Procurement

DHS continues revising acquisition rules

DHS logoHomeland Security Department officials are continuing to revise their acquisition rules for dealing with cost reimbursement contracts, a type of procurement the Obama administration considers precarious.

In a Sept. 26 letter responding to an inspector general audit, officials said that they issued a memo in August requiring contracting officers to include in contract files an explanation for choosing to award a contract without a firm, fixed price. The IG recommended officials provide documented information supporting the reason for going with a cost-reimbursement contract.

The IG report was released Oct. 10. Read the full document here.

DHS also plans to update its Homeland Security Acquisition Manual (HSAM), a supplement to the governmentwide Federal Acquisition Regulation (FAR), and its Contracting Officer Representative (COR) Guidebook. The changes will describe what is necessary as part of a COR’s nomination package. Contracting officers must describe why they set a specific certification level for the contract management oversight and that the appointed COR meets that certification level. Officials will also add information to ensure CORs are appointed prior to a contract’s award. In August, DHS sent out reminders to its acquisition offices about the policies surrounding cost-reimbursement contracts, including the requirement that CORs be at least at a Certified Level III. Level III, as defined in the FAR, requires the COR to have had 60 hours of training and two years of previous COR experience

Officials expect to make the changes to the HSAM by Oct. 31.

The revisions come as auditors found DHS did not always comply with the FAR revisions regarding cost-reimbursement contracts. Of 59 procurements the IG reviewed, 29 were missing selection information. For instance, officials left out of files information to justify why they opted for a cost-reimbursement contract instead of one with a firm, fixed price. A fixed price contract provides less risk for the government. Further, officials did not always assign the acquisition workforce resources to manage the risky cost-reimbursement contracts, as the FAR requires. Forty percent of 59 cost-reimbursement contracts did not have a COR nomination package, and the COR was not appointed prior to award on 24 percent of the contracts.

The government has increasingly turned to cost-reimbursement contracts in recent years. In fiscal 2010, the government obligated more than $535 billion through contracts, and they obligated more than 35 percent of that money through contracts without a firm, fixed price, the IG reported. In fiscal 2010, DHS awarded $2.62 billion, or 19.3 percent of its contract spending, through cost-reimbursement contracts, and $2.54 billion through time-and-materials and labor-hour contracts. Both amounts increased compared to fiscal 2009’s spending.

Contracts without a fixed price put greater risk on agencies to manage the companies’ performance after award. The IG wrote in the report—and other reports from the Office of Federal Procurement Policy and the Government Accountability Office agree—management has not been strong through the years, even as the agencies have increasingly chosen the cost-reimbursement contracts.

“In the past, these types of contracts have been used without appropriate justification or sufficient management and oversight,” the IG wrote.

In 2009, the newly arrived Obama administration pressed agencies to decrease their use of the risky contracts. The Office of Management and Budget directed agencies to establish a goal to reduce by 10 percent the share of dollars obligated through new contracts that are awarded in fiscal 2010 using cost-reimbursement contracts and time-and-materials and labor-hour contracts.

Congress also took a strike at cost-reimbursement contracts. FAR revisions implement language from the fiscal 2009 National Defense Authorization Act, and it matches President Barack Obama’s 2009 memo on procurement reforms.

About the Author

Matthew Weigelt is a freelance journalist who writes about acquisition and procurement.

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Reader comments

Fri, Oct 12, 2012 Joe DC

Lowest bits usually means low quality in both products and services. It requires a more informed and trained COR and a more defined description of work and services. We decided along time ago to get rid of our craft personnel and replace them with bean counters and the 'know it all' requisition specialist.

Fri, Oct 12, 2012 RonW

Reading the blurb on the email I had one idea coming into this, reading the article I had another.

Many contracts have a hard time being fixed price today (speaking from an engineering view). The acquisition folks who set up the initial work often do not require documentation to be furnished (or realize what will be needed in the future) and in today's Commercial Off The Shelf (COTS) path in order to save money, the COTS vendor does not want to give up his secrets like we use to get in the old "build to specification" days. Thus a later contractor coming in to do follow on work has no idea of the hidden pitfalls that can be out there and must either bid ridiculously high to cover all possibilities or bid low and not be able to do the job right based on the budget and hidden 'gotcha's' (I hate lowest bidder rules). Of course, Homeland security probably does not have the same issues as an engineering job, but you never know what they are spreading out to and in any case, it appears that the rules are being forced out to one set for all types of work.

On the other side of the fence, the article did point out that the justification for sole source was not there in this set of cases and that was another peeve against Homeland Security. And yes, as the second page points out, you must be able to manage cost reimbursement contracts much more closely than fixed price ones and (not stated) realize that hidden costs may get ugly and be willing to adjust expectations as a result.

May not be applicable to the Homeland Security incidents, but having just been a test engineering expert on two contracts dealing with the initial acquisition of two upgraded systems, I saw where the acquisition folks tend to ignore what they do not understand or fund, even though ACQ 101 clearly states they need to do it, thus you have the issue of Cost Plus vice Firm Fixed pricing come up in later efforts due to lack of data and/or planning.

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