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Acquisitive Mind

By Matthew Weigelt

Blog archive

Will cost-reimbursement contracts be the saving grace of support services?

The General Services Administration is asking about incentives to keep contractors performing good quality work despite the government's drive to spend less money, particularly on management support services.

GSA plans to use more cost-reimbursement types of contracts for the support services, according to Lisa Maguire, a GSA Integrations blogger, who wrote on GSA’s Interact website Nov. 28.

In November, the Barack Obama administration ordered agencies to make major cuts to the fast-growing management support services. The services include systems engineering services, program management support, and contractor and procurement support. OMB wants agencies to cut spending on these services by 15 percent in fiscal 2012, and GSA officials are trying to figure out what incentives will keep a company’s work standard high despite the likelihood of lower payments.

Cost-reimbursement contracts place most of the risk on the government, and they can also provide incentives for companies to keep up good performances. It puts the reward in the contractor's face, hoping to continue to spur quality work. That view may be important in these economic times and under the administration's pressure to cut spending on support services.

In her blog post, Maguire posed three questions to industry that amount to asking what can GSA do to keep companies in the marketplace.

* What incentives will motivate your firm to maintain superior levels of quality service at a reasonable price?

* Given that GSA is anticipating moving into the cost-reimbursable realm with this potential acquisition, is the opportunity enough to keep your firm motivated to meet very high standards of quality?

* If not, what nonmonetary incentives might GSA consider when structuring the solicitation?

The management support services market isn’t bleak though, according to Maguire. After accounting for the unique and challenging budget environment and OMB’s demands, “Our research shows that the opportunity is still considerable in this arena.”

Nevertheless, GSA is starting the conversation.

Posted by Matthew Weigelt on Dec 05, 2011 at 10:34 AM


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Reader comments

Tue, Dec 6, 2011 Cornelia

Why on earth would we go back to cost-reimbursement contracts to SAVE money when the whole point of moving AWAY from them to fixed price contracts was to do just that?! If we want to save money, then we need to buy less and use firm fixed price contracts or at least labor hour contracts where the rate is fixed for every product or service for which a well defined contract can be written. At least under a fixed price, comptitive, contract, there is an incentive for the contractor to offer a good price, perform within budget and perform good work! The nonsensical mood swings of Federal Government policy are insane. As an aside, this was a very strange and disjointed article that never really made much of a point and then trailed off oddly at the end...

Tue, Dec 6, 2011 SPMayor Summit Point, WV

To suggest or to predicate a strategy on the presumption contractor performance will deterriorate because of reductions is balderdash. Reductions will force both Government and contractor communities to approach services support work differently. Different does not inherently mean more poorly. If anything the smaller budget will drive vendors to improve the delivery of services in order to maintain their business base. Both small and large business will have some difficult decisions to make concerning their place in the Federal marketplace but poor service in not one of their choices. Additionally, jumping between preferences for contract types is like re-arranging the deck chairs on the Titanic -much movement, much noise, much panic but unless the Government figures out how to best address their requirements in concert with industry the problem will only get bigger.

Tue, Dec 6, 2011

If you do away with GSA all together you eliminate a total wastes of an agency. When managers and other personel can go out a secure better contractors and leases then GSA can why do we need them. They are just taking money away from the pot. They are just serving special instrest groups with in there own realm.q

Tue, Dec 6, 2011 OccupyIT

Why can't policy wonks focus on writing and administering excellent procurements instead of wasting everyone's time and money on these cyclical Snipe hunts? Cost Reimbursement style contracts are no cheaper than any other form of contract once the market adjusts. If you write a contract that will reimburse all allowable costs you provide NO incentive to cut costs. Contract type has NOTHING to do with quality either - the contractor has to do with quality. You want incentives for cost savings and high quality? These have been around forever! Share a portion of any identified, bona fide cost savings and award follow on work based on successful deliverable. That is, pay them to work on lowering the overall costs (and stop counting trees) and allow both parties to avoid competitive risk if they are executing at the highest levels with won extensions. Its not rocket science - it's good contracting!

Mon, Dec 5, 2011

Why is GSA moving toward using cost type contracts when OMB encourages others to use fixed-price for services?

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