New leaders take on old problems

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. 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. 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."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 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 .XXXSPLITXXX-