Wednesday, November 30, 2011

Cuts Coming in Management Support Service Contracts

Last summer, the OMB (Office of Management and Budget) announced a goal of reducing spending on management support service contracts across all agencies by 15 percent. Until recently however, we didn't know what this meant in terms of absolute dollars. Earlier this month, OMB provided that information.

According to OMB, the Federal Government spends about $44 billion a year on management support services such as engineering and technical services, acquisition planning, information technology services, and program management. Ten years ago, that figure was only $11 billion. Many of these contracts are awarded on a "time-and-material" basis which OMB believes put agencies at greater cost risk than when fixed price contracting is used. Also, OMB believes that magnitude of these contracted services creates a potential risk of overreliance on contractors for critical activities related to agencies' missions and operations. By September 30, 2012, OMB wants to reduce spending in this area by $6.7 billion.

To achieve this goal, OMB is requiring agencies justify in writing that their support service contracts are essential and the justification must be accompanied by "high level" approval. Agencies will also need to justify the contracting type used, if not firm-fixed price.

These reductions, if they actually happen, will have a significant and direct impact on many Government contractors, including small businesses who have benefited from support service contracting over the years.

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