Interior contracting shop could lose Pentagon business

Auditors within the Defense Department are circulating a preliminary recommendation that the Pentagon stop doing business with a regional Interior Department fee-for-service contracting unit, according to multiple industry sources.

Fort Huachuca, Ariz., is a regional reimbursable procurement operation run by the Interior Department's National Business Center. The center took over the Fort Huachuca contracting shop from the Army at the military's request in fiscal 2001. But, in a draft report, defense auditors recommend that the military discontinue business with the Fort Huachuca operation, the sources said.

The basis of the recommendation is unclear, according to the sources, who asked to remain anonymous. The question of whether Defense should decrease its reliance on other agencies in meeting its procurement needs is currently a subject of debate, both within the Pentagon and on Capitol Hill.

Defense auditors are examining a number of government fee-for-service operations that do business with the military, including ones at the General Services Administration, NASA and the Treasury Department. Interior, NASA and Treasury's FedSource operation have all recently received copies of draft Defense inspector general reports on their respective reimbursable contracting operations, according to a Pentagon spokesman.

Donald Swain, the National Business Center's chief of staff, said the center has not seen a copy of the audit report and could only comment when the report is finalized. Auditors typically release draft reports to give the subjects an opportunity to review and comment on their findings. This feedback sometimes alters the final conclusions and recommendations.

"If that is in fact the draft recommendation, I think there's a decent chance that it could end up not being the final recommendation, if senior Interior officials pay the attention to it that they should," said Larry Allen, executive vice president of the Washington-based Coalition for Government Procurement.

It is not unheard of for inspectors general to overstate their case, said Stan Soloway, president of the Arlington, Va.-based Professional Services Council. "If [the draft recommendation] is true, it's a very troubling development. It would be very important to understand the rationale behind the IG recommendation," he said.

Information technology sales to the military are a mainstay of Fort Huachuca's business. Revenue at the contracting shop grew from $609 million in fiscal 2002 to $1.02 billion in fiscal 2004, according to the Government Accountability Office.

Defense "is their largest customer, larger than Interior, larger than GSA," said Tim Vigotsky, a former National Business Center director, now president of the Centerville, Va.-based consultancy Vigotsky & Associates.

If the military actually stops doing business with the Fort Huachuca shop, it is unclear how the Defense Department would handle the resulting gap in its procurement ability. Defense acquisition workforce levels have declined sharply -- decreasing 38 percent between fiscal 1989 and 2002. The workforce could shrink even more in the coming years as contracting employees retire.