Tuesday, March 17, 2009

Push For Contract Reform

Earlier this month, President Obama called for contract reforms that he claims will save taxpayers $40 billion a year by ensuring more competition and less use of sole source contracts. The directive in the memo is for OMB to develop guidelines for restricting sole source contracts, use of less cost type contracts, and also instructing more fixed price awards. (The memo can be found here).

Federal Times.com, March 04, 2009:

The guidelines also will govern the use and oversight of all contracting types, with the aim of minimizing use of those that do not cap spending upfront but allow vendors to be reimbursed for their actual costs…

Obama also wants the guidelines to open more contracts to small businesses…

In the memo, Obama also announced efforts to strengthen the acquisition work force, which has remained stagnant in size while contract spending grew from $200 billion to $500 billion from 2000 to 2008.

Several issues to consider:

1) How the President and OMB intend to implement these directives is still unknown, although the OMB is directed to provide the guidelines by September of this year. Although reform is a worthy goal, it has to be done carefully such that impacts on the contracting community are considered. The federal acquisition workforce is currently under siege, and creating more oversight and regulations will only make a difficult job that much harder. Further, dictating the types of contracts to be used does not allow for the ability to make contracting decisions that are advantageous to the government, properly manage risk, and may ultimately cost taxpayers more not less.

2) In regards to small business, several factors contribute to fewer “small business” set-asides going to small businesses, such as the lack of oversight at SBA in recent years, and the further dismantling of merger and acquisition rules. These rules have allowed large firms to acquire small businesses and their contracts, with the subsequent result of multi-billion dollar firms continuing to receive contracts reserved for small business.

Exacerbating the small business community is the Alaska Native Corporation (ANC) program, which has come under increased scrutiny for abuse and the prevalence of being an instrument to funnel more small business contracting to large businesses. Now that the leading ANC program proponent, former Senator Ted Stevens (R-AK), is out of the Senate, the hopes are that this program can be reigned in as part of comprehensive contract reform.

These are the types of issues that should be addressed to allow for more small business competition.

3) The acquisition community should be top priority of any serious reform.

Federal Times.com, March 04, 2009:

The acquisition workforce remained stagnant in size while contract spending grew from $200 billion to $500 billion from 2000 to 2008. Some experts have estimated the government needs to hire at least 10,000 acquisition officers over the next few years…

David Fisher, director of the Defense Department’s Business Transformation Agency, said using more fixed-price contracts is a good step, but there are challenges. Namely, contracting staffs need to articulate better exactly what they need. And that’s a skill that procurement staffs are not especially good at.

One reason, he said, is contracting staffs are not big enough to handle their workloads. They don’t have the time they need to hammer out clearly defined requirements, especially for complex procurements.

“If we are going to put more rigor into the acquisition process and expect a certain level of accountability and results, we need to make sure we have the sufficient quantity and quality of acquisition workforce in place,” Fisher said. “We’re stretched thin.”

The results of this critical problem are waste, fraud, and abuse. There needs to be more accountability and oversight, a by-product of training, strategic hiring, and a proper balance of public and private resources to fill skill gaps that allow federal agencies to perform their acquisition mission.

Only by tackling acquisition issues on a holistic, strategic level can we expect any chance of real reform. Although I am encouraged, I still hesitate to fully buy into the notion of realizing true reform until Congress and the President educate themselves on where the true problems exist.

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