Construction Law

Obama Issues Memorandum Ordering Reduced Wastefulness in the Federal Procurement Process

By Michael Payne

On February 18, the Office of Management and Budget ('OMB') director Peter Orszag issued guidance to agencies regarding the administration of federal Stimulus funds. Just this past week, on March 4, President Obama signed a memorandum designed to reform federal government contracting. These directives mark the beginning of reform in the world of government contracting, and reflect the greater accountability and transparency the new administration promises to American taxpayers.

The OMB memo requires agencies to submit spending and performance data to the new website http://www.recovery.gov on a regular basis. The website is a web portal that demonstrates exactly how the Stimulus funds are being spent, and it calls itself the 'centerpiece' of efforts to implement the American Recovery and Reinvestment Act with 'accountability and transparency.' In a video message to Americans on the website, President Obama pledges greater accountability and transparency in government spending. In his address, he notes that the 'size and scale of this effort demand unprecedented efforts to root out waste, inefficiency and unnecessary spending,' and he refers to the Stimulus as a 'significant investment in our country's future.'

The OMB memo also increases the requirements for those doing business with the federal government. Starting on March 3, agencies must submit weekly reports breaking down how they have spent Stimulus funding. They must also summarize any major actions taken as well as any future activities. Beginning May 1, they must provide recovery plans outlining their individual agency goals and any coordinating efforts. By May 8, they must being submitting monthly financial reports detailing their obligations, expenditures, and other pertinent financial information.

Under the new requirements, agencies are now required to post pre-solicitation and award notices for any task and delivery order acquisition contracts on FedBizOpps, a clearinghouse for federal government contracting opportunities. Any Stimulus-related prospects must be specially formatted to differentiate them from regular projects. For any contracts or orders over $500,000, the agencies must summarize the contract or order, provide a description of the particular goods or services required, and then post that information to the recovery.gov website, making it available to the public.

Agencies are also urged to use fixed-price contracts wherever possible and appropriate. Several types of fixed-price contracts exist. They are designed to facilitate proper pricing under varying conditions. Generally, they place more cost responsibility on the contractor than on the Government, and encourage greater efficiency in contract management. According to Orszag, these kinds of contracts 'expose the government to the least risk.' Fixed-price contracts are outlined in more detail in Subpart 16.2 of the Federal Acquisition Regulation ('FAR').  More detailed instructions will be provided to agencies in the coming months.

Obama's presidential memo comes out of the recent government responsibility summit and calls for massive overhaul in government procurement. In his announcement regarding this memo, President Obama noted that, 'last year, the Government Accountability Office, looked into 95 major defense projects and found cost overruns that totaled $295 billion…That's $295 billion in wasteful spending.'
 

In addition to stepping up oversight within government procurement, some of the steps to be taken in overhauling the current system are to open up more opportunities for small businesses and to cease the outsourcing of services that should be performed by the government. Obama also calls for a reduction of no-bid and cost-plus contracts. No-bid contracts are another name for sole-source contracts, contracts done without the benefit of the competitive bidding process.

The justification usually offered for such contracts is that there is only one person or company that can provide the contractual services needed and that any attempt to obtain bids would only result in one person or company being available to meet the need. This kind of contract is described in greater detail in FAR Subpart 6.3. Obama notes that, '[e]xcessive reliance by executive agencies on sole-source contracts (or contracts with a limited number of sources) and cost-reimbursement contracts creates a risk that taxpayer funds will be spent on contracts that are wasteful, inefficient, subject to misuse, or otherwise not well designed to serve the needs of the federal government or the interests of the American taxpayer.'

The OMB will issue new rules regarding these changes by October 1, 2009, the beginning of the government's next fiscal year. Obama hopes to save Americans around $40 billion annually by reforming the procurement process.

Full post as published by Federal Construction Contracting Blog on March 10, 2009 (boomark / email).