DHS continues revising acquisition rules

Responding to IG pressure, the Homeland Security Department has been revamping its rules for awarding risky cost reimbursement contracts rather than safer fixed-price options.

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Homeland 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.

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