OMB calls for a halt to sole-source tasking

The Office of Management and Budget last month asked federal agencies to stop designating a preferred-vendor source for multiple-award task and delivery orders.

In an April 21 memo to agency procurement executives, OMB acting director for management G. Edward DeSeve said the Office of Federal Procurement Policy would ask the Federal Acquisition Regulatory Council to change regulations to prohibit the use of preferred-source designations on such contracts.

"This practice discourages other contract holders from competing and deprives the government of the benefit of the innovation and efficiency induced by competition," according to DeSeve's memo. "While the [Federal Acquisition Stream-lining Act] authority provides for reasonable exceptions to the competitive award of orders, going beyond those exceptions to designate a preferred source is not a good practice.

"The procurement community itself— along with some "rumblings" from Capitol Hill— identified the need for additional guidance, DeSeve said in an interview last week.

DeSeve said he did not know how widespread the problem of designating preferred sources is or which agencies are offenders.

The procurement community wanted to make sure that multiple-award task and delivery order contracts were not "discarded because of a few instances of problems along the way," he said.

"Competition within these vehicles is always a healthy thing," he added.

Several sources said the OMB memo is an attempt to deflect criticism included in a final General Accounting Office report due to be released in June on agencies' use of procurement reform to circumvent competition. OMB also may be concerned about recent indications from the staff of the Senate Armed Services Committee's Subcommittee on Acquisition and Technology that legislation may be needed to stem the problem of designating a preferred vendor, said Olga Grkavac, senior vice president of the Information Technology Association of America's Systems Integration Division.

GAO and the Defense Department's inspector general in late March told Congress that agencies have been violating the spirit of the Clinger-Cohen Act by using multiple-award task-order contracts to circumvent competition and direct business to preferred vendors.

A GAO official at that time said the agency's research revealed problems with the Transportation Department's $1.3 billion Information Technology Omnibus Procurement, the National Institutes of Health's Chief Information Officer Solutions and Partners pact and DOD's $3 billion Defense Enterprise Integration Services II contract.

GAO found that 64 percent of ITOP orders were awarded on a sole-source basis, and the practice within the CIO-SP and DEIS II contracts of specifically inviting recommended companies to submit task orders has resulted in one proposal being submitted for most orders.

However, Rich Lieber, principal of acquisition services for DOT's Transportation Administrative Service Center, said DOT officials do not indicate preferred sources— especially on ITOP.

"Eighty percent of our [ITOP] dollars have been competed," Lieber said. "We've always maintained competition in accordance with the spirit of FASA. It's a fair and reasonable position [for OMB] to take. All companies should have a chance to compete and not be subject to constraints that define preferred vendors."

A Defense Information Systems Agency spokeswoman said that under DEIS II, DISA follows the Federal Acquisition Regulation language prescribed by FASA. "Under DEIS II, DISA provides all contractors a 'fair opportunity to be considered,' " she said. "We do not designate a preferred source.

"The CIO-SP program manager could not be reached for comment.

The preferred-source designation has evolved as agency govermentwide acquisition contracts have begun to compete aggressively against each other for business, said one industry source, who asked not to be identified. However, the source noted that vendors generally like the preferred-vendor designation because many feel they already have successfully competed to win GWACs based on product and labor prices and that no competition is needed in these areas.

"There's a major issue with how the federal government is acting as a buyer," the source said. "Industry believes that it has competed on the contract; we lowered our [best and final offers] and established competitive prices. There should be no competition for pricing in task orders. What there should be is evaluation by the customer on the basis of past performance and solution approaches.

"Steven Kelman, former administrator of OMB's Office of Federal Procurement Policy and now Weatherhead Professor of Public Management at Harvard's Kennedy School of Government, said he "strongly supported" the guidelines in the memo. "FASA established a magnificent system for streamlined competition for information technology task orders," Kelman said. "If the perception or the reality arises that streamlined competition is yielding way to de facto sole-source awards, we're likely to lose the benefits of the streamlined competition that Congress enacted in 1994."