Cutting Waste and Saving Money Through Contracting Reform

In March 2009, the President directed agencies to save $40 billion annually by Fiscal Year (FY) 2011 through contracting and to reduce the use of high-risk contracts.  Last December, OMB reported on agency plans to save $19 billion in FY 2010, and agencies are on track to meet that savings goal as well as the larger one for 2011.

 

One of the ways they are doing that is by saving money through reducing the number of contracts that are not competitive (or "no-bid") and that are cost-reimbursement, meaning that the contracts do not have a fixed price for the delivery of a completed product or service. Our goal is for every agency to reduce the share of dollars obligated through these types of contracts this fiscal year by 10 percent, and I am happy to report that we are making significant progress toward this goal.

 

In the first two quarters of FY 2010, the percentage of dollars awarded in new contracts without competition dropped by 10 percent when compared to the same time period in FY 2009. Use of new competitively awarded contracts in FY 2010 that received only one bid dropped by 2 percent when compared to the first two quarters of FY 2009. And 15 of the 24 agencies covered by the Chief Financial Officers Act (CFO Act) – the largest contracting agencies in the federal government – reduced their percentage of dollars awarded in new noncompetitive contracts or competitive contracts receiving only one bid by at least 10 percent. 

 

To put this into perspective, between FY 2000 and FY 2008, total spending on contracts awarded without competition increased significantly from $73 billion to $173 billion. Dollars obligated under contracts that were open to competition, but generated only one bid, also increased dramatically from $14 billion in FY 2000 to $ 67 billion in FY 2008.  We not only halted this increase, but actually reduced the rate of growth in these wasteful contracts.

 

The Administration also is making progress with reducing the use of cost-reimbursement and time-and-materials/labor-hour (T&M/LH) contracts. In the first half of FY 2010, the percentage of dollars awarded for new T&M/LH contracts dropped by 7 percent when compared to the same time period in FY 2009, and the percentage of dollars awarded for new cost-reimbursement contracts dropped by 6 percent, and 17 of the 24 CFO Act agencies reduced their percentage of dollars awarded for new T&M/LH or cost-reimbursement contracts by at least 10 percent. This is a marked turnaround from the first eight years of this century: between FY 2000 and FY 2008, total spending on cost-reimbursement contracts increased from $71 billion to $135 billion.