6 small-business issues too important to ignore

Small businesses face a tough market, but there are a few bright spot

It's rough out there for contractors. Everyone is holding on to pennies when they would have willingly spent dollars a few years ago.

For federal contractors, agencies are also adjusting to the tough times, double-checking costs against necessity before spending the slightest bit of money. And small businesses might be getting the worst of it. On top of the recession, government officials are cutting out contractors whenever possible.

And more problems exist for small businesses that already must scale a mountain of issues when trying to win government contracts. But don’t get depressed. There are at least a few bright spots. Some changes might make life at least more bearable for small businesses.

The Efficiency Squeeze

Agency officials face tighter budgets. Their goal is to spend less money while squeezing as much out of contractors as they previously received. Some agencies are considering chopping programs that don’t advance core priorities.

Defense Secretary Robert Gates recently announced a plan to make the Defense Department more efficient. Although insourcing hasn’t produced the savings that the Obama administration imagined, Gates said he’s taking another approach. He plans to hit contractors in the pocketbook.

“The problem with contractors is — and what we’ve learned over the past year — you really don’t get at contractors by cutting people,” Gates said in August. “So the only way, we’ve decided, that you get at the contractor base is to cut the dollars.”

Gates’ overall goal is to cut DOD’s spending by $100 billion in the next five years, while cutting contractor support by 10 percent per year for the next three years.

Some programs will dodge the bullet; others won’t. Programs that avoid elimination will support critical needs, although DOD officials have not identified those programs, according to Deltek, a research and consulting company.

In the same way, some contractors will emerge unscathed, Deltek said in a white paper released in September. Larger firms invest heavily in advocacy in an attempt to influence decisions such as budget and program cuts, the white paper states.

“To the extent those efforts are successful in deflecting funding cuts, smaller firms will be left to absorb the impact,” Deltek writes.

Insourcing Threats

Administration officials also are taking a stand against the private sector’s influence in agencies.

Officials say contractors are getting too close to agencies’ inherently governmental work and influencing decisions toward their advantage. The result is a push for insourcing. Procurement officials have proposed guidelines on inherently governmental work and closely associated tasks. They also created a new category of work, called critical functions, which applies to jobs that aren't inherently governmental but are sensitive enough that agency officials want federal employees to do the work. In short, agencies don't want to rely on the private sector.

Small businesses fear that initiative because they feel they are in the cross hairs. In September, the Interagency Task Force on Federal Contracting Opportunities for Small Businesses, a group of senior government officials, heard small businesses’ outcry against the insourcing initiative.

The “rebalancing efforts will not only limit new opportunities for small businesses but also take existing contracts away from them,” the task force wrote in its report to the president.

Some companies already have had their contracts brought in-house. Robert Burton, former deputy administrator of the Office of Federal Procurement Policy, said the government has insourced some work that isn't inherently governmental or considered to be a critical function.

Burton and other industry groups say the government is secretive about its process for deciding which jobs to insource, and without transparency, no one can be sure about the validity of decisions.

In addition, some federal agencies, such as DOD, must be aggressively pushed before they hand over their calculations and comparisons on pricing, experts say. Small businesses have done that, but it took time and a lot of persistence.

Poached Employees

Related to insourcing, businesses have complained that government agencies are also taking their employees when they move jobs in-house. One official said in September that DOD, for instance, went to the open marketplace to find employees.

Ashton Carter, undersecretary of Defense for acquisition, technology and logistics, denied that characterization. However, he said DOD is seeking employees in places where they can be found. He added that people are interested in joining DOD because it offers the opportunity to play a role in protecting the United States, which is a unique job with a unique mission.

But let’s not get bogged down in the difficulties. There are a few positive trends.

Unwrapped Bundles

Agencies can combine several smaller procurements into one large contract, a process called bundling. The technique puts less pressure on an agency’s employees because there are fewer contracts to manage. However, those bundled contracts are often out of small businesses’ reach.

The interagency task force said officials should tighten regulations to prevent unjustified bundling. And when there’s no way around a bundled contract, agencies need to find other ways to incorporate small businesses into the mix.

In addition, the Small Business Jobs and Credit Act, which became law in September, lowers the governmentwide bundling limit for contracts to $2 million, down from the $10 million limit. It also creates a five-year small-business teaming pilot program to assist small businesses in forming teams and joint ventures to help them compete for larger or bundled contracts.

HUBZone Equality

With President Barack Obama's signature, that new law simply changed a “shall” to a “may” regarding small-business set-asides. In effect, it ended the battle over one small-business program having an advantage over other small-business programs for set-aside contracts.

The new law puts all the Small Business Administration’s small-business programs on equal footing. SBA programs let agencies set aside contracts and compete them among certain types of small businesses, such as those owned by service-disabled veterans or minorities.

Until Sept. 27, companies in economically depressed regions, or Historically Underutilized Business Zones, had priority over other types of businesses because the law that created HUBZones said the government shall use businesses in HUBZones, while other small-business laws used the word "may." The Government Accountability Office and several federal judges ruled numerous times that HUBZones should get the priority because "shall" meant agencies had to use them, while "may" in the other laws meant the use of those small businesses was optional. Now the new law replaces the "shall" with "may." A contracting officer who wants to set aside a contract may choose which category of small companies to use.

Subcontracting Scrutiny

That same law also puts pressure on prime contractors to pay attention to their subcontracting plans or risk a bad mark on their public record.

The statute requires prime contractors to provide a written explanation when they fail to use subcontractors as they describe in their subcontracting plans. The reason had better be good, too. If the explanation doesn’t satisfy a contracting officer, a low grade could hurt the prime contractor’s performance evaluation, which agencies use when awarding new work.

A contractor with a history of failing to meet its subcontracting plan would be identified as such in the Federal Awardee Performance Integrity Information System.

So although business is bad, there are bright spots — at least a few.

Read the story: Washington Technology 6 small-business issues too important to ignore

The Highly Visible Invisible OFPP Administrator

Obama is reforming contracting with no administrator, and he doesn't seem to mind

Just four weeks after being sworn in as president, Barack Obama signed into law the massive stimulus legislation, complete with $787 billion to spend and significant changes to the government’s contracting regulations.

Two weeks later, Obama declared contracting reform to be a top priority for his administration and issued a memo on some of the changes he had in mind. Since then, he has frequently stated what he sees as a dire need for reforms and oversight of contractors.

Obama signed another bill in May that changed the rules for the Defense Department's procurement of major weapons systems.

Through all of this, he seems to be missing a key player: the administrator of the Office of Federal Procurement Policy.

Obama has chosen a national chief information officer — Vivek Kundra — and picked Aneesh Chopra to be chief technology officer. They quickly became prominent figures, and Kundra has pushed technology as an important part of acquisition reform.

But the president has no procurement policy chief.

The Office of Management and Budget has issued guidance on how agencies are supposed to spend the stimulus money, approved numerous new regulations and nearly completed a definition of inherently governmental functions.

But no chief.

In theory, the OFPP administrator is a key player in anything to do with government acquisition and is downright essential during times of major reform. Nevertheless, the changes are apparently moving along without an administrator. Some experts have started to wonder if the role is as important as others had assumed.

However, the push to find a nominee is building now that OMB’s deputy director for management, Jeff Zients, has been confirmed, said Kundra, who is involved in the search for an OFPP leader.

Even so, the administrator’s desk remains empty, while outside, the acquisition and contracting world is spinning faster than ever.

“There’s something to be said for somebody who knows how to grab on to things that are already in motion,” said Allan Burman, president of Jefferson Solutions, a division of Jefferson Consulting Group.

As the world turns

The government is witnessing some of the biggest changes in contracting in more than a decade. Obama took an about-face from President George W. Bush in a memo issued March 4 that comments on the troubled area of contracting and indicates how important he considers reforming the system.

Experts say the OFPP leader will be in a powerful position. He or she will have the president’s ear and a big agenda to tackle — bigger than in many past administrations.

“This is going to be a highly visible job with senior-level interest in what’s going on,” said Burman, who was acting administrator of OFPP starting in 1988 and confirmed in that role in 1990.

Obama wants tighter oversight of noncompetitive contracts and those without fixed prices. He wants an acquisition workforce that is capable of overseeing contractors. He has also told agencies to use outsourcing only when it’s absolutely necessary so the government can wean itself off its dependence on the private sector.

The American Recovery and Reinvestment Act, which Obama signed into law in February, is disbursing billions of dollars to save the economy, and the law dictates how agencies can spend that money and what contractors must report on when they get the cash. Experts say those rules have set a new standard for acquisition transparency and reporting and thus will spread to all government contracting in the near future. They say a leader needs to guide those changes appropriately.

A few blocks from the empty OFPP administrator’s office, Congress is passing reform legislation. Members are changing small-business set-aside rules and thinking about ways to revamp DOD’s acquisition system so the department can buy information technology faster. Many acquisition experts believe Congress makes rules without really understanding the issues. And that’s another reason it’s important to have an OFPP administrator.

All this activity is happening while the government remains on a fast track to spend $600 billion a year.

Then there’s the acquisition workforce. It’s overworked and demoralized. Employees are waiting for a strong leader to offer them some relief. For several years, they have felt battered by intense scrutiny by Congress, inspectors general and the Government Accountability Office. They want a leader high in the Obama administration’s ranks to protect them.

Catching up

When finally confirmed by the Senate, the administrator will need to sprint to catch up with what’s been happening in the acquisition field, said Angela Styles, OFPP administrator from 2001 to 2003 and now a partner at Crowell and Moring’s Government Contracts Group.

The White House has been working for months to draw up memos and craft a strategy. Most important for OFPP, Obama has brought the traditionally back-office duties of negotiating and signing contracts to the forefront of his agenda.

“We’ll have to break bad habits that have built up over many years,” he said. “But we can’t keep spending good money after bad.”

The first test of the new OFPP administrator’s authority will be how far he or she can stray from the goals Obama outlined in his March 4 memo, according to one expert.

Steve Kelman, administrator of the Office of Federal Procurement Policy from 1993 to 1997 and now a Harvard University professor and Federal Computer Week columnist, said the memo reads more like something written by lawmakers than a document crafted by experts in contracting.

He said the OFPP administrator must wrestle with nitty-gritty acquisition issues, such as how to navigate performance-based contracting and improve the use of contractors’ past-performance information in making awards. The administrator also has to continue melding contracting officers, their technical representatives and program managers into a team as they manage millions of contracts.

Kundra, who is pushing for a speedier, simpler acquisition process, said the OFPP administrator must understand the challenges of government procurement while also believing that the government needs to find faster ways to buy ever-evolving IT.

The administrator should “recognize we can’t treat technology procurements in the same way we do buying buildings,” Kundra said.

Furthermore, a report from industry and government experts urges the administrator to compel agencies to approach acquisitions holistically when they write contract requirements. The administrator will need to improve communication between agencies and industry, the said, and he or she will need to convince employees that technological innovations can improve the acquisition process.

Unfortunately, the delay in naming an OFPP administrator means “people are always going to know you weren’t the one who wrote the agenda,” Styles said. Therefore, the administrator will need to find a way to embrace and personalize the administration's priorities.

Styles said she received her priority — competitive sourcing — from Bush administration officials, but she was involved in drafting the procurement policy from the start because she was nominated in March 2001 and confirmed three months later. Her role was to implement the ideas of her bosses. The same will be true for the next administrator, she added.

When a key position remains vacant while other officials lack deep knowledge of an issue, it can result in a misguided — if not directionless — agenda, said Bob Woods, commissioner of the General Services Administration’s Federal Technology Service from 1994 to 1997 and now president of Topside Consulting. That’s the sort of situation the new OFPP administrator will face.

"You don't want to be the last wolf to the feast," he said. "There’s been a lot of chewing going on since you've not been there."

Missing person

The longer the position remains unfilled, the more some experts question its importance. Congress and the administration seem to be setting policies just fine without an OFPP administrator, they say.

“Here we are in August, and we don’t have a nominee yet,” said Robert Burton, former OFPP deputy administrator and now a partner at Venable law firm. “It’s obviously not a priority yet.”

Burton pointed out that Lesley Field is doing a fine job as acting OFPP administrator, and he questioned the urgency of choosing a permanent administrator. “It’s not like the initiatives don’t go forward,” Burton said. “It’s not like the career people don’t talk with other offices.”

OFPP would work just as well with a career employee in charge, who would likely stay longer than the typical two-year tenure of most OFPP administrators, Burton said [tk: ok?]. Plus, he or she would have the added benefit of understanding the issues involved after having risen through the office’s ranks.

“Acquisition is nothing but a lot of rules and regulations,” and it demands a strong legal background, not a political connection, Burton said. Deputy administrators work on many aspects of reforms, and they’re often dealing with agency leaders on regulations. Burton also ran OFPP during many of his years there as administrators came and went.

Kelman said there are benefits to appointing a retired career acquisition official to be OFPP administrator because that person wouldn't need a crash-course in what’s happening and why.

In the meantime, highly visible officials are talking about innovative acquisition reforms. For example, Kundra is calling for saving money through an IT storefront, cloud computing and software-as-a-service initiatives. He wants to use technology to speed the slow and deliberate acquisition process. And the tech-savvy Obama administration is putting a lot of weight behind Kundra.

“The administration is making that post very visible,” Burton said. Kundra’s prominence might suggest the decline of the OFPP administrator’s role as a leader in acquisition reform, Burton added.

However, Deidre Lee, OFPP administrator from 1998 to 2000 and now executive vice president of federal affairs and operations at the Professional Services Council, said Kundra could be a strong ally of the OFPP administrator.

“Two or three people at that high of a position with like minds can do a lot,” she said.

Although neither of them has much statutory authority or budget control, “one of the most important things anyone can have is a bully pulpit,” Kelman said. The two leaders could inspire people and soothe an anxious acquisition workforce, he added.

Only a few people are capable of doing that. Lee said that when acquisition employees make a mistake, the administration’s “leadership has got to step up there and say, 'Yep, we tried it, made a mistake, noted [it] and moved on. Let’s try again.'”

Everything is in place to move the workforce forward with the innovations that technology allows, experts say, but people are waiting for leaders to show them the way.

“I think the lion’s share is ready, but it’s going to take a lot of courage,” said John Nyce, associate director of the Acquisition Services Directorate at the Interior Department’s National Business Center. He added that they’re looking for someone to stand up for them.

Lee said the workforce is in huddle mode. Employees have learned that they can avoid attention by not moving forward. “That’s why leadership is so critical,” she said.

And employees understand that a political appointee has more access to key decision-makers. “The better the relationships, the better job you do,” Styles said, mentioning Kelman and David Safavian, who was OFPP administrator from 2004 to 2005 until he resigned during a scandal.

Some experts believe the administrator should remain a political appointee, even if a career person is just as capable. That approach ensures respect from other appointees throughout the government and shows that the administrator shares the president’s goals and agenda.

Furthermore, the president’s support for the administrator will make employees listen to what he or she has to say and pay attention to the direction they’re headed.

“A lot of the workforce longs for good leadership,” Kelman said. “And it’s up to that person to show he’s willing to go out of his way to work for them.”

Read the story: FCW.com News - Acquisition reforms rush forward while top OFPP seat remains empty

DOD’s use of services contracts gets congressional scrutiny

The House version of the 2010 National Defense Authorization Act would require the Defense Department to hire an outside organization to assess its use and oversight of services contracts.

The House Armed Services Committee believes DOD doesn't have a strategic approach to managing its service contracts, according to the committee’s June 18 report on the authorization bill (H.R. 2637).

As a result, “the department is at risk of being unable to identify and correct poor contractor performance in a timely manner and is at risk of paying contractors more than the value of the services they performed,” the committee wrote.

The House passed the bill June 25 by a vote of 389-22. The Senate committee has marked up its version of the bill, but the committee has yet to approve it.

Under the House bill, the assessment would be conducted by a federally funded research and development center. The center would look at the guidance DOD provides its acquisition workforce on how to develop a services contract, including how to define requirements and the associated performance metrics.

The center also would look at whether or not DOD has enough people in its acquisition workforce to do the work appropriately. The report would be due in March 2010.

Rep. Ike Skelton (D-Mo.), chairman of the House Armed Services Committee, said the legislation supports the Defense Secretary Robert Gates' plan to increase the civilian acquisition workforce’s size and to reduce DOD’s reliance on contractors for critical acquisition duties. DOD officials want to hire 9,000 new government employees and convert 11,000 contractor jobs to DOD civilian personnel.

“Defense acquisition reform is a top priority for our committee,” Skelton said in statement June 17 after his committee approved the legislation.

In another acquisition reform, the committee wants to find ways for DOD to buy IT more quickly.

IT systems require regular updates, because of changes in technology, which affects critical parts of the DOD infrastructure. But DOD’s process for buying IT makes it difficult for the department to keep up, according to a DOD task force.

The acquisition process is time-consuming and cumbersome, the task force wrote in a March report. "The process should be agile and geared to delivering meaningful increments of capability in approximately 18 months or less."

The House bill would allow DOD to pick 10 IT programs every year in which to test new procurement processes.Acquisition reforms in the House's fiscal 2010 National Defense Authorization Act concentrate on oversight of service contracts and buying information technology quickly.

Read the story: FCW.com News - DOD’s use of services contracts gets congressional scrutiny

GSA contract expiration reflects market needs, experts say

GSA official says many GWACs won't be renewed as GSA markets its Alliant and Alliant Small Business contracts

The General Services Administration's plan to let many of its governmentwide information technology contracts expire, largely ending the era of big governmentwide acquisition contracts (GWACs), reflects the evolving needs of the market, experts say.

They say the federal IT market’s sales have been driving GSA to end and merge GWACs for several years now. There are too many GWACs, causing too much overlap of services. The result is scattered sales while the cost of running the contracts still dips deeply into GSA’s pockets.

GSA will continue to support only Alliant, its small-business companion contract and a few GWACs targeted to companies in specific socioeconomic categories, said Ed O’Hare, assistant commissioner of the Office of Integrated Technology Services at GSA’s Federal Acquisition Service.

For the long term, though, GSA will likely merge the GWAC program with the widely used Multiple Award Schedules program. “But that will take years, not months,” O’Hare said.

Before ending the GWAC program, GSA will first winnow down the number of marginally performing GWACs, such as Commerce Information Technology Solutions-NexGen, said Larry Allen, president of the Coalition for Government Procurement. In recent years, GSA has taken over several GWACs, such as COMMITS from the Commerce Department, and now the agency needs to streamline its efforts, he added.

GSA has said for more than a year that the overlapping GWACs are expensive for government and industry and should be pared down, said Bill Perlowitz, vice president of advanced technology at Apptis. No one should be surprised that the agency is saying it won’t renew many GWACs, particularly given the Obama administration’s desire for a more efficient government.

“GSA would be streamlining things” to close down or merge GWACs into its schedules program, said Hope Lane, officer of government contracts consulting at Aronson and Co.

Total IT sales figures have slipped slightly in the past several years. The fallout in 2004 over GSA’s mishandling of the Defense Department’s money has caused some DOD customers to turn to other IT contracts, such as the Navy Department’s SeaPort-e, Lane said.

Meanwhile, sales on GSA’s massive Schedule 70 have remained relatively flat at about $17 billion annually for the past three years, according to government figures.

The recently awarded Alliant and Alliant Small Business GWACs, which were delayed for two years, have a wide choice of services, which makes many other GWACs unnecessary, experts say.

"You can get pretty much anything you want from Alliant," Lane said.

Courtney Fairchild, president of Global Services, said GSA’s Alliant contracts, which were awarded earlier this year, were always meant to replace the expiring GWACs.

“I suppose the real question for industry is whether or not government agencies have enough faith in the Alliant contract to switch over,” she said.

Agencies that shy away from Alliant will still have the option to work with one of more than 15,000 companies in the schedules program.

GWACs offer options to agencies that the schedules program can’t, such as cost-reimbursement contracts. Unless GSA can tweak the schedules program’s rules to change that, GWACs will always have a place, Allen said.

In addition, GSA would have a tough time closing the socioeconomic-based GWACs, such as the 8(a) small-business Streamlined Technology Acquisition Resources for Services and the Veterans Technology Services GWACs.

“Would you want to stand before Congress and try to explain why you ended those contracts?” Allen asked.

On the other hand, any attempt to merge the GWAC and schedules programs would be “consistent with the spirit and message of the creation of the recent Federal Acquisition Service,” Fairchild said.

The reorganization of the Federal Technology Service and the Federal Supply Service into FAS allowed GSA to scrap dueling and repetitive contracts that might confuse customers.

Read the story: Washingtontechnology.com News - GSA contract expiration reflects market needs, experts say

Acquisition workforce: Social media could be big draw

The government acquisition community ought to take a cue from President Barack Obama’s campaign strategy and use social media technology to bolster its ranks, one lawmaker says.

The government needs to be brave enough to draw on the younger generation’s new ways of interacting to help attract them to government service and to simply improve how agencies run, said Rep. Brian Bilbray (R-Calif.), speaking at a congressional hearing last week.

Many older federal employees may not be as comfortable with that technology, but the up-and-coming employees live by it. “This is their primary way of thinking,” he said.

Obama’s campaign captured young people’s attention like no other presidential candidate has before. It created Change.gov, a hip Web site describing Obama’s agenda. But Obama also sent out text messages and had a presence on Facebook, MySpace and numerous other social networking sites. Obama posted videos on YouTube. He even tweeted.

As a candidate, Obama was “a socially enabled, socially connected, socially aware, socially conscious leader,” Barry Libert, author of “Barack, Inc.: Winning Business Lessons of the Obama Campaign,” said in a recent speech.

At the hearing, Bilbray said the older generations that didn’t grow up with this technology will always be somewhat blind to it, unlike the younger people who have never known life without that technology.

“First of all, it intimidates us to some degree, and we may not understand it. But the potential is huge,” he said.

The next generation is heading toward more Web 2.0 tools and collaboration from the crowd.

The General Services Administration already has a technology-rich culture, said David Drabkin, acting chief acquisition officer at GSA, who testified at the hearing. The agency is adopting cloud computing and Web 2.0 collaboration tools internally and using social networking sites such as Facebook to interact with the public.

“We are on the edge,” he said.

Mary Davie, assistant Federal Acquisition Service commissioner for assisted acquisition services at GSA, is already thinking about the application of social media to acquisition. In a column in this week’s print edition of Federal Computer Week, Davie suggests opening the process of defining an acquisition’s requirements to get insight from a community of experts, inside or outside of the government.

“Using the wisdom of the crowd to define requirements and the best development process, participants could propose ideas based on experience, good practices, and standards, question and weed out bad ideas, build on one another’s ideas, and float the best to the top,” she writes.

Like Bilbray, Davie sees an opportunity not only to improve procurement but to appeal to younger recruits.

“Imagine what this might do to attract and retain the Net Generation workforce we are always seeking out,” Davie wrote.

At the hearing, Shay Assad, acting deputy undersecretary of defense for acquisition and technology, said technology will bring major changes in acquisition during the next two years.

The department is developing a database that will give Defense Department contracting officials quick access to information on business deals across the department, such as how the department negotiates with certain contractors, what they buy, and how much they may.

The system will be based on information collected by the Defense Contract Management Agency, which is the hub for analysis of the value and costs of DOD’s procurements.

At present, the individual services often don’t share information and know little about what the other services are buying, even from the same contractor, Assad said. “The fact of the matter is that we are not as capable as a number of organizations in terms of being able to share that information, but we are getting there,” he said.

Read the rest of the story: FCW.com News - Acquisition workforce: Social media could be big draw

Think twice before insourcing government work

A report says the Obama administation should be careful before taking jobs from contractors and giving them to agencies

The Obama administration and Congress should proceed cautiously as they attempt to take work away from contractors and hand it to agencies' employees, according to a report released today.

“A rush to insource thousands of positions, while trying to take on ever more government programs, can end in disaster,” wrote Raj Sharma, president of the Federal Acquisition Innovation and Reform Institute, in a report titled "The Move to 'Insourcing'…Proceed with Caution."

Agencies should concentrate first on removing contractors from jobs already defined as inherently governmental and duties central to agencies’ missions, the report states. At the same time, officials need to consider insourcing other jobs in longer-term phases, he wrote, adding that the government can handle the shifting load much easier in stages rather than all at once.

“Rushing to undo what has been in the making for years — perhaps decades — will be counterproductive,” Sharma wrote.

Moreover, taking work from contractors must be done deliberately and based on facts, not innuendo and rhetoric, he wrote.

President Barack Obama often depicts contractors as taking advantage of the government.

However, contractors are a major component of how the government operates, Sharma said, and they often perform work that requires specialized expertise, Sharma added.

“The current rhetoric that demonizes all contractors, instead of those few that are guilty of fraud and abuse, will only deter the best suppliers that we so badly need from competing for government business,” he wrote.

He added that an essential component of success for Obama’s plans for health care reform, energy independence and social innovation will be the technical expertise, innovation and scale that industry can bring.

Meanwhile, experts say experienced federal employees are attractive to private-sector companies, which often offer more to those employees than the government does. Also, a large number of government employees are nearing retirement, and agencies’ acquisition jobs are remaining vacant because few people are seeking those jobs.

Obama’s calls to join public service can only do so much to help find people to do the work, Sharma wrote. The government needs to reconsider its recruiting efforts, pay and professional development policies to make them competitive with the private sector before agencies dramatically insource jobs.

“While it may be feasible to hire thousands of people during the current economic downturn, it will be difficult to retain this talent unless systemic human-capital issues are addressed,” he wrote.

Sharma said officials should answer the following questions before bringing work in-house:

Which positions should be insourced?
How and when should they be insourced?
What will attract the people needed to do the jobs once they are brought in-house?
How will the government retain the employees who are doing the insourced jobs?

Read the story: FCW.com News - Report: Think twice before insourcing government work

Contractors need to closely watch procurement changes

Obama administration and Congress advocate for new era of contracting

Contractors had better dust off their federal rules books.

With the Obama administration concentrating on increasing transparency and reducing contracting costs through procurement reforms and tougher checks on vendors, contractors have plenty to keep track of.

The tone from the administration is often negative, and in some of his statements, President Barack Obama has described contractors as abusers, intent on lining their pockets with federal money.

But some experts say companies aren’t as alert as they should be about changing rules environment.

“Contractors have to be much more vigilant,” said Robert Burton, former deputy administrator of the Office of Federal Procurement Policy and now partner at Venable law firm. “But lots of people are slow to get the message.”

In late May, federal officials took steps to more closely regulate contractors. On May 22, Obama signed the Weapons System Acquisition Reform Act (S. 454), which includes tighter regulations on contractor conflicts of interest.

Under existing rules, the Defense Department and its subsidiary agencies must determine on a case-by-case basis how they can reduce conflicts of interest. However, Congress said DOD must strengthen those requirements. For instance, the department needs to make sure contractors give objective and unbiased plans to guard against any possible conflict, according to the congressional conference report on the legislation.

At the bill signing ceremony, the president reiterated his view on contractors and why DOD needs to augment its conflict-of-interest restrictions.

“When it comes to purchasing weapons systems and developing defense projects, the choice we face is between investments that are designed to keep the American people safe and those that are simply designed to make a defense company or a contractor rich,” Obama said.


Target: Conflicts of interest

The conflict-of-interest provision in the new law highlights Congress’ push to close the lid on any contractors’ fingers before they reach into the federal cookie jar. But the Federal Acquisition Regulation has few details about conflicts of interest, and last year, Congress ordered OFPP officials to review the FAR to see if it needs more guidance. The subtle undertone in the order, which is in the fiscal 2009 National Defense Authorization Act, reveals that lawmakers believe in tougher regulations on conflicts of interest, but they aren’t sure how to apply them.

The complications of mandatory reporting rules stretch beyond actions on a single contract. Even if there is no clause mentioning ethics guidelines or reporting of overpayment or potential fraud, allegations of wrongdoing in this area can result in damage to a company's reputation that might be hard to shake. For one, there’s a government database that lists companies that have been accused of failing to act or adhere to contracting rules.

It’s a new era of mandates, Burton said. “That’s what’s changing acquisition now.”

However, some contractors are lax because they don’t think this affects them, especially if their contract has no specific clause, Burton said.

These days, with transparency and scrutiny in tandem, contractors need to be aware even of standard rules.

Exec pay draws attention

Beyond requiring a company to have an ethics program, officials are skeptical of excessive executive pay. In March, Obama said the government shouldn’t line the pockets of contractors. But agencies, particularly DOD, must direct tax dollars to fulfill the nation’s priorities.

On May 21, a day before the president signed the acquisition reform act, OFPP updated the maximum amount the government will reimburse companies’ overhead costs included in fiscal 2009 contracts to compensate an executive. In fiscal 2009, a company can charge the government up to $684,181 per contract in those costs to pay their top employees. That’s $72,000 more than in fiscal 2008.

Although it’s a standard annual update, one government contracting expert said companies need to be more aware of the dollar figure and similar requirements.

“I will say that this figure is taking on added importance with the Obama administration taking a hard look at what government contractor executives make,” said Larry Allen, president of the Coalition for Government Procurement.

“Coupled with the transparency mandate and the [stimulus]-related pay disclosures, I think a lot more companies need to be aware of what the government ‘limit’ is,” he said.

The American Recovery and Reinvestment Act, which Obama signed in February, also requires greater disclosure of how a contractor spends the stimulus money. It also forces contractors to offer access to the government overseers, such as inspectors general, while protecting whistle-blowers.

If a contractor doesn’t follow the rules, it will be exposed under the new regulations, said Ray Bjorklund, senior vice president and chief knowledge officer at FedSources, a market research firm.

“The contractor is taking the brunt” of the new rules, he said. “That’s just the way it is.”

Read the story: WashingtonTechnology.com - Contractors need to closely watch procurement changes

Obama signs law to reform weapons buying

The law puts checks on big-ticket weapons acquisitions to keep them on schedule and hold down costs.

President Barack Obama signed legislation yesterday to change how the Defense Department buys and tracks acquisitions of major weapons systems.

“When it comes to purchasing weapons systems and developing defense projects, the choice we face is between investments that are designed to keep the American people safe and those that are simply designed to make a defense company or a contractor rich,” Obama said before signing the bill.

The Weapons Systems Acquisition Reform Act (S. 454) requires DOD to appoint senior officials to assess a project’s performance and analyze underlying causes for any of its shortcomings, such as unrealistic expectations, too little funding, or poor work by a contractor or DOD.

It requires officials to encourage competition, including 10 competition-promoting measures to consider when setting acquisition strategies. It also deals with organizational conflicts of interest, requires a study of earned value management, and sets checkpoints at certain milestones in projects.

The law's purpose is to limit cost overruns before they spiral out of control, Obama said. "Wasteful spending comes from exotic requirements, lack of oversight and indefensible no-bid contracts."

Obama also said this is the first step in fixing how the government buys things. “It reforms a system where taxpayers are charged too much for weapons systems that too often arrive late,” he said. Obama signed a memo March 4 designed to improve the procurement system.

However, acquisition experts say the vast majority of purchases are received as agencies requested.

“By and large the government gets what it wants, when it wants it, for the price it’s wiling to pay,” said Alan Chvotkin, executive vice president and counsel at the Professional Services Council, who spoke this week at a panel discussion about the federal acquisition workforce. However, he said the procurement system still has room for improvements.

At the same discussion, Steven Schooner, an associate law professor and co-director of the Government Procurement Law Program at George Washington University, pointed out the Obama administration views contractors as lining their pockets at the taxpayers’ expense. Schooner said the president, Congress and the news media can’t treat contractors as pariahs because the government can’t operate without contractors’ support.

Read the story: FCW.com News - Obama signs law to reform weapons buying

IG finds conflict in the acquisition regulation

The Federal Acquisition Regulation may have conflicting language, Defense Department auditors said in a report.

The FAR requires that small businesses get an advantage over other companies if a contracting officer can find two responsible small companies that can offer reasonable bids. That is known as the Rule of Two, and last year the Government Accountability Office ruled that it applies to task and delivery orders.

Meanwhile, another section of the FAR states: “The contracting officer must provide each awardee a fair opportunity to be considered for each order exceeding $3,000 issued under multiple delivery-order contracts or multiple task-order contracts.”

In a report released May 6, DOD's inspector general’s office found the conflict as it audited the Navy’s SeaPort Enhanced (SeaPort-e) indefinite-delivery/indefinite-quantity contracts.

The IG’s auditors said the SeaPort-e program manager failed to adequately compete 39 of 133 audited task orders when the manager allowed small business set-asides. The 39 orders were worth $469.3 million. The program manager deviated from the FAR by not ensuring contracting officers performed adequate market research on the small business set-aside task order contracts. As a result, Navy officials may not always receive the best value for the SeaPort-e customer, the IG said.

However, the manager argued that the Small Business Administration supported the set-asides and large contractors signed agreements that included language on the set-asides. Nevertheless, the IG wrote, “Neither the SeaPort-e program manager nor the Small Business Administration has the authority to override” the fair opportunity provision of the FAR or the statute on which it's based.

The Defense Acquisition Regulations Council and the Federal Acquisition Regulations Council should determine if the FAR needs more specificity on what’s allowed when setting aside a task order for small businesses, the IG wrote. Navy Department officials intend to bring up the conflict to regulators for a clarification, the report states.

In the IG’s discussions with GAO's General Counsel Office, GAO said its October 2008 decision on the Rule of Two has caused confusion on the topic of small-business set-asides and full competition. GAO officials said legislative action will likely be necessary to clarify the intent of the Rule of Two, according to the IG’s report.

The Rule of Two is in FAR Part 19. The fair opportunity provision is in FAR Part 16.

Read the story: FCW.com News - IG finds conflict in the acquisition regulation

The hidden force in acquisition

Some of the most influential people in the federal acquisition community are also the least well known.

They make critical decisions at every step of the acquisition process, yet the Federal Acquisition Regulation does not mention them. Any reform initiative that does not take them into account is bound to fail, yet the Office of Federal Procurement Policy rarely takes note of them in memos.

But that is beginning to change. Slowly but surely, federal agencies are coming to realize that contracting officer’s technical representatives (COTRs) play an essential — if underappreciated — role in government contracting.

Even the Government Accountability Office is trying to get a handle on the community.

“We have no really clear picture of how many of those there are, what their training and skills are, and so forth,” said John Needham, director of acquisition and sourcing management at GAO, during an April 28 congressional hearing on the Defense Department’s acquisition workforce. “That’s one area we saw as a need.”

COTRs serve as a vital link between their better-known colleagues — program managers and contracting officers — and help translate operational requirements into executable and manageable contracts.

“They’re the principal people who bring these worlds together,” said Robert Burton, former deputy administrator at OFPP and now a partner at Venable law firm.

COTRs also keep tabs on how well contractors are meeting their requirements. Agencies have learned the hard way that they cannot hand that task to new employees or pile it on an already overworked acquisition staff.

So as contracting spending rises and the complexity of contracts increases, COTRs have become the linchpin of government contracting.

Performance pressure points

Agencies are finally beginning to appreciate COTRs because agencies are spending much more money on services compared to a decade ago. For example, DOD spent $202 billion through services contracts in 2008, compared to $92 billion 2001.

“There are a lot more moving parts to keep hold of and a lot more contracts to manage today,” said Mary Davie, assistant commissioner of the Office of Assisted Acquisition Services at the General Services Administration’s Federal Acquisition Service.

Davie took a job as a COTR in 1989, when she was 23 years old. It was a good way to get some on-the-job training, she said. She made sure that products came in on time and in good condition. “They were sort of turning to me for getting what was needed and keeping the project on schedule,” she said.

In recent years, agencies have been under pressure from the White House and Congress to determine whether they are getting their tax dollars’ worth from contracts, said Elizabeth Miller, vice president of Government Horizons, a nonprofit acquisition training organization.

Therefore, they are trying to develop more sophisticated ways to measure contractor performance. Those metrics and disciplines such as earned value management can get complicated when it comes to technical services contracts.

COTRs are responsible for building such metrics into contracts and sounding the alarm when contractors go astray. Communication must happen early and often, Miller said. “It’s not about waiting for the monthly progress report to find out, ‘Oh, we have a problem.’”

Davie said COTRs also explain to contractors what the program managers need and what the contracting language requires of them.

In addition, COTRs must keep in close touch with contracting officers about progress and suggest modifications if things are off kilter, experts say.

“The COTRs go back and forth,” Burton said.

COTRs come of age

With President Barack Obama’s push to put more contracting information online for public consumption, several experts said COTRs’ duties will become more visible, which will force them to manage projects even more carefully.

With billions of stimulus dollars to spend, the increased burden on COTRs worries many inspectors general. They know agencies will have their hands full managing that money, which comes with new demands from the administration to track where the money is going and what it yields.

Numerous IGs have issued reports recently detailing their concerns about their acquisition workforces. The American Recovery and Reinvestment Act’s requirements seem to demand larger acquisition workforces than agencies have. Existing employees are already struggling to manage increasing sums of money and transactions, even without the stimulus funds.

Procurement officials expect that actions associated with the stimulus funding will be complex, requiring more rigor and oversight. That will, in turn, increase the demands on COTRs and other contract specialists, according to a recent report from the Energy Department’s IG.

In today’s environment, COTRs can’t be young people fresh out of college, as they often were in the past, officials say. They must be savvy and experienced experts in their fields who understand both the procurement and program management sides of acquisition.

In recent years, “there was a shifting expectation for a higher level of competence in understanding and collaborating on the ‘how’ versus the ‘what,’” said Chuck Harris, a former Air Force contracting officer and now president and chief executive officer of Inflection Point Solutions, a training and consulting company.

It hasn’t always been that way. DOD, the world’s biggest buyer, has not always filled the slots for contracting officer’s representatives -- DOD's equivalent to the COTR -- with the best people. It is not uncommon for CORs overseas in war zones to have no training. And generally, all COR training is geared for times when operations are slow, so it is barely adequate when situations get tense, the Senate Armed Services Committee wrote in a report last year.

Assigning a soldier to the role of a COR would seem like a good way to boost someone’s career by providing a launching point into the contracting field. But too often, the soldier who takes on that role doesn’t have any relevant experience, the committee wrote. Then the situation gets worse.

“The COR assignment is often used to send a young soldier to the other side of the base when a commander does not want to have to deal with the person,” the committee wrote.

The Army wants to correct the situation. Officials are spreading the word about CORs’ role in contracting and are teaching Army commanders, staff members and people outside contracting the value of CORs.

“The COR’s role is key to ensuring that the government is getting what it is paying for with appropriate oversight,” Edward Harrington, deputy assistant secretary of the Army for procurement, told a House subcommittee in March.

In April, Jeffery Parsons, executive director of the year-old Army Contracting Command, said an entire division is dedicated to fixing its COR program. And the Army published the “Deployed COR Handbook” to supplement CORs’ training when they’re out in the field.

Sizing up the COTRs

But even as COTRs grow in importance and receive more recognition, officials are still struggling to form a clear picture of the community.

One official called it a mysterious group because agencies and analysts know so little about them. They’re often hidden behind full-time jobs in areas such as information technology or engineering.

In its 2008 report on the acquisition workforce, the Federal Acquisition Institute said it couldn’t identify COTRs because agencies’ records and official guidance about them are so ambiguous. It deferred analysis of COTR demographics until the role is better defined and agencies keep better records.

Officials recognize that the COTR’s role is also growing in importance because the future of government contracting will likely mirror the recovery act rules.

“The program managers rely on them, and the contracting officers rely on them,” Burton said. “They’re really the bridge.”

Read the story: FCW.com News - The hidden force in acquisition

Officials: Recovery act rules are the future

The strict acquisition regulations attached the stimulus money is a foretaste of what agencies and contractors can expect for the future, several government officials said in speeches April 23.

The American Recovery and Reinvestment Act, has many transparency requirements, a strong emphasis on firm-fixed-price contracts and competition for those contracts, and demands for tracking the money to show what it yields. Procurement officials say these levels of transparency and oversight have never been demanded in such ways, and it’s only the beginning of what’s to come. A precedent has now been set, many experts have said.

“The stimulus is the wave of the future,” Soraya Correa, director of procurement operations at the Homeland Security Department, said at an event hosted by the American Small Business Coalition.

General Services Administration officials who also spoke said the law's requirements force agencies to keep a closer tabs on what they spend and how they spend it because the information will be public on Recovery.gov and agencies' own recovery Web sites.

“With revenue comes responsibility,” said Amanda Fredriksen, GSA’s deputy assistant commissioner for general supplies and services.

To boost transparency, the law requires agencies to publicize their bid proposals. Even if an agency buys a product or service from a GSA Schedule contract, the agency has to post a notice on the Federal Business Opportunities Web site for the sake of announcing it, which wasn’t required in the past.

The requirements will also reach into contractors’ books, officials said. Agencies will ask contractors for their spending and subcontracting information. And to remain in GSA’s Schedules program, companies must agree to adhere to the new requirements. GSA officials said companies can expect to hear from the agency soon.

“That means your data is out there,” Correa said to a group of small-business owners, adding that they need to make sure their books are in order and presentable because the information could be posted on the Internet.

David Drabkin, GSA’s acting chief acquisition officer, said the transparency theme has been moving ahead for at least two years. In December 2007, the Office of Management and Budget launched USASpending.gov as part of a law that then-Sen. Barack Obama helped introduce legislation known as the Federal Funding Accountability and Transparency Act. While in Congress, he introduced a follow-up, which would have provided more information on the government’s contracting system, but it never became law.

In his same spirit of openness, the stimulus law, which pushes for contracts with nonadjustable prices, requires agencies to share their reasons for why a contract couldn’t be awarded with a set price. In the past, those justifications have stayed within the agency.

“People are going to be able to read the excuse you’re giving, and people are going to hold your feet to the fire,” Correa said. That likely will lead to more discussions between agencies and industry through more draft requests for proposals, in-depth market research and outreach to a broader range of companies, she said.

Drabkin said the stimulus spending reflects President Obama’s March 4 memo on his proposals for procurement reforms, such as greater competition for work, a preference for firm-fixed-price contracts, more transparency from agencies, and a stronger workforce to handle the immense amount of contracting work flooding into agencies.

Read the story: FCW.com News - Officials: Recovery act rules are the future

Contractors wary of procurement proposals

President Barack Obama’s call for acquisition reform might lack the details needed to succeed

Cliff Thomas, president of ABC Management Technology Solutions Inc., of Chantilly, Va., is skeptical about contracting reform after listening closely to President Barack Obama speak in March about his federal procurement proposals.

The president’s speech offered few details about his plan to solve what he perceives as flaws in the government contracting process, and it left Thomas frustrated.

“He did no more than give a political speech,” Thomas said. “He’s the president. He doesn’t need to give political speeches.”

Thomas and others in industry wanted details about the reforms. For example, Obama said he would “open up the contracting process to small businesses.” But that was the extent of his remarks on small businesses. Thomas pointed out that helping so-called Main Street was a major theme in Obama’s presidential campaign.

From what they heard, many information technology companies contracting with the government didn’t consider Obama’s proposed procurement reforms as anything approaching a sea change. The proposals were unclear, and some were already in place.

For instance, contracting regulations already favor fixed-price contracts as the safe and preferred method instead of cost-reimbursement and especially time-and-materials contracts. Many experts doubted that new guidance would improve on that. Instead, contractors intend to continue to plug away at their business. They say they know their roles as aiding their federal customers in reaching their objectives.

Thomas and other business owners said they also recognize the reality of reform.

“Can he change the way work has been done for the last 30 years?” Thomas asked. “No one person can do it.”

Backing the president

Nevertheless, “it makes the most sense to get behind the reforms,” said Tim Conway, senior vice president and managing director at Affiliated Computer Services' Government Solutions Group. The industry must embrace change, he said.

“The real difference, I think, is that the industry is going to have to invest in solutions that are quickly implemented, configurable and built to evolve," he said. "This will enable true fixed-price contracting to occur.”

Companies such as ACS won’t see significant change, though, Conway said. Most of its federal contracts are fixed-price performance-based agreements.

Similarly, AFL Telecommunications LLC, of Monroe, N.C., won’t see much change as a fiber-optics dealer on NASA’s Solutions for Enterprise-wide Procurements governmentwide acquisition contract, said Randy Murphy, the company’s director of government business development. Its contracts are largely fixed-price already.

However, systems integrators working on a completely new program might see agencies at least considering fixed-price contracts as a possibility. But many experts say agencies likely won’t think long and hard about the possibility.

“For a one-of-a-kind project that has never existed, there are too many parts moving to do a fixed-price contract,” said Dennis Christmas, president of Enterprise Solutions Realized Inc., of Marriottsville, Md., an IT services and software company.

In his March 4 memo about reforms, Obama wants to build stronger barricades against contractors that commit fraud or simply those he believes are working too closely to core contracting decisions. He wants forceful management of contracts so agencies achieve their goals and avoid useless spending. He also expects safeguards to protect the government from noncompetitive contracts. The government needs to get away from contractors as much as it can by keeping work in-house, he said.

The contracting community, former federal officials and people inside government say it takes more than speeches from the White House for reform. It takes cultural shift, changing the way the contracting officers, program managers, chief information officers and inspectors general do their work.

For instance, the Internal Revenue Service IG reported in March that agency program managers were writing their contract proposals angled toward cost-reimbursement contracts. And the contracting officers awarded them as such. The result was cost-reimbursement contracts for general operations and maintenance for the service.

“Obama is now choosing to be more aggressive in getting executive agencies to make the right judgments and choosing the right type of contract,” said Ray Bjorklund, senior vice president and chief knowledge officer at FedSources Inc.

Obama might have hurt his chances for reforms, some business owners and former federal officials said.

Obama said the government must uphold a fundamental public trust. “The American people’s money must be spent to advance their priorities — not to line the pockets of contractors or to maintain projects that don’t work,” he said.

Malik Balil, chief architect and procurement strategist at Computer Systems Center Inc., of Springfield, Va., said the company has built a good reputation as an honest broker to the point of telling a customer agency when it doesn’t need its services.

“We live by that creed,” Balil said.

Thomas, a former Marine who was injured while in the military, echoed that attitude. “We’re not trying to rob the government,” he said. “We’re not out here trying to get rich on the back of the taxpayer.” Instead, his intent as a service-disabled veteran-owned small business with 40 employees is to make a living and give people jobs. It’s the way to keep the economy from falling further, he said.

“The way the government does business frustrates me as a taxpayer — forget being a contractor,” he said.

Targeting fraud

Companies intent on exploiting the government exist, though. In March, the FBI arrested Sushil Bansal, president and chief executive officer of Advanced Integrated Technologies Corp., on charges of bribery and money laundering. The FBI also arrested a former employee of Obama’s new chief information officer, Vivek Kundra, on allegations involving contract kickbacks. The employee worked with Kundra in the District of Columbia’s Office of the Chief Technology Officer.

Furthermore, companies abuse small-business certifications. In 2008, the Government Accountability Office reported that it easily found numerous instances of companies cheating the system to get Historically Underutilized Business Zone contract set-asides. GAO also reported in 2007 that contractors were receiving award fees from performance-based contracts even though the companies didn’t meet the contracts’ objectives.

But Obama painted all contractors with an incredibly broad brush, said Angela Styles, former administrator of the Office of Federal Procurement Policy. “Unfortunately, someone failed to realize that for this initiative to be successful, the administration will need the good contractors to lead the charge. By demonizing contractors that follow the law and successfully perform vital services for the United States, the administration lost a critical opportunity.”

Read the story: Washingtontechnology.com News - Contractors wary of procurement proposals

Obama again touches on procurement reform

President Barack Obama and Defense Secretary Robert Gates will soon offer more details on how to reform the federal procurement system, which will include an emphasis on Defense Department contracting, the president said during a news conference.

Obama said March 24 that he and Gates have been searching for ways to offset the more than $1 trillion in debt he and Congress have amassed in Obama’s 65 days in office. Obama said his administration has found ways to save as much as $40 billion through some reforms, a point he made in his speech March 4 when he called contracting reforms a priority for his administration.

Obama again provided no details on reforms in the recent televised news conference, except to say the acquisition changes are “pretty apparent to a lot of critics” yet hard to accomplish.

“I think everybody in this town knows that the politics of changing procurement is tough because lobbyists are very active in this area,” he said, adding that contractors build plants and create jobs across the country. Those plants often get support from House members and senators whose constituents hold those jobs.

Despite upset constituents and members of Congress, DOD and other agencies are losing a lot of money through projects with problems. Many defense contracts' costs increase above the initial estimates by as much as 50 percent while still not working as the projects should, Obama said.

On March 4, Obama discussed a general plan to reform the acquisition process, but many contractors and government officials are skeptical of any significant changes coming from the White House. Many of them have said new procurement policies may come, but changing how agencies' acquisition employees and program managers do their work is where Obama will find real reforms.

Obama has talked about shifting government work away from contractors and bolstering the acquisition workforce to do more government work in-house. He also wants to shift toward fixed-price contracts and increase competition for contracts.

He is intent on finding savings and reallocating agencies’ resources but wants "to make sure that we’re not simply fattening defense contractors,” he said March 24.

Read the story: FCW.com News - Obama again touches on procurement reform

17 words that will change acquisition

Buried deep within the $787 billion economic stimulus law is a small provision, barely noticeable on a quick skim, that could well change the federal government’s procurement practices for years to come.

The provision is just 56 words long, and the core of it is only 17: “To the maximum extent possible, contracts funded under this act shall be awarded as fixed-price contracts.”

President Barack Obama frequently promises change, but the procurement approach of setting a price first and then proceeding with work is old school. Other approaches to federal contracts, such as cost-reimbursement and no-bid awards, have emerged in recent years to give procurement officials more flexibility while accepting more risk.

Obama’s Office of Management and Budget now calls fixed-price contracts “safe investments” for the massive amounts of taxpayer funds going out the door in the stimulus package. Last year, Democratic lawmakers clamped down on cost-plus contracts in the fiscal 2009 National Defense Authorization Act, which became law Oct. 14, 2008. And now, the American Recovery and Reinvestment Act that Obama signed Feb. 17 includes the provision that limits contracts as much as possible to those with fixed prices.

However, many procurement experts are critical, worried that the administration is limiting the use of other contract approaches that have a legitimate place in a contracting officer’s toolbox.

It’s an old debate. While proponents say fixed-price contracts commit companies to performing work for a set amount and allow agencies to budget appropriately, some experts say other contract types offer a flexibility that is necessary in certain situations. And, they add, fixed-price contracts can eventually cost the government more because contractors are likely to base their bids on the upper end of their expected costs. Other contract types, such as cost-plus, allow agencies to pay less if the final cost to the contractor is closer to the lower end of the range.

Many see fixed-price contracts as “the panacea for waste, fraud and abuse,” said Ellen Brown, former legislative director for the Republican staff of the House Oversight and Government Reform Committee. “Those of us who understand government procurement…know it’s not true.”

Avoid risk

In their fiscal 2010 budget proposal, titled “A New Era of Responsibility,” Obama administration officials wrote that cost-type contracts -- any of several kinds that start with the actual cost as a base and adjust the final price to include such things as a profit margin or an incentive for superior work -- are particularly vulnerable to exploitation. Such contracts offer no incentive for companies to control costs, they wrote, adding that those contracts increased 75 percent under President George W. Bush.

Furthermore, many lawmakers have said they believe contractors often take advantage of the government, especially when agencies enter into agreements in which prices aren’t set from the beginning.

The Obama administration said the stimulus package seeks to halt such abuses. Office of Management and Budget officials said agencies should ensure reasonable contractor risk and economic performance when selecting the contract type for a project that will use stimulus money.

“Fixed-price contracts provide maximum incentive for the contractor to control costs and perform effectively and impose a minimum burden upon the contracting parties,” OMB Director Peter Orszag wrote in a memo issued Feb. 18. “These contracts expose the government to the least risk.”

When an agency proposes using a riskier type of contract, it must first make certain it has evaluated all alternatives, Orszag wrote. If the agency doesn’t choose the fixed-price approach, officials must appoint an appropriate number of qualified acquisition employees to oversee the contract.

In his address to Congress Feb. 24, Obama said Cabinet secretaries — just like the mayors and governors who will receive stimulus money — are accountable to him and to the American people for the money they spend.

“Here in Washington, we’ve all seen how quickly good intentions can turn into broken promises and wasteful spending,” Obama said. The administration plans to track stimulus spending at a Web site called Recovery.gov.

Casting a dark shadow

Recovery.gov features another measure that more subtly nudges agencies to choose fixed-price contracts: Other kinds of contracts and sole-source awards must be posted in a special section of Recovery.gov.

“A summary of any contract awarded with such funds that is not fixed-price and not awarded using competitive procedures shall be posted in a special section of the Web site,” the legislation states.

Stan Soloway, president and chief executive officer of the Professional Services Council, an industry trade group, said that approach puts contracting officers under pressure to keep their work out of the spotlight. Posting the information in a separate section could cast a dark shadow over the contract by implying there’s something unsuitable about it, even when it might be the best kind of contract for that procurement, Soloway said.

Contracting officers prefer to do their work in quiet obscurity, but they can face significant repercussions for making bad acquisition choices. “They already feel like they’re on the front lines,” Soloway said.

One contracting officer, who spoke on condition of anonymity because he is not authorized to discuss legislation, criticized the micromanaging nature of the provision. “When are they going to stop telling me how to do my job?” he asked.

The officer said he and his fellow professionals understand the procurement process better than members of Congress do. Although lawmakers act like they know the process as well as the people in the field do, he said, they fail to recognize that contracting officers need many options for finding the best fit for agencies seeking a contractor’s services.

Learn from the past

In an era in which development proceeds rapidly in areas such as back-office information technology systems and military combat systems, contracting lessons from a decade ago can offer insight.

Computer software development expanded rapidly in the 1990s. However, it was still new, and agencies struggled to write clear definitions when buying new software that would work with old systems. At the time, the government used fixed-price contracts to buy software, Brown said. With the companies taking on the risk, the government paid a lot more for the software.

“Fixed-price contracts are completely appropriate when we know what we’re going to buy,” said Paul Kaminski, chairman of a National Research Council study on systems engineering for the Defense Department and undersecretary of Defense for acquisition and technology from 1994 to 1997. If there’s uncertainty, “I think we end up on the wrong end of the bargain negotiating a fixed-price contract.”

Experts agree that returning to the era of fixed-price contracts won’t protect the government from ballooning costs and could even lead to overpriced contracts.

Sen. Joe Lieberman (I-Conn.), chairman of the Homeland Security and Governmental Affairs Committee, said fixed-price contracts aren’t a simple solution to saving money, but they do work in certain circumstances.

“No acquisition of any kind, however diligent, can overcome a fatally flawed statement of work,” said Elliott Branch, executive director of contracts at the Naval Sea Systems Command.

Read the story: FCW.com News - 17 words that will change acquisition

Obama wants contracting overhaul

The way government agencies acquire the goods and services needed to carry out their responsibilities will take an abrupt 180-degree turn if President Barack Obama gets his way.

Obama made it clear last week that he wants to abandon the Bush administration’s drive to push more federal work into the private sector and, at the same time, toughen on contracts that he considers prone to exploitation by companies and wasteful to agencies.

“It’s time for this waste and inefficiency to end. It’s time for a government that only invests in what works,” Obama said in a news conference March 4. The same day, Obama signed a presidential memo putting the overhaul into motion.

The president’s push to have agencies interact differently with contractors is a sea change from the Bush era. Departments have become overly reliant on contractors, Obama's memo states. As a result, government spending through contracts has more than doubled since 2001, reaching more than $500 billion in 2008.

Obama would put more obstacles in front of contractors who might want to cheat the government with substandard work. And he plans to “in-source” federal work, a process of identifying outsourced work and bringing it back into agencies.

Furthermore, he’s moving away from cost-reimbursement and no-bid contracts by demanding that agencies use fixed-price contracts as much as possible.

The unexpected scope and sweep of Obama’s directive took Washington’s procurement community by surprise and prompted a wave of criticism from outside contractors and acquisition officials inside the government. Obama’s campaign rhetoric against procurement abuse might play well with the mainstream press and the general public, they say, but he’s missing some of the most crucial problems that plague federal procurement.

Critics say Obama’s proposals would do little to stem an explosion in the use of of task and delivery orders rather than full contracts. And it does not seem to offer any relief to an already stressed acquisition workforce.

“In an area as technical as procurement, it is not a good idea simply to translate campaign rhetoric into the nuts-and-bolts of government management,” said Steve Kelman, administrator of the Office of Federal Procurement Policy from 1993 to 1997 and now a Harvard University professor, on his FCW.com blog, "The Lectern."

A major point of contention is the administration’s negative view of no-bid and cost reimbursement contracts. Although Obama’s memo cites the increase in those contract types, he misses the larger picture, Kelman said, which is all contracting has increased significantly in that span of time. According to an OFPP memo from 2008, the proportion of contracts that are fully competed has remained steady at more than 60 percent from 2003 to 2007.

“It is a higher priority to seek to increase [the] use of performance and cost incentives in cost-reimbursement [or time-and-materials] work than to attack cost-reimbursement contracting per se across the board,” Kelman wrote.

Obama said the Office of Management and Budget will issue governmentwide guidance by Sept. 30 on the appropriate use and oversight of sole-source and other types of noncompetitive contracts. He said the amount of money funneled through those types of contracts jumped from $71 billion in 2000 to $135 billion in 2008, which is a 47 percent increase. He instead wants to see more full-and-open competition for contracts.

Furthermore, OMB will develop more detailed guidance by July 1 to help agencies review their existing contracts to find the wasteful ones that are unlikely to meet their needs, the memo states.

“We will end unnecessary no-bid contracts and cost-plus contracts that run up the bill that is paid by the American people,” Obama said. He predicted his reforms would save the government $40 billion each year.

While those reforms might save money, experts said more dramatic savings could come from a well-educated and better-trained acquisition workforce. Obama needs to make training the workforce the paramount priority, not simply curtailing certain types of contracts, they say.

“That’s got to be the central theme,” said Robert Burton, former deputy Office of Federal Procurement Policy administrator from 2001 to 2008 and now partner at Venable law firm.

Many acquisition employees don’t fully understand the 1,949 pages of the Federal Acquisition Regulation and their agencies’ own regulatory supplements, Burton said. Training them to improve their understanding of and adherence to the laws could solve many contracting programs, he said.

Meanwhile, task and delivery orders are increasing with little guidance, Burton said. Today, more than 50 percent of the federal contracting expenditures go through huge task and delivery orders. Core problems exist with these orders, such as poorly defined requirements that are often out of scope of the contract, and limited competition for work. It’s an area that needs more guidance, he said.

Similarly, a panel of former Defense Department acquisition officials told senators last week that knowledgeable and experienced acquisition employees are the solution to improving programs and controlling costs.

Fixed-price contracts have a role in federal contracting, but contracting officers need a wider range of options, several government acquisition executives said. Officials should not discourage the acquisition community from using other appropriate contracts that might suit specific needs.

Still, experts say departments’ contracting officers must support the White House’s changes if agencies expect better contracting decisions and savings. Michael Sullivan, director of acquisition and sourcing management at the Government Accountability Office, said memos and legislation might not achieve the goals unless departments transform the overall acquisition culture.

Ray Bjorklund, a military officer and Defense Department acquisition official from 1971 to 1998 and now senior vice president and chief knowledge officer at FedSources, said Obama is aggressively pushing agencies to choose the right type of contracts.

Angela Styles, OFPP administrator from 2001 to 2003 and now partner at Crowell and Moring’s Government Contracts Group, said Obama might have hampered his efforts by over-generalizing the motives of contractors. The president will need good contractors to drive the initiative forward, cooperation that he might be less likely to get if they feel offended that he appeared to characterize all contractors as mercenary and untrustworthy.

“If you make one false turn as a contractor, you will be brought to your knees by the full power of the U.S. government," Styles said. "It is not a great place to be. The vast majority of government contractors understand that what they do is for the taxpayer and to make the federal government work better.”

Bringing the work home

Obama said he wants to limit the outsourcing of federal work, whereas the Bush administration sought to increase it. The question, as always, turns on the definition of inherently governmental work, which is work that only federal employees can properly do.

The fiscal 2009 Omnibus Appropriations Act already passed by the House would require a clarification of those functions. The Senate had not passed the bill as of March 6, but Obama has made limiting outsourcing a priority to pursue regardless of the bill's fate. The legislation would make it easier for agencies to pull work back into the agencies and away from contractors.

And so it appears that Obama, with the vocal support of Democrats in Congress in addition to Republicans such as Sen. John McCain of Arizona, is fundamentally changing the relationship between the public and private sectors. And it would also appear that the tide is in his favor. Several members of Congress made statements of support for Obama, and many of his proposed reforms are already incorporated in the current Defense Authorization Act, which President Bush signed last year.

“We must put an end to no-bid contracts and dishonorable procurement practices that are often the root cause of waste, fraud and abuse of taxpayer dollars,” said Rep. Edolphus Towns, (D-N.Y.), chairman of the House Oversight and Government Reform Committee.

Read the story: FCW.com News - Obama wants contracting overhaul

Obama: Big changes coming in federal contracting

President Barack Obama said he wants an overhaul of government contracting and signed a presidential memorandum to launch the effort today.

“It’s time for this waste and inefficiency to end,” he said at a news conference. “It’s time for a government that only invests in what works.” (Read a transcript of his comments.)

Obama said the Office of Management and Budget will issue governmentwide guidance by Sept. 30 on the appropriate use and oversight of sole-source and other types of noncompetitive contracts. But he added that he wants to see more full and open competition for contracts.

By July 1, OMB will develop more detailed guidance to help agencies review their existing contracts to identify wasteful ones that are unlikely to meet their needs, the memo states.

Obama said he wants agencies to better oversee all types of contracts and carefully consider the agencies’ needs before signing any deal. The changes would minimize the risks for government and boost the value of contracts, he said.

“We will end unnecessary no-bid contracts and cost-plus contracts that run up the bill that is paid by the American people,” he said. The reforms would save the government $40 billion each year, he added.

Obama also wants to clarify when it’s appropriate to outsource federal work and help agencies find the appropriate size and experience for the federal employees who develop and oversee acquisitions.

Obama focused largely on defense contracting but said the reforms will span all agencies. He cited a 2008 Government Accountability Office study of 95 Defense Department weapon programs that found cost overruns of $295 billion and average delays of 21 months.

“I can assure you that this will be a priority for my administration," Obama said. "It’s time to end the extra costs and long delays that are all too common in our defense contracting.”

Obama said he wants agencies to enter into contracts that will bring value, adding that agencies have wasted money through poor planning while giving contractors ample opportunities to take advantage of the government.

“It is essential that the federal government have the capacity to carry out robust and thorough management and oversight of its contracts,” the memo states.

Read the story: FCW.com News - Obama: Big changes coming in federal contracting