Agencies Embark on Spending Spree

Selling to the government always has been big business, but by any measure, 2002 was a banner year for federal contractors. Fueled by the war on terrorism and homeland security needs, Uncle Sam went on a 12-month spending spree, buying $245 billion of goods and services in fiscal 2002, up more than 12 percent from 2001. Stalwarts Lockheed Martin, Boeing and Northrop Grumman Corp. retained their positions as the government's top contractors.

"Homeland security and President Bush's more aggressive defense posture have been driving increases in procurement, particularly in the Department of Defense," says Paul Murphy, president of Eagle Eye Publishers, a Fairfax, Va.-based research firm. Eagle Eye tabulated data provided to the General Services Administration's Federal Procurement Data Center to create the lists in this special issue. Murphy believes agencies also are doing a better job of reporting their spending. "I think [agencies] were sitting on some unreported data before," he says.

But even as business booms, some contractors see clouds on the horizon. The engine of growth in the federal market-the services industry-was overlooked during the procurement reforms of the 1990s, they say. Without a new round of reform, some contractors believe the government will lose access to cutting-edge IT firms that won't do business with Uncle Sam if they have to follow federal cost accounting rules.

The proposed Services Acquisition Reform Act (SARA) is manna for these firms. Sponsored by Rep. Tom Davis, R-Va., chairman of the House Government Reform Committee, the bill would curb auditing requirements on certain contracts and boost training for the acquisition workforce.

SARA has its critics. Charles Tiefer, a professor at the University of Baltimore Law School, calls the bill a "Christmas tree of procurement giveaways" to contractors. He objects to a provision that would let agencies award labor-hour contracts-in which vendors bill the government for the amount of hours they work-without requiring firms to submit pricing data that helps agencies prevent inflated bids.

The measure also could exempt firms from "incurred cost" audits, which allow agencies to track firms' spending practices. Such audits are needed because cost overruns are frequent on labor-hour contracts, according to SARA's critics. At an April 30 hearing of the House Government Reform Committee, Office of Federal Procurement Policy Administrator Angela Styles cited a labor-hour contract at one agency that ballooned from $104 million to $700 million from February to December 2002.

"All I can say is, the contract she references must have been terribly mismanaged," says David Marin, a spokesman for Davis.

Styles was referring to a Transportation Security Administration contract with Eden Prairie, Minn.-based NCS Pearson (now Pearson Government Solutions) to recruit and hire baggage screeners, according to sources familiar with the contract.

Marin says incurred cost audits would be allowed under Davis' legislation. Still, some observers, including Steven Kelman, a Harvard professor and former federal procurement administrator, believe the bill could be clearer on this point.

Kelman, a SARA supporter, believes the legislation would bring more competition to the federal marketplace. "The best way to encourage nontraditional government vendors to enter the government marketplace is to keep government-specific requirements to a minimum," he says. Further, provisions to create a presidentially appointed chief acquisition officer at civilian agencies and to increase training funds for acquisition workers should help agencies implement reforms, he says. Critics, such as Rep. Carolyn Maloney, D-N.Y., argue that putting acquisition policy in the hands of political appointees could hurt the integrity of federal procurement.

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