Reform, Obama-Style

As spending balloons, the president orders up a contracting overhaul.

President Obama shook up the federal procurement community in March when he held a news conference to announce major reforms of the contracting system aimed at saving taxpayers $40 billion annually.

In a memorandum, Obama told the director of the Office of Management and Budget to work with the Defense secretary, NASA administrator, General Services Administration chief, Office of Personnel Management director and others to develop guidance on strengthening contract oversight. That includes ending unnecessary no-bid contracts and cost-plus deals. The guidance, which is expected by Sept. 30, also will include a thorough review of the outsourcing of government services.

"The line between inherently governmental activities that should not be outsourced and commercial activities that may be subject to private sector competition has been blurred and inadequately defined," the memo stated. "As a result, contractors may be performing inherently governmental functions." The Obama administration's moves had an immediate impact on procurement at civilian agencies.

In March, the Internal Revenue Service ended its controversial private debt collection program. Private security contractor Blackwater Worldwide (now known as Xe) lost a key State Department contract. GSA slowly began to phase out some of its governmentwide acquisition contracts.

On Capitol Hill, legislators began the process of driving the final nail into public-private competitions for federal work under OMB Circular A-76, weighing a bill that would suspend the process for three years. New contracting oversight panels sprouted up in the House and Senate.

Change also was the theme in the contractor community. In February, BearingPoint Inc., which had more than $550 million in contracts with civilian agencies in fiscal 2008, filed for Chapter 11 bankruptcy. Three months later, consulting giant Deloitte purchased BearingPoint's government practice for $350 million.

Civilian agencies spent more than $137 billion in contacts in 2008-nearly $17 billion more than the year before. The Energy Department led the way, followed by NASA, the Homeland Security Department and the General Services Administration.

Civilian spending is destined to rise even higher, due to the Treasury Department's Troubled Assets Relief Program and Obama's $787 billion economic stimulus package.

Lucrative oversight and auditing contracts under TARP were issued to Bank of New York Mellon, PricewaterhouseCoopers, Ernst & Young and others. But those contracts pale in comparison with the estimated $60 billion in federal contracts that are expected to be issued through the Recovery Act.

But the added business will come at a price. More oversight, enhanced competition and increased reporting requirements are the order of the day in recovery contracting. The reports must include the dollar amount of each contract, the supplies or services delivered, and the timeline for completing the work. Contractors also have to describe how the stimulus money affects employment, including an estimate of jobs created and retained.

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