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A Chance For Contract Reform

June 29, 2009

Following on from my last post regarding public sector contracting, the Obama administration initiative creates an opportunity for change.  While welcoming the recognition this brings to the importance of contract management, I am concerned that the proposals miss some of the key factors that must underpin improvement.

 Major goals of reform should be to address demonstrated weaknesses and develop procedures and practices that meet the needs of today and the future. It is questionable whether these proposals satisfy either of these criteria. IACCM is preparing its comments and welcomes input from all interested parties. The Association is uniquely positioned to offer global, cross-industry and multi-functional perspectives, which are especially important not only for the sake of the US economy, but also due to the effect that reform may have elsewhere. 

While this initiative obviously applies initially to those in the US (or bidding as contractors or sub-contractors for US Federal business), we believe that revised policies may prove influential in other jurisdictions. There is growing interest from Governments worldwide in improving contracting practices and at present the US offers one of the most detailed models.
IACCM’s work in government / public sector contracting has shown the need for fundamental change in public sector procurement policy and practice. We will draw from our research in compiling our input, in particular highlighting the need for more balance in risk allocation; a more robust approach to post-award contract management; the weaknesses caused by some third party involvement; and the need for improved flexibility in contracting models and process. We will also confirm the challenge regarding skills, with traditional procurement training suffering from an absence of advanced contract management skills or methods.
Please review the brief summary of the proposals set out below and send your views and recommendations to IACCM will consolidate these into a set of comments and I will post the results here. 
Industry concerned over details of contracting reforms

By Elizabeth Newell June 18, 2009

Industry groups said on Thursday that they generally agree with the principles outlined in President Obama’s March 4 memorandum on contracting reform, but have some concerns about related guidance to be issued by the Office of Management and Budget in September.

During a public meeting hosted by OMB in Washington, contractor associations and other interested parties offered input on increasing competition in procurement, the most beneficial contract types, strengthening the acquisition workforce and determining when it is appropriate to outsource federal jobs. Speakers applauded the Obama administration for making contracting a priority, but urged that change stem from facts rather than perception.

Chris Braddock, senior director of procurement policy at the U.S. Chamber of Commerce, said industry fully supports expanding competition where appropriate, but asked OMB to recognize that sole-source contracting is necessary and helpful in some circumstances. He noted, for instance, that sole-source awards can increase the government’s flexibility and responsiveness in times of crisis.

“There are a number of situations in which single award contracts are beneficial to the government and should be utilized,” Braddock said, noting that competition is more prevalent than people might think. Sixty-seven percent of fiscal 2008 contracting dollars governmentwide were subject to full and open competition, he said.
The industry groups seemed most passionate when discussing contract types. In the March 4 memo, Obama stated: “There shall be a preference for fixed-price type contracts. Cost-reimbursement contracts shall be used only when circumstances do not allow the agency to define its requirements sufficiently to allow for a fixed-price type contract.”

Alan Chvotkin, senior vice president and counsel for the Professional Services Council, noted the Federal Acquisition Regulation already establishes a preference for fixed-price contracts. Chvotkin suggested that agencies be required to document and share their reasons for choosing any contract type so officials would not feel overburdened if they deemed a cost-type arrangement best for a project.

Eleanor Spector, vice president of contracts for Lockheed Martin Corp., speaking on behalf of the Aerospace Industries Association, warned against using fixed-price contracts for complex research-and-development programs, citing multiple instances in which such projects came in grossly behind schedule and over budget.
“The forced use of fixed-price development has not controlled cost growth and transfers risk to contractors,” Spector said. “The current FAR policy is essentially appropriate. When it’s not followed is when the government and contractors get into trouble.”

A number of speakers cited the diminished acquisition workforce as the thread tying together all these issues. Without a strong, well-trained cadre of contracting officers and program managers, agencies are more likely to mismanage any contract type or to cut corners by making sole-source awards, industry leaders said. They unanimously supported the administration’s attempts to strengthen the procurement staff governmentwide.

They urged caution, however, in beefing up other areas of the federal workforce through insourcing. Chvotkin said PSC strongly supports further guidance on defining “inherently governmental” work.

“We don’t have a single uniform definition of inherently governmental functions and since we don’t know what an inherently governmental function is, I’ve always been amused by how Congress can expect agencies to understand what functions are closely associated with an inherently governmental function,” Chvotkin said.

Identifying critical functions is even more difficult, and, unlike defining inherently governmental, must be done on an agency-by-agency basis, he said. Each agency must determine what skill sets it needs to perform its mission and find the right balance of contractors and federal employees to meet those needs.

Discussion moderator Jeff Liebman, executive associate director of OMB, thanked the speakers for coming to the town hall-style meeting and offering their opinions. He urged interested parties to continue to engage with OMB by submitting written comments on by July 17.

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