(Bloomberg) — Federal contractors will have more multi-award contracts to bid on this year, but the number may decline in future years, as agencies consolidate their buying into bigger deals.
Agencies are making more purchases on an increasing number of multiple-award contracts, spending $83.2 billion on 1,182 multiple-award contracts in fiscal year 2011, up from $40.9 billion on 427 such contracts in fiscal year 2006, according to Bloomberg Government. With multiple-award contracts, or MACs, agencies select two or more qualified companies. The companies compete for orders from the agencies. The pre-selection of vendors allows agencies to fill orders more quickly than they would through open competition for each order. The competition for each order among MAC companies also gives government buyers more ability to drive down costs than they’d have with a contract awarded to a single company.
The proliferation of MACs increases costs for companies because they have to prepare applications for a spot on the multi-award contracts, industry executives say. Costs include analyzing proposals, developing bids, selecting subcontractors, obtaining certifications and responding to agencies’ changes in contract requirements.
Winning a position on a MAC is no guarantee of revenue because a company may incur the bidding costs and may not win any work. Once a company wins a position on a MAC, it incurs similar costs to bid for each order. The higher costs may be passed back to the government in the form of higher bids.
New MACs approved
The White House Office of Federal Procurement Policy issued a new review process in September 2011 that could reduce the number of new MACs in future years.
Agencies must now submit business cases for a MAC to OFPP for approval. This year, business cases are required for MACs that project spending of $250 million or greater. The threshold will decline to $100 million in fiscal 2013 and $50 million in fiscal 2014, giving OFPP greater influence.
No proposed MACs have been rejected since the new approval process went into effect, OFPP Policy Administrator Joseph Jordan said in a June 27 interview with Bloomberg Government. Agencies have narrowed some new MACs to products and services not available on existing MACs, Jordan said. Agencies will use existing MACs for some purchases to avoid duplication, he said.
New MACs have been created throughout fiscal 2012.
The Air Force selected 12 companies on June 21 for a small business-only MAC worth up to $960 million for computer and mobile application services. The MAC is one of seven the service plans to create under its Network-Centric Solutions-2, or NetCents-2, a program worth up to $24 billion during seven years.
New MACs also have been created this year for night vision equipment at the Army, unmanned aerial vehicle services at the Navy, radio equipment at the Homeland Security Department and solar power equipment at the Marine Corps, as well as others.
Congress has encouraged agencies to use multiple-award contracts rather than creating single-award contracts because MACs allow ongoing competition. Federal law requires contracts worth $103 million or more to be awarded as MACs unless the head of an agency waives the requirement.
Even as the White House is approving new contracts, some agencies are reducing the number of contracts they manage and combining them into mega-MACs, similar to NetCents-2.
The Marine Corps, for example, is letting expire its $2.6 billion central professional services contract, Commercial Enterprise Omnibus Support Services, or CEOss. The Marine Corps will instead place orders through Seaport, the Navy’s central professional services contract through which Navy and other Defense Department buyers have spent more than $20 billion since fiscal 2004. The Army is consolidating five logistics MACs into a mega contract called Enhanced Army Global Logistics Enterprise, or EAGLE, which is worth up to $23.5 billion during five years.
Continued consolidation at agencies will result in fewer, larger MACs.
The White House may contribute to the consolidation trend. Jordan said the White House may begin to use the business-case review process to determine which MACs, sometimes referred to as vehicles, offer the best deals for the government.
“Should we be driving dollars and encouraging buying behavior such that it goes to this vehicle instead of that, because we realize they’re both selling the same Olympus dictation machines and yet one’s charging 30 percent less?” Jordan asked.
Agencies have set up numerous multiple-award contracts that sell similar goods. For example, the General Services Administration, NASA, the National Institutes of Health and the Army each run a multiple-award contract on which companies sell technology products. If the White House encourages agencies to use some MACs over others, that may help reverse the trend of MAC proliferation.
(Brian Friel is an analyst for Bloomberg Government. The views expressed are his own.)
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