Government Contracts Monitor

It\'s Official: Obama Administration to Limit Role of Contractors; Threatens to Cancel Existing Contracts

March 4, 2009

Today the Obama Administration officially laid out its planned reforms for the procurement system – including the Administration’s plan to rein in the use of contractors in the operation of the federal government.

In a memorandum to heads of executive departments and agencies, President Obama asserts:

[t]he 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 has been clear since then-candidate Obama began his quest for the White House that one of his top priorities for government contracting would be curtailing the use and influence of government contractors in the federal government. However, today’s announcement was the first time now-President Obama has officially called upon agencies to limit “government outsourcing.”

Government outsourcing, which began with the Clinton Administration, and reached unprecedented levels during the Bush Administration, extended to areas positions considered “inherently governmental” – most publicly with the use of contractor interrogators and private security personnel in Iraq.

Now the Obama Administration must work to determine what “inherently governmental” actually means. Definitions for “inherently governmental” and similar terms - like “mission essential” or “closely related to inherently governmental” - do not exist. In light of the Government’s reliance upon contractors, many in the contracting community question whether this goal is attainable.

Other News from the Government Contracts Memorandum

The memorandum also announces a full-scale review of existing government contracts 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 contracts or using the Government’s broad power to terminate for convenience of the Government,as permitted by the Federal Acquisition Regulation.

The announcement also reiterated the Administration’s stern preference - initially announced in the American Recovery and Reinvestment Act – for fixed-price and competitively awarded contracts. These goals will now apply to the entire Federal Government.

The memorandum also highlights the government’s dire need to enhance and retrain the acquisition workforce –a topic recently covered in this blog.

Call for Government-Wide Guidance

The Memorandum calls upon the new Director of the Office of Management and Budget (OMB), Peter R. Orszag, in coordination with senior agency officials, to develop and issue Government-wide guidance to:

1. Limit Use of Noncompetitive Contracts: 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. Review Use of All Contract-Types: 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 regulations limiting the use of cost-reimbursement contracts (§864 P.L. 110-417);

3. Develop the Acquisition Workforce: assist agencies in assessing the capacity and ability of the Federal acquisition workforce to develop, manage, and oversee acquisitions appropriately; and

4. Limit Government Outsourcing: clarify when governmental outsourcing for services is and is not appropriate, consistent with existing requirements (§321 P.L. 110-417).

Mr. Orszag’s guidance is due September 30, 2009.