spending | The Contracting Education Academy

March 4, 2011 By AMK

Wartime contracting commission details years of waste

The U.S. government has wasted tens of billions of dollars on contracts in Iraq and Afghanistan and must make sweeping changes to avoid similar mistakes in the future, according to a report published Feb. 24th by the congressionally chartered Commission on Wartime Contracting.

The report included 32 legislative, regulatory and policy proposals to reduce waste, fraud and abuse through enhanced oversight and improved deployment of government resources.

Among the most significant recommendations was limiting the government’s reliance on armed private security contractors. Touching on arguably the most controversial aspect of wartime contracting, the panel suggested the government embed federal employees with armed private security contractors to ensure command and control of all hostile situations. The commission’s final report, due this summer, will more broadly address concerns that the government has relied excessively on private security contractors.

The panel also advised creating a permanent inspector general office for contingency operations. And it called for establishing a new “dual-hatted” position at the Office of Management and Budget and the National Security Council to provide oversight and strategic direction for overseas contingency activities.

“For many years the government has abdicated its contracting responsibilities — too often using contractors as the default mechanism, driven by considerations other than whether they provide the best solution, and without consideration for the resources needed to manage them,” the commission concluded. “That is how contractors have come to account for fully half the United States presence in contingency operations.”

The 72-page report suggested that a host of circumstances have led to an overreliance on the use of contractors in battle zones. They include a depleted acquisition workforce, a downsized military, the limited deployability of federal civilian personnel and a lackadaisical attitude by senior officials who put little emphasis on procurement costs.

“War by its nature entails waste,” the report stated. “But the scale of the problems in Iraq and Afghanistan also reflects the toxic interplay of huge sums of money pumped into relatively small economies and an unprecedented reliance on contractors.”

Although there is no central database that tracks wartime contracting exclusively, the commission estimated that since 2001, at least $177 billion has been obligated in contracts to support military operations in Iraq and Afghanistan. The Defense Department has spent the overwhelming majority of those funds — $154 billion.

The report concluded, however, that tens of billions of dollars have ultimately been wasted either through ill-conceived projects, a lack of competition, poor planning, inadequate contract oversight, or outright corruption.

“When it comes to oversight of contingency contracting, we’ve been driving beyond the reach of our headlights,” said Commission Co-Chairman Michael Thibault, former deputy director of the Defense Contract Audit Agency. “Reforms are badly needed.”

During fiscal 2010, about 200,000 contract employees — primarily non-Americans — supported U.S. operations in Iraq and Afghanistan, a figure roughly equal to the number of military personnel in the two war zones.

Despite the scope of the effort, senior officials at military and civilian agencies have consistently failed to consider cost a significant factor in their pre-award planning, or post-award performance-management decisions, the report said.

“For many senior officials, contractors appear to be a ‘free’ source of labor with no direct impact on their budgets,” the commission found. “Funded out of what they perceive to be unconstrained overseas contingency operation budgets, many senior officials pay scant attention to articulating specific support requirements, negotiating contract terms and managing contractor performance.”

To reverse the trend of reckless spending, the commission suggested Defense, the State Department and the U.S. Agency for International Development undertake a comprehensive contingency personnel assessment to determine the gaps in resources and capabilities, including the ability to manage contractors. Congress also should provide funding for agencies to develop a deployable cadre of acquisition support staff for contingency activities, the report said.

The commission argued that the reforms will pay for themselves through reduced waste and increased efficiencies in contingency operations.

Other commission recommendations included:

Measuring senior military and civilian officials’ efforts to manage contractors and control costs;
Establishing offices of contingency contracting at Defense, State and USAID;
Developing interagency certification requirements and a training curriculum for contingency acquisition personnel;
Breaking out and competing major subcontract requirements for large multifunction support contracts;
Limiting contingency task-order performance periods;
Requiring agencies to certify their use of a new past performance database;
Issuing more suspensions and debarments;
Mandating that consent to U.S. civil jurisdiction be a condition of contract awards and clarifying that the government maintains criminal jurisdiction over civilian-agency contractors operating overseas.

The eight-member panel, formed in 2008 to investigate wartime contract spending, has hosted 19 hearings, held 900 meetings or briefings, and taken several trips to Iraq and Afghanistan. It will hold its next hearing on Feb. 28 to examine the effectiveness of the government’s tools, including suspension and debarment, to hold contractors accountable for problems with their work.

— by Robert Brodsky – GovExec.com – February 24, 2011

February 10, 2011 By AMK

Contracting spending dips for the first time in 13 years

For the first time in 13 years, the government has cut its annual spending on federal contracting, Obama administration officials announced on Thursday.

Federal agencies spent $535 billion to purchase private sector goods and services in fiscal 2010, compared to $550 billion in fiscal 2009, according to Jeffrey Zients, deputy director for management at the Office of Management and Budget.

“We have reversed the trend of uncontrollable growth [in federal contracting],” Zients said in a conference call with reporters. “We’re saving money and making sure every taxpayer dollar is being well-spent.”

President Obama previously had called for a combined 7 percent reduction in baseline contract spending in fiscal 2010 and fiscal 2011 for a total savings of $40 billion. The administration says it is on pace to meet those targets, since the goal of the initiative was to reduce the overall rate of procurement spending. If the government had continued at its previous pace of contract spending, it would have spent roughly $615 billion in fiscal 2010, Zients said.

The decline in contracting spending is largely a reflection of agencies buying smarter — and often less from the private sector, said Daniel Gordon, administrator of the Office of Federal Procurement Policy at OMB.

For example, the Veterans Affairs Department has reduced its purchases of new information technology systems while the Justice Department eliminated an expensive case management system. The Housing and Urban Development Department, meanwhile, saved $44 million by eliminating a financial management system.

Several agencies also have focused on consolidating their purchases through strategic sourcing, introduced enhanced competition into their acquisitions and improved their contract management oversight, Gordon said.

“We have made real measurable progress,” he added, “progress that you can measure in dollars.”

The administration, however, is not willing to link the contract savings to its governmentwide insourcing initiative. The effort to bring some contractor functions back in-house, according to Gordon, is focused on the government regaining control of its core operations and less about taxpayer savings.

“We don’t view [insourcing] as a cost saving initiative,” he said. “We view it as a cost management initiative.”

While agencies met their overall goal of spending less on contracting, they failed to hit a series of targets for reducing their expenditures in several high-risk categories. A July 2009 memo from OMB called on agencies to reduce by 10 percent their use of sole-source, cost-reimbursement, and time-and-materials contracts. Gordon acknowledged those targets have not yet been met.

The procurement chief said the percentage of sole source contracts in fiscal 2010 dipped by 6 percent, although the percentage of contracts with only one bid declined by 11 percent.

The administration also made progress in cutting its spending on time-and-materials contracts, which are considered the highest risk to taxpayers because of the potential for escalating costs. It appears, however, that most of those contracts were converted to cost-reimbursement vehicles rather than fixed-price contracts, the administration’s preferred contracting type, Gordon said.

OMB did not immediately provide details on the time-and-materials or cost-reimbursement spending figures in fiscal 2010.

Contract spending, particularly for professional and technical services, is expected to decline further in the coming years. The administration plans to call for a 10 percent reduction on spending in these two categories, which Gordon loosely defined as the work contractors provide in assisting agency acquisition shops.

Zients, who will head up an effort to reorganize federal agencies to eliminate redundancy in government operations, declined to discuss the effort on Thursday, saying it was in its early stages.

– by Robert Brodsky – GovExec.com – February 3, 2011

February 9, 2011 By AMK

Deficit-cutters must also weigh cost of contractors

When the Obama administration released figures showing that Uncle Sam spent less on outside contractors for the first time in 13 years, the data pointed to a little-publicized difference in the way Democrats and Republicans approach deficit reduction.

Spending on contractors may not be as sexy as other items, but it’s a difference that has serious implications for federal employees.

In fiscal 2010, $535 billion was spent on those services, $15 billion less than the year before, officials at the Office of Management and Budget said Thursday.

“Under the prior administration, spending on government contracts more than doubled,” said Jeffrey Zients, OMB deputy director for management and the administration’s chief performance officer.

They were blowing their own horns while taking a swipe at Republican policies, but the money they were talking about is significant.

If the Obama administration’s spending on contractors had continued at the Bush administration’s rate, the government would have spent $80 billion more in 2010, according to the OMB.

“We have reversed the trend of uncontrollable growth, and we’re saving money and making sure every taxpayer dollar is being well spent,” Zients said.

The key, added Daniel Gordon, OMB’s administrator of federal procurement policy, was “buying less and buying smarter.”

Although some cuts in contract spending had to do with such things as weapons systems and fuel, Gordon said OMB is working with agencies to reduce spending on professional and technical services, which has grown disproportionately in recent years.

“We see significant potential for savings,” he added. “The president’s budget for fiscal 2012 will call for a reduction in categories that include these services, but we need to start the savings now, in fiscal 2011, and we will be working with the agencies to do that.”

The savings OMB announced certainly won’t solve Washington’s financial problems, but every dollar counts. Yet when some deficit hawks look for places to cut, they manage to ignore contractor spending while making sure they target federal employees.

When the Republican Study Committee, for example, issued its long list of proposed cutbacks, “federal workforce reforms” were near the top. They included freezing civilian pay for five years, instead of the two years already imposed, and cutting the workforce by 15 percent through attrition.

The committee did mention contractors near the end of its list, but not as a way of cutting spending. Instead, the Republicans recommended a change in policy that would allow more of Sam’s work to flow to the private sector. While almost every other item on its long list indicated an amount that could be saved by cuts, no dollar figure was attached to the call for more “competitive sourcing of government services.”

The difference in approach between the White House and Republicans is an important one for Frankie and Flo Fed.

Federal workers have long complained that contractors too often do work that should be reserved for employees. Some of this is about turf. Federal labor unions, for example, want to keep as much federal work as possible for federal workers, because that’s who their members are.

But much of it is about the governmental imperative that “inherently governmental” work should be done by people directly on Sam’s payroll. Collecting taxes certainly is an inherently government task, but outside contractors had been doing some of that work until the Obama administration put a stop to it last year. An Internal Revenue Service statement at the time said that “IRS collection is more cost-effective than the contractors.”

Last year, the chairmen of the National Commission on Fiscal Responsibility and Reform proposed eliminating 250,000 non-defense contractors who provide services and augment the workforce. The chairmen also suggested slashing spending for contractors who assist Pentagon staff by 20 percent each year from fiscal 2011 through 2013.

The Republican committee, however, says contracting may be the frugal option.

“Our focus in allowing competition from the private sector is to reduce overall spending. If taxpayers get a better deal by having nongovernmental activities like lawn mowing performed by a contractor, it only makes sense to do that,” said Brian Straessle, a spokesman for the committee. “If having federal employees mow the lawn is cheaper, let’s do that. The point is, there should be an option.”

Although the IRS found it could conserve funds by using federal employees instead of contractors, OMB officials did not claim that the savings they announced were the result of having employees perform jobs formerly given to outsiders.

In fact, Gordon said, “we never viewed insourcing as a way of getting dramatic savings. . . . We view it as a good-overnment management initiative.”

One good-government initiative was strengthening the notoriously weak acquisition workforce – the federal employees who work with contractors to make sure they deliver, as Gordon said, “on time and on budget.”

Financing good government must include a closer look at contractors, according to one labor leader. “If Congress is serious about saving money,” said Colleen M. Kelley, president of the National Treasury Employees Union, “lawmakers should look more closely at the contracting process.”

– by Joe Davidson – Washington Post – Friday, February 4, 2011; B03

February 7, 2011 By AMK

Congressional committees target SBA programs for cuts

The Small Business Administration could look considerably leaner in the coming months if House and Senate lawmakers have their way.

The lead congressional committees in charge of federal small business policy are planning to scale back or eliminate programs within SBA that might no longer be serving their intended purpose.

On Tuesday, Sens. Mary Landrieu, D-La., and Olympia Snowe, R-Maine, the chairwoman and ranking member respectively of the Senate Small Business and Entrepreneurship Committee, sent letters to SBA Administrator Karen Mills and agency Inspector General Peg Gustafson requesting recommendations for programs that could be targeted for cuts.

“Like the American people, Congress must continue to evaluate and determine what spending is necessary to meet current needs and demands while identifying and eliminating needless spending,” the lawmakers wrote. “Accordingly, we take this responsibility seriously and will dedicate time and effort in this Congress to determine the best path forward.”

The letters ask for a list of programs by Feb. 10 that could be “eliminated or substantially reduced without undermining the SBA’s ability to serve the needs of small business owners.”

The committee is planning to hold a hearing on proposed SBA program cuts sometime in February. Committee spokesman Richard Carbo said the inquiry will be deliberate and focus on programs with a history of underperforming and that are failing to deliver “the most bang for their buck.”

“Sen. Landrieu doesn’t want this to just be a reckless cost-cutting hunt,” Carbo said on Friday. “She wants to really dive deep into why some programs might be underperforming and where there are ways to make efficient cuts that won’t harm small businesses.”

Christopher Averill, a Snowe spokesman, said the senator does not have a list of programs she is looking to eliminate, but rather would focus on programs that are “duplicative or ineffective.”

SBA spokeswoman Hayley Meadvin said the agency will respond in writing to the senators.

The agency also faces additional scrutiny — and an arguably more skeptical audience — from the House Small Business Committee and its new chairman, Rep. Sam Graves, R-Mo.

On Wednesday, the committee adopted its oversight plan by voice vote. The eight-page document outlines a host of small business programs, functions and policies that will face tough oversight from the panel.

The plan also includes a section detailing a dozen small business programs and offices that could face cuts in an effort to reduce the federal deficit. The list includes SBA’s Patriot Express Loan Program, Drug-Free Workplace Program; Office of Policy, and Office of Native American Affairs.

Several SBA policymakers also could be targeted, including regional administrators, advocacy regional advocates and deputy district directors, the report said. The Treasury Department operates two of the programs on the list — the Small Business Lending Fund and the State Small Business Credit Initiative.

The plan stated that programs could be eliminated as a result of their ineffectiveness or their duplication at other agencies.

“The committee will focus particularly on streamlining and reorganizing of the agency’s operations to provide maximum assistance to small business owners,” the report said. “Offices that primarily provide assistance or advice to headquarters staff that do not promote the interests of small businesses or protect the federal government as guarantor of loans will be recommended for cuts or elimination.”

The proposal suggested that employees could be reassigned to “more critical functions at SBA, such as positions as procurement center representatives.”

The committee also plans to hold hearings and to investigate SBA lending and entrepreneurial development programs, burdensome federal regulations, the misuse of small business contracting programs and the cost effectiveness of the Obama administration’s insourcing policies.

– By Robert Brodsky – GovExec.com – January 28, 2011

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