Originally due out at the beginning of this month, the three memoranda released by the Office of Management and Budget (OMB) today are a substantive step by the Obama administration in its attempt to reform government contracting. OMB issued the memos in response to a directive in a March 4 presidential memorandum on contracting reform. The three memos provide guidance to agency heads on performing reviews of current contracts, developing plans to reduce the amount of money spent on future outsourcing, managing the multi-sector workforce, and improving the use of contractor performance information. These memos are precursors to more detailed guidance on competition, contract types, acquisition workforce, and outsourcing due out by September 30 of this year.

Of the current memos, the first tasks agency heads with two assignments. The first is to review existing contracts and acquisition practices and develop a plan to save 7 percent of baseline contract spending by the end of FY 2011. The second is to reduce by 10 percent the share of dollars obligated in FY 2010 under high-risk contract vehicles, such as noncompetitive, cost-reimbursement, time-and-materials (T&M), and labor-hour (LH) contracts. Plans are due to OMB by November 2 of this year.

The second memo deals with managing the multi-sector workforce, and stresses the delicate balance agencies must keep between employing federal workers and contract personnel:

Contractors provide vital expertise to the government and agencies must continue to strengthen their acquisition practices so they can take efficient and effective advantage of the marketplace to meet taxpayer needs. At the same time, agencies must be alert to situations in which excessive reliance on contractors undermines the ability of the federal government to accomplish its missions.

The memo goes on to state that in the recent past (read "during the Bush administration"), that balance was not there:

In particular, overreliance on contractors can lead to the erosion of the in-house capacity that is essential to effective government performance. Such overreliance has been encouraged by one-sided management priorities that have publicly rewarded agencies for becoming experts in identifying functions to outsource and have ignored the costs stemming from loss of institutional knowledge and capability and from inadequate management of contracted activities.

The multi-sector workforce memo also requires agencies to take three immediate steps. These steps are: adopt a framework for planning and managing the multi-sector workforce that is built on strong strategic human capital planning; conduct a pilot human capital analysis of at least one program, project, or activity, where the agency has concerns about the extent of reliance on contractors; and, increase in-sourcing using sound application of statutory requirements. Each agency must complete the pilot program by the end of April next year.

The third memo discusses improving the use of contractor performance information. As of July 1, all federal agencies are required to submit an electronic record of contractor performance in the Past Performance Information Retrieval System (PPIRS), a program I have blogged on before. OMB states that it will continue to improve upon PPIRS based on the recommendations of a recent Government Accountability Office (GAO) report and stresses that agencies should increase accountability within the reporting system by identifying those responsible for the accurate, complete, and timely completion of contractor information.

The three memos released today set the stage for substantive changes within the federal contracting process. These memos demonstrate that Director Peter Orszag and others within OMB have been paying attention to the recommendations of those of us in the contracting reform world. With OMB set to release more guidance in the fall, there could be even bigger changes within federal contracting on the way.

Image by Flickr user johnsolid used under a Creative Commons license.