Rule would stifle DOD service buys

The White House wants to stop a DOD practice of hiring outside contractors to supply IT services on a labor-hour basis

In a move that could severely impact the General Services Administration's schedule contracts, the Bush administration is expected to propose a regulation that would severely restrict how the Defense Department buys information technology services.

The White House wants to stop a long-standing DOD practice of hiring outside contractors to supply IT services on a labor-hour basis. That type of buying makes it difficult to conduct performance-based contracting, which the administration wants to encourage, procurement experts say. The new regulation would restrict DOD schedule service buys to firm, fixed-price task orders.

The seemingly arcane rule has created a firestorm and could have governmentwide ramifications because of how it would affect GSA's multibillion-dollar schedule contract program.

DOD schedule buys represent 54 percent of all schedule sales, GSA officials said. IT service purchases make up 57 percent of GSA Federal Supply Service (FSS) schedule sales.

Much of the growth in IT service sales has not been in firm, fixed-price purchases but instead in those typically classified as labor-hour, time and materials task orders. Therefore, the proposed change would knock the feet out from under the schedule contracts.

"This would have a devastating impact on the schedule program," said Steve Kelman, a professor of public management at Harvard University's John F. Kennedy School of Government and a former administrator of the Office of Federal Procurement Policy (OFPP).

The Bush administration seeks to include the firm, fixed-price provision as part of a rule designed to spur competition on multiple-award contracts. That rule is required by Section 803 of the fiscal 2001 Defense authorization bill. For task orders of $100,000 or more, Section 803 stipulates that DOD contracting officers must obtain three bids on a multiple-award contract.

Many observers were also disturbed by the timing of the proposal — just days before the rule is expected to be made public June 26.

DOD officials said they first saw the terms June 16, when the Office of Management and Budget sent DOD its version of the proposed rule.

And lawmakers were not even informed. "This is the first I've heard of it," Rep. Tom Davis (R-Va.), chairman of the House Government Reform Committee's Technology and Procurement Policy Subcommittee, said June 20. "We've had zero conversations."

Davis said the provision was "premature" and that OFPP leader Angela Styles would meet resistance from lawmakers if OFPP attempted to impose the change.

The administration is considering issuing an interim Section 803 rule, which would leave open an opportunity for comment on the provision limiting schedule buys to firm, fixed prices.

Davis spokesman David Marin questioned whether this provision should be included in the Section 803 rule. This was never the intent of Section 803, he said.

Because the final version of the rule is under review, most officials would not comment. Deidre Lee, director of Defense procurement, and Roger Waldron, director of GSA FSS' acquisition management center, said they could not discuss the issue. Styles also said she could not talk about the rule.

Styles, however, suggested that the provision does not change the existing Federal Acquisition Regulation, which limits schedule contract service buys to firm, fixed prices.

But Chip Mather, senior vice president of Acquisition Solutions Inc. and a former Air Force procurement executive, said labor-hour, time and material task orders have become an "epidemic," and most agencies often use the orders to augment existing staff.

"They're not doing anything but buying bodies," generally a poor acquisition strategy, he said.

Others, however, said that the labor-hour, time and material task orders offer agencies the flexibility to accomplish their mission. "They are taking away major flexibility" from DOD just when it needs that flexibility to meet its national security mission, said Larry Allen, executive director of the Coalition for Government Procurement, an industry group.

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