Out of Control Policy Blog

Senate Bill to Gut Federal Contracting

Sen. Barbara Mikulski (D-MD) plans to introduce the "Clean Up" Act today, a bill that would shut down Federal use of public-private partnerships. This would be an unfortunate step in the wrong direction if Congress makes Clean Up law. 

Over the past few weeks, the White House has been visibly active in pursing ways to cut wasteful government spending. President Obama has asked his cabinet heads to find $100 million in their collective budgets to cut. Criticized that this was just a drop in the ocean, he then asked House Republican Whip Eric Cantor for a list of ways that Federal spending could be reduced. These moves stand in stark contrast to the trillions in deficit spending the President's budget plans for, but at the very least the White House seems to be moving in the right direction now.

One of the ways the government saved money and cut costs under President Bush was through competitive sourcing of Federal work. Between 2003 and 2007, the federal government saved taxpayers $7.2 billion through the competitive bidding process, as my colleauge Len Gilroy wrote about in Reason's Annual Privaitization Report 2008. Competitive sourcing, through budget rule A-76, allows the private sector to compete for jobs and contracts that are currently performed by the government. 

However, the outsourcing hasn't been perfect. As Reason's Adrian Moore wrote last week, "The Bush years saw a large expansion in federal contracting, some of which worked very well and some which did not.  Unfortunately, those years saw an explosion in substandard contracting practices." This is because privatization can be done right and it can be done wrong. The Bush administration took the right step forward; still, much can be done to tweak the system.

But instead of actually "cleaning up" Federal competitive sourcing, the Clean Up Act threatens to throw out the process all together by gutting its core. There is a right and wrong way to fix privatization too. Sen. Mikulski's bill partially gets the job done by requiring agencies review contracts to identify poorly performed work. A critical component of successful privatization is government holding the private vendor to the terms of the contract. If the service provider doesn't feel the quality of their work is being watch, their incentive to provide that quality drops.

However, the Clean Up Act would unfortunately serve to increase government spending--not trim down as the President has pushed for--in two big ways:

  • First, the bill requires A-76 be amended to abolish automatic re-competition of work won by federal employees. The way competitive sourcing is structured now, federal employees can bid for jobs against the private sector--and they have actually won 83 percent of the job competitions. But the cost savings come from having to compete against rival providers. By bringing work up for re-competition on a regular basis (depending on the specific contract), it ensures that the government can get the best price quality.
  • Second, the bill would reduce the number of jobs that can be put up for competitive bid. Sen. Mikulski said she wants more jobs for "first-rate federal employees." But there are very few things that the public sector can do better than the private sector. Because the private sector has a profit motive, and a motive to provide quality work to keep their customer's happy and renew a contract, they have incentives to offer better services than federal workers with legacy employment. The government should be looking for ways to outsource more work, not curtail it.

The right way to fix contracting is not to virtually stop to it all together. At a time when budgets are crunched, States and local governments are increasingly turing to the private sector to provide lower cost services at higher quality. The Federal government should do the same. 

Yes, there are problems with the current process of competitive sourcing. As Adrian points out, the Bush administration reimbursed contractors for expenses beyond the contract, which puts the taxpayer at higher risk and reduces the incentive to cut costs. But a better way to start fixing Federal contracting would be to look at the most effective practices in contracting and balance the risks to the private sector appropriately with the public sector. Gutting the process is not the answer.

Anthony Randazzo is Director of Economic Research


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