Obama and Contract Reform

(MoneyWatch)  President Obama released a memorandum calling for a review and to propose new rules for government contracting. Reuters reports that as part of it cost-plus and no-bid contracts are eliminated from use. The actual text of the memo can be read here. It does not actually end the use of sole source contracts but states "In certain exigent circumstances, agencies may need to consider whether a competitive process will not accomplish the agency's mission. In such cases, the agency must ensure that the risks associated with noncompetitive contracts are minimized." It also does not end the use of cost plus but says that fixed price are favored and that "Cost-reimbursement contracts shall be used only when circumstances do not allow the agency to define its requirements sufficiently to allow for a fixed-price type contract." This is not a major change as cost-plus are primarily used to pay for development work in DoD and fixed price for procurement when prices are known and stabilized. The memorandum also states that some contractors are now performing inherently government activities and those should not continue. He will also call for further development of policies for better oversight of large contracts. The memo cites cost overruns on major defense programs as a rationale.

The articles in the media, like the Reuters one or this one at AFP discuss the VH-71 helicopter program as an example of runaway costs. The VH-71 was competitively awarded and followed all the rules. The issues with it have been changed requirements that negated the initial benefits of buying an existing aircraft in production and modifying it slightly. Here is a good article at Helicopter Association International (HAI) that lays out the reasons for schedule and cost growth. As in many programs the initial requirements were very optimistic. To quote the HAI article "The problem with the VH-71 program is how much it is being asked to accomplish, according to defense experts and congressional aides who follow the program closely. The VH-71 is doing what two types of helicopters do now. One version of today's Marine One lands on the White House lawn. The other is deployed around the world in places where the president will travel. The VH-71 would do both in a single aircraft." That kind of requirement is setting the scene for a disaster of cost and schedule problems.

Obama's memo requires a review of all existing contracts to identify those that can be canceled or modified as well as developing new procedures for awarding contracts and oversight of the programs once they are started. To be honest this is about the fifth administration in a row to do this kind of thing and there hasn't been much improvement in the past.