a lack of oversight on the contracts. What bothers him, is "the lack of resources . . . to do it right the first time."

He's concerned that the process to hire contractors, train them and provide technical support is not in place. Chvotkin also wants Treasury to develop a clear statement of the work to be done, a plan for awarding and administering the contracts, and a strategy to have sufficient government workers on the front end to monitor work being done by the financial experts.

But union boss Brown cites the Federal Retirement Thrift Investment Board that manages the Thrift Savings Plan for federal employees as an example of government workers doing a fine job of asset management.

"It's appalling that the proposal allows for the contracting out of asset management," he said. "We are going to reward the folks that got us into this mess with the biggest new client in history. Give me a break."

Contact Joe Davidson at federaldiary@washpost.com.