New Government Contracts Bill Fleeces Taxpayers Bi-Partisan Style

A little noticed Senate bill entitled the “AGILE Procurement Act” (S. 4623) is a classic illustration of large business interests hijacking government contracting policy in the name of promoting small businesses and new “innovative” contractors. This bill was approved by the Senate Homeland Security and Government Affairs Committee on August 3, 2022, just eight days after it was introduced.

While employing small, minority, women-owned and veterans’ businesses as stalking horses, the Committee’s bipartisan approval will help further enrich dominant federal contracting firms.

The major government contractor trade associations whose members will most benefit are listed as supporters of the bill, but only as co-equals to several small business associations. This so-called “streamlining bill” further eviscerates the government’s ability to win good deals from contractors and ensures that major contractors like BoeingBA
, Lockheed-Martin, Raytheon, and Northrop GrummanNOC
will continue to call the shots on contract pricing.

The meat of the bill is contained in a section that establishes a new “working group” within the Office of Federal Procurement Policy (OFPP), a relatively unknown office within the powerful Office of Management and Budget (OMB). The “working group” is supposed to “reduce barriers” for contractors. Based on my experience as a member of the Congressional Commission on Wartime Contracting (CWC), these are code words for higher prices and less accountability.

My experience suggests this provision will be used by established, large dominant government contractors to further solidify their place and make sure that the ability of the government to act like an aggressive purchaser is markedly reduced. While the “working group” is designed to be made up of federal agency representatives, a section of the bill permits the head of OFPP/OMB to include “Any other … organizations determined appropriate …”

This is an open-door invitation for contractors and their trade associations to assert themselves at OFPP, an office that is historically very contractor friendly. I have watched as OFPP firmly backed industry positions, and as OFPP Directors and senior staff beat a path to industry following their government service. Creating this group in OFPP will bind the government even more firmly to the wishes and priorities of the contracting industry, ensuring that smart deals and good pricing remain elusive.

The bill includes a particularly unwise provision that doubles the dollar applicability threshold for Cost Accounting Standards (CAS) coverage from $7.5 million to $15 million. This provision has nothing to do with small business as CAS has never applied to them. Contracts subject to CAS are cost-type contracts and similar pricing arrangements where the accounting practices employed by the contractor determine the amounts to be paid. These are subject to easy manipulation in the absence of CAS. Raising the CAS dollar threshold invites and even encourages financial manipulation and will allow inconsistent contractor accounting practices to be applied resulting in significant risk to the government.

As recently as the 1990s, the CAS threshold for cost-type contracts was only $500,000, but President Bill Clinton’s “acquisition reform” initiative, designed to show that Democrats could be business-friendly initially increased this figure to $1 million, and then abruptly (primarily at the behest of large defense contractors) got Congress to increase it to $7.5 million, an overall increase of 15 times the previous number. Doubling CAS applicability yet again to $15 million means that this important contract accountability threshold will have been increased by a factor of 30-fold during a 25-year period, far exceeding anything remotely suggested by inflation. As a Member of the CWC, I saw the rampant pricing abuses of cost-type contracts employed by major contractors. By raising the CAS threshold, the AGILE Act puts these abuses on steroids.

While there are initiatives Congress could take to provide further access to government contracts by small businesses and others shut out by the dominant firms, the AGILE Act almost completely ignores these approaches in favor of furthering the financial interests of the existing contractor base. It is unlikely that anyone other than government contractors are paying much attention to these types of obscure bipartisan bills.

But they should be. To the extent the federal government is paying more money to purchase fewer goods ­– like the parts to maintain weapons systems – it weakens the U.S. in its global competition with rivals like China and Russia. China, as one Air Force general recently remarked, spends one-twentieth the amount we do to purchase comparable weapons and capabilities. Unless this problem is corrected, the U.S. will eventually be overshadowed and overwhelmed. “It’s simply math,” as the general commented.