Contracting spending dips for the first time in 13 years

For the first time in 13 years, the government has cut its annual spending on federal contracting, Obama administration officials announced on Thursday.

Federal agencies spent $535 billion to purchase private sector goods and services in fiscal 2010, compared to $550 billion in fiscal 2009, according to Jeffrey Zients, deputy director for management at the Office of Management and Budget.

"We have reversed the trend of uncontrollable growth [in federal contracting]," Zients said in a conference call with reporters. "We're saving money and making sure every taxpayer dollar is being well-spent."

President Obama previously had called for a combined 7 percent reduction in baseline contract spending in fiscal 2010 and fiscal 2011 for a total savings of $40 billion. The administration says it is on pace to meet those targets, since the goal of the initiative was to reduce the overall rate of procurement spending. If the government had continued at its previous pace of contract spending, it would have spent roughly $615 billion in fiscal 2010, Zients said.

The decline in contracting spending is largely a reflection of agencies buying smarter -- and often less from the private sector, said Daniel Gordon, administrator of the Office of Federal Procurement Policy at OMB.

For example, the Veterans Affairs Department has reduced its purchases of new information technology systems while the Justice Department eliminated an expensive case management system. The Housing and Urban Development Department, meanwhile, saved $44 million by eliminating a financial management system.

Several agencies also have focused on consolidating their purchases through strategic sourcing, introduced enhanced competition into their acquisitions and improved their contract management oversight, Gordon said. "We have made real measurable progress," he added, "progress that you can measure in dollars."

The administration, however, is not willing to link the contract savings to its governmentwide insourcing initiative. The effort to bring some contractor functions back in-house, according to Gordon, is focused on the government regaining control of its core operations and less about taxpayer savings.

"We don't view [insourcing] as a cost saving initiative," he said. "We view it as a cost management initiative."

While agencies met their overall goal of spending less on contracting, they failed to hit a series of targets for reducing their expenditures in several high-risk categories. A July 2009 memo from OMB called on agencies to reduce by 10 percent their use of sole-source, cost-reimbursement, and time-and-materials contracts. Gordon acknowledged those targets have not yet been met.

The procurement chief said the percentage of sole source contracts in fiscal 2010 dipped by 6 percent, although the percentage of contracts with only one bid declined by 11 percent.

The administration also made progress in cutting its spending on time-and-materials contracts, which are considered the highest risk to taxpayers because of the potential for escalating costs. It appears, however, that most of those contracts were converted to cost-reimbursement vehicles rather than fixed-price contracts, the administration's preferred contracting type, Gordon said.

OMB did not immediately provide details on the time-and-materials or cost-reimbursement spending figures in fiscal 2010.

Contract spending, particularly for professional and technical services, is expected to decline further in the coming years. The administration plans to call for a 10 percent reduction on spending in these two categories, which Gordon loosely defined as the work contractors provide in assisting agency acquisition shops.

Zients, who will head up an effort to reorganize federal agencies to eliminate redundancy in government operations, declined to discuss the effort on Thursday, saying it was in its early stages.