President Orders Review of Federal Contracting System

President Barack Obama is changing how government contracts are awarded and who can get them. The president says the move will make the process more competitive and will save taxpayers up to $40 billion a year. Video by AP
By Scott Wilson and Robert O'Harrow Jr.
Washington Post Staff Writers
Thursday, March 5, 2009

President Obama ordered a government-wide review of federal contracting procedures yesterday, saying he wants to add more competition and accountability to an often overwhelmed procurement system.

Obama's announcement, joined by a bipartisan group of lawmakers, including Sen. John McCain (R-Ariz.), served as a philosophical break with the Bush administration, which vastly expanded the role of contractors in running the government and fighting the wars in Iraq and Afghanistan. The president said, "We will stop outsourcing services that should be performed by the government," noting that annual spending on contracts had doubled to more than $500 billion over the past eight years.

Obama gave his budget director, Peter Orszag, until the end of September to issue new federal guidelines governing some of the most important areas of public procurement and contracting practices. Although he estimated that a more coherent system could save billions of dollars, several specialists in the field said that most of the financial benefits would not be realized for years and that other changes probably would cost money because they would involve adding employees to manage and monitor contracts.

The review, which Obama ordered through a memo to agency heads, would clarify the rules for awarding contracts without competitive bidding. It also would set criteria for when private companies should be hired to perform public services and assess agencies' ability to manage contracts after years in which the federal workforce responsible for such oversight has been shrinking.

"We'll have to break bad habits that have built up over many years," Obama said at a news conference at the Eisenhower Executive Office Building. "But we can't keep spending good money after bad. All across America, families are making hard choices, and now we're going to have to do the same thing."

Obama made the announcement less than a week after presenting his $3.6 trillion budget proposal, which Republicans have criticized as too extravagant given the nation's dire fiscal straits. But he noted pointedly yesterday that he has "inherited a fiscal disaster" from the Bush administration, which in the most recent fiscal year spent more than $350 billion on Defense Department contracts alone.

Obama's announcement appeared designed to counter Republican arguments that spending rather than efficiency guided his budget priorities. The president plans to cut the deficit in half by the end of his term, and he said yesterday that the results of the contracting review would save an estimated $40 billion a year. McCain and Sen. Carl M. Levin (D-Mich) will be managing contracting reform legislation, Obama said, and William J. Lynn III, a former Raytheon lobbyist who is now deputy defense secretary, will be responsible for procurement reform.

Some government monitoring groups said Obama's decision to highlight contracting excess is nearly as important as the substance of the review itself. Danielle Brian, executive director of the Project on Government Oversight, a nonpartisan watchdog group, said that "by giving this speech, President Obama has highlighted the culture of corruption in contracting in Washington and is embracing the necessary changes to fix it."

"The hard part will be to reach down into the incestuous government contracting world and change how Washington does business," she said.

Some procurement and contracting specialists said any savings that would come from a more rational purchasing system, especially for expensive weapons projects, would not occur for some time because it is unlikely that any would be halted after years in the design and production phase. Frank Camm, a senior economist at the Rand Corp., said most major weapons systems today "tend to be 10 to 15 years old."

"The decision occurred a long time ago, and there have been contracts let since then, many sole source," he said. "Should they be changed? Probably not now, but it's a challenge they'll have to face up to."

Steven L. Schooner, who co-directs the government procurement law program at George Washington University, said the most important review the president has ordered is the one that evaluates the "ability of the federal acquisition workforce to develop, manage and oversee acquisitions appropriately." He said that element also will probably be the most difficult to address, given the likely costs attached and the government's financial constraints.

The federal procurement workforce has largely stagnated for years, while procurement spending has risen rapidly. Since 2000, such spending has risen by about 155 percent, to almost $532 billion, while growth in the acquisition workforce -- employees responsible for awarding and monitoring contracts -- has grown 10 percent. At the same time, the award of contracts without full and open competition has soared.

In addition, more than half the government's acquisition workforce will be eligible to retire in the next decade. Many of those workers have not been sufficiently trained to handle the changing nature of many federal contracts. Unlike in the past, when federal procurement workers bought objects at the lowest prices possible, many must now negotiate service agreements that are much more complex.

"Realistically, if we want the government's procurement dollars spent wisely, the government may need to hire tens of thousands of qualified, motivated, trained and responsible acquisition professionals," Schooner said. "That's everything."

Research editor Alice Crites contributed to this report.

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