The Cost of Convenience

When agencies use each other's contracts, the rules sometimes get lost in translation.

In early 2004, the Office of Special Counsel, which protects federal whistleblowers, decided it needed the services of a consultant for management advice. It paid the Treasury Department's Administrative Resource Center to select and hire an Alexandria, Va.-based professional services company.

Like many other small federal agencies, OSC doesn't maintain a specialized contracting staff in house. Instead, it buys contracting and administrative services from Treasury's procurement shop. A year and a half later, the Government Accountability Office faulted both agencies for breaking procurement rules when awarding the $140,000 contract to Military Professional Resources Inc. without competition.

What happened next sounds like a bad breakup story, with each side blaming the other: Treasury's Administrative Resource Center says it relied on OSC input to determine whether the contract should be sole sourced. OSC says it paid Treasury $20,000 a year to handle its contracting, and therefore the resource center was responsible for making sure contracting rules were followed.

"They're the experts. We tell them what we want, and they tell us where it's appropriate under the Federal Acquisition Regulation. I believe it's very clear," says Jim McVay, deputy special counsel at OSC.

To some degree, it is clear: GAO agreed that the Administrative Resource Center was responsible for justifying the decision to issue a contract without competition. But GAO also found that OSC officials who were not trained in contracting participated in price negotiations and other procurement decisions. "OSC officials demonstrated a lack of awareness of their responsibilities," the report (GAO-06-16) stated.

The communication breakdown exemplifies one of the key problems with interagency contracting-the practice of buying goods or services through another agency. Confusion over which agency is in charge of what tasks, such as choosing the vendor, deciding how the contract is awarded, negotiating price and monitoring contractor performance, is so rampant that in early 2005, the Government Accountability Office placed interagency contracts on its watch list for waste, fraud and abuse.

Federal acquisition regulations offer some guidelines on interagency contracting, but "They're pretty sketchy," says Robert Burton, associate administrator of the Office of Management and Budget's Office of Federal Procurement Policy. The OFPP, which shapes government-wide policy, recently formed a task force to evaluate the approach. OMB plans to issue clarifying guidelines later this year.

How detailed the rules should be is a matter of debate. Do agencies need step-by-step guidelines specifying each interaction they have with each other? Or should they be left to shape their own policies?

As these questions are sorted out by procurement executives, the explosive growth of inter-agency contracting continues. During the past decade, inter-agency contracts have become to federal agencies what dishwashers were to homemakers in the 1950s: a great way to save time, with occasional problems that result from lumping everything together.

Sharing Contracts

Interagency contracts have become popular because they enable agencies to buy goods and services more easily and more quickly than if they had to set up contracts on their own. Sales under the General Services Administration's schedules program, a form of interagency contracting, increased to $32.5 billion in fiscal 2004, a sevenfold increase from $4 billion in fiscal 1992. Examples abound: The Defense Department buys information technology services from GSA, the only federal agency explicitly charged with creating governmentwide procurement contracts for a range of goods and services. The Air Force relies on GovWorks, an organization within the Interior Department that provides contracting services for a fee, to set up business deals for professional services.

"We need those contracts just to get things done," says a Defense acquisition official who asked not to be named. Because of workforce cuts, the department doesn't have the resources to put a new contract in place every time it needs something, he says.

At the same time, reports from GAO and inspectors general have found that interagency contracts tend to be awarded with less competition and oversight than those handled within a single agency. "It is not always clear where the responsibility lies for such critical functions as describing requirements, negotiating terms and conducting oversight," said a January 2005 GAO report (GAO-05-207).

Eugene Waszily, assistant inspector general for auditing at GSA, says one reason contracting organizations might be willing to bend the rules is their desire to please customers. Procurement shops such as GovWorks are self-sustaining, which means they receive no money from Congress and use their revenues to fund operations. Procurement centers "may go even beyond bending the rules to accommodate what the client is looking for," he says. "If they don't have enough clients, they'll go out of business.

In a presentation in May 2005 to a government panel created by the 2003 Services Acquisition Reform Act, Waszily said the subtle message from buying agencies to procurement offices is, "Get me who I want, when I want them, or I'll go to another procurement shop that can."

Waszily says he suspects that in some cases, agencies use gentlemen's agreements to work out which agency handles certain aspects of contract administration, which means unwritten agreements are governing behavior-and that can muddy the waters. In some cases, after interviewing the customer agency and GSA, Waszily's team found that "everyone pointed their finger at the other and said, 'I think they're responsible.' "

Procurement shops that serve other agencies for a fee tend to emphasize that contracting responsibilities are shared with their customers. Writing work statements and monitoring contractor performance are among the duties they often expect their clients to handle, the same way contracting and program offices work together when contracts are handled within a single agency. "For source selection, we both participate. It can't work any other way," says Michael Cundiff, director of procurement at Treasury's Administrative Resource Center. "They're the ones that know what they want and what they need," he says. The center handles about $700 million worth of procurements a year.

David Sutfin, chief of GovWorks, a fee-for-service organization that GAO criticized in July 2005 for its pricing methods, says, "Without constant dialogue with customers, you make mistakes in execution. Both sides of the project must work together. It's a shared responsibility."

Buying agencies, on the other hand, often envision handing off most of the contracting responsibilities to experts. "We rely on [the Administrative Resource Center] to say if we're doing something wrong. . . . They're the ones who have the official role," says Scott J. Bloch, OSC's special counsel. "We simply did what we were told."

Auditors have discovered that agencies sometimes place orders against contracts that are outside the intended scope. In a high-profile example, the Army hired interrogators in 2003 and 2004 for the Abu Ghraib prison through a technology services contract managed by the National Business Center, a fee-for-service procurement shop at the Interior Department that has since merged with GovWorks. Interior ended the contracts after the Abu Ghraib controversy became public.

Another problem with interagency contracting is that no one really knows how much of it goes on. "There's a vast realm of interagency vehicles that don't have a lot of oversight, or even a lot of visi-bility," says Jonathan Etherton, vice presi-dent of legislative affairs for the Arlington, Va.-based Aerospace Industries Association. The government cannot track inter-agency contracts through the Federal

Procurement Data System. The Services Acquisition Reform Act panel, on which Etherton serves, will recommend that the data system be improved, he says.

Auditors also have found that agencies offering interagency contracts sometimes charge fees that are unjustifiably high. In 2002, GAO said revenues from GSA's schedules were being used to offset the costs of other programs at the agency. GSA has since worked on reducing its fees.

"Inevitably, we're going to pay more when we use another agency," says John Ely, executive director of Customs and Border Protection's procurement office. His goal, he says, is to cut back on inter-agency contracting significantly in order to reduce those fees. To do that, he's going to increase his staff by 50 percent.

Ely says the savings generated from lower fees, as well as in-house control over prices and quality, justify the cost of adding staff. "When you're riding another agency's contract, the terms and conditions of the contract are written for that agency," Ely says. "It's harder to monitor, and I can't enforce the terms of somebody else's contract."

In a way, managing an interagency contract presents the same challenge as any long-distance relationship: "Before, if you didn't use an assisting agency, all of these functions could very well be in the same building. You could just walk down the hall, and each of those people would have the same boss. You could coordinate within the family," says James Durkee, a policy analyst with XL Associates, a government acquisition consulting firm headquartered in McLean, Va.

Taking Control

Some procurement executives have decided that the best way to ensure success with interagency contracting is to embrace a do-it-yourself model. Michael Sade, procurement executive at the Commerce Department, which runs the COMMITS contract for information technology, spells out the rules online for customers. "We make it very clear . . . the ordering guide lays out what the customer is responsible for, and what our office is responsible for," he says. Source selection, for example, is the responsibility of the buying agency because it knows the mission best, Sade says, adding that such explicit rules are unusual among agencies that manage interagency contracts.

Sutfin of GovWorks says his organi-zation is moving toward more explicit agreements with customers. GovWorks is working on a draft memorandum of understanding with the Pentagon to clarify basic concepts of their relationship: GovWorks will have a trained and educated workforce that will follow the regulations; it will follow the rules of the customer agencies when they tell GovWorks what those rules are; and GovWorks will work with customers if concerns arise.

The procurement shop already lays out the division of labor in two documents, one signed by a GovWorks contracting officer and the other signed by the buying agency. It explains, for example, that the agency is responsible for writing the work statement describing what kind of goods or services it needs.

In a September 2005 internal memo to senior officials, the Pentagon also clarified its interagency contracting policy: The memo said Defense employees buying goods and services through another agency must work with that agency to ensure "responsibilities of contract administration and oversight are clearly assigned." Each military service has its own more detailed policy on interagency contracting.

GSA sets up a memorandum of understanding with each customer agency to define how they will divide responsibilities, says Emily W. Murphy, GSA's chief acquisition officer.

OFPP's Burton wants to initiate governmentwide clarity. In late 2005, he launched the task force on interagency contracting in response to GAO's concerns as well as those expressed by procurement executives and industry officials, and will incorporate the recommendations of the Services Acquisition Reform Act panel. The task force, which first met in December, will collect data on interagency contracting from agencies. Then the group will look at whether there are too many inter-agency contracts, and how to clarify the roles and responsibilities of agencies working together, Burton says, The goal is to release guidelines this year.

The idea of establishing clear-cut directives is so appealing, in fact, that it's been attempted before. In 1997, then-OFPP chief Steven Kelman brought together managers of governmentwide contracting programs "to try to get them to agree on the rules of the road," he says. He called their agreement the Mayflower Compact, be-cause, "We were coming into a new world, like the pilgrims." Kelman is now professor at Harvard's John F. Kennedy School of Government and lobbyist for government contractors Accenture and Ariba Inc. His Mayflower Compact has faded into history.

Deidre Lee, Kelman's successor at OFPP and now a GSA executive, also tried to get a handle on uncharted territory. After launching a two-year evaluation of governmentwide acquisition contracts (GWACs), she told Government Executive in 1999, "In the old world of procurement, you knew that if you issued the contract, then you were responsible for its administration. In this new world, you really have two separate entities. You may have someone at an agency that has issued a GWAC and another agency ordering against it. Who's responsible for what?"

As for the contractors, for the most part, they just want to make sure they're employed. When asked how Military Professional Resources Inc. felt about the Treasury-OSC contracting mix-up, a spokesman for the company said MPRI just does the work it gets. But senior federal procurement officials say contractors have complained to them about the proliferation of interagency contracts because it means more spending on bids and proposals.

Rep. Tom Davis, R-Va., chairman of the House Committee on Government Reform, also has said interagency contracting programs are getting out of hand. "Too many are sprouting up outside of GSA, contributing to a messy jumble that lacks any apparent overall governmentwide plan," says Drew Crockett, spokesman for Davis.

Snowballing Demand

It's clear is that despite confusion, interagency contracting, will continue to prosper. Even after the apparent miscommunication between the Administrative Resource Center and OSC, their relationship has blossomed. In fiscal 2004, OSC paid the center $171,000 for contracting, financial and other administrative services; in fiscal 2005, it paid $186,000. Today, Cundiff personally reviews all decisions to award contracts without competition, and OSC is training an additional employee to act as a contracting officer's representative.

"Without [the Administrative Resource Center], I don't think we could function adequately. . . . [Contracting] costs a certain amount of energy and capital that the agency wants to devote to other things, like protecting whistleblowers and federal employee rights," says Bloch, the special counsel.

As OFPP's Burton puts it, "Some agencies are better than others at procuring commodities and services, so why not rely on that type of expertise?"

A squeezed contracting workforce also is likely to place more demands on inter-agency contracts. As more contracting specialists retire, fewer employees will be left to handle procurements. The approach "is a great way of addressing workforce issues. It allows a specialization of labor. . . . By allowing GSA to handle contracting, it allows agencies to devote dollars to other parts of their mission," says Murphy.

While outside observers have pointed out that GSA could lose business as other agencies offer more interagency contracts, agency officials have not publicly stated any such concern. Murphy says she hopes agencies will find they can get better value at GSA, but if they find it elsewhere, they should use the vehicle that offers the best value.

Cross-agency collaboration in other areas, such as strategic sourcing, also is likely to boost interagency contracting. The Federal Strategic Sourcing Initiative, co-chaired by GSA and Treasury, brings together nine agencies with the goal of finding common contracting programs for certain commodities. The Veterans Affairs Department, for example, might invite other agencies to make purchases through its express delivery contract, says Jan R. Frye, VA's deputy assistant secretary for acquisition and materiel management.

Veterans Affairs' mission is to serve veterans, which includes helping them get health care and other benefits. As with other agencies venturing into the inter-agency contracting world, contracting services had not previously been part of the department's offerings.

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