Administration plans $6B in support service contract cuts
Obama administration officials say by the end of fiscal 2012 they intend to cut $6 billion spending on contracts for support services that help managers in various ways.
Senior Office of Management and Budget officials said their goal is to reduce the $40 billion in spending on the management support services by 15 percent in little more than a year.
Obama seeks cuts to advisory services in 2012 budget
In the past decade, agencies have purchased more and more of these services, also called advise-and-assist services and knowledge-based services. Spending increased from $10 billion in 2000 to $40 billion in 2010, officials said during a July 7 event at the White House to announce the new goal.
Watch the event.
Officials are aiming at those contracts because the government cannot afford them or they may come close to blurring the line between what a contractor does and what only a federal employee should be doing. Or, the contracts may not be useful to the government.
“Sometimes agencies are spending money on consultants to write reports that really don’t go anywhere. They sit on the shelf,” said Jeffrey Zients, deputy director for management at OMB.
But it comes down to money.
“The most obvious reason is that’s where the money is. That’s where the spending is,” said Dan Gordon, administrator of the Office of Federal Procurement Policy.
As important, agencies are pouring money into those service contracts, which often pose a greater risk of overruns than contracts with a fixed price.
Gordon said 74 percent of the service contracts are cost-reimbursement or time-and-material contracts. Only 36 percent have a firm set price.
Cost-reimbursement contracts provide for payment of allowable incurred costs. For time-and-materials contracts, a company charges the government based on labor hours and the materials that go with the project.
As for the 15-percent reduction, Gordon said this goal is not a call for insourcing and it is not “a numbers game.” Agency officials cannot re-label a contract and say they've reduced their spending.
“We will work through this with the agencies to be sure it’s done intelligently,” Gordon said. “We’re going to be watching.”
Matthew Weigelt is a former FCW senior writer who covered acquisition and procurement.