Could cutting service contracts avert sequestration furloughs?

Monday - 2/11/2013, 5:00pm EST

Alan Chvotkin, vice president an counsel, Professional Services Council

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As federal agencies intensify their planning for the across-the-board budget cuts slated to hit the government in March, much of the discussion has settled on the likelihood of federal employees being furloughed.

But one contracting expert said making trims to service-contract spending could garner as much as 70 percent to 90 percent of the savings required by the budget cuts, known as sequestration.

In an analysis prepared for the American Federation of Government Employees, Charles Tiefer, a professor at the University of Baltimore Law School and a former member of the Commission on Wartime Contracting in Iraq and Afghanistan, said that agency managers have a number of tools at their disposal to legally scale back service-contract spending.

"Contractors say that their contracts are untouchable, sacrosanct, you can't make savings out of them," Tiefer said during a conference call to discuss his analysis. "It is not impossible, it is not a breach, there are not penalties for the government to scale these back."

Doing so, he said, would be "far better for the government's operations than furloughing essential, sometimes indispensable, federal employees."

Service-contract spending accounts about $300 billion of the government's total contract spending.

Federal managers have options to legally scale back service-contract spending, according to Tiefer's analysis.

  • Pause task orders of indefinite-delivery, indefinite-quantity contracts. If an agency has already awarded the minimum number of task orders for an ID/IQ contract, then it has "complete discretion" to reduce the number of task orders it places, essentially pausing the contract, Tiefer wrote.

    Much of the government's IT contract spending is done through task orders, so "even a very limited reduction in the upward trend in the purchasing of IT task orders would produce significant savings," Tiefer stated.

  • Partial terminations, deductive-change orders. Agencies can also partially terminate contracts, according to Tiefer, so long as the cancellations don't exceed 20 percent of the work scope. "For example, an agency may have a contract for weekly janitorial services," Tiefer's analysis stated. "A manager may partially terminate that contract for convenience so that services need be rendered only in two of every three weeks, effectively terminating one-third of that contract."

    Similarly, agencies can make even smaller trims — less than 10 percent of the work scope — known as deductive-change orders to contract spending.

  • Bilateral modifications. Finally, agencies can reduce contract spending by renegotiating contract terms with their contractors. "Although skeptics may doubt that this process occurs fully consensually, they do have, in the end, contractors' agreement, even if only grudging," Tiefer wrote. "Historically, many reductions in payments to service contractors have occurred through such modifications ... Rather than be subjected to entirely involuntary partial terminations for convenience or deductive change orders, most service contractors would voluntarily consent to bilateral modifications for reductions, particularly if they can help to plan new arrangements for performance of their service contracts."

In all cases, contractors and agency managers should work together, Tiefer said, even when agencies possess "absolute discretion" to reduce spending, he said.

Lawsuits between contractors and agencies are not to anyone's benefit and, by working together, contractors can provide input about how to move forward on a reduced contract, Tiefer said.

Industry group decries 'us vs. them' mentality

Industry groups criticized Tiefer's analysis. Achieving 70 percent to 90 percent of the sequester cuts by cutting contracting "would cripple the government and devastate the economy," said Alan Chvotkin, vice president and counsel of the Professional Services Council, an industry group.

Agencies should make strategic decisions "about what work needs to be accomplished" to meet their missions, Chvotkin said in a statement.

Already, some agencies have taken some of the steps outlined in Tiefer's analysis, Chvotkin said, and contractors are feeling the effects.

"It is no wiser to take savings exclusively from the federal workforce than it is to take the savings exclusively from contractors," Chvotkin said. "This petty "us v. them" debate must end. Right now, both federal and contractor employees are feeling and will continue to feel the fiscal pinch. We must work together to help the government find the savings required."

It's not the first time AFGE and PSC have sparred over the impact of sequestration.

AFGE has condemned the sequestration guidance released by the Office of Management and Budget for focusing too much on squeezing savings from the federal workforce instead of contractors. But PSC said the union has ignored thousands of contractor jobs already lost because of threat of sequestration.