Sen. Hawley Proposes Clampdown on Contractors Working for China

Sen. Hawley Proposes Clampdown on Contractors Working for China

by Simon Maass

On Monday, Sen. Josh Hawley proposed a bill called the Time to Choose Act. This legislation would prevent certain US federal agencies, including the Department of Defense, from issuing contracts to consulting companies that also “hold a contract with the Chinese government, Chinese Communist Party, or subsidiaries, affiliates, or proxies thereof,” as the senator’s website puts it.

Hawley singled out McKinsey & Company for criticism, pointing to reporting by NBC which had detailed the firm’s simultaneous work for the Department of Defense and Chinese government entities. According to the 2021 article in question, McKinsey’s work for American federal agencies provides it with “an insider’s view of U.S. military planning, intelligence, and high-tech weapons programs.” This is problematic because the company “also advises Chinese state-run enterprises that have supported Beijing’s naval buildup in the Pacific and played a key role in China’s efforts to extend its influence around the world,” write the authors.

McKinsey’s representative Neil Grace wrote to NBC: “We follow strict protocols, including staffing restrictions and internal firewalls, to avoid conflicts of interest and to protect client confidential information in all of our work. When serving the public sector, we go further: in addition to managing potential staffing conflicts, we are subject to our Government clients’ organizational conflict of interest requirements.”

However, the company’s past record casts doubt on its trustworthiness. Last year, for instance, it agreed to pay a settlement of close to $600 million to allay scrutiny of its role in the opioid epidemic, although it did not admit wrongdoing. Also questionable is the consulting giant’s failure to reveal its involvement with Chinese entities as conflicts of interest when procuring contracts with the federal government.

In light of such incidents, it is dubious whether McKinsey should be trusted with secrets important for US national security – and if this is possibly the most respected consulting company in the industry, one wonders what facts like these say about the field as a whole.

The Time to Choose Act’s benefits are apparent, then, but what of its costs? Could federal agencies lose access to valuable contractors who also work for, say, certain Chinese state companies? Presumably, the US government’s business will be more enticing to the great majority of the contractors affected than the Chinese money they stand to receive.

For instance, the NBC article observes: “Since 2008, McKinsey has undertaken over $851 million worth of consultant work for the federal government, with the Defense Department as the top client, generating nearly a third of the firm’s government revenue.” In addition, the world’s ten largest consulting firms control 56% of the industry – and all of them are headquartered in either the United States or the British Isles, except for McKinsey, which has no headquarters. Therefore, the United States probably has the edge over China when it comes to pressuring consulting firms.

Hawley’s proposal may also do some good by encouraging federal agencies to have less blind faith in consulting services. Matt Stoller, former Senior Policy Advisor to the Senate Budget Committee, writes: “McKinsey is so brazen that it was caught by the GSA Inspector General for cheating the government out of $65 million.” However, the truth is apparently even more ludicrous: going by the article to which he links, the real story was more that the government overpaid for McKinsey’s services by $65 million.

The article links to the report on the case by the Inspector General’s office, which reads: “a Federal Acquisition Service (FAS) division director […] removed the contracting officer from the contract negotiations and awarded the contract pricing with rates that were at least 10 percent higher than those originally proposed.” Furthermore, this rogue official “violated standards of conduct by advocating for McKinsey to other procurement officials.” Maybe, therefore, undue enthusiasm for prestigious consulting services is a problem in itself within the federal bureaucracies.

In Afghanistan, the government seems to have paid the company much more than its work was worth as well. According to a report by ABC News, the Inspector General for Afghanistan Reconstruction has documented that a Defense Department “task force […] awarded McKinsey an $18.6 million contract for a wide range of services in Afghanistan.” However, it appears that “when […] investigators later searched task force computers for evidence of McKinsey’s work, the ‘only output [they] could find’ was a 50-page report about strategic economic development potential in Herat, a province in western Afghanistan.” This strengthens the case that federal officials are broadly too enthusiastic about the idea of hiring a fancy consulting firm to solve their problems, even when such a step does not make sense.

In fact, in the original NBC exposé, Sen. Marco Rubio is quoted thus: “There is no reason the U.S. Government should continue using McKinsey given the company’s inability to provide clear, direct answers about its work in China.” About a month after NBC’s article was published, Rubio strengthened his rhetoric, suggesting that the consulting firm had outright lied to him by denying that it worked for China’s government. This statement by the lawmaker came in response to a newly unearthed court document in which McKinsey had admitted to having a business relationship with “the Chinese government.”

“It is increasingly clear that McKinsey & Company cannot be trusted to continue working on behalf of the United States government, including our Intelligence Community,” he argued. Perhaps his warnings are worth heeding. Sen. Hawley probably thinks so.

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