March 5, 2009
This week President Barack Obama has given a strong indication that–along with a slew of other big ticket items–government procurement reform will be one of his administration’s priorities. Though procurement reform was not touted during the campaign and was largely absent from the initial introduction to the administration’s agenda, the President and a bipartisan team of senators have championed two changes, in as many days, to the awarding and oversight of government contracts. The legislation has only been proposed and the President has only ordered a review of the procurement process, but the emphasis is likely indicative of more proposals and changes to come. With daily pledges for both additional government spending and renewed fiscal responsibility, the President has promised to find places to cut costs and spend efficiently. Since the cost of his proposed new fleet of helicopters was called into question last week, both the President and the media have focused on government contracts as a source of potential cost savings.
The Weapon Systems Acquisition Reform Act
On Tuesday, March 3, 2009, Senators Levin (D. Mich.) and McCain (R. Ariz.), who are expected to manage legislative procurement reform efforts, proposed the Weapon Systems Acquisition Reform Act of 2009. The bill is designed to prevent major cost overruns, in part by creating a director of independent cost assessments, dedicated to reviewing costs during the acquisition process. Under the legislation, the appointee would have the authority to halt weapons programs with excessive cost overruns, unless the Defense Secretary certifies and documents the program’s necessity and cost effectiveness. This legislation is partially in response to the Government Accountability Office’s September 2008 disclosure that cost overruns on the Pentagon’s 95 largest fiscal year 2007 defense programs totaled nearly $300 billion. Senator McCain’s appearance with President Obama when he announced his related presidential memorandum, discussed below, implies that these proposals could be bipartisan and will likely reflect a coordinated effort of the legislative and executive branches.
President Obama’s Memorandum Regarding Government Contracts
Yesterday, the President announced related but broader procurement reform goals directed in a presidential memorandum. That memorandum requires a thorough review of existing contracts and the government procurement process overall. Listing a series of current pitfalls for over-spending including (1) overuse of sole-source and cost-reimbursement contracts, (2) awarding of excessive non-competitive contracts, and (3) unnecessary outsourcing, the President set deadlines for review and reevaluation of government contracts procurement. That this memorandum was issued so early in the President’s term, that he issued it in conjunction with a public announcement, and that he timed the announcement to coincide with legislative proposals are more telling than the directives issued thus far.
The memorandum essentially dictates a timeline for a review and the issuance of new guidelines. First, the Director of the Office of Management and Budget (OMB) was given a July 1, 2009 deadline to issue guidance to assist agencies in reviewing current contracts to identify and eliminate wasteful spending. Second, the Director of OMB was given until September 30, 2009 to develop and issue guidance that will (1) govern the appropriate use and oversight of sole-source and other noncompetitive contracts and to maximize the use of competition in procurement processes; (2) govern the appropriate use and oversight of all contracts, minimizing risk and maximizing value; (3) assist agencies in assessing the ability of the Federal acquisition workforce to manage and oversee acquisitions; and (4) clarify appropriate circumstances for outsourcing work on government contracts. No changes to procurement law have been implemented, nor are any necessarily imminent, but media and government attention on these issues is unlikely to wane. Gibson, Dunn, & Crutcher will continue to monitor these developments.
Gibson Dunn & Crutcher’s lawyers are available to assist clients in addressing any questions they may have regarding this issue. Please contact the Gibson Dunn attorney with whom you work, or government contracts partners Joseph D. West (202-955-8658, [email protected]), Karen L. Manos (202-955-8536, [email protected]), or Diana G. Richard (202-877-3572, [email protected]) in the firm’s Washington, D.C. office or Timothy J. Hatch (213-229-7368, [email protected]) in the Los Angeles office.
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