US Government Holds Itself to a Different Standard

If you think the US government has more responsibility to buy American than the public companies that sell the products, you're wrong.

Consider this: Home Depot (NYSE: HD) is entangled in a lawsuit for allegedly providing Chinese products and other foreign goods to government customers. Now the US Department of Justice -- which has already fined Staples Inc. (Nasdaq: SPLS), Office Depot Inc. (NYSE: ODP), OfficeMax Inc., (NYSE: OMX) Fastenal Co. (Nasdaq: FAST), and W.W. Grainger Inc. (NYSE: GWW) a combined $34.6 million on similar charges in the past six years -- is also investigating the Atlanta-based retailer.

The feds don't like being stuck with products made in places like China or Thailand. And more than a few companies have learned the hard way that government contracts create more problems than profit when firms sidestep the provisions of the Buy American Act or Trade Agreements Act.

The Buy American Act (BAA) prohibits the federal government from using foreign suppliers, as long as there's a reasonably good domestic option. It's a protectionist measure adopted in 1933 to boost manufacturing during the economic and social upheaval of the Great Depression.

The Trade Agreements Act (TAA) basically requires the Government to acquire only “US-made or designated country end products.” The products have to be manufactured or "substantially transformed" in a "designated country." There are a lot of countries on the list. But some are conspicuously absent, including China, Thailand, India, and Malaysia.

Home Depot allegedly sourced products from China... not a good thing. But then, according to the whistleblowers who filed the lawsuit, it passed them off as TAA compliant... an even worse thing. But was it intentional or just an oversight? Scott Orbach, President of EZGSA, a Maryland-based consulting firm, doesn't have any doubts. "Home Depot should have known where it was getting the products," he says. "It's big enough to know better."

Then again, so is the US Census Bureau. But that didn't stop it from spending millions of taxpayer dollars to import baseball caps, stickers, key chains, paper clip dispensers, sewing kits, backpacks, tote bags, coffee mugs, rulers, church fans, luggage tags, pens, pencils, chip clips, magnetic picture frames, squishy balls, and -- my personal favorite -- air horns. The Census Bureau spread the tax dollars around: to Bangladesh, Haiti, and, yes, even China.

The swag was supposed to encourage people to fill out the Census forms they received in the mail in March 2010. But it may have generated more complaints than cooperation. People didn't like being encouraged to respond to a US headcount with a trinket stamped "made someplace else." And then there was the whole issue of quality.

During testimony before the House Ways & Means Committee in June 2010, former Michigan Congressman Mark Schauer described the Census 2010 hat he received as the worst hat he'd ever seen: "I can't imagine anyone wearing this hat. I was shocked to see that this hat was made in China. I wasn't shocked because the quality was poor. I was shocked because I couldn't believe that our Census was procuring promotional goods from China."

He wasn't the only politician wondering why a federal government agency was buying so much stuff abroad (and they didn't even know about the outsourced office supplies). A group of 20 House members led by Rep. Daniel Lipinski (D-IL) demanded answers from Commerce Secretary Gary Locke and Census Director Robert Groves. And Rep. Stephen Lynch (D-MA) called for a Congressional investigation.

But no answers ever came, nor was there ever an investigation. Nathanial Zimmer, a spokesman for Lipinski, told Investor Uprising the Census Bureau promised to review procurement processes "and reinforce the need for Buy American Act compliance, improve its BAA reporting so its compliance can be better evaluated, and include BAA requirements in subcontracts."

But the Census Bureau has been known to make promises it doesn't keep. So Lipinski plans to reintroduce the Buy American Improvement Act to close loopholes in the current regulations and "prevent a number of the practices the Census Bureau and other federal agencies have engaged in to skirt the rules," Zimmer added.

Existing regulations exempt "micro-contracts" of less than $3,000. The Census Bureau ingeniously used that loophole to its advantage, according to a report issued last November by the Commerce Department's Office of Inspector General:

On one business day, seven (government credit) cardholders in one region incurred 86 transactions, each below the $3,000 threshold, which resulted in a vendor receiving $91,000 for promotional items. The bureau’s position is that this did not break the law or Department policy because the purchases represent unique orders that happen to have been acquired from the same vendor on the same day.

But while it stated, "Employees did not comply with federal acquisition and financial policies, and program guidelines," it never asked the obvious: Why weren't the caps and shirts, the pens (that did not write), the mouse pads no one wanted -- and the tiny plastic houses full of paper clips -- domestically sourced? (Or, better, yet, why were they purchased at all?)

In the end, it was a lot of money for... well, not much. A lot of the promotional material was never used. Some of it ended up in thrift stores. More was thrown out.

The Census Bureau just announced a number of reforms "to keep pace with modern survey collection methods." By realigning operations and consolidating its 12 field offices to six, it hopes to save $15 million to $18 million a year beginning in 2014. At that rate, it'll take years to recoup the $370 million the agency spent to promote the 2010 Census.

Think how much futher ahead the Census Bureau would be if it had invested $370 million in technology instead of tchotchkes. But even if it had, it still might have problems... especially if it opted to upgrade its old Dell (Nasdaq: DELL) computers.

The Dell laptop I'm using was made in Malaysia.