Administration will seek limits on some contracts

The Obama administration intends to reform federal contracting by limiting the use of certain types of contracts, according to its fiscal 2010 budget proposal released today.

Administration officials want to review sole-source and cost-type contracts, such as performance-based contracts or contracts with award fees. Cost-type contracts are particularly vulnerable to waste since they provide no incentive to control costs, the budget proposal states. Those contract types increased more than 75 percent under President George W. Bush’s administration.

Meanwhile, the new stimulus law requires agencies to enter fixed-price contracts to the maximum extent possible. Officials say fixing a contract's price at the beginning offers the most incentive for the contractor to control costs while exposing the government to the least risk. However some experts say fixed-price contracts increase costs because the companies raise their prices to offset the added risk.

The administration also said it's concerned about handing too much work to contractors; the budget says officials plan to clarify what the government considers an inherently governmental function.

An inherently governmental function is work that only a federal employee can perform. It’s “a function that is so intimately related to the public interest as to mandate performance by government employees,” according to a 1992 policy letter from the Office of Federal Procurement Policy.“Critical government functions will not be performed by the private sector for purely ideological reasons,” the budget document states.

Many of these areas are being dealt with by Congress. The fiscal 2009 Omnibus Appropriations Act, which the House passed Feb. 25, would require a clarification of what is inherently governmental work.

In addition, administration officials say companies have benefited by the growth of federal contracting. Government spending on contracts more than doubled from about $208 billion in 2000 to more than $423 billion in 2006  while the number of officers overseeing these contracts remained flat. Congress has appropriated funds to build up the acquisition workforce, but agencies say they can't find people to fill the jobs.

Also, the budget proposal states that the value of contracts not subject to full-and-open competition grew from $48.6 billion to $112.5 billion from 2000 to 2006. However, some experts say the percentage of federal contracts that are competed among contractors has remained steady despite the growth in spending.

About the Author

Matthew Weigelt is a freelance journalist who writes about acquisition and procurement.

Reader Comments

Mon, Mar 2, 2009

A move towards Performance-based contracting was one positive highlight of President Bush's Management Agenda that has just recently started gaining traction. It is a mistake citing Performance-based contracting as the example of sole-source and cost-type contracts. Although fixed-price contracts put most of the financial risks on the contractor, they restrain optimal performance by placing all the emphasis on cost. Fixed-price contracting cause contractors to cut corners and produce undesirable outcomes. I hope the Obama administration seriously considers moving forward with the movement towards Performance-based Contracting instead of taking a step backwards to fixed-price contracting.

Fri, Feb 27, 2009 been_there

As a "mature" (read older, experienced) CO, I agree that the first poster knows what he/she is talking about. Beyond that, it should be noted that the profit structure is different for cost reimbursible versus fixed price contracts. Profit should be tightly related to risk. Most fixed price contracts have a more generous profit structure because the contractor accepts more risk. Persons awarding cost type contracts should be awarding them at significantly lower profit margins due to the transferance of risk to the Government. In either case, contract administration is imperative.

Fri, Feb 27, 2009 Pat

Fixed Priced contracts are not the solution to every problem. Yes by definition there is the least risk for the Government in a fixed price contract IF the specification is well defined. Otherwise you wind up with an increasing "fixed" price based on contract modifications because the spec wasn't clear. Award Fee contracts are not inherently bad either - but there are a number of them out there that have really bad Award Fee Determination Plans (AFDPs). The AFDP shouldn't give the contractor 50% or more of the available award fee (ie profit) for doing the job adequately. Award Fee should start at ZERO and be EARNED for good performance; not start at 100 and be taken away for bad performance which is how some plans are structured. Meeting the standard for the performance measure shouldn't get you a 100 - that's if you exceed the Goal. And if you don't understand the difference between standards and goals, then you should be using award fee contracting

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