High-risk fed contracts are on the decline

Agencies reduced their use of high-risk contracts when comparing the first half of fiscal 2009 and that of 2010, although this year's numbers may be too fresh, one expert says.

Federal agencies appear to have avoided more sole-source contracts this year than in fiscal 2009, as the government saw 2.4 percent fewer federal dollars awarded through that type of high-risk contract, according to figures from the Office of Management and Budget.

In the first two quarters of fiscal 2009, agencies awarded $19.5 billion in sole-source contracts, which is 23.6 percent of spending. They awarded $15.5 billion in fiscal 2010 through that contract type, which accounts for 21.2 percent of spending, according to OMB.

Overall spending for the two quarters decreased as well. In fiscal 2009, the agencies spent $82.62 billion, and in the first two quarters of fiscal 2010, they spent $73.11 billion, OMB reported.

The Obama administration has worked toward its goal of clamping down on the use of high-risk contracts, including sole-source and cost-reimbursement contracts, in which companies can be paid back for allowable incurred costs. The administration wants agencies to get a firm fixed price for work, because it shifts a contract’s risk off the government’s shoulders and onto the company’s.

“We will end unnecessary no-bid contracts and cost-plus contracts that run up the bill that is paid by the American people,” President Barack Obama said March 4, 2009, when he laid out the goal in his procurement reform memo, which was signed the same day.

In other comparisons between the two fiscal years, the use of cost-reimbursement contracts fell from $8.1 billion, or 9.8 percent of overall spending in fiscal 2009, to $6.7 billion, or 9.2 percent, according to OMB.

Another type of high-risk contract is time-and-materials contracts, and agencies have reduced the money they spend using that type of contract. Agencies awarded $2.1 billion through time-and-materials contracts, which is 2.54 percent of overall spending for the first two quarters of fiscal 2009. In the first two quarters of fiscal 2010, agencies awarded $1.7 billion through those contracts, or 2.36 percent of spending, the government agency reported.

OMB looked at only newly awarded contracts, not at modifications under existing contracts or task and delivery orders under multiple-award contacts.

However, one procurement expert urged caution when comparing fiscal 2010 figures to those of fiscal 2009. The contract actions from the first half of fiscal 2010 won’t be comprehensive until later in the year, and the picture won't be filled in completely because the Defense Department is allowed three additional months in which to report its data into the Federal Procurement Data System (FPDS), said Ray Bjorklund, senior vice president and chief knowledge officer at FedSources.

“And because DOD represents about half the contract spending, I’m not sure how you can compare the same time periods between the two years this early in the fiscal year,” Bjorklund said. Those numbers could possibly be skewed in another quarter, he cautioned.

Analysts often have to wait six months after the end of the fiscal year to get complete dollars figures from FPDS. He said OMB’s numbers for the first six months of fiscal 2010 are almost too fresh.