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An Excess of Multiple-Award Contracts Is Creating New Problems for Government

Why agencies should think twice before creating another IDIQ.

For the better part of the past decade, procurement shops throughout the federal government couldn’t seem to stop themselves from creating new contract vehicles. There’s something alluring about seeding and cultivating a multiple-award contract, with dozens of companies clamoring to participate and the promise of hundreds of millions of dollars blooming under a vehicle of your creation. Since 2005, thousands of multiple-award indefinite-delivery, indefinite-quantity (IDIQ) programs have sprung up, many with multi-billion-dollar ordering ceilings.

The contract vehicle garden is now overgrown. Supply clearly exceeds demand.

Just look at IT services. The 10 largest contract vehicles have $17 billion in annualized ordering capacity. But those vehicles hosted under $12 billion in actual orders last year, leaving 37 percent excess capacity. Examples of underutilized contracts abound. The Interior Department’s cloud computing IDIQ has a $1 billion annualized ceiling. It attracted just $27 million in spending in fiscal 2015, according to federal procurement data.

The excessive excess capacity won’t last. Contract vehicles will die off over the next few years, with competition among procurement shops and among prime contractors deciding which IDIQs survive.

Take, for example, an Army order for program management support services currently residing on the Army’s Information Technology Enterprise Solutions 2 Services (ITES-2S) contract. The buying agency did some window shopping, issuing a request for information in at least three places: on the open market, to Alliant contract holders and to vendors on the National Institutes of Health’s Chief Information Officer – Solutions and Partners 3 (CIO-SP3) contract.

A GSA official pitched Alliant, saying that the vehicle has a “world class contractor pool” and “provides a streamlined acquisition process,” according to a document posted on FedBizOpps.gov.

The incumbent contractor is on Alliant, ITES-2S and CIO-SP3, so any of those would do if the company wants to retain the work.

A different contractor suggested that the buyer instead turn to the Army’s $461 million Program Management Support Services 3 (PMSS 3) vehicle. The incumbent contractor is not on PMSS 3, so a shift to that vehicle would ensure a new company wins the work.

At the same time companies are promoting their favorite IDIQs, industry is increasingly pushing back against the creation of new contract vehicles. Remember that a multiple-award IDIQ forces companies through a two-step process to win work. First, the companies have to bid on and win slots on the IDIQs. Second, the selected companies compete with each other for task or delivery orders awarded under those multiple-award contracts.

Every time a company wins a multiple-award IDIQ that fails to generate any task or delivery orders, the company loses money. There’s no way to have a return on investment when no actual paying work flows through a contract vehicle.

Companies also incur operational costs for each contract vehicle that they maintain. The companies must market the vehicles to their clients, maintain websites, hire program managers and fulfill ongoing paperwork requirements. Assuming the same number of orders flow through a reduced number of contract vehicles, companies could realize efficiencies through contract consolidation.

That consolidation is under way. In the past year, the Defense Health Agency, the U.S. Special Operations Command, the Homeland Security Department and the Air Force all opted to halt the development of new contract vehicles and instead announced plans to tap into existing capacity on contracts such as the General Services Administration’s Alliant vehicle for IT services and One Acquisition Solution for Integrated Services (OASIS) program for professional services.

To take advantage of agencies’ increasing desire to avoid the creation of new vehicles, some procurement shops are offering better bargains. The National Institutes of Health recently cut the fees on CIO-SP3 and other governmentwide IDIQs it manages. GSA provided volume discounts to the Air Force, Army and Homeland Security after each of those buyers guaranteed hundreds of millions of dollars in orders would flow through the OASIS contracts.

I expect in a few years there will still be hundreds of contract vehicles for federal buyers to consider using, down from the thousands currently available. It’s a big government with a huge variety of missions and buying needs, but even the world’s biggest buyer can live with fewer choices. The contract vehicles that offer the best deals, easiest and fastest ordering, best customer service and strongest suites of offerings will survive the coming consolidation.

Brian Friel is founder of One Nation Analytics, an independent research, analytics and consulting firm for the federal market. He can be reached at bfriel@onenationllc.com

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