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Senate Authorizers Call for $1.1 Billion In Cuts To DOD Contract Services

Posted: June 29, 2011

Inside the Pentagon -- Senate authorizers want to cut the Pentagon's fiscal year 2012 budget request for contract services by $1.1 billion.

The report accompanying the Senate Armed Services Committee's FY-12 defense authorization bill gripes that costs for contract services have grown beyond reason.

"The proposed fiscal year 2012 base budget [operations and management] funding level represents a growth of $7.5 billion over fiscal year 2010 base budget O&M funding levels for contract services," the panel writes. "While a substantial share of this growth is attributable to the transfer of equipment maintenance funding from overseas contingency operations to the base budget, O&M funding for contract services other than equipment maintenance has grown by $1.1 billion since fiscal year 2010."

"At a time when the Department is seeking efficiencies in every area of its operations, a continued increase in funding for contract services -- above funding levels already bloated by a decade of unconstrained growth -- cannot be justified," the panel continues.

The proposal makes some sense due to rising fuel and medical costs, said former acquisition executive Jacques Gansler, now a University of Maryland professor.

"They are arguing that it's wasteful spending, and some things could be cut," Gansler said. "On the other hand, if you save that money by not doing some of the things and should be done . . . by not maintaining buildings, by providing inferior support to our troops, domestic and foreign. Do I want to do that? I don't think I want to."

Professional Services Council President and CEO Stan Soloway echoed those sentiments, saying that although he does not support "arbitrary cuts" to contract spending or reductions in DOD personnel, the committee is "right to be looking for ways to save money."

However, Soloway notes that the bill's language is "overly prescriptive" and might create conflicts with other statutory and regulatory requirements such as the Service Contract Act.

"The language in the bill . . . strips DOD of its flexibility to identify where it can best achieve savings," he said. "Additionally, mandating contractor salary cuts is counter intuitive since contract spending will be cut with the overall programmatic spending reductions."

The committee expects DOD to achieve the $1.1 billion in savings by following existing law, terminating or narrowing the scope of contracts and task orders to eliminate the purchase of lower priority services; negotiating lower labor rates and overhead rates in contracts and task orders; eliminating contracts and task orders for the scope of contracts and task orders for functions closely related to inherently governmental functions and implementing the improved purchasing practices directed in Pentagon acquisition chief Ashton Carter's "better buying power" initiative.

House authorizers proposed no similar cut, so the issue will have to be adjudicated in the conference process.

It would not be surprising if Senate appropriators chose to look for more cuts in this area than the Senate authorizers, a congressional source said.

"We expect this to be enacted into law," the source said. "If you're serious about getting efficiencies, there's no better place to put it to work."

The Senate Armed Services Committee echoed September 2010 testimony from Carter in its report, recounting that Carter told Congress that the "low-hanging fruit" was in contract services.

The legislation notes that the Air Force has been "more aggressive" than other military departments in implementing the management structure required by law and has conducted a "disciplined review" of $5.6 billion of service contracts over the last year, identifying $1.4 billion of expected savings over the next eight years.

"The committee expects the Army and the Navy to develop management structures and review processes similar to those adopted by the Air Force, and to be equally aggressive in identifying and pursuing potential savings," the committee writes.

The legislation also calls for the Government Accountability Office to submit a report to the congressional defense committees on the extent of competition in DOD contracts and task orders for services. The report must be completed no later than March 15, 2012.

"The committee is aware of cases in which requirements for services contracts have been written in a manner that appears to favor award to the incumbent contractor, or in which the department has failed to provide sufficient time for sources other than the incumbent to provide realistic competition for follow-on contracts," the committee writes.

Another provision in the bill calls for a temporary limitation on aggregate annual amount available for contract services. -- Amanda Palleschi

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