Can the administration really trim $6B from support services contracts?

The Obama administration intends to cut $6 billion in spending by the end of fiscal 2012 on support services contracts beneficial to agency managers.

Obama administration officials say that by the end of fiscal 2012, they intend to cut $6 billion in spending on contracts for support services that help managers in various ways.

Senior officials at the Office of Management and Budget said their goal is to reduce the $40 billion in spending on management support services by 15 percent in little more than a year.

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Budget proposes cuts to some service contracts

In the past decade, agencies have bought more and more of those services, also called advise-and-assist and knowledge-based services. Spending increased from $10 billion in 2000 to $40 billion in 2010, officials said during a gathering at the White House today to announce the new goal.

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Officials say they have set their sights on those contracts because the government cannot afford them, they might come close to blurring the line between what a contractor does and what only a federal employee should be doing, or they might not be useful to the government.

“Sometimes agencies are spending money on consultants to write reports that really don’t go anywhere,” said Jeffrey Zients, deputy director for management at OMB. "They sit on the shelf."

“The most obvious reason [for the cuts] is that’s where the money is,” said Dan Gordon, administrator of the Office of Federal Procurement Policy. "That’s where the spending is."

Such contracts often pose a greater risk of cost overruns than contracts with a fixed price. Gordon said 74 percent of services contracts are cost-reimbursement or time-and-materials contracts. Only 36 percent have a firm price.

Cost-reimbursement contracts provide for payment of allowable incurred costs. For time-and-materials contracts, a company charges the government for labor hours and the materials for the project.

As for the 15 percent reduction, Gordon said the goal is not a call for insourcing and is not “a numbers game.” Agency officials cannot relabel a contract and say they've reduced their spending.

“We will work through this with the agencies to be sure [reductions are] done intelligently,” Gordon said. “We’re going to be watching.”