Senate sets limits on contracting

Defense bill requires more competitive bids, fixed-price buying

Dendy Young, chairman and chief executive officer of GTSI Corp.

Olga Grkavac, executive vice president, Information Technology Association of America

The Senate's 2003 Defense authorization bill has raised objections from technology industry representatives to provisions that would significantly change how the Defense Department purchases professional services.

Of strong concern is a provision that would limit the number of time-and-materials and labor-hour contracts that can be awarded by the department for professional services. The bill, S. 2514, which passed the Senate June 27, says at least 30 percent of fiscal 2003 purchases should be made using firm, fixed prices; by 2011, it increases the percentage to 80 percent.

The bill also would force the department to increase the percentage of service contracts it awards competitively, from at least 50 percent in 2003 to 80 percent in 2011.

Another provision requires the department to report to Congress on the fees it has paid during the last three years to use other agencies' contracting vehicles, such as the General Services Administration schedules, and to assess how those costs could be reduced.

Industry just beat back a proposal by the Office of Management and Budget that would have limited the use of time-and-materials and labor-hour contracts under the GSA schedules.

Industry officials argued that the proposal would have severely hindered the Defense Department's ability to contract for services quickly. They argued that time-and-materials and labor-hour contracts are essential for complex IT solutions where the buyer cannot know in advance everything that will be needed.

In response to industry opposition, officials in OMB's Office of Federal Procurement Policy have said they would not include these controversial limitations in the final rule implementing Section 803 of last year's defense authorization act. The rule has not been released.

Section 803 requires contracting officers to get at least three bids for each services acquisition job worth more than $100,000 that is made under a multiple-award contract.

Industry objects to the new Senate provisions, which would impose limitations on Defense Department procurement procedures before the Section 803 rule has even been released.

"We strongly oppose what we view as seemingly arbitrary percentage goals until the department has implemented last year's rule," said Olga Grkavac, executive vice president of the Information Technology Association of America in Arlington, Va.

Grkavac said ITAA hopes to convince conferees in the House of Representatives to defer the requirements until Defense Department buyers and industry sellers have experience doing contracting with the Section 803 rule. When Congress returns from its August recess, the Senate and House will confer to reconcile the differences between their 2003 defense authorization bills.

A Senate staff member said the 2003 authorization bill does not establish any new requirements on how competitions are to be conducted, so waiting until the Section 803 rule comes out is unnecessary.

"The requirements for competition were established last year. This sets objectives for what we think [the Defense Department] can accomplish," he said. The provisions are designed to help control costs, the Senate staff member said, and to encourage Defense Department buyers to look at the full range of procurement vehicles available to them.

In the past, some buyers have routinely waived requirements for competition in contracting, he said.

"If you have goals, it helps you realize you shouldn't be waiving those requirements routinely, which has happened in the past," the staff member said. "If someone comes to us and tells us these are wrong numbers, we are happy to revisit that, but we think they are doable."

Some people on Capitol Hill believe there may have been some abuses in contracting, and this belief is fueling the changes, said Dendy Young, chairman and chief executive officer of GTSI Corp. in Chantilly, Va., a reseller of information technology products to the government.

"In any system as large as federal government, there can and will be some abuses," Young said. "[But] if [agencies] have a mission to accomplish, they are going to work with a trusted partner."

In other words, contracting officers may move to purchasing vehicles that are easier to use. "The mission of the customer is more important today than it has ever been. They will end up buying from preferred suppliers anyway; they will use some other contract," he said.

Congressional authorizers are concerned that Defense Department buyers are not considering other contracting options, the Senate staff member said.

"Easy and fast [contracting vehicles] are good; we just want to make sure they consider the costs as well as the benefits," he said. "Particularly in a case where the department might negotiate its own blanket purchase agreements, it is using its own people to do that, and it still paying an overhead fee to another agency. Why pay an overhead fee when you are doing all the work?"

"We don't propose a solution, we just want them to do a cost-benefit analysis and make a decision in the best interest of the DoD and the taxpayer," he said.

Grkavac said ITAA is concerned about the tone of the cost-reporting provision.

"It seems to suggest that placing orders off of another agency's contracts and paying associated fees is by definition bad. There are cases where it might be the most efficient [way]," Grkavac said. "We would suggest at a minimum it would be rewritten."

The proposal does point out, however, that the GSA, in particular, has an opportunity to perform its contracting services more efficiently, Young said. GSA charges its customers 1 percent of the contract value to use its vehicles; the NASA Scientific and Engineering Workstation Procurement vehicle, for example, charges .75 of 1 percent, he said.

"All contracts have different personalities and applicability at different times.
[Nevertheless], agencies are wise to think about where they are sending their money," Young said.

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