The Office of Management and Budget announced on Thursday the first year-over-year decrease in contract spending since 1997. In a phone press conference, OMB Deputy Director for Management Jeffrey Zients said contract spending went down from $550 billion in fiscal 2009 to $539 billion in 2010.
“If contracting had continued to grow as it had under the past administration, when it doubled in eight years, it would have reached $615 billion last year, in fiscal 2010, some $80 billion more than the actual level we are reporting today,” Zients said. “Indeed, we have reversed the trend of uncontrollable growth.”
OMB will increase the pressure on agencies in the 2012 budget request – expected to go to Congress Feb. 14 – by requiring double-digit cuts to professional services and advisory contracts.
President Obama directed agencies to find $40 billion in contract savings and to reduce their use of high risk contracts, such as time-and-materials and labor-hours contracts.
Zients said the savings were a reduction of about 7 percent overall. Agencies also cut the number of new sole-source contracts by 6 percent and single-bid contracts by 11 percent.
The use of cost-reimbursement contracts rose, but Zients said that was likely due to a shift away from time-and-material contracts, and the way agencies submit data to the Federal Procurement Data System (PFDS). He said cost-reimbursement acquisitions are safer than time-and-material contracts.
Dan Gordon, administrator of the Office of Federal Procurement Policy, said agencies achieved this milestone by buying less and buying smarter.
One area in which the government wants to continue reductions is contracting for professional and technical services. Gordon said professional and technical services is a “term of art” that generally refers to work that contractors provide in acquisition shops, IT shops and other areas where the government relies too heavily on contractors.
Gordon said the President’s 2012 budget request will require agencies to reduce spending on these services by 10 percent. It will also call for broad reductions in administrative and contract costs.
Stan Soloway, president of the Professional Services Council, an industry association, released a statement urging OMB to assess agency needs before making cuts.
“While the universe of service contracting impacted by the proposed reductions remains unclear, to the extent any cuts are tied to a decrease in mission needs or unnecessary administrative overhead, one cannot argue with them,” Soloway said. “Hence, the first order of business should be to assess agency mission needs and allow the analyses to determine how many federal employees or contractors are needed and what skills mix the government requires. To do otherwise is to put the cart before the horse.”
Gordon also wants to help agencies buy smarter. OMB released a memo Wednesday offering agencies guidance on improving their communications with contractors.
“Too often we’re hearing myths about not being able to talk to industry when in fact we can talk with industry, and we need to talk to industry more,” said Gordon in the call. “We will get better contracts from doing that, we’ll get newer technology and we can get better prices.”
Soloway endorsed the memo and reiterated the importance of enhancing government-industry communications.
“OMB’s memo makes it eminently clear that the best outcomes are based on partnership and collaboration,” said Soloway. “As the government seeks the best ways in which to meet its daunting fiscal challenges, communications and collaboration are vital ingredients.”
Zients added that OMB never considered insourcing a potential source of dramatic savings.
“We want to be sure that work that is inherently governmental is not being done by contractors and that when contractors work in critical functions we want to make sure that we, the federal employees are managing their work,” Zients said. “We don’t view it as a cost savings initiative — we view it as a good government management initiative.”
OMB is expected to issue new guidance on inherently governmental contracting as well as functions that are closely associated to inherently governmental and critical positions.
Colleen Kelley, president of the National Treasury Employees Union, released a statement welcoming OMB’s announcement.
“I am pleased to see progress in the administration’s efforts to address the runaway contracting that for far too long has been a serious national problem,” said Kelley. “Still, while this is a good step forward, there remains a considerable amount of work to be done to get contracting to a realistic level.”
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