Cutting Waste in Contracting

Over the last two years, this Administration has focused on reducing waste in government spending in an effort to ensure that every tax dollar is spent wisely. One critical area of focus has been on contracting. During the last Administration, spending on contracting doubled—too often resulting in waste, fraud, and abuse.  The Obama Administration is committed to cracking down on this waste and strengthening accountability by both reducing and improving the use of contracts. As a result of an aggressive effort led by President Obama, contracting decreased for the first time in 13 years last year. In fact, agencies spent nearly $80 billion less than they would have spent had contract spending continued to grow at the same rate it had under the prior Administration.

We are continuing our efforts to strengthen accountability in contracting as part of the Campaign to Cut Waste, the Administration’s effort to root out misspent tax dollars. During the recent White House Forum on Accountability in Federal Contracting, OMB announced a goal of reducing spending on management support service contracts by 15 percent by the end of FY 2012 – a reduction of $6 billion.

Where the services are really needed and cuts might harm program or project performance, agencies must find ways to buy smarter, such as by negotiating lower rates or converting to fixed-price arrangements.

Why the focus on management support services─ which include activities as varied as engineering and technical services, acquisition planning, information technology systems development, and program management? 

First, these services are frequently cited as creating a potential risk of overreliance on contractors for critical activities related to agencies’ missions and operations.  That overreliance has long been a concern, and the President called for addressing it and rebalancing our relationship with contractors as early as his March 4, 2009 Memorandum on Government Contracting.

Second, over the past decade, agency spending on contracts for these functions has nearly quadrupled, going roughly from $10 billion to $40 billion and far outpacing the already-fast growth in contract spending generally. 

Third, our analysis found that agencies are twice as likely to buy these services using high-risk contract pricing arrangements that put agencies—and therefore taxpayers—at greater cost risk than when fixed prices are used. 

We have heard people ask whether this new initiative is meant to discourage use of contractors.  It is not.  Contractors provide valuable services to our agencies, and we will continue to benefit from their services.  Nor is it intended to curb the Administration’s emphasis on investing in what works, and ensuring we have the data, evaluations, analyses, and other studies we need to spend taxpayer dollars wisely.  The Administration remains strongly committed to investing in what works, strengthening program evaluation and data-driven management, supported as needed by contractors. We fully expect agencies to continue to make good use of the expertise, innovation, and capabilities of contractors for a wide range of management support activities, such as program evaluation.  However, in this tight budget environment, agencies simply must be more fiscally responsible in how they acquire contracted services.

Specifically, agencies will need to make decisions about where they can buy less – for example, about where there is excess that can be eliminated, and about what is affordable and what is not.  Where the services are really needed and cuts might harm program or project performance, acquisition professionals can help the program offices find ways to buy smarter.  That can be through negotiating lower rates, or converting to fixed-price arrangements, or in other ways.

We will be tracking and posting our progress on the $6 billion goal regularly, as we continue our efforts to root out waste in contracting.

Daniel Gordon is the Administrator for Federal Procurement Policy.