The White House Office of Management and Budget (OMB) is directing federal agencies to develop a plan to reduce contract spending by 3.5 percent in FY2010. This will be followed by a further 3.5 reduction in FY2011. This downward trend culminates with a mandate that each agency develop a plan to save 7 percent on contract spending by the end of 2011. The Administration has a net savings target of $40 billion a year. And where is that thrift coming from? That would be you contractors.
The guidance issued by OMB Director Peter Orszag outlines strategies for agencies to improve acquisition practices, make better use of information on contractors' past performance, and find an appropriate mix of federal employees and contractors. Orszag also enumerated a number of other ways cost savings could be realized: ending contracts that are no longer essential; recruiting the acquisition workforce necessary to negotiate more favorably priced contracts and manage costs more effectively; developing strategic acquisition approaches to leverage buying power; increasing the use of technology to control contracts; and re-engineering ineffective business processes and practices.
In addition, OMB instructed agencies to reduce by at least 10 percent the share of dollars obligated through new contracts in fiscal 2010 that are awarded noncompetitively; receive only one bid; or are cost-reimbursement, time and materials, or labor hour-type agreements. The more astute reader will quickly ascertain that only one contract type has been excluded, fixed price. So this guidance continues the drum march to fixed price competitively awarded contracts.
One of the three OMB memos, titled "Managing the Multi-Sector Workforce" requires agencies to immediately conduct a pilot human capital analysis of at least one program or project where the agency as concerns about the extent of reliance on contractors. It also provides guidance on Section 736 of the Omnibus Appropriations Act of 2009. Section 736 requires agencies to implement procedures to ensure that special consideration is given to using federal employees over contractors. This new guidance is troubling for contractors already buffered by in-sourcing woes, particularly since we have no clear definition of what is inherently governmental. Onsite contractors-stay tuned.