Obama orders contracting overhaul

President Obama on Wednesday ordered the Office of Management and Budget to undertake an in-depth review of the government's contracting efforts, including the outsourcing of work historically performed by federal employees.

A memorandum Obama issued requires the OMB director to work with the Defense secretary, NASA administrator, General Services Administration chief, Office of Personnel Management director and others to develop guidance on strengthening contract oversight, ending unnecessary no-bid and cost-plus deals and maximizing competition in procurement. Obama said these reforms will save taxpayers $40 billion annually.

The guidance, due by Sept. 30, must clarify "when governmental outsourcing for services is and is not appropriate." The memo stated that OMB Circular A-76, the government's playbook for public-private job competitions, was based on the "reasonable premise" that taxpayers might get a better deal if activities that are not inherently governmental are subject to competitive forces.

"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," Obama wrote. "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."

The Bush administration strongly supported competitive sourcing and engaged in a number of legislative skirmishes to push the initiative and defend it from congressional detractors. Lawmakers have continued to fight public-private competitions, however, most recently with a provision in the fiscal 2009 omnibus spending bill that would suspend new Circular A-76 competitions.

The provision also would require agencies to review current contracts and issue guidelines for considering if new projects can be performed by federal employees, or if previously outsourced work can be brought back in-house.

The House approved the omnibus bill last week. Senate Democrats are scrambling to get their version passed and signed by President Obama by Friday, when the continuing resolution currently funding most government programs expires.

"We hope this is the end of the era of privatization during which agencies were forced to contract out regardless of cost or quality, and at the expense of integrity and accountability of federal programs," said John Gage, president of the American Federation of Government Employees.

Angela Styles, former administrator of OMB's Office of Federal Procurement Policy and now a partner at the Washington law firm Crowell & Moring, said the Obama administration is facing a conflict between its desire to bring certain activities back under the government fold and the massive amount of contracting that will occur under the economic stimulus plan.

"It's all going to be behind the curve," Styles said. "It's hard to balance these two issues. The best you can do is say, 'We're going to clarify,' but by the time you do, you have huge amounts of dollars that have already gone out the door. And once it's out the door it's difficult to bring it back in."

Rep. Darrell Issa, R-Calif., ranking member of the House Oversight and Government Reform Committee, agreed with Obama that contracting is plagued by cost overruns, fraud, and a lack of oversight and accountability. But he said these problems will be exacerbated by the rapid spending required under the $787 billion 2009 American Recovery and Reinvestment Act.

"The solutions President Obama is offering to reduce waste and abuse pale in comparison to the new levels of waste and abuse created by his massive spending spree," Issa said.

Styles said OMB's undertaking will be even more difficult given the critical political positions that remain unfilled governmentwide. Obama has yet to nominate an OMB deputy director for management to replace Nancy Killefer, who withdrew for tax reasons, or an OFPP administrator, for instance.

"By getting presidential involvement you probably have a better chance of solving [these issues] but each individual one is just a huge task in and of itself," Styles said. "Career people have known about these issues for quite some time, [but] you really do need leaders in place in each of these identified areas and … I haven't heard of many announcements of substantive government acquisition officials at the political level."

During a speech announcing the procurement reform effort, Obama also endorsed legislation introduced last week by Sens. Carl Levin, D-Mich., and John McCain, R-Ariz., that would require the Defense Department to re-examine contracts if costs increased by more than 25 percent from the initial estimate. The department's 95 largest acquisition programs are an average of two years behind schedule and have exceeded their original budgets by a total of almost $300 billion, according to Levin.

Obama said he wants the 2009 Weapon Systems Acquisition Reform Act passed quickly and has asked Defense Secretary Robert Gates and Deputy Secretary William Lynn to work with Levin and McCain.

Stan Soloway, president of the Professional Services Council, a contractor association, said Obama's memorandum had "constructive ideas and is a way to move the new face of government forward," but warned that "any review of the procurement process must be fact-based and not caught up in the myths perpetuated about government contracting."