OMB and Federal Contract Spending

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    Henry Brown

    IMO a GOOD start and nothing more

    From Federal Times

    OMB orders 7% cut in contract spending
    August 03, 2009

    After years of large increases in contract spending, agencies are being ordered to reverse course.

    In a memo last week, Office of Management and Budget Director Peter Orszag directed agencies to cut their contract spending by 7 percent over the next two years: 3.5 percent in 2010 and 3.5 percent in 2011.
    That was one of three OMB memos issued last week that aim to flesh out President Barack Obama’s goal of cutting $40 billion a year from contract spending. The memos direct agencies to:
    • Accelerate insourcing of inherently governmental work.
    • Restore a proper balance between federal and contractor employees at government programs that rely heavily on contractors.
    • Share contractor performance reviews with other agencies.

    Orszag’s directive to trim contract spending by 7 percent would equate to about $37 billion in all, based on 2008 spending figures. Agencies spent nearly $528 billion through contracts last year, according to
    At the Defense Department, a 7 percent cut would translate to $27.4 billion, based on 2008 figures. At the Energy Department, $1.7 billion less. NASA: $1.0 billion. Homeland Security: $959 million.

    Orszag said the spending cuts can come from procurement reforms, elimination of unnecessary projects, savings from the adoption of smarter contracting tactics and strategies, and the re-engineering of business processes.
    Jeff Liebman, OMB’s executive associate director, said agencies can achieve savings by fixing well-known problems that make their acquisition operations costly. Agencies need to hire more acquisition professionals to manage contracts better, improve upfront planning for large procurements, conduct market research and leverage the government’s buying power better, Liebman said.
    Neal Couture, executive director of the National Contract Management Association,

    “It’s a reinforcement of some fundamentally good business practices that government may have gotten away from in the last half of the Bush years,” Couture said.

    The Orszag memo may force budget and program managers to make reasoned and clear buying decisions before asking contracting officers to take action, he said.
    Stan Soloway, president of the Professional Services Council, said the memo puts the emphasis of cost-cutting where it needs to be: on the front end of the procurement process, and not on increased auditing and oversight on the tail end of the process.

    “It recognizes the key to improving performance is in planning requirements, the award and contract administration,” Soloway said.
    Orszag also called on agencies to cut spending on higher-risk, cost-based contracts by 10 percent in 2010. While it’s appropriate to use contracts that reimburse vendors for their costs when it is not clear how much a project will cost, agencies often fail to turn these contracts into fixed-price contracts later, after needs and costs become clear, Liebman said. Setting a target will encourage agencies to review contracts to make sure they’re using the right contract at the right time, he said.
    Accelerate insourcing

    The announced reforms drew praise from two groups that typically don’t agree with each other: unions and contractor groups.
    “We’re entering a new era in which insourcing will be just as important an option for agencies as outsourcing, and tracking the cost and quality of work performed by contractors will be just as important as tracking the cost and quality of work performed by federal employees,” said John Gage, president of the American Federation of Government Employees.
    PSC’s Soloway called Orszag’s memos “a reasoned structure” to guide agencies’ sourcing decisions.

    “What it tells us is that beyond inherently governmental functions or absolutely mission-critical functions … the insourcing decision is like an outsourcing decision — it’s a decision that should be impartial, analytically rigorous and looks at complete and not just partial costs,” Soloway said.
    Couture, however, questions whether the new guidance will make a difference given that agencies are struggling to fill vacancies. If agencies can’t hire feds to perform work, contractors have to do it, he said.
    Workforce issues

    One of Orszag’s memos aims to fix long-standing problems plaguing the government’s acquisition workforce, which many agree is understaffed, overworked and ill-trained. It should help agencies restore the proper balance between contractors and federal employees, Liebman said.

    Overreliance on contractors has eroded the government’s ability to perform essential tasks in house and has caused government to spend more than it should to get the job done, he said. Even where work is properly outsourced, government doesn’t always have staff to oversee it, he said.

    The memo directs agencies to determine the right mix of contractors, federal employees and senior managers they need to support agency missions and workloads. It instructs agencies to insource inherently governmental functions and functions that are closely supporting decision makers. It also provides guidelines to help agencies decide when to insource work that is not inherently governmental.
    In addition, Orszag ordered agencies to find at least one program that relies too much on contractor employees and then develop the right mix of federal and contractor employees for that program.

    The memo will bring government in line with industry best practices, Couture said. Driven by profit pressures, industry routinely re-evaluates its outsourcing from both cost and managerial standpoints, he said. Absent profit pressures, government has not been as thoughtful, even though it needs to be, he said.
    AFGE’s Gage said the new policy should be fleshed out to encourage agencies to use federal employees instead of contractors.

    “OMB’s insourcing guidance … will ultimately be judged by results — whether agencies break free from a blinkered mind-set of automatically, even reflexively contracting out,” Gage said. To do this, agencies have to be freed of congressionally imposed hiring caps, he said.

    OMB must also enforce congressional mandates to consider insourcing poorly performed commercial work, commercial work outsourced without competition and commercial work performed within the last decade, Gage said.

    In yet another memo, Field, the acting procurement chief, called on agencies to do better at sharing their performance reviews of contracts they hire. She ordered them to submit performance reports to the Past Performance Information Retrieval System (PPIRS), a central depository that all agencies have access to. Starting in February, OMB will grade agencies on how many past-performance reviews they submit to the PPIRS, and how useful those reviews are in relaying the contractor’s performance, Liebman said.

    The Government Accountability Office reported earlier this year that agencies weren’t submitting contractor reviews into PPIRS and that the reviews that were submitted lacked enough detail to be useful. And that puts the government at risk of hiring poor performers, GAO said.

    In September, OMB will issue guidelines that define what is inherently governmental work, when it is appropriate to outsource work, and when it is appropriate to use different types of contracts.

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