Tech firms wary of push for contracting reform

Information technology contractors are increasingly concerned about bills that seek to minimize the use of so-called cost-reimbursement contracts, which allow contractors to estimate total fees when expenses and requirements involve many unknowns. Lawmakers who are worried about contract abuse want agencies to adhere to standard fixed-price contracts.

Language encouraging federal agencies to avoid cost-reimbursement contracts appears in a bill to overhaul acquisition rules that House Oversight and Government Reform Committee Chairman Henry Waxman, D-Calif., introduced. A related proposal also was included in the emergency spending bill that President Bush vetoed for unrelated reasons earlier this year.

Most recently, the House bill to reauthorize Defense Department programs in fiscal 2008 inserted Waxman's plan "to maximize, to the fullest extent practicable, the use of fixed-price-type contracts for the procurement of goods and services by the agency or department concerned."

Contractors contend that cost-reimbursement contracts are necessary to complete work in emergency situations, in war zones and for research and development -- where requirements are either unknown, unstable or require new technology.

"When you have to go in and clean up after a hurricane, for example," that would be a circumstance where a company needs a more adjustable billing arrangement than a fixed-price contract, said Trey Hodgkins, senior director of defense and intelligence programs at the Information Technology Association of America.

If cost-reimbursement contracts are not available, many companies won't bid or will have to demand higher prices, Hodgkins added. "The government would either end up cutting itself off [from vendors] ... or companies would have to charge more money. If you shoe-horn people to do a fixed-price contract, you're not going to have the flexibility you need, so that means higher prices."

While Waxman's legislation would not explicitly restrict anything, the wording used to describe cost-reimbursement options could steer agencies away from them, Professional Services Council President Stan Soloway said.

The bill's title, "Limiting the Use of Abuse-Prone Contracts," sends the wrong message by presuming that cost-reimbursement arrangements are more prone to abuse than other contracts, he said. "We don't think this is the right way to look at contracts."

The "irony," Soloway added, is that the areas that have driven lawmakers to press for more fixed-priced contracts are often the exact same areas where fixed-price contracts are most risky. With natural disasters, Iraq projects and cutting-edge weapons system technology, "the unknowns are enormous and the integration phase is by definition a high-risk endeavor."

Soloway said it is helpful that Congress is not setting parameters for determining contract type, but instead is instructing agencies to contemplate alternatives to cost-reimbursement strategies.

Still, he said legislative perceptions are being driven by an increasing amount of mythology about federal contracting. "The legislation is based on some real and some perceived problems -- but without real discussion and thought -- and often based on inaccurate information." Soloway noted that there has not been a hearing on Waxman's bill.

Waxman's committee staff said his proposal was not conceived in a vacuum or based on a couple of anecdotal examples. Rather, the action was spurred by contract problems that have persisted since 2001. Homeland security cost-reimbursement contracts awarded after the Sept. 11, 2001, terrorists attacks have grown in largesse without pause to examine newer money-saving technologies, staff said, and some of the emergency waivers granted after Hurricane Katrina have extended beyond the real period of emergency.

Waxman's staff maintains that immediately after emergencies, there is no question that agencies need cost-reimbursement contracts. The reforms, they explain, are intended to make agencies proceed with caution in choosing that route in other situations.

"Over the past five years, the committee has investigated hundreds of contracts and has found similar problems recurring in different agencies at different times," Waxman said. "My bill is targeted at fixing these systemic problems."

Contractors, meanwhile, feel like they would be dealt another blow in the Senate's pending immigration package. It would hold companies liable for the illegal hiring practices of their subcontractors.

The bill states, "An employer who uses a contract, subcontract or exchange to obtain the labor of an alien in the United States knowing, or with reckless disregard, that the alien is an unauthorized alien with respect to performing such labor shall be considered to have hired the alien in violation of [the law]."

"From a broader perspective," Hodgkins said, "we're clearly under siege here."