President Obama Released a Presidential Memorandum for the Heads of Executive Department & Agencies
Thursday, April 2, 2009
Posted by: Megan Markoff
This notice can be found in the Federal Register- Vol. 74, No. 43- in the "Presidential Documents" section published on Friday, March 6, 2009.
Last week, President Obama called for a federal contracting overhaul. The President released a Memorandum to the Heads of Executive Agencies (that means all federal agencies) giving the following directives on contracting. He specified the following guidelines: 1. Federal agencies should not rely on sole-source contracts and cost-reimbursement contracts create a risk of wasteful spending by the government. 2. He raised concerns over the Circular A-76 initiative put in place by the Bush Administration that encouraged outsourcing of work performed by federal employees saying that inherently governmental functions should not be outsourced. 3. He stated a preference for fixed-price type contracts and directed that cost-reimbursement contracts shall only be used in circumstances when an agency cannot define its requirements sufficiently.
The President appointed the following officials in his Administration to work on this effort. The Director of the Office of Management and Budget (OMB), Peter Orszag will collaborate with The Secretary of Defense, Robert Gates, the Administrator of the National Aeronautics and Space Administration, The Acting Administrator of the General Services, Paul F. Prouty; and the Director of the Office of Personnel Management, to development procurement reform guidance.
The President put forth the following timetable for action:
By July 1, 2009, the OMB shall issue government-wide guidance to assist agencies in reviewing, and creating processes for ongoing review of existing contracts that are considered wasteful, inefficient, or do not meet the agency’s needs or mission.
By September 30, 2009, OMB shall issue government-wide guidance with respect to sole source, and other noncompetitive contracts and use of full and open competition; clarify when government outsourcing for services is not appropriate; provide guidance on the appropriate use and oversight of all contract types and assist agencies in reviewing the capacity and ability of the Federal acquisition workforce to develop, manage, and oversee acquisitions appropriately.
The impetus behind this initiative is due to very large no-bid contracts that were awarded in Iraq and Hurricane Katrina. For example, the Government Accounting Office found cost overruns of 25% totaling $295 billion in 95 major defense acquisitions. However, this can have huge ramifications for small business contractors. For example, federal agencies by law can sole source to minority contractors and service disabled veteran owned companies by participating in SBA contracting programs. Would this directive take away those contracting advantages? What about small business set-asides that are currently in place? What happens to them? If the government decides to use "full and open" contracting for all its contracts, small business would most assuredly be the losers in that scenario. The public will be given an opportunity to comment although the White House did not specify when that comment period will begin.
The Presidential Memorandum is copied below: (published in Federal Register – March 6, 2009):
Memorandum of March 4, 2009
Memorandum for the Heads of Executive Departments and Agencies
The Federal Government has an overriding obligation to American taxpayers. It should perform its functions efficiently and effectively while ensuring that its actions result in the best value for the taxpayers.
Since 2001, spending on Government contracts has more than doubled, reaching over $500 billion in 2008. During this same period, there has been a significant increase in the dollars awarded without full and open competition and an increase in the dollars obligated through cost-reimbursement contracts. Between fiscal years 2000 and 2008, for example, dollars obligated under cost-reimbursement contracts nearly doubled, from $71 billion in 2000 to $135 billion in 2008. Reversing these trends away from full and open competition and toward cost-reimbursement contracts could result in savings of billions of dollars each year for the American taxpayer.
Excessive reliance by executive agencies on sole-source contracts (or contracts with a limited number of sources) and cost-reimbursement contracts creates a risk that taxpayer funds will be spent on contracts that are wasteful, inefficient, subject to misuse, or otherwise not well designed to serve the needs of the Federal Government or the interests of the American taxpayer. Reports by agency Inspectors General, the Government Accountability Office (GAO), and other independent reviewing bodies have shown that noncompetitive and cost-reimbursement contracts have been misused, resulting in wasted taxpayer resources, poor contractor performance, and inadequate accountability for results.
When awarding Government contracts, the Federal Government must strive for an open and competitive process. However, executive agencies must have the flexibility to tailor contracts to carry out their missions and achieve the policy goals of the Government. In certain exigent circumstances, agencies may need to consider whether a competitive process will not accomplish the agency's mission. In such cases, the agency must ensure that the risks associated with noncompetitive contracts are minimized.
Moreover, it is essential that the Federal Government have the capacity to carry out robust and thorough management and oversight of its contracts in order to achieve programmatic goals, avoid significant overcharges, and curb wasteful spending. A GAO study last year of 95 major defense acquisitions projects found cost overruns of 26 percent, totaling $295 billion over the life of the projects. Improved contract oversight could reduce such sums significantly.
Government outsourcing for services also raises special concerns. For decades, the Federal Government has relied on the private sector for necessary commercial services used by the Government, such as transportation, food, and maintenance. Office of Management and Budget Circular A-76, first issued in 1966, was based on the reasonable premise that while inherently governmental activities should be performed by Government employees, taxpayers may receive more value for their dollars if non-inherently governmental activities that can be provided commercially are subject to the forces of competition.
However, the line between inherently governmental activities that should not be outsourced and commercial activities that may be subject to private sector competition has been blurred and inadequately defined. As a result, contractors may be performing inherently governmental functions. Agencies and departments must operate under clear rules prescribing when outsourcing is and is not appropriate.
It is the policy of the Federal Government that executive agencies shall not engage in noncompetitive contracts except in those circumstances where their use can be fully justified and where appropriate safeguards have been put in place to protect the taxpayer. In addition, there shall be a preference for fixed-price type contracts. Cost-reimbursement contracts shall be used only when circumstances do not allow the agency to define its requirements sufficiently to allow for a fixed-price type contract. Moreover, the Federal Government shall ensure that taxpayer dollars are not spent on contracts that are wasteful, inefficient, subject to misuse, or otherwise not well designed to serve the Federal Government's needs and to manage the risk associated with the goods and services being procured. The Federal Government must have sufficient capacity to manage and oversee the contracting process from start to finish, so as to ensure that taxpayer funds are spent wisely and are not subject to excessive risk. Finally, the Federal Government must ensure that those functions that are inherently governmental in nature are performed by executive agencies and are not outsourced.
I hereby direct the Director of the Office of Management and Budget (OMB), in collaboration with the Secretary of Defense, the Administrator of the National Aeronautics and Space Administration, the Administrator of General Services, the Director of the Office of Personnel Management, and the heads of such other agencies as the Director of OMB determines to be appropriate, and with the participation of appropriate management councils and program management officials, to develop and issue by July 1, 2009, Government-wide guidance to assist agencies in reviewing, and creating processes for ongoing review of, 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. Such corrective action may include modifying or canceling such contracts in a manner and to the extent consistent with applicable laws, regulations, and policy.
I further direct the Director of OMB, in collaboration with the aforementioned officials and councils, and with input from the public, to develop and issue by September 30, 2009, Government-wide guidance to:(1) govern the appropriate use and oversight of sole-source and other types of noncompetitive contracts and to maximize the use of full and open competition and other competitive procurement processes;(2) govern the appropriate use and oversight of all contract types, in full consideration of the agency's needs, and to minimize risk and maximize the value of Government contracts generally, consistent with the regulations to be promulgated pursuant to section 864 of Public Law 110-417;(3) assist agencies in assessing the capacity and ability of the Federal acquisition workforce to develop, manage, and oversee acquisitions appropriately; and (4) clarify when governmental outsourcing for services is and is not appropriate, consistent with section 321 of Public Law 110-417 (31 U.S.C. 501 note).
Executive departments and agencies shall carry out the provisions of this memorandum to the extent permitted by law. This memorandum is not intended to, and does not, create any right or benefit, substantive or procedural, enforceable at law or in equity by any party against the United States, its departments, agencies, or entities, its officers, employees, or agents, or any other person.
The Director of OMB is hereby authorized and directed to publish this memorandum in the Federal Register.
THE WHITE HOUSE, Washington, March 4, 2009
[FR Doc. E9-4938
Filed 3-5-09; 8:45 am]
Billing code 3110-01-P