Administration: Cut Contract Spending, Outsourcing The Office of Management and Budget has told federal agencies to cut contract spending by 7% over the next two years and take steps to reduce the government’s reliance on contractors. In a July 29 memorandum, OMB Director Peter Orszag said the spending reductions could be achieved through a combination of canceling ineffective, wasteful or unnecessary contracts; negotiating lower prices and improving contract management; using strategic acquisition to leverage buying power; better use of technology in managing contracts; and reengineering business practices. OMB also ordered a 10% reduction in spending on what it calls high-risk contracts: noncompetitive, cost-reimbursement and time-and-materials/labor-hour contracts. “Too much money is spent on too many wasteful contracts, and too many contracts are awarded with too little competition,” Orszag said in a statement. “We are taking steps that are effective immediately to change the culture of government contracting, putting the focus on providing the best services for the taxpayers.” The directives grew out of President Obama’s March 4 order to overhaul contracting practices and save $40 billion annually. OMB is to issue additional guidance by Sept. 30 on policies to maximize competition and define government functions that are appropriate for outsourcing. Orszag’s memo said each agency will decide how to achieve the savings of 3.5% in each of the next two fiscal years. Agencies are to submit plans by Nov. 2. Insourcing/Outsourcing OMB also issued new guidance on achieving balance between contractors and federal employees in what the memo called “the multi-sector workforce.” “Current policies and practices must be improved so that agencies consistently identify the proper role of [government and contractor employees] and achieve the best mix of public and private labor resources to serve the American people,” Orszag wrote. He said agencies must not become so reliant on contractors that they lose the in-house capability to perform their missions. Orszag said agencies should “in-source work on an accelerated basis” if contractors are performing inherently governmental functions. OMB will clarify the definition of “inherently governmental” in its next round of guidance in September. He said agencies should strive for “a strong internal core of federal employees supported by the expertise of contractors.” In a conference call with reporters, Jeffrey Liebman, executive associate director of OMB, said the administration’s goal is to reduce “over-reliance on contractors.” He pointed to professional services contracts, where contractors often do much the same work as government employees, as an example of possible over-reliance. The guidance “sets an impartial, strategic tone,” said Stan Soloway, president of the Professional Services Council. “We all agree that the government needs to reinvigorate critical workforce skills and capabilities, but that process must be subjected to meaningful analytical rigor and not result in ‘insourcing for the sake of insourcing.’” The largest federal employee union, the American Federation of Government Employees, hailed the memo as a reversal of the Bush administration’s aggressive outsourcing policies. “We’re entering a new era in which insourcing will be just as important an option for agencies as outsourcing,” AFGE President John Gage said. A third OMB memo reminds agencies that they must submit past-performance reports electronically to the Past Performance Information Retrieval System, including performance reports on orders placed under IDIQ contracts. That requirement went into effect July 1.