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Agencies have cut $19 billion in contracting costs

By Ed O'Keefe

Federal agencies are almost halfway toward reaching a two-year goal set by President Obama this year with plans to save roughly $19 billion in government contracting costs during the fiscal year that began in October, according to an Office of Management and Budget report set for release Monday.

Obama is scheduled to speak Monday about the OMB progress report after a meeting with the Department of Veterans Affairs employee who won a competition that solicited cost-saving ideas from federal employees.

The president directed agencies in March to cut $40 billion from contracting budgets over the next two fiscal years by trimming non-competitive contracts and ending the use of contractors for some government functions.

Separately, and in response to concerns from Congress and outside observers about the government's ability to manage contracts, Obama's plans also give most agencies a 5 percent increase in their contract acquisition workforce, or the government workers that oversee government contracts.

The government is the world's largest total buyer of goods, but has permitted agencies to act as separate customers for too long, contributing, in part, to wasteful spending, said Jeffrey D. Zients, OMB deputy director for management.

"I used to work with large, established Fortune 50 companies and small start-up companies," Zients said. "These types of practices or abuses would not be tolerated in the private sector. They're unacceptable. We will fix them."

Government spending on contracts has more than doubled since 2002, totaling approximately $540 billion in 2008, OMB said. The use of noncompetitive, "high risk" contracts jumped by $106 billion during the same six-year period. Obama's orders instruct agencies to cut spending on such deals by at least 10 percent.

The report credits several agencies that have already identified ways to save several million dollars in contracting costs. The National Nuclear Security Administration has launched a "reverse eBay" Web site that solicits bids from contractors over the course of a set time period. Contracting companies can revise their bids if another firm offers a lower price. NNSA has saved an average 18 percent per contract with the new auction site, OMB said.

One item missing from the report is eagerly anticipated guidance on the definition of "inherently governmental functions," a critical term in the contracting community that would clarify the tasks and services contractors should no longer conduct. Obama asked OMB to provide guidance on the matter in March. The agency promised to deliver an answer by year's end, but officials said they need a few more weeks.

During the fall, lawmakers reacted somewhat tepidly to the administration's contracting reforms, arguing that the White House needed to provide more guidance.

Asked about the latest steps, Sen. Claire McCaskill (D-Mo.) called them "a step in the right direction."

"It's encouraging to see that the administration is getting serious about waste in contracting," said McCaskill, who chairs a Senate subcommittee on contracting oversight. "However, we have to stay on top of this and enforce new contracting policies that will prevent waste and fraud and promote transparency and accountability. So while this is a great first step, we still have a lot of work to do."

Zients acknowledged lawmakers' reservations but said, "I think all of us want to save money here, and the progress we've made in identifying the $19 billion gets us off to a very fast start."

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By Ed O'Keefe  | December 20, 2009; 9:34 PM ET
Categories:  Contracting  
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