New leaders take on old problems

Dems promise reforms, but fiscal, political realities raise question: How much can be done?<@VM>Committee chairs stake their ground

Democrats assuming control in Congress this month are promising a clean sweep of the former Congress' lax federal procurement practices and appropriations abuses. But it is unclear how far the broom will reach.

The new reformers may have to walk softly for a while, however, their zeal tempered by slim majorities in Congress, likely opposition from President Bush, uncertainties in Iraq and the looming 2008 presidential race. The proposed continuing resolution to fund most federal departments for fiscal 2007 will put a crimp on new initiatives and program starts. And the new majority party's enthusiasm is more likely to result in greater oversight over existing federal contracts rather than development of large new programs, according to experts.

"Things are very much up in the air now," said Ray Bjorklund, senior vice president and chief knowledge officer at Federal Sources Inc., McLean, Va. With budgets likely to be frozen at fiscal 2006 levels and no new initiatives likely from the White House, major changes are unlikely, he said.

"People think that with the Democrats taking over, everything will change. But that is not necessarily the case ? These are rough waters," Bjorklund said.

"There certainly is a new attitude, with a significant emphasis on oversight," said Trey Hodgkins, director of defense programs for the Information Technology Association of America industry group. "But there won't be a lot of major legislative issues because there is no time."

Democrats could establish themselves as the party of fiscal discipline. Despite prevailing tentative forecasts suggesting few changes, several significant elements are under discussion:
  • A continuing resolution for the fiscal 2007 budget
  • Democratic promises to reduce earmarks
  • Reinstatement of "pay-as-you-go" provisions for budgeting future programs
  • Pledges to eliminate regular supplemental budgets
  • Tight budgets overall and limited opportunity for legislative initiatives as a result of the ongoing Iraq crisis.

Agenda 2007

Congress closed down for the holidays without passing spending bills to fund most of the federal government for fiscal 2007, which began more than three months ago. It did pass a continuing resolution that, at least until Feb. 15, lets agencies maintain their budgets at fiscal 2006 levels.

Democratic leaders are seeking an extension of that resolution. Rep. David Obey (D.-Wis.) and Sen. Robert Byrd (D.-W.Va.), the new chairmen of the House and Senate spending committees, respectively, said on Dec. 11 that they intend to offer a continuing resolution to fund the federal government through Sept. 30, 2007. It would cover the 13 departments whose fiscal 2007 budgets have not yet been approved by Congress; to date, only the Defense and Homeland Security department budgets have been completed.

Obey and Byrd also said that to improve budget discipline, they would strike earmarks from the continuing resolution. Earmarks are funds designated for specific hometown projects. The goal in eliminating such spending items is over the next 10 years to reduce the burgeoning $3 trillion federal budget deficit, Obey said in a press release.

"This Congress is posturing itself to pay more attention to fiscal concerns," FedSources' Bjorklund said. But the depth of its commitment to fiscal restraint is not yet clear, he added.

A continuing resolution will affect contracting and procurements. With budgets essentially frozen at fiscal 2006 levels, new starts and new programs will be stymied. Modernization plans that included increased funding in fiscal 2007 would revert to fiscal 2006 levels.

"Our concern is that plans already in place will be put on hold," ITAA's Hodgkins said. "It will impact the ability of agencies to reach their milestones and to start and finish projects."

Fiscal discipline also is likely to be applied in proposed reinstatement of "pay-as-you-go" provisions and elimination of supplemental war budgets. Under pay-as-you-go rules, if a member proposes a new spending item, he or she must identify the source of the funding to pay for it.

"There is an idea that the Defense Department has been putting things in the supplemental that should have been in the regular budget," Hodgkins said. With no more supplementals, those practices will get reined in and defense agencies will be forced to restructure the way they identify and meet their needs for IT programs and other procurements, he said.

Other developments:


Clean Contracting Act (HR6069). Introduced by Rep. Henry Waxman (D-Calif.), chairman of the House Oversight and Government Reform Committee, the bill aims to correct what Waxman says is as much as $762 billion in waste, fraud and abuse that occurred in contracting under the Bush Administration.

The legislation limits noncompetitive contracts, ensures bidding on task orders and puts time limits on no-bid contracts during emergencies. It also bans so-called "layer cake" contracts with tiers of subcontractors, minimizes use of "cost-plus" accounting and directs that 1 percent of each agency's procurement budget be used for oversight, as well as other measures.

"It covers the waterfront," ITAA's Hodgkins said. "I think it will be a major issue."

But not everyone believes Rep. Waxman will be as zealous as chairman as he was as the senior Democratic member of the Reform Committee. "The job of the minority is to stir things up. I don't see Waxman radically changing the agenda," FedSources' Bjorklund said.

Three percent tax withholding rule. Federal contracting advocates and business groups are pressing Congress to rescind Section 511 of the Tax Increase Prevention and Reconciliation Act of 2005. The law imposes on government contracts a 3 percent withholding requirement that will go into effect in 2011. However, the lame duck Congress made a last-minute push to immediately put the withholding tax into effect. That effort was defeated, but it has many contractors worried.

The new rule states that federal, state and local governments should withhold 3 percent from all payments made to contractors. Its goal is to reduce the underpayment of taxes. However, advocates say it is onerous, especially on small businesses, because it deducts the 3 percent up front, affecting cash flow and essentially granting government an interest-free loan.

"There will be a large number of harmful consequences if the provision is not repealed," said an issue brief on Section 511 from the U.S. Chamber of Commerce. "Companies will lose vital funds needed to operate day-to-day activities."

Homeland Security IT

The outlook for IT contracting is brighter for homeland security. Oversight is increasing and budgets are tightening. On the other hand, the Democratic Party also has a chance to make good on its talk of increasing funds for homeland security, especially for first responders concerned about radio interoperability. Typically, attaining interoperability requires new radio systems or at least wireless back-up networks.

"Interoperability will gain traction," said John Slye, homeland security analyst for market research firm Input Inc., Reston, Va. "It will be something on which the Democrats will want to position themselves with constituents. The Democrats have six months to show progress."

Other IT-related homeland security items with which Democrats have been identified include greater privacy protections, identity protection, port and rail security, cybersecurity and infrastructure protection such as adding federal regulations to voluntary industry controls on how chemical plants handle dangerous materials.

Small business re-upped

Small-business committee chairs Sen. John Kerry (D-Mass.) and Rep. Nydia Velazquez (D-N.Y.) both have reputations as active advocates for small business.

One of the major issues they will grapple with is the controversy over proposed annual recertification requirements that require small businesses to prove they are still small enough to qualify for the federal designation.

Some small-business advocates say that the requirement would create dramatic negative effects because some companies may lose their small-business status in the middle of a contract performance period, resulting in a likely loss of the contract.

Staff Writer Alice Lipowicz can be reached at alipowicz@postnewsweektech.com.

House Oversight and
Government Reform Committee

Rep. Henry Waxman (D-Calif.)


Waxman, a longtime critic of the Bush administration, has promised enhanced
contracting oversight. His "Clean Contracting Act" aims to stop waste,
fraud, abuse and mismanagement in federal contracting by limiting noncompetitive
contracts; placing time limits on no-bid contracts signed during emergencies;
minimizing use of "cost-plus" contracts; prohibiting "layer cake"
contracts with tiers of subcontractors; closing loopholes in commercial item
authority; mandating that at least 1 percent of each agency's procurement
budget be used for oversight; increasing whistleblower protections and other
measures.


Senate Committee on Homeland
Security and Governmental Affairs

Sen. Joseph I. Lieberman (I-Conn.)


Re-elected as an independent and caucusing with the Democrats, Lieberman has
sponsored legislation to improve interoperable communications for first
responders and to set up a global tsunami warning system. He also has promoted
increases in funding for homeland security, including $1.2 billion for first
responders, $1.7 billion for the Coast Guard and port security, $150 million for
chemical security, $1 billion for rail and transit security, $456 million for
FEMA, $1 billion for health preparedness programs and $752 million for aviation
security.


House Appropriations and
Senate Appropriations committees

Rep. David Obey (D-Wis.) and Sen. Robert Byrd (D-W.Va.)


The two incoming Democratic chairmen issued a joint statement Dec. 11 stating
their intention to pass a joint continuing resolution for the remaining
uncompleted fiscal 2007 budget allocations that will continue through Sept. 30,
2007. The purpose is to "clear the decks" quickly of unfinished business to
prepare for a major debate on Iraq War funding. Furthermore, Obey and Byrd said,
"there will be no Congressional earmarks in the joint funding resolution that
we will pass. We will place a moratorium on all earmarks until a reformed
process is put in place."


House Homeland Security
Committee

Rep. Bennie Thompson (D-Miss.)


Deeply interested in Hurricane Katrina-related reforms, Thompson also has
sponsored legislation to foster mass transit security, appoint assistant
secretaries of cybersecurity and physical infrastructure security, improve
interoperable communications and strengthen the Homeland Security Department's
privacy office.


Senate Foreign Relations
Committee

Sen. Joseph Biden Jr. (D-Del.)


In a post-election statement, Biden said he intends to introduce legislation to
set aside $53.3 billion over five years in a Homeland Security trust fund to
fully implement recommendations of the 9/11 Commission. The financing would be
made available through a partial rollback of the tax cuts that Congress enacted
in 2001 and 2003.


House Small Business
Committee

Rep. Nydia M. Velazquez (D-N.Y.)


Velazquez has pledged to be an advocate for small business, including reducing
regulatory burdens and the cost of capital. "This is an agency that used to be
Cabinet-level, but has seen its budget cut nearly in half over the past six
years and has fallen victim to mismanagement. It is vital that we restore the
Small Business Administration to the economic powerhouse that it once was so it
can fully meet the needs of small businesses and the U.S. economy," Velazquez
said in a Dec. 8 statement.


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