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The Defense Department will not restrict the Pentagon from doing business with the General Services Administration's assisted services regional contracting shops, according to a draft inspector general report.

A negative ruling by the Pentagon inspector general on any of GSA's 11 regional customer service centers would have greatly restricted the Defense Department's ability to do business with blackballed regions. Pentagon orders constitute more than 83 percent of the $3.6 billion in business the GSA regions conducted in fiscal 2005, according to the audit.

Any restriction would have been a blow to GSA, which already is reeling from sharply declining business. A GSA spokeswoman contacted on Wednesday did not respond to requests for comment.

Still, Defense auditors said they found numerous contracting irregularities. Four GSA regions -- Northeast and the Caribbean, Great Lakes, Greater Southwest and Northwest/Artic -- were not fully compliant with Defense regulations and may have committed violations of the Antideficiency Act, the law that prohibits agencies from spending money they don't have.

GSA's Federal Acquisition Service Commissioner Jim Williams countered in an Aug. 17 letter that most of those potential violations are really matters of differing legal interpretations of appropriations law.

GSA did, however, commit one Antideficiency Act violation, in connection with an information technology purchase by the Defense Department's Joint Information Operations Center, Williams said. The violation was "aberrant and not reflective" of GSA, he said.

Many of the contracting deficiencies mentioned in the report were committed by Defense officials. This means the real importance of the audit might lie in whether Pentagon officials use it to justify further cutbacks in interagency contracting, some observers said.

The report noted that the Pentagon "is providing GSA between $60 million to $150 million in surcharges that might have been put to better use in DoD if using a DoD contracting officer had been a viable option instead of GSA."

The Pentagon's "sense is that if you do all [acquisition] inside DoD, they'll have more control," said Bob Woods, a former GSA Federal Technology Service commissioner, now president of Topside Consulting Group. "This is policy by audit."

The report likely will have the effect of making Defense officials "increasingly resistant to use GSA, and not just assisted services either," said Larry Allen, executive vice president of the Washington-based Coalition for Government Procurement, a contractor trade association. Though innocent of irregularities, GSA's schedules program may suffer as a result, he added.

The best outcome would be for the Pentagon to step up its procurement oversight and improve its management rather than attempt to develop new in-house acquisition capabilities, Allen said. "Unfortunately, I think there's going to be a rush to decision-making that says the latter, not the former," he added. There have long been people within the Defense Department and on Capitol Hill who favor keeping acquisition inside the department.

However, a Senate staffer who spoke on condition of anonymity said it's likely that the Defense Department's "preference is to get other agencies to clear up their act, because I'm not sure they have a whole lot of enthusiasm for going on a massive hiring program." Defense procurement offices are already short staffed, the staffer said.

The main sticking point hindering improved relations between the Pentagon and GSA, the staffer said, lies in their differing interpretations of the law that governs when the clock starts counting down the time remaining on contracts for services purchased on an annual basis -- so-called severable services contracts.

GSA's position is that once payment for severable services is accepted, the requesting agency can record the money as officially obligated even if the money remains unspent into the following fiscal year. The Defense Department argues that the money counts as obligated only once it is actually spent on a contract.

"The question is can you essentially extend the money by shifting it over to another agency on the last day of the fiscal year," the Senate staffer said. "GSA is now saying you can; DoD is saying you can't. That's a pretty significant difference."

COMMENTS

• Since GSA consistently refuses to follow the rules that the rest of us in contracting have to, they deserve to go belly up. How long do they have to be told to clean up their act before they finally get a clue? They have been allowed to skate far too long. Good riddance. DoD Contract Specialist GovExec.com reader Posted August 28, 2006 9:27 AM
• I don't particularly like the way DOD uses the GSA to launder money from one color to another, but in the long run after little issues like these are resolved and certain individuals are off on an all-expense-paid vacation where they can ponder their deeds while making little rocks out of big rocks, routing all of DOD's purchases through GSA will go a long way towards unifying DOD purchasing. Service-unique purchasing fiefdoms are unable to take serious advantage of the economies of scale that could be available if all used the same comm and IT equipment, and surveillance and detection systems. Lack of development funds is forcing DOD to turn to Commercial-Off-The-Shelf items. COTS is the name of the game so we might as well ensure that this junk can at least function correctly and consistently in a military scenario. We can do that if we have the combined buying power to enforce our requirements instead of having to accept the inadequate equipment currently found in the GSA inventory, or worse yet, contract independently for the commercial crap offered by vendors who know better. GovExec.com reader Posted August 25, 2006 12:52 PM