On July 7, 2011, as part of the Obama Administration’s continued focus on cutting waste, fraud and abuse, Office of Management and Budget (“OMB”) officials announced an initiative requiring all federal agencies to reduce spending on management services contracts by a “minimum” of 15 percent by the end of fiscal year 2012.

Jeffrey Zients, the OMB’s deputy director for management and chief performance officer, and Dan Gordon, the OMB’s administrator for federal procurement policy, led a discussion on management services contracts during the White House Forum on Accountability in Federal Contracting. The discussion is available on the White House’s website at http://www.whitehouse.gov/photos-andvideo/ video/2011/07/07/white-house-forum-accountability-federal-contracting.

The Obama Administration has recently implemented a number of programs to encourage agencies to reduce inefficient or wasteful spending. According to Zients, agencies are now buying less, pooling their purchasing power and minimizing the use of cost-plus and sole-source contracts. Zients indicated that total government contracting actually went down last year—the first decrease in the last 13 years.

As part of its ongoing efforts to trim spending, the administration is now targeting contracts for management support services (e.g., advisory assistance contracts, information technology program management, and acquisition support services). According to Zients, contracts for management support services have quadrupled over the last decade. The OMB believes some of these contracts should be eliminated or reduced, leading to yesterday’s announcement seeking a reduction in spending on such contracts by a “minimum” of 15 percent, or approximately $6 billion across the government. The OMB will be tracking federal agencies’ progress over the next several months to meet this target by the end of fiscal year 2012.  

According to Dan Gordon, the OMB is focusing on management support services because this is “where the money is” being spent. According to Gordon, management support services are also high risk areas and matters that come close to inherently government functions. Gordon also acknowledged, however, that contractors providing certain management support services are valuable to the government. Gordon recognized that some agencies will continue to rely on such contractors. In those circumstances, Gordon emphasized that OMB would like to see agencies spending less on such contracts. Gordon suggested agencies could accomplish this through more fixed-price contracts and lower hourly rates for time-and-materials contracts. Gordon suggested agencies could accomplish this through more fixed-price contracts and lower hourly rates for time-and-materials contracts.

Although the OMB has not issued any guidance on how agencies will implement these reductions, companies with contracts for advisory assistance, information technology program management, and acquisition support are now clearly in the OMB’s crosshairs. Companies with such contracts should prepare for possible terminations. Agencies may also seek to insource such work or, when work must be outsourced, propose more fixed-price contracts or increase pressure on contractors to reduce their hourly rates.