OMB Issues Guidance for Agencies to Cut Costs by 7% and Reduce Reliance on Outside Vendors

In guidance issued by the Office of Management and Budget (OMB) on July 29, the office unveiled contracting reforms with a goal of saving $40 billion a year.  The guidance requires agencies to reduce contracts by at least 7%, particularly focusing on what it terms “high risk” arrangements such as non-competitive contracts and cost-plus contracts where there is potentially little incentive to controls costs.

According to the OMB press release, spending on government contracts has more than doubled since 2002 (reaching $500 billion by the end of 2008).  In this same time period, contracts awarded non-competitively increased from $82 billion in 2002 to 182 billion (while this is a clever presentation of numbers, the percentage of non-competitive contracts relative to total spending has not increased in such a dramatic way).

The guidance also dealt with reducing the overall reliance on outside consultants, as well as tracking contractor performance in a more centralized manner for evaluation purposes.


Certainly, vendors may find themselves impacted by this new guidance.  Contractors who have traditionally offered services based on Time & Materials will find greater pressure to move to a Firm Fixed Price model (although this may backfire on the government as FFP prices may rise to cover the contractor’s risk).  Others having a history of sole-source agreements may find future requirement specifications loosening to bring in new, non-traditional competition.

Now is a good time to proactively analyze cost performance, contract stipulations and relationships.  Buyers will most certainly appreciate a vendor who brings unsolicited cost-cutting or efficiency-enhancing measures to the table.  In all, government buyers will continue to find ways to utilize contractors offering strong value.  Those with a shaky story may find themselves a casualty of OMB scrutiny.



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