By Steve Kelman

Blog archive

New procurement guidance answers some questions, raises others.

The Obama administration's contracting memo issued March 4 generally landed with a thud in the contracting community. That was partly because it centered on problems that few would put in the list of contracting issues that need fast attention (cost-reimbursement contracting, alleged lack of competition) and partly because it threatened to make things worse (fears of return to fixed-price development contracts for weapons systems). Just today, Office of Management and Budget Director Peter Orszag issued follow-up guidance on the memo. The guidance is generally good news -- and an improvement on the original memo -- but still needs, in my view, further clarification about some unfortunate ambiguities.

The first piece of good news is that instead of requiring agencies to undertake various process activities to implement the memo, OMB has given agencies performance targets -- both for reduction of overall contract spending (by 7 percent through the end of fiscal year 2011) and for reduction (10 percent) of dollars going to "risky" contract types. In my view, performance targets are a good idea. They focus on action, not production of paper, and give agencies choices about how to achieve the targets.

Second, the memo states specifically that cost-reimbursement contracting can be a good for the government, including for cutting-edge research and development. The administration is making clear it is not seeking to eliminate such contracts, as some interpreted the original memo.

Third, it appears -- I emphasize this word, because the language is somewhat unclear -- that the administration is not targeting orders awarded under the GSA schedules or mutliple-award task order contracts as "uncompetitive," as long as more than one bid is received.

However, there are some ambiguities. The language of the memo suggests that the contract cost reductions should not be seen as coming from insourcing (which reduces contract costs while increasing costs of civil servants), but rather from a mixture of totally stopping some activities currently supported by contract that don't make good sense, or by strategic sourcing and re-engineering business processes. Both strategic sourcing and increased use of reverse auctions represent low-hanging fruit for cost savings. (Full disclosure: I am on the advisory board of Fedbid, the leading provider of reverse-auction services to the government.) But I fear that agencies might avoid real savings by simply insourcing activities and including gross rather than any net savings -- not counting the costs of civil servants performing insourced activities.

Second, the language about what is a "non-competitive" contract is convoluted, gushing with legalese and FAR-speak. I interpret the language as saying that GSA/task order awards that receive more than one bid are counted as competitive -- as they should be -- and not targets for reduction. But I fear it is possible to interpret the convoluted language a different way, and to include reduction in schedule/task order contracting, even with more than one bid, as non-competitive contracting that should be reduced. That would be a really bad idea. OMB should issue clarifying language in plain English about this.

Posted by Steve Kelman on Jul 30, 2009 at 12:08 PM


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