OMB squares off with lawmaker, agencies over GSA schedule policy

In one of the most significant procurement disputes the government has seen in years, the Office of Management and Budget is squaring off with industry, a key lawmaker, and federal procurement officials over how the General Services Administration runs its multibillion-dollar supply schedule contracts. At issue is an OMB proposal to strengthen oversight of contracts awarded through the popular schedule program, which facilitates the majority of federal IT spending and is doing a brisk business on other services as well. Critics say the proposal would drive agencies away from the schedules and marks a return to the compliance mindset that dominated federal procurement shops before the acquisition reform laws of the 1990s. OMB is trying to change a longstanding GSA policy of using acquisition rules in Part 12 of the Federal Acquisition Regulation (FAR) to govern all contracts on the schedule. Part 12 guidelines are designed to regulate firm, fixed-price contracts, contracts in which the government and a vendor agree to a price up front for the service to be delivered. But GSA has been using Part 12 guidelines--which do not require significant federal oversight--for other contract types, including labor-hour, time and material contracts, where vendors simply bill the government for the amount of hours they work. OMB believes this practice flouts the 1994 Federal Acquisition Streamlining Act, which was implemented through Part 12 of the FAR. "The requirement is that under current statute, if you are going to avail yourself of the [part 12] streamlined authority that you use firm fixed-price contracts," said a federal official. "What has happened over the past few years is that GSA started allowing the use of labor-hour, time and materials contracts on the schedule using [FAR Part 12] procedures and…everybody went to GSA because the other agencies were following the law." But critics, including Rep. Tom Davis, R-Va., say this essentially requires agencies to use firm, fixed-price contracts for all services bought through the schedule. Since many complex IT projects cannot use the firm fixed-price methodology, agencies would go elsewhere to buy these services, decimating the schedule. "This proposal…will harm the success of the schedules program and limit the services available to civilian agency customers," wrote Davis in a June 25 letter to OMB Director Mitch Daniels. Steve Kelman, a professor at the John F. Kennedy School of Government at Harvard University and a former administrator of the Office of Federal Procurement Policy at OMB, said that OMB's proposal would cause an exodus from the schedules and push agencies to use other procurement vehicles, such as governmentwide acquisition contracts. "I think the schedules would be used a lot less," said Kelman, who added that OMB's proposal is unwarranted. "The idea of prohibiting time and material contracts on the schedule is very draconian and is a real example of over-regulation in that it takes something that may be a problem in some cases and outlaws it," he said. But GSA could still use time and material contracts on the schedule as long as it stops using Part 12 procedures to govern such pacts, according to the federal official. "If GSA decided to add audit clauses and followed appropriate procedures (for labor-hour, time and material contracts), I don't think this will affect them significantly," said the official. GSA designed the schedule to be an easy-to-use contract that would attract commercial firms to the federal market by minimizing red tape. "One of the goals [of the schedule] was to bring commercial firms and commercial practices into the federal marketplace," said Allan Burman, president of Jefferson Solutions, a Washington-based consulting firm and a former OFPP administrator. "I see where [OMB] is coming from and there are some legal constraints here; I'm just concerned about the overall effect on the schedules as we start moving away from that approach." FAR Part 12 helps schedule customers conduct fast, easy procurements in a matter of days, added Carolyn Alston, a former assistant commissioner at GSA's Federal Supply Service who is now general counsel for Washington Management Group, a Washington-based consulting firm. "One of the reasons why FAR Part 12 was very attractive was it was a streamlined method of entering into a contract, and that streamlined method benefits both industry and government," she said. Alston and other architects of the schedule who have left government believe OMB's proposal would setback the acquisition reform efforts of the 1990's. "It would put a shock in the acquisition community and really start to turn back the hand of time in terms of altering the progress the government has made," said Bill Gormley, a former assistant commissioner at FSS who is now with Washington Management Group. "[The schedule] is as good an acquisition system as the federal government has ever had." OMB's proposal is part of a regulation to implement Section 803 of the 2002 Defense Authorization Act, which was intended to prevent Defense contracting officers from using the schedules to avoid competition when they buy services. OMB added the measure to Defense's rule after the Pentagon proposed to buy labor, time and material contracts through Part 12 in its proposed rule for Section 803, which was published April 1 in the Federal Register. In OMB's view, the Pentagon rule essentially validated GSA's practice of violating the FAR and had to be changed. But the budget office could have reacted differently to this provision, according to Kelman. "OMB could have simply said 'remove that from the rule,' if they were worried about that," he said. The proposal is still in draft form, but OMB intends to include it as part of an interim final rule to implement Section 803. The Defense Department and GSA are still commenting on the proposal, according to sources familiar with the issue. GSA did not return phone calls seeking comment on the proposal.