Contractors aim to win converts on service acquisition reform bill

Federal contractors are gearing up to promote legislation that would radically change how the government buys services. But they are already facing opposition from the Defense Department, a government watchdog group and the Office of Management and Budget.

The contractors are pushing H.R. 3832, the Services Acquisition Reform Act, which was introduced by Rep. Tom Davis, R-Va., in March.

The bill would extend commercial reforms put in place by the 1996 Clinger-Cohen Act to the field of service contracting, which has been overlooked in previous acquisition reforms, according to Gary Engebretson, president of the Contract Services Association. The 1996 act focused on contracting for products. Among other measures, the bill would exempt certain kinds of service contracts from stringent acquisition rules, promote share-in-savings pacts, which let contractors and agencies split savings generated by new innovations, and create a government-industry exchange program for contracting officials.

OMB and the Defense Department's inspector general oppose some of the bill's proposals. For example, OMB does not want to make share-in-savings contracts permanent. The contracts were authorized on a pilot basis for IT projects under Clinger-Cohen.

The first step in writing such contracts is to develop a performance baseline. If contractors exceed this baseline, they are rewarded with a portion of the savings that result from their performance. But agencies still have trouble defining the baseline, according to Angela Styles, administrator of the Office of Federal Procurement Policy at OMB.

"The authority should remain as a pilot for IT until there are demonstrable benefits," Styles said at a March 7 hearing of the House Government Reform Subcommittee on Technology and Procurement Policy, which Davis chairs. "To date, we have not seen results."

But once OMB realizes how share-in-savings contracts can support its competitive sourcing agenda, it will extend them, Engebretson said. Under OMB's competitive sourcing agenda, agencies will force some 425,000 workers to compete with contractors for their jobs. In his view, the contracts give agencies an incentive to outsource work by allowing them to keep part of the savings. "In order to get the agency to do more outsourcing and be comfortable with it, there has to be share-in-savings," he said.

Davis may add the share-in-savings provision to other legislation, according to spokesman David Marin.

Styles and Defense Department Deputy Inspector General Robert Lieberman also object to a section of the bill that would allow agencies to award time-and-material and labor-hour service contracts under the procedures of part 12 of the Federal Acquisition Regulation (FAR). Moving these contracts under part 12 - designed to streamline acquisitions for commonly available goods and services - would increase their use, a dangerous move because such contracts are subject to cost overruns, according to Lieberman.

"We believe the use of these contracts should be discouraged, not expanded," he wrote in a March 12 letter to Davis' subcommittee. "These types of contracts require a high degree of labor-intensive surveillance and are more susceptible to cost growth."

Lieberman said that equally problematic is a section that broadens the category of commercial services that can be sold to the government under FAR part 12 to include research and development services. As a result the Defense Department would have to pay more for the same research currently provided under a different section of the FAR, he said.

Engebretson said the provision should be modified so that high-risk, non-commercial services are not classified as commercial. He is optimistic that further negotiations will overcome early critics of the bill, but admits that some organizations might be beyond persuasion.

The Project on Government Oversight, a government watchdog group, criticized the bill at the March 7 hearing and observers expect the largest federal employee union, the American Federation of Government Employees, to oppose the bill as well.

"Now we know AFGE is going to try and tear it apart," said Engebretson. "But this really has nothing to do with threatening their members. This is about improving the contracting process."

Engebretson, whose group helped write the bill, admits it still needs some fine tuning and is unlikely to pass by the end of the congressional session.

"My personal opinion is that we won't get it through in this Congress," Engebretson, said. "I think it will take another Congress to do it."

Davis is considering a variety of ways to advance the bill, including attaching pieces of it to other legislation, according to Marin. The congressman wants his subcommittee to approve the bill before Congress adjourns for the summer.