Defense agency, GSA weigh adopting Treasury contract shop

The Treasury Department is pushing to hand off FedSource, a fee-funded contracting shop hosted by its Bureau of Public Debt, by the end of this fiscal year, and the General Services Administration and the Defense Logistics Agency are the main candidates to take over that role.

Treasury has not publicly announced its intention to find a new host agency for FedSource, a contracting operation that focuses largely on general and specialty staffing services and also manages contracts for printing and copying. But several industry sources said Treasury officials have set a firm date -- Sept. 30 -- by which FedSource must move to a new host agency.

Officials with GSA and with DLA -- which handles combat support logistics contracting for the armed services -- confirmed that the agencies were weighing options to take on all or part of FedSource's portfolio.

Kim Huntley, DLA's executive director for customer operations and readiness, said his office recently completed a study of the risks and legal issues associated with moving FedSource, as well as how common business areas line up. The study unearthed a potential legal hurdle in that a transfer could require presidential authorization, he said, though other options such as a mandate from Congress could also work.

"We were interested enough to do the study," Huntley said. "We were really on the way to looking at some of the positive things [FedSource] could do for DoD and the government in general. Then we ran into those legal hurdles, and it caused us to push back a bit."

Most of FedSource's contracts are "really a better fit for GSA, except the copying and production piece is a good fit for us," Huntley said.

He said the study looked closely at FedSource audit reports. "As long as the controls were put in place, and as long as they did everything completely in accordance with federal acquisition regulations, we would be satisfied," he said. "If they became part of DLA, they would have to adhere to the DLA standards."

In January, the Defense and Treasury inspectors general jointly issued a review that found problems with the levels of competition in FedSource contracts, though the IGs did not recommend that Defense cease to work with the contracting organization.

DLA's corporate board is slated to review the issue at a meeting this week, and may make a decision on how to proceed at that time.

GSA, too, is reviewing the issue. "We're currently in discussions with Treasury to determine if FedSource is indeed a good fit for GSA, but we've not yet reached any conclusions," said Jon Anderson, an agency spokesman. He said the legal questions surrounding a transfer would be one of the considerations in a final decision.

FedSource -- now one of GSA's competitors for federal purchasing business -- uses a different approach than the popular GSA schedules, which list contracts available for use by other agencies. FedSource takes on a large role in managing contracts, and agencies receive monthly bills for services they have used. In contrast, agencies buying off the GSA schedules perform their own contract negotiations and management, and pay contractors directly. Anderson said those differences would be among the factors in GSA's decision-making process.

FedSource officials directed all questions to Treasury's public affairs office. But Ilene Gilligan, a Treasury spokeswoman, turned away queries, saying only, "Treasury is committed to protecting taxpayer resources, quickly addressing management issues and operating the Treasury Department in the most efficient and effective way possible."

Gilligan declined to say whether the agency has notified FedSource's customers of the impending transfer, or what will happen if the agency does not find a willing host before the Sept. 30 target date.

Until a decision is made, FedSource customers -- which include Walter Reed Army Medical Center, Bethesda Naval Hospital and other medical and nonmedical Defense facilities, as well as non-Defense buyers -- may find themselves in limbo or face disrupted services.

A contractor with FedSource said that over the past several months, Treasury officials have insisted on reviewing every new task order, a layer of approval that slows the process down. Some of the contracts have proven so popular with buyers that they also have reached their funding ceilings, but officials are unlikely to seek additional purchasing authority while simultaneously trying to shift the group to another agency.

Another contractor questioned what will happen to ongoing FedSource contracts, some of which extend into 2008. "They could terminate them for convenience, but it would be anything but convenient," the contractor said, noting that some of FedSource's nine staffing contractors send hundreds of employees to work for federal agencies. "You'd have a crisis on your hands."