OMB may restrict use of GSA schedules

Vendors lament impact on time-and-materials, labor-hour contracts

Information technology vendors are fuming over a Bush administration proposal to restrict the types of contracts available on the General Services Administration schedules.

Industry experts said the Office of Management and Budget wants to curtail the use of time-and-materials and labor-hour contracts for buying commercial services under the GSA schedules and require the use of fixed-price contracts instead.

OMB's Office of Federal Procurement Policy is considering including the restriction on contract types in the forthcoming rule implementing Section 803 of the 2002 Defense authorization act. The impact would be far-reaching and immediate, opponents said. They said it would severely hinder the Defense Department's ability to contract for services quickly and, in particular, would devastate small businesses serving the government.

That's because the change would not stop time-and-materials and labor-hour contracting, but would force procurement personnel to use other contracting vehicles -- those largely held by big businesses, industry experts said.

Two-thirds of GSA schedule holders are small businesses, and one-third of schedule dollars go to small businesses, said Larry Allen, executive director of the Coalition for Government Procurement, a Washington trade group representing the GSA Federal Supply Schedule contractors.

"This would have a profound effect on small businesses who sell services through the schedules program," Allen said, adding that OFPP's move comes just weeks after its administrator, Angela Styles, held a public meeting to discuss ways to improve federal contracting opportunities for small businesses.

Proposal opponents misunderstand OFPP's intent, an OMB official said.

"We are saying if you want to use labor-hour and time-and-materials contracts, that's fine. There is nothing that prohibits the schedules to having all those contracts on them," the official said. "The issue is, do you use [contracting procedures under] Federal Acquisition Regulation part 12 or 15. FAR part 12 specifically prohibits the use of anything but firm, fixed-price contracts."

FAR part 15 allows other types of contracts but does not allow for streamlined acquisition procedures. Part 15 includes an audit requirement.

But Chip Mather views FAR part 12 differently. The Federal Acquisition Streamlining Act required the use of firm, fixed-price contracts to the maximum extent possible, but the procurement rule implementing the law went beyond that, prohibiting other contract types under streamlined acquisition procedures, he said.

"When the rule is more extensive than the statute, a waiver can be written by an agency," in this case the GSA, to permit other contract types using the streamlined contracting procedures under part 12, said Mather, co-founder of Acquisition Solutions Inc., a Chantilly, Va., firm that provides procurement consulting services to government agencies and some commercial clients.

The OFPP proposal came to light after the public comment period closed on the rule implementing Section 803, which has caused further consternation among opponents of the change and provoked a response from at least one member of Congress, Rep. Tom Davis, R-Va. Davis is chairman of the House Government Reform subcommittee on technology and procurement policy.

Davis wrote to Mitch Daniels Jr., director of the Office of Management and Budget, saying the change would "arbitrarily [eliminate] a long-standing and successful commercial practice" of the Multiple Award Schedules program, and that there would be "no opportunity for input from government or industry stakeholders on this substantive change in procurement policy."

Section 803 was designed to increase competition for jobs awarded under the schedules by requiring contracting officers to obtain at least three bids per job. Discussions about proper use of various contract types should be included in a separate rulemaking from Section 803, opponents of the OFPP proposal said.

"Section 803 is about modifying and improving the [contracting] process to ensure better competition. Contract types [are] ... not a part of the statute," said Stan Soloway, president of the Professional Services Council, an Arlington, Va., trade group representing providers of professional and technical services to government.

An OMB official said the agency is working with members of the FAR Council, which sets federal procurement rules, "to determine what if anything could be said about contract type in the implementation of 803. The bottom line is that it revolves around GSA procedures that are in conflict with FAR [part 12]. Maybe GSA would have a different view."

GSA officials declined to comment on the issue through a spokeswoman. A Defense Department spokeswoman said, "The rule implementing Section 803 is still undergoing deliberations ... and hence, we are not at liberty to discuss."

The Section 803 rule was supposed to be published in final form June 26, but at press time, it had not been released.

Time-and-materials and labor-hour contracts have been invaluable to the Defense Department, as well as other agencies, proponents of the contract types said. They also acknowledge that these contract types are not always appropriate.

Mather said some agencies force use of time-and-materials contracts because they fund services on a quarterly basis, and sometimes the method is used simply to award a job quickly. When used appropriately, time-and-materials contracts can be very valuable in getting work done quickly, and they can be written with performance-based measures to ensure contractors get jobs done right, without overcharging the government, Mather and others said.

Allen and David Marin, legislative director and spokesman for Davis, gave this example of how streamlined, labor-hour contracting helped combat terrorism: After Sept. 11, the Defense Department needed propaganda videotapes featuring Osama bin Laden translated as fast as possible. To obtain translation services, the Defense Department issued a labor order against an existing contract.

"It was impossible to know how many hours would be required because of the complexity of the task. If DoD had been required to acquire those services by a firm, fixed-price order without the ability to define the amount of work required to compete the task, the price either would have far exceeded the time required or fallen far short," Marin said, meaning that the Defense Department would have either paid too much, or incurred additional cost and time awarding new job orders until the work was finished.

The ability to use time-and-materials contracting for IT systems can be essential as well, said Michael Mason, an attorney for Hogan & Hartson LLP in Washington. Mason advises the Information Technology Association of America, Arlington, Va.

"In many cases where an agency is purchasing services related to a large, complex project, it is difficult to come up with a firm, fixed-price up front, because all the requirements are not yet defined," Mason said. "If you don't know exactly what the system components will look like, and therefore you don't know how much time it will take to implement, you need to give yourselves a very large cushion when you price the transaction. It's almost as if government would not only be purchasing services, but an extra amount that acts as insurance for the contractor."

Opponents of the proposal said they are cautiously optimistic the controversy will be resolved.

Members of the Coalition for Government Procurement are "working very hard to have this twist removed from the final [Section 803 rule]," Allen said. "We fully support the opportunity to have this issue considered in a timely manner under its own FAR case." *

Staff Writer Gail Repsher Emery can be reached at

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