President Obama Announces Overhaul of
“Broken” Government Contracting System

On March 4, President Obama announced a plan to reform how the federal government does business. In a memorandum issued to all executive department and agency heads, the president noted that since 2001 spending on government contracts has more than doubled, reaching over $500 billion in 2008, and that a recent Government Accountability Office (GAO) study of 95 defense acquisitions projects found cost overruns of 26 percent, totaling $295 billion over the life of the projects. Read the president's remarks on procurement.

Citing wasteful spending, lax oversight, and an “excessive reliance” on sole-source and cost-reimbursement contracts, the memorandum orders Office of Management and Budget (OMB) Director Peter Orszag to develop and issue, by July 1, 2009, government-wide guidance to assist agencies in reviewing existing contracts in order to identify contracts that are wasteful, inefficient, or not otherwise likely to meet the agency’s needs, and to formulate appropriate corrective action in a timely manner. The corrective action may include modifying or canceling such contracts.

The memorandum also establishes an express preference for fixed-price contracts and directs agencies not to use cost-reimbursement contracts unless “circumstances do not allow the agency to define its requirements sufficiently to allow for a fixed-price type contract.”

Finally, the memorandum directs OMB to develop and issue additional government-wide guidance by September 30 to:

· govern the “appropriate use and oversight” of sole-source and other types of noncompetitive contracts, and maximize the use of full and open competition and other competitive procurement practices;

· govern the appropriate use and oversight of all contract types, and to minimize the risk and maximize the value of government contracts generally;

· help agencies assess the ability of the federal acquisition workforce to develop, manage, and oversee acquisitions appropriately; and

· clarify when government outsourcing for services is and is not appropriate.

Although the devil will be in the details, there will undoubtedly be increased oversight of government contractors by both Congress and the executive branch. It is certain that, whatever form the new “government-wide guidance” eventually takes, it will add another layer of complexity to the already complex and challenging requirements for doing business with the federal government, as set forth in the Federal Acquisition Regulation (FAR) and elsewhere.

For more information about this article, or about federal procurement in general, you may contact Dustin DuBois or Richard Ciambrone.

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice.  The reader must consult with legal counsel to determine how laws or decisions discussed herein apply to the reader's specific circumstances.