February 27, 2013
Tim Kauffman
[email protected]

OMB Makes Initial Progress Toward Better Sequestration Guidance

WASHINGTON – In response to repeated requests from the American Federation of Government Employees, the Office of Management and Budget has supplemented its sequestration guidance to make it less one-sided and more consistent with prohibitions against illegal privatization. 

Federal agencies spend $300 billion annually on service contracts. Nevertheless, in guidance produced by OMB and the Pentagon, federal employees are singled out disproportionately for cuts.

OMB’s initial sequestration guidance, released Jan. 14, includes several recommendations for cutting spending on federal employees, including freezing hiring, firing temporary and term federal employees, incentivizing retirement, and planning for extensive furloughs. However, with respect to service contracts, OMB’s guidance directed agencies to simply review contracts “to determine where cost savings may be achieved in a manner that is consistent with the applicable terms and conditions, remaining mindful of the manner in which individual contracts … advance the core mission of the agency.”

OMB’s new guidance, issued Feb. 27, discourages agencies from entering into new contracts or options unless they can be justified. The new guidance also encourages agencies to reduce the costs of current service contracts, using the methods recommended by University of Baltimore Professor Charles Tiefer in his recent and much-discussed paper, “Reducing Spending on Service Contracts in Order to Comply with Sequestration.” Implicitly, this new guidance acknowledges that agencies retain significant discretion to retrieve service contract dollars, including those that have already been obligated, contrary to suggestions by service contractors and some senior acquisition executives.

This new guidance requires agencies to establish appropriate controls “to prevent the increased use of contractors” to perform work performed by federal employees. It is an important first step toward enforcing longstanding prohibitions against direct conversions.

“AFGE appreciates that OMB has taken initial steps toward making its sequestration guidance less one-sided against federal employees and more consistent with longstanding prohibitions against illegal service contracting,” AFGE National President J. David Cox Sr. said. “Agencies must finally begin imposing sequestration sacrifices on service contractors, particularly DoD.”

OMB should follow up on this new guidance by setting savings goals for agencies to achieve in reducing spending on service contracts so that contracting officers can overcome the inevitable resistance from entrenched and connected service contractors. Despite the new guidance, agencies still have more freedom to enter into contracts than to hire federal employees in order to perform new work. This means that agencies often will outsource new work, even when it can be performed more efficiently in-house or includes functions too sensitive to privatize.

Agencies must finally begin imposing sequestration sacrifices on service contractors, particularly DoD. In a Feb. 20 press conference, a reporter doggedly attempted to induce the Pentagon’s comptroller to say how sequestration would impact the $200 billion the Pentagon spends annually on service contracts. He responded that the department was still developing plans and reviewing everything the department buys from the private sector, saying that “it takes a lot of work” to review the department’s 2,500 investment programs to determine how the department can accommodate sequestration cuts.

“That response was completely unsatisfactory,” Cox said. “DoD is preparing to extensively furlough almost the entire workforce, including many of whom live paycheck to paycheck. It is unconscionable that the Pentagon is prepared to slash the income of its workforce by one-fifth before it has even asked service contractors to begin making sacrifices.”

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