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DOD opened up a large contract that provides support services to military personnel to competition for the first time. Learn more about this and other successes in the update on contracting reform.

Agencies are making concerted efforts to reduce the money spent through high-risk contracts – contracts that are not fixed price or are awarded without receiving more than one bid – so that the government faces no greater financial risk than necessary in its contracting. There are two dimensions of contracting risk. First, there is risk of wasteful spending when agencies pay for expenses as incurred rather than setting a fixed price upfront for the delivery of a completed product or service.  Second, there is the risk of overspending if agencies contract without the benefit of competition. President Obama has directed agencies to reduce risk on both of these dimensions in order to ensure that agencies get the best value for each taxpayer dollar. 

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Office of Federal Procurement Policy Homepage
July 2010 update on Contracting Reform
Achieving Better Value From Our Acquisitions
Enhancing Competition

Total government-wide spending on noncompetitive contracts increased significantly from $73 billion in FY 2000 to $170 billion in FY 2008. Dollars obligated under contracts that were open to competition but generated only one bid also increased dramatically from $14 billion in FY 2000 to $81 billion in FY 2008. To meet the President’s direction to reduce contracting risk, every agency took steps to decrease by 10 percent the share of dollars obligated through new contracts in FY 2010 that are awarded noncompetitively or after a competition that received only one bid. The chart to the right shows the percentage of dollars obligated to new contracts awarded noncompetitively. To put progress on use of competition into a larger context, agencies competed 66% of total obligations, which include new and existing contracts, in FY 2010. However, among the competed dollars, a subset has received only one offer.  The chart also shows the percentage of dollars that were obligated government-wide to new competed contracts that received only one offer.  The data is from the Federal Procurement Data System (FPDS). More information is provided in the Frequently Asked Questions.

Agencies made progress on decreasing noncompetitive contracting, though the 10 percent goal was not achieved in FY 2010.  Agencies continue to work to increase competition in acquisitions.  To attract new sources and bidders, for example, some agencies broke out pieces of requirements that are most likely to attract additional bidders, encouraging long-time subcontractors – who are in many cases small businesses – to consider competing as prime contractors, and restructuring requirements in ways that more closely reflect how work is performed commercially.  Others have worked to improve their outreach to small businesses to help them more easily navigate the federal marketplace and identify opportunities that best fit their capabilities.

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Expanding the Use of Fixed-Price Contracting

Between FY 2000 and FY 2008, total government-wide spending on cost-reimbursement contracts increased from $71 billion to $151 billion. Dollars obligated under time-and-materials/labor-hour contracts (T&M/LH) shot up from just $8 billion to $29 billion. Agencies are now committed to increasing their use of fixed-price contracts, where appropriate, which provide greater incentive for contractors to control costs and perform efficiently than cost-reimbursement and T&M/LH contracts. The chart to the right shows the percentage of dollars obligated for new non-fixed-price contracts in FY 2009 and FY 2010. To put progress into a larger context, agencies awarded 5% of total obligations, which include new and existing contracts, as time-and-materials contracts and 30% as cost-reimbursement contracts in FY 2010. The percentages of total dollars obligated for these contract types are typically larger than new awards, because additional funding is awarded as the contracts progress and costs become known. The chart is based on data from the Federal Procurement Data System (FPDS). More information is provided in the Frequently Asked Questions.

Cost-reimbursement contracting increased slightly government-wide between FY 2009 and FY 2010. The Office of Management and Budget is working with agencies that did not meet the targets to identify ways to make progress. However, in certain instances, cost reimbursement contracts may present less risk to the Government than other contract types. First, on the risk continuum for types of government contracts, cost-reimbursement contracts present less risk to the government than T&M/LH contracts. In addition, some agencies are utilizing “hybrid contract types”, which allow the parties to choose the appropriate pricing structure – fixed-price, cost-reimbursement or T&M/LH – for individual work orders. These contracts enable agencies to move part of the requirement to a lower risk pricing structure without awarding a new contract, but this conversion to lower risk contract types is not captured in FPDS. Recently published changes to acquisition regulations will help to ensure that cost-reimbursement contracts are used only when circumstances warrant, such as to help agencies obtain critical research, leading-edge innovation, and other needs where there is considerable uncertainty regarding the agency’s requirements. 

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Agencies Decreasing High Risk Contracting

Every agency was charged with reducing by 10 percent the share of dollars obligated through new contracts in FY 2010 that were (1) noncompetitively awarded, (2) awarded after a competition that received only one bid, (3) awarded as a cost-reimbursement contract, and (4) awarded as a time-and-materials/labor-hour (T&M/LH) contract. The chart below shows the performance in meeting those targets made by agencies covered by the Chief Financial Officers Act (CFO Act) – the largest contracting agencies in the Federal government. Checkmarks indicate that the agency reduced the share of dollars obligated on new contracts awarded by at least 10 percent for the particular type of high-risk contract. The Administration is working with those agencies that did not meet the targets to identify ways to make further progress.
AgenciesReduced Noncompetitive by 10%Reduced Competitive-One Bid by 10%Reduced Cost Reimbursement by 10%Reduced T&M/LH by 10%
Department of AgricultureCheckCheckNoCheck
Department of CommerceCheckNoCheckCheck
Department of the InteriorCheckCheckCheckCheck
Department of JusticeCheckCheckCheckCheck
Department of LaborNoCheckNoNo
Department of StateNoNoCheckCheck
Department of The TreasuryNoCheckNoCheck
Office of Personnel ManagementCheckNoCheckNo
Social Security AdministrationCheckNoNoNo
Nuclear Regulatory CommissionCheckNoCheckCheck
Department of Veterans AffairsNoCheckNoNo
General Services AdministrationCheckNoCheckCheck
National Science FoundationCheckNoCheckNo
Environmental Protection AgencyNoCheckCheckCheck
Department of TransportationCheckCheckNoCheck
Department of Homeland SecurityCheckCheckNoNo
U.S. Agency for International DevelopmentNoCheckNoNo
Small Business AdministrationCheckCheckNoNo
Department of Health and Human ServicesCheckNoNoNo
National Aeronautics and Space AdministrationNoCheckNoNo
Department of Housing and Urban DevelopmentCheckCheckCheckCheck
Department of EnergyNoNoNoNo
Department of EducationCheckCheckNoCheck
Department of DefenseNoNoNoNo

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