The End of Privatization as We Know It?

Among unbossed’s focuses – or even, obsessions – as been privatization. You can find links to prior posts on this issue here.

It is a matter of great relief to see that we now have a president who does not have, as his first priority, selling off the country’s China on the cheap. There have been a number of executive orders and other strong statements from the Obama administration on this issue, laying the groundwork for comprehensive reform related to privatization and contracting out.

Here are some of the statements to date. One, the Nondisplacement of Qualified Workers Under Service Contracts, will be discussed in a later post.

Last week, the President was busy issuing memoranda and other statements on the issue of privatization.

On March 4, 2009, we saw a Memorandum for the Heads of Executive Departments and Agencies on Government Contracting

The memorandum grounded its case in the cost to the public of privatization. An interesting development, given that we have so often been told that privatization costs less and saves us money.

The Federal Government has an overriding obligation to American taxpayers. It should perform its functions efficiently and effectively while ensuring that its actions result in the best value for the taxpayers.

Since 2001, spending on Government contracts has more than doubled, reaching over $500 billion in 2008. During this same period, there has been a significant increase in the dollars awarded without full and open competition and an increase in the dollars obligated through cost-reimbursement contracts. Between fiscal years 2000 and 2008, for example, dollars obligated under cost-reimbursement contracts nearly doubled, from $71 billion in 2000 to $135 billion in 2008. Reversing these trends away from full and open competition and toward cost-reimbursement contracts could result in savings of billions of dollars each year for the American taxpayer.

Excessive reliance by executive agencies on sole-source contracts (or contracts with a limited number of sources) and cost-reimbursement contracts creates a risk that taxpayer funds will be spent on contracts that are wasteful, inefficient, subject to misuse, or otherwise not well designed to serve the needs of the Federal Government or the interests of the American taxpayer. Reports by agency Inspectors General, the Government Accountability Office (GAO), and other independent reviewing bodies have shown that noncompetitive and cost-reimbursement contracts have been misused, resulting in wasted taxpayer resources, poor contractor performance, and inadequate accountability for results.

When awarding Government contracts, the Federal Government must strive for an open and competitive process. However, executive agencies must have the flexibility to tailor contracts to carry out their missions and achieve the policy goals of the Government. 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.

Moreover, it is essential that the Federal Government have the capacity to carry out robust and thorough management and oversight of its contracts in order to achieve programmatic goals, avoid significant overcharges, and curb wasteful spending. A GAO study last year of 95 major defense acquisitions projects found cost overruns of 26 percent, totaling $295 billion over the life of the projects. Improved contract oversight could reduce such sums significantly.

Government outsourcing for services also raises special concerns. For decades, the Federal Government has relied on the private sector for necessary commercial services used by the Government, such as transportation, food, and maintenance. Office of Management and Budget Circular A-76, first issued in 1966, was based on the reasonable premise that while inherently governmental activities should be performed by Government employees, taxpayers may receive more value for their dollars if non-inherently governmental activities that can be provided commercially are subject to the forces of competition.

However, the line between inherently governmental activities that should not be outsourced and commercial activities that may be subject to private sector competition has been blurred and inadequately defined. As a result, contractors may be performing inherently governmental functions. Agencies and departments must operate under clear rules prescribing when outsourcing is and is not appropriate.

It is the policy of the Federal Government that executive agencies shall not engage in noncompetitive contracts except in those circumstances where their use can be fully justified and where appropriate safeguards have been put in place to protect the taxpayer. In addition, there shall be a preference for fixed-price type contracts. 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. Moreover, the Federal Government shall ensure that taxpayer dollars are not spent on contracts that are wasteful, inefficient, subject to misuse, or otherwise not well designed to serve the Federal Government’s needs and to manage the risk associated with the goods and services being procured. The Federal Government must have sufficient capacity to manage and oversee the contracting process from start to finish, so as to ensure that taxpayer funds are spent wisely and are not subject to excessive risk. Finally, the Federal Government must ensure that those functions that are inherently governmental in nature are performed by executive agencies and are not outsourced.

I hereby direct the Director of the Office of Management and Budget (OMB), in collaboration with the Secretary of Defense, the Administrator of the National Aeronautics and Space Administration, the Administrator of General Services, the Director of the Office of Personnel Management, and the heads of such other agencies as the Director of OMB determines to be appropriate, and with the participation of appropriate management councils and program management officials, to develop and issue by July 1, 2009, Government-wide guidance to assist agencies in reviewing, and creating processes for ongoing review of, existing contracts in order to identify contracts that are wasteful, inefficient, or not otherwise likely to meet the agency’s needs, and to formulate appropriate corrective action in a timely manner. Such corrective action may include modifying or canceling such contracts in a manner and to the extent consistent with applicable laws, regulations, and policy.

I further direct the Director of OMB, in collaboration with the aforementioned officials and councils, and with input from the public, to develop and issue by September 30, 2009, Government-wide guidance to:

(1) govern the appropriate use and oversight of sole-source and other types of noncompetitive contracts and to maximize the use of full and open competition and other competitive procurement processes;

(2) govern the appropriate use and oversight of all contract types, in full consideration of the agency’s needs, and to minimize risk and maximize the value of Government contracts generally, consistent with the regulations to be promulgated pursuant to section 864 of Public Law 110-417;

(3) assist agencies in assessing the capacity and ability of the Federal acquisition workforce to develop, manage, and oversee acquisitions appropriately; and

(4) clarify when governmental outsourcing for services is and is not appropriate, consistent with section 321 of Public Law 110-417 (31 U.S.C. 501 note).

Executive departments and agencies shall carry out the provisions of this memorandum to the extent permitted by law. This memorandum is not intended to, and does not, create any right or benefit, substantive or procedural, enforceable at law or in equity by any party against the United States, its departments, agencies, or entities, its officers, employees, or agents, or any other person.

The Director of OMB is hereby authorized and directed to publish this memorandum in the Federal Register.
BARACK OBAMA

On the same day, we saw from the Office of the Press Secretary Remarks by the President on Procurement

THE PRESIDENT: Good morning. Even if these were the best of times, budget reform would be long overdue in Washington. And we have here some folks who have been working on these issues for a long time.

But these are far from the best of times. By any measure, my administration inherited a fiscal disaster. When we walked in the door we found a budget deficit of $1.3 trillion, the largest in American history. And this fiscal burden has been compounded by the most severe economic crisis since the Great Depression. It’s a crisis that requires us to take swift and aggressive action to put Americans back to work, and to make the long-delayed investments in energy, health care and education, that can build a new foundation for growth.

As we get our economy moving we must also turn the tide on an era of fiscal irresponsibility so that we can sustain our recovery, enhance accountability and avoid leaving our children a mountain of debt. And that’s why even as we make the necessary investments to put our economy back on track, we’re proposing significant changes that will help bring the yawning deficits we inherited under control. We are cutting what we don’t need to make room for what we do.

The budget plan I outlined next week includes $2 trillion in deficit reduction. It reduces discretionary spending for non-defense programs as a share of the economy that — by more than 10 percent over the next decade, to the lowest level in nearly half a century. I want to repeat that. I want to make sure everybody catches this, because I think sometimes the chatter on the cable stations hasn’t been clear about this. My budget reduces discretionary spending for non-defense programs as a share of the economy by more than 10 percent over the next decade, and it will take it to the lowest level in nearly half a century.

In addition, today I’m announcing that part of this deficit reduction will include reforms in how government does business, which will save the American people up to $40 billion each year. It starts with reforming our broken system of government contracting. There is a fundamental public trust that we must uphold. The American people’s money must be spent to advance their priorities — not to line the pockets of contractors or to maintain projects that don’t work.

Recently that public trust has not always been kept. Over the last eight years, government spending on contracts has doubled to over half a trillion dollars. Far too often, the spending is plagued by massive cost overruns, outright fraud, and the absence of oversight and accountability. In some cases, contracts are awarded without competition. In others, contractors actually oversee other contractors. We are spending money on things that we don’t need, and we’re paying more than we need to pay. And that’s completely unacceptable.

This problem cuts across the government, but I want to focus on one particular example, and that is the situation in defense contracting. Now, I want to be clear, as Commander-in-Chief, I will do whatever it takes to defend the American people, which is why we’ve increased funding for the best military in the history of the world. We’ll make new investments in 21st century capabilities to meet new strategic challenges. And we will always give our men and women the — in uniform, the equipment and the support that they need to get the job done.

But I reject the false choice between securing this nation and wasting billions of taxpayer dollars. And in this time of great challenges, I recognize the real choice between investments that are designed to keep the American people safe and those that are designed to make a defense contractor rich.

Last year, the Government Accountability Office, GAO, looked into 95 major defense projects and found cost overruns that totaled $295 billion. Let me repeat: That’s $295 billion in wasteful spending. And this wasteful spending has many sources. It comes from investments and unproven technologies. It comes from a lack of oversight. It comes from influence peddling and indefensible no-bid contracts that have cost American taxpayers billions of dollars.

In Iraq, too much money has been paid out for services that were never performed, buildings that were never completed, companies that skimmed off the top. At home, too many contractors have been allowed to get away with delay after delay after delay in developing unproven weapon systems.

It’s time for this waste and inefficiency to end. It’s time for a government that only invests in what works. And what’s encouraging is, is that there is broad bipartisan consensus on behalf of reform, and we are committed to taking swift action that changes our system of contracting to save taxpayers’ money.

So here are a couple of immediate steps we’re going to take. First, with the presidential memorandum that I’m signing, I am instructing my administration to dramatically reform the way we do business on contracts across the entire government. So starting today, Peter Orszag, my budget director, will work with Cabinet officials and agency heads to develop tough new guidelines on contracting by the end of September. We will stop outsourcing services that should be performed by the government, and open up the contracting process to small businesses. We will end unnecessary no-bid and cost-plus contracts that run up a bill that is paid by the American people. And we will strengthen oversight to maximize transparency and accountability. Altogether, these reforms can save the American people up to $40 billion each year.

Second, we must make investments to keep our country safe while cutting back on the waste and inefficiency that isn’t. And that’s why I’m so pleased to support the goals of the bipartisan effort on procurement reform that has been led by our own Carl Levin and John McCain in the Senate. They have done extraordinary work trying to push this issue to the forefront. We want to see if we can partner with Senator McCain and Senator Levin to get this done as soon as possible. And thanks to Secretary Gates, some of the reforms that they’ve talked about are already beginning to take shape. And I’ve asked him to work with Senators Levin and McCain on developing this legislation as it moves forward, and Bill Lynn, who is heading up procurement issues at our White House as Deputy Secretary of Defense is going to be leading the charge on this, as well.

I can assure you that this will be a priority for my administration. It’s time to end the extra costs and long delays that are all too common in our defense contracting. We need to invest in technologies that are proven and cost-effective. We need more competition for contracts and more oversight as they’re carried out. If a system isn’t ready to be developed, we shouldn’t pour resources into it. And if a system is plagued by cost overruns, it should be reformed. No more excuses, no more delays. The days of giving defense contractors a blank check are over.

Now, none of this will be easy. We’ll have to end old ways of doing business. We’ll have to take on entrenched special interests. We’ll have to break bad habits that have built up over many years. But we can’t keep spending good money after bad. All across America, families are making hard choices, and now we’re going to have to do the same. I can promise you that this is just the beginning of a new way of doing business here in Washington because the American people have every right to expect and to demand a government that is more efficient, more accountable, and more responsible in keeping the public’s trust.

And I also want to acknowledge a couple of congressmen — Congressman Towns and Congressman Welch, who have been working diligently on this issue, and Claire McCaskill in the Senate, who has been sharpening her pencils and working with IGs across departments to see if we can make some significant reforms and improvements, as well.

And again, thank you to Senators McCain and Senators Levin for their outstanding leadership on this issue. We look forward to getting it done. This is going to be just one more aspect of the kind of reform that’s going to be critical in the months and years to come.

And that same day, from the White House blog at 11:32 am Priorities — Not lining the pockets of contractors

I have to say, “Tell us how you really feel about contractors.”

Last week the President laid out the foundation of a new vision for our budget and the way government does business. It is a vision based not on ideology, but on the idea that we can and must invest boldly in our future while also making the hard choices and being vigilant to bring in a new era of fiscal responsibility.

Last week began with the fiscal responsibility summit, where the President and members of Congress came together to generate ideas to get the country on a sustainable long-term track. One of the exchanges that got the most attention was between the President and Senator John McCain, who discussed the idea of procurement overruns, in Defense Department contracts in particular.

Today Sen. McCain joined the President again to develop that idea further, along with Senators Carl Levin and Claire McCaskill and Representatives Edolphus Towns and Peter Welch. The President signed a Presidential Memorandum that will reform government contracting by strengthening oversight and management of taxpayer dollars, ending unnecessary no-bid and cost-plus contracts and maximizing the use of competitive procurement processes, and clarifying rules prescribing when outsourcing is and is not appropriate. The OMB will be tasked with giving guidance to every agency on making sure contracts serve the taxpayers, not the contractors.

In addition, the President endorsed the goals of the bipartisan effort on defense procurement reform led by Senators Carl Levin and McCain, and has asked Defense Secretary Gates to work with the Senators going ahead. In his remarks, President Obama made clear that while there are those who will try to protect contractor excesses behind cries of weakening our national defenses, there will be a bipartisan, firm stand to put those excesses to an end:

The American people’s money must be spent to advance their priorities — not to line the pockets of contractors or to maintain projects that don’t work.

Recently that public trust has not always been kept. Over the last eight years, government spending on contracts has doubled to over half a trillion dollars. Far too often, the spending is plagued by massive cost overruns, outright fraud, and the absence of oversight and accountability. In some cases, contracts are awarded without competition. In others, contractors actually oversee other contractors. We are spending money on things that we don’t need, and we’re paying more than we need to pay. And that’s completely unacceptable.

This problem cuts across the government, but I want to focus on one particular example, and that is the situation in defense contracting. Now, I want to be clear, as Commander-in-Chief, I will do whatever it takes to defend the American people, which is why we’ve increased funding for the best military in the history of the world. We’ll make new investments in 21st century capabilities to meet new strategic challenges. And we will always give our men and women the — in uniform, the equipment and the support that they need to get the job done.

But I reject the false choice between securing this nation and wasting billions of taxpayer dollars. And in this time of great challenges, I recognize the real choice between investments that are designed to keep the American people safe and those that are designed to make a defense contractor rich.

Last year, the Government Accountability Office, GAO, looked into 95 major defense projects and found cost overruns that totaled $295 billion. Let me repeat: That’s $295 billion in wasteful spending. And this wasteful spending has many sources. It comes from investments and unproven technologies. It comes from a lack of oversight. It comes from influence peddling and indefensible no-bid contracts that have cost American taxpayers billions of dollars.

One place to keep an eye out for future developments will be at the Office of Management and Budget’s website, but so far, there is little evidence of the work that must be underway.

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