How Congress Could Help Agencies Resist Hasty End-of-the-Year Spending

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As fiscal 2014 draws to a close, it’s a safe bet that managers across the government signed a few more contracts than usual in the past week or so under the “use it or lose it” budget mentality.

In fact, agencies on average spend 4.9 times more in the fiscal year’s final week than they do the rest of the year, according to a study released last September by the Boston-based nonprofit National Bureau of Economic Research. A review of a database of 14.6 million federal procurement contracts from 2004 to 2009 showed that 8.7 percent of overall spending occurs during that deadline week, compared with a weekly year-round average of 1.9 percent.

Though Congress is well aware of this dance, not everyone is aware of the result, according to the analysts. Information technology “projects that were procured in the last week of the fiscal year were between two and six times more likely to have a lower quality rating than projects that were funded at other times during the year,” analysts Jeffrey Liebman and Neale Mahoney said. Only the Justice Department, the paper noted, had “special authority to roll over up to 4 percent of its annual appropriations for spending on IT and related projects,” to positive effect.

The problem is not only perennial, it is global and predictable,  said Jamie Wodetzki, co-founder of the Boston-based contract management and document assembly company Exari. “It is rare for an agency to have money and not spend it,” he told Government Executive in an interview Monday in anticipation of the end of the fiscal year Tuesday at midnight. “Whether it’s $10 million or $100,000, they’d rather not give it back to some internal pot and never see it again. It ends up in projects that were not originally priorities or that the managers didn’t think they could fund.”

He agreed that many of these signed-in-haste contracts “don’t get the same scrutiny as normal contracts, so that either the project is bad or the contract is.”

How to alter the incentives? Wodetzki, who acknowledged that his own company has probably benefited from the annual spending rush, said the government basically has two options: “Either accept the phenomenon and manage around it or change it.”

Perhaps agencies would be allowed to roll a portion of their budget over and accumulate a stockpile of money if “you actually gave a bonus payment—perhaps 5 percent—to managers who have funds leftover,” he said. “But you shouldn’t go too far” on the bonuses, or the incentive will be to hoard rather than spend, he added.

Another idea is to make it a condition in contracts signed during “rush week” to include a provision that “allows agencies to redirect funding to a new contractor” if things go south. “You could also allow more one-sided monitoring,” Wodetzki said, “allowing payment and approvals on a schedule that favors the agency before the vendor is off the hook. That way the vendor can’t play games and run out the clock.”

The scholars at the National Bureau of Economic Research executed an impact model for the rollover proposal, concluding that the quality of programs would benefit. "Congress could provide the agency 87 cents on the dollar, and the value of spending would be the same as in the no-rollover regime," they concluded, according to a summary. “Even if Congress were willing only to allow agencies to roll over funds half of the time or for a three-month period, the agencies would still receive 90 percent of the benefit.”

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