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OMB Moves to Cut Outside Contractors

By Joe Davidson
Wednesday, July 29, 2009

The White House Office of Management and Budget is directing federal agencies to take a series of actions designed to reduce the government's growing reliance on outside contractors.

In memoranda scheduled for release Wednesday and in September, the OMB will outline steps the Obama administration hopes will help save $40 billion annually through improved acquisition practices. Department and agency heads are being told to cut contract spending by 3.5 percent in each of the next two fiscal years.

Among the strategies outlined in three memos the OMB will issue Wednesday are policies intended to strengthen the federal acquisition workforce and to return some work now done by outsiders to federal employees.

OMB Director Peter Orszag, in a memo titled "Improving Government Acquisition," tells agency heads to determine if government workers involved in overseeing contracts "are sufficient to achieve at a high performance level." He said agencies should develop plans to increase the size of this acquisition workforce, improve training, and restructure acquisition practices to improve efficiency.

In another memo, "Managing the Multi-Sector Workforce," Orszag instructed agencies to determine what work now under contract should be done by government employees. Officials should "in-source work on an accelerated basis," when the outside contract, for example, "is being used to fulfill responsibilities that are inherently governmental," according to the document.

"Inherently governmental" is a critical term in the contracting debate. The Bush administration awarded many contracts for work that federal employees believe strongly should have been theirs.

The employment of private tax collectors has been, for federal unions, a particularly egregious example of the misuse of contractors. In March, the Internal Revenue Service stopped using two private tax collection companies because, according to an agency statement, "IRS collection is more cost-effective than the contractors."

In an unusual joint letter two weeks ago, the presidents of the two largest federal employee unions called on the OMB to clarify "inherently governmental." Colleen M. Kelley and John Gage, respectively the presidents of the National Treasury Employees Union and the American Federation of Government Employees, said confusion over the definition arose from "policies promulgated by a contractor-friendly [Bush] administration committed to providing every advantage to private contractors."

But this crucial definition will have to await another day.

"That is something we are going to deal with in our fall guidance," Jeffrey B. Liebman, the OMB's executive associate director, said in an interview. "I think almost everyone involved in contracting thinks that there is need for greater clarity on that."

A third memo, "Improving the Use of Contractor Performance Information," by OMB Deputy Administrator Lesley A. Field, notes that the government used more than 160,000 contractors last year. Yet the methods agencies use to track contractor performance are fragmented and inconsistent. Some agencies keep that information in paper files, while others use electronic records that aren't available to officials in other departments.

Field said new Federal Acquisition Regulation requirements call on agencies to submit contractor performance data to a Web-based system "that now serves as the single, government-wide repository for contractor performance information."

The OMB memos flow from a March directive by President Obama that called on the OMB to assist agencies in identifying "contracts that are wasteful, inefficient, or not otherwise likely to meet the agency's needs." The OMB's guidance in the matter was due July 1, so it is running a bit late.

Obama also told the OMB to issue, by Sept. 30, further guidance covering such issues as the use of non-competitive contracts, the capacity of the government's acquisition workforce and when hiring contractors is appropriate.

Between 2001 and 2008, the years of the Bush administration, "spending on Government contracts has more than doubled, reaching over $500 billion," Obama's directive said. That includes "a significant increase in the dollars awarded without full and open competition." Reversing those trends could save billions, he added.

The OMB wants a 10 percent reduction in contracts awarded with less than full competition in fiscal 2010.

Liebman said a high priority of the Obama administration is to reach a better balance between government work done by federal employees and outside contractors. "In the last administration, all of the focus was on outsourcing," he said, "and, frankly, agencies were publicly held to a target not on whether they got good value or good performance, but on how much outsourcing they accomplished."

Contact Joe Davidson at federaldiary@washpost.com.

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