Last week, John McCain proposed making government contracts exclusively fixed price contracts.
Barack Obama, meanwhile, has pledged to cut down on federal contract spending by 10 percent after our government spent $412 billion on such contracts in fiscal 2007. An Obama White House would also “end abusive no-bid contracts and minimize 'cost-plus' contracts, while hiring more contracting officers and increasing their training,” according to a supporting Obama campaign statement.
Just like Wall Street, the government contracting industry hates uncertainty. The real question is how much of this rhetoric is the politics of getting elected and how much will end up as procurement policy?
Senator McCain -
Can we contract for everything of a fixed price basis? From a Government buyer perspective, it is a more efficient contract, a known cost for the taxpayer and passes both performance and financial risk to the contractor. For contractors, since there is a higher risk profile in the contract, they should price in a higher profit margin. Sounds like a good deal all around, however, A fixed price contract is really only appropriate when there’s a clear scope of work. If I call a contractor to build a deck in my backyard, I want a fixed price, but the contractor still needs to know the design/dimensions of the deck, the timeframe it needs to be done and the materials I’d like him to use before he can give me a fixed price. However, when the scope of work changes after I’ve signed the contract, it leads to change orders driving up the final cost and defeating the very purpose of a fixed price contract. The Government has the same issue, if an agency wants to build a IT network and changes key elements – for example decides it needs to be run on Oracle versus Microsoft SQL Server, then it can expect to pay more money.
Senator Obama -
“End abusive no-bid contracts” – that’s a little too hokey for me – akin to saying “I’ll stop kicking my dog”. What is meant by that? No directed awards? Fewer contracts set aside for social policy reasons - veterans, minorities and women? I doubt the first African American president is going to offer less social contracting. He may, however, be on to something with his proposal to hire more federal contracting officers and train them better. Having specialized knowledge and talent within the Government community is essential to writing tight statements of work, managing contracts and protecting the Government’s interests.
Both candidates seem to pick on cost-type contracts – either indirectly or directly. Cost reimbursable contracting can work very well for many procurements to contain costs, limit contractor profitability, manage ambiguous statement of works and ensure the work gets completed satisfactorily. In addition, these contracts can also be audited - leading to more cost transparency and limiting the “unallowable” costs incurred by contractors.
In these uncertain economic times, I hope cool heads prevail. Clearly, taxpayers can’t afford government contactors to be the profit leaders in the economy, however a healthy and vibrant contracting community is one key to helping the Government operate in the most responsive and cost-efficient manner. Time will tell, but it should be an interesting few years.
What do you think about the proposed reforms of government contracting? Which stand the greatest prospects for success?
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5 comments:
From Robert J. Guerra of Guerra Kiviat Inc.:
My experience is that the President can set broad goals and policy objectives, but they will not define policy at this specific level.
There are situations where FFP just does not work. I am not a fan of Cost Plus in most cases, but there has to be a way to manage contracts with a relatively undefined scope without letting people get away with profiteering.
Frankly, FFP deals also usually lead to ECP's and re-pricing anyway, so FFP is not a panacea.
If the issue is getting more realistic prices and eliminating directed non-competitive awards, we need an Administrator of OFPP and Administrator of GSA who both understandf acquisition and are willing to work together toward fixing the problems that lead to this foolishness.
Creative people will always find a way to manipulate the system.
On 10/9/08 11:08 AM, Rafik Hammami wrote:
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Hi Bill,
A very good question indeed. In my opinion, both of the solutions are political and clouded with uncertainties. The question though, which can, or could be implemented with as little harm as possible. I believe that by hiring more contracting and qualified officers we will get better competitive results that will enable us to choose the right product for the right price. No fixed price contract will resolve the issue, otherwise we will be sacrificing quality, and that we do not need.
From Sean Standefer:
I agree with much of Rafik's commentary. As a former professional soldier I sharply remember the days of poor quality equipment produced by the lowest bidder. Additionally, as a later government contractor I was sometimes stunned by the utter incompetence of certain contracting officers and reviewing officials.
Unfortunately I am not overly encouraged by the rhetoric of either candidate in this regard. Additional officers with better training are certainly a step in the right direction, but a mandate of "quality first" must accompany such a move. The vast majority of available contracts are not well advertised, and usually circulated to "...well positioned existing providers..." long before the public at large or private industry even has a clue they exist.
I am certain that a thorough review of the existing engagement processes and some slight changes to the qualification requirements related to bidding would also produce a significant increase in the quality of contracts as well as the goods and services they represent.
From Bill Lewis (contract manager/business development)
Via Linked In:
The bottom line that neither of these candidates really understands the basics of government contracting, and most of what they say is simply political posturing. Both of their statements / positions reflect a lack of knowledge of the federal procurement process, and are basically absurd. There have certainly been abuses in the system over time, and, even though its a small percentage of the total procurement dollars, some of the major sole-source set asides have not helped the public perspective. However, I do not believe the federal contracting system is in need of systemic overhaul. The federal procurement system as a Gordian knot of process, procedure, and regulation that would take years to unravel, and, frankly, the thought of such an initiative undertaken for political gain makes me shutter. There is some comfort in knowing that their promises to increase small business or minority contracting (to “spread the wealth” as it were) would be seriously undermined by such a effort. So, rest easy – its all talk.
From Alan J. Simpson of Communication Links, Inc. (www.comlinks.com)
My own experience of fixed price contracts, especially when affected by currency and market fluctuations is that they are OK for short term simple purchases, but a disaster for longer term projects, especially when the Feds can modify the scope, specifications, and requirements at every whim. Then you can understand how a hammer ends up at $700. It probably started life as a screwdriver.
In some areas, especially intelligence and military the US has embarked down a dangerous path with employing so many independent contractors to do the work usually done by government employees. What happens to that knowledge when the contract ends?
Obama has to significantly reduce the War in Iraq, and save face in Afghanistan. There is only so much you can put on your Bank of China Credit Card before you max out. That alone will cut the number of government contracts by more than 10%.
A hard pill to swallow but we can't afford the spending spree we have embarked upon since 2001. Now we have to cut spending, and begin repaying our creditors. That is the same for Obama, or McCain.
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