Buyer’s Remorse

Some say agencies shouldn't charge other agencies for acquisition services.

For 15 years, federal agencies struggling with understaffed and inexperienced acquisition units have turned to a niche industry for help in procuring goods and services. And some of the biggest players in the business are other federal agencies.

Assisted acquisition shops provide interagency resources at various stages of the procurement process, from planning, soliciting and evaluating offers to awarding and administering contracts. They charge a modest fee, often a percentage of the overall contract price, which covers the agency's administrative costs.

The introduction of intragovernmental fees made some federal officials squeamish. With the size of the acquisition workforce failing to keep pace with government's booming contract spending, they were considered a necessary evil. But as the Obama administration overhauls its contracting policies, some fee-for-service entities could find themselves on government's endangered species list.

Jeffrey Zients, deputy director for management at the Office of Management and Budget, is among those who have reservations about agencies charging one another for services. "It is bizarre, and it should not be happening," he told the Senate Homeland Security and Governmental Affairs Contracting Oversight Subcommittee during an Oct. 28, 2009, hearing.

The fee-for-service system also struck a nerve with subcommittee chairwoman Sen. Claire McCaskill, D-Mo., who recounted seeing an advertisement for one of the shops. "One agency was advertising 'buy your stuff here' to another federal agency because they were getting a cut because of the contract they had," McCaskill said at the hearing. "There's something really wrong about that, just fundamentally wrong."

McCaskill spokeswoman Maria Speiser says the senator's comments were directed at the Interior Department's Acquisition Services Directorate, formerly known as GovWorks, and the Treasury Department's now defunct FedSource. "She's encouraging the White House to look at interagency vehicles like these as part of their ongoing review of contracting," Speiser says.

Critics like Zients and McCaskill argue that federal agencies all play for the same team and operate toward a common goal-serving the taxpayer-and should not be in the business of making money off one another. Contracting observers suggest there is nothing wrong with the fees. "These assisted acquisitions are not designed to be money-making or profit-driven," says Roger Waldron, a contracting attorney with the Washington law firm, Mayer Brown. "They are being done to recoup costs."

Agencies are not anxious to outsource their purchasing efforts, says Waldron, who served on a working group that studied interagency contracting as a member of the 2006 Acquisition Advisory Panel. But with a depleted acquisition workforce, many agencies figure leveraging the knowledge, talents and diverse contracting resources at these shops could be their best option, he says.

"I understand why on the surface it may not make a lot of sense," says Waldron, who spent 20 years at the General Services Administration, most recently as acting senior procurement executive. "But my view is that assisted service organizations play a valuable role if they are run right."

The 1994 Government Management Reform Act established six franchise fund pilot programs known as interagency-assisting entities, five of which had the authority to charge and retain fees for an operating reserve. The Acquisition Services Directorate, the largest of those remaining franchise funds, charges a 5 percent fee to maintain staff, supplies and equipment. Contracting officers there can use all available contracting vehicles, including the General Services Administration's Multiple Award Schedules, multiagency contracts and governmentwide acquisition vehicles.

"The service-for-fee arrangement creates an entrepreneurial spirit at the Acquisition Services Directorate that encourages the staff to work hard to satisfy our clients," the organization says on its Web site. Interior officials declined to discuss their operations or McCaskill's comments with Government Executive.

Criticism of assisted acquisition services could open a Pandora's box of potential complications-one that could fundamentally alter government contracting systems. A number of agencies charge a fee for use of their contracts or acquisition services, such as the GSA Schedule. Others include NASA, the Agriculture and Veterans Affairs departments, and the National Institutes of Health.

The Acquisition Advisory Panel concluded that the proliferation of interagency contracts could "dampen the government's ability to leverage its buying power." Daniel Gordon, the new administrator of the Office of Federal Procurement Policy at OMB, has pledged to review interagency contracting, but it's unclear whether he will recommend changes to assisted acquisition entities.

"I am concerned about the waste of resources, on the part of both the government and the private sector contractors, associated with duplicative contracts for the same goods and services," Gordon said at his November confirmation hearing. "Agencies [that] develop and manage these umbrella contracts need to make a clear case for the value added in establishing a new interagency contract."

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