Sequestration pushes DHS contract spending to lowest level ever

Wednesday - 6/18/2014, 4:28am EDT

Jared Serbu reports.

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The Department of Homeland Security's contract spending continued to decline during the first year of sequestration and fell to its lowest level ever, according to a new independent analysis of government contract data.

Compared to its much larger sister agency, the Defense Department, the fiscal 2013 decline in contract obligations by DHS was relatively modest, the latest annual review of Homeland Security spending by the Center for Strategic and International Studies found. While DoD's contract dollars shrunk by 16 percent between 2012 and 2013, the decline in DHS was just 3 percent.

There are a couple of reasons for that, according to the authors. For one, DHS already had undergone a 12 percent reduction in dollars on contracts the year before, prior to the triggering of the automatic budget caps.

Also, the 2013 numbers got a boost from the sort of big-ticket purchase DHS only makes every few years: $500 million for the USCGC Munro, one of the large, high tech national security cutters the Coast Guard is building. Without that single contract, DHS spending would have dropped by 5.5 percent.

"What you also see is that the sequestration's impact is not evenly distributed across the DHS components. In fact, it's quite varied," said David Berteau, the director of the national security program on industry and resources at CSIS.

Coast Guard spending actually grew 6 percent in 2013, mostly because of its big cutter purchase. But the Transportation Security Administration's contract dollars shrunk by 15 percent, and Immigration and Customs Enforcement's declined by 13 percent. FEMA's spending increased by about 4 percent, driven mostly by Hurricane Sandy relief operations. Dollars flowing through DHS' Office of Procurement Operations, which handles miscellaneous departmentwide purchases, including IT and science and technology, were essentially flat.

Sole source awards increase

Among other trends, the report found a large increase — 15 percent — in the number of sole source contracts DHS recorded in the Federal Procurement Data System (FPDS) last year, though Berteau noted the factors behind that data aren't entirely clear.

"Sole source awards in DHS have gone from about one-seventh of total contract obligations back in 2009 to two-sevenths in 2013," he said. "However, that happened at the same time when competitions that only had a single offeror were declining. So we believe there's a correlation. An awful lot of times, you know you're only going to get one bid, so if you want to go through the trouble of documenting a sole-source justification, you probably have a rationale for doing so under [the Competition in Contracting Act]. It looks like that's probably what happened in DHS during 2013."

Characterizing the amount of competition in the DHS contracting world depends a lot on the type of contract one's looking at. There, the data is once again skewed by the huge cutter purchase, which the Coast Guard procured under a sole source award to Huntington-Ingalls. But with the same number of contractors pursuing fewer dollars, the types of procurements — which in prior years tended to attract only two bidders — now got the attention of at least three or four, the study found.

"Once you get away from the big sole-source contract awards in CBP and the Coast Guard, you see a very, very competitive environment at the component level across DHS," Berteau said.

The report also noted a significant shift in the types of contracts DHS components are using to make awards. The dollars DHS spent on cost-reimbursable type contracts fell by 18 percent, and time and materials contracts declined by 10 percent. Fixed price contracts, meanwhile, increased by 5 percent.

"This indicates to us a very serious push for fixed price contracts, and it certainly reinforces the anecdotes we've heard from the companies in the business," Berteau said.

Data inconsistency still a problem

In the process of drawing up the analysis, the CSIS staff encountered numerous occasions in which significant data fields were left empty in the federal procurement data system (FPDS), making it difficult to determine whether, for example, a given contract was awarded competitively.

The number of contracts DHS failed to label as competitive versus noncompetitive fell by 66 percent in 2013. That's not an accident, said Jesse Ellman, a coauthor of the report. He credited Nick Nayak, DHS' chief procurement officer, for a longstanding and concerted effort to improve the department's procurement data reporting. Nayak will leave the job later this summer, he told colleagues Wednesday.

"He has a team that looks at the DHS entries into FPDS every single day to see if something looks off or if some data is mislabeled," Ellman said. "Because of that, they've made very significant strides in the quality of their data entry."