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Project on Government Oversight

POGO to Congress: Services Acquisition Reform Act (SARA) Would Fleece Taxpayer

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April 30, 2003 | By: Danielle Brian


Dear Government Reform Committee Member,

Chairman Tom Davis will soon reintroduce the Services Acquisition Reform Act (SARA), which continues to contain a number of troubling provisions.

We urge you to exercise caution in approving any of the provisions of SARA which may make significant changes to existing procurement statutes without full consideration of their effects. Some provisions of the newly drafted SARA would broadly affect all types of contracts including defense acquisitions, rather than just service contracts as the title of the bill implies.

Representative Davis' last introduced version of SARA included controversial provisions to dramatically expand the use of government purchase cards despite massive waste, fraud, and abuse in those programs. In an analysis of the new SARA legislation, several provisions were most likely to lead to the fleecing of taxpayer dollars:

  • Encouraging High-Risk Time and Material and Labor Hour Contracts. The draft of SARA encourages use of time and material, as well as labor hour contracts, which allow contractors to engage in almost unlimited billing of the government without producing a product. This is like hiring a house painter, telling him no matter how long he takes or how much he spends on paint, his bill will be paid. The proposed legislation would even prohibit government auditors from reviewing contractors' costs.

    In March 2002 testimony, the White House Office of Federal Procurement Policy Administrator expressed concerns about this provision: "A contractor has no obligation to deliver a finished product; it must only make best efforts...Given the problems inherent in time-and-material and labor-hour contracts... I am hard-pressed to see how their use will produce beneficial results...."1

    The Department of Defense Inspector General was also critical: "Time and material, and labor hour contracts are the highest risk and least preferred contract types... We believe the use of these types of contracts should be discouraged, not expanded. 2 As was the General Services Administration Inspector General: "Our audit experience has indicated certain recurring problems on time-and-materials or labor-hours type contracts. These have included contractors who have not actually expended the number of hours for which they have billed the Government."3

  • Expanding Speculative Share-in-Savings Contracts. The draft legislation would expand the use of speculative and unproven financing schemes known as share-in-savings contracts. Under share-in-savings contracts, contractors provide capital financing for projects such as computer system upgrades in exchange for receiving funds down the line that are saved as a result of the upgrade. However, developing the baselines to estimate savings is virtually impossible in the technology arena.

    By supporting this proposal, Congress will be ceding its budgetary authority. According to the Department of Defense Inspector General, "Because agencies get to retain funds saved and not paid to contractors, the proposal creates an environment for off budget financing of operations."4 The White House's procurement chief has testified that share-in-savings programs "have seen no savings."5 The General Accounting office found that "the government has not identified many suitable candidates for use of this technique."6

  • Eliminating Truth in Negotiations Act (TINA) and Cost Accounting Standards (CAS) Protections. The legislation would exempt many more government contracts from the TINA and CAS requirements. Both TINA and CAS protect the government in cases where a commercial marketplace does not exist -- for example, in the purchase of military aircraft and weapons. Cost Accounting Standards ensure that contractors do not use Enron-like accounting gimmicks to rip off the government. The Truth in Negotiations Act puts the federal government on an even playing field when negotiating sole source and other noncommercial contracts by requiring contractors to disclose cost or pricing data. The proposed legislation would mistakenly direct the government to remove good government protections based on who the company is, rather than what type of transaction is employed, especially where sole source contract awards may be involved.

    In a recent news article, Clark G. Adams, a former project director at the government's Cost Accounting Standards Board called the plan "ridiculous." Steven Schooner, a procurement expert at George Washington University law school, also commented for the article, saying the government "wouldn't be negotiating with contractors on an equal footing" under the Davis draft proposal.7

    Pretending Items Are Commercially Priced That Are Not. The legislation would qualify services as "commercial" that have never actually been sold in the commercial marketplace. This provision will legislate a "commercial" definition for services that are essentially sold only (or largely) to Federal agencies, without the pricing safeguards and protections that have traditionally provided taxpayers with some minimal assurance that public funds weren't being wasted or abused. Parts and items may be labeled "commercial" as long as they are merely "of a type" offered for sale to the general public, even if no such sale ever occurs. For instance, C-130J military transport aircraft have been offered for commercial sale in the past, and while not a single sale was ever made to civilians, oversight was loosened. Similar attempts have been made to classify the C-17 cargo plane as "commercial" items - therefore removing transparency in cost and pricing data. This provision would extend these Alice in Wonderland-like definitions to services.

We urge you to closely examine the legislation and ensure that appropriate controls and oversight are included in any provisions from SARA that are considered by the Committee.

Sincerely,

Danielle Brian
Executive Director


1 "Statement of Angela B. Styles, Administrator for Federal Procurement Policy Before the Subcommittee on Technology and Procurement Policy," Committee on Government Reform, March 7, 2002.

2 "Inspector General, Department of Defense, Comments on the Service Acquisition Reform Act (H.R. 3832)," March 12, 2002.

3 Written comments on Draft Services Acquisition Reform Act, Inspector General, U.S. General Services Administration, March 5, 2002.

4 "Inspector General, Department of Defense, Comments on the Service Acquisition Reform Act (H.R. 3832)," March 12, 2002.

5 "Statement of Angela B. Styles, Administrator for Federal Procurement Policy Before the Subcommittee on Technology and Procurement Policy," Committee on Government Reform, March 7, 2002.

6 "Contract Management: Taking a Strategic Approach to Improving Services Acquisitions, Statement of William T. Woods, Acting Director, Acquisition and Sourcing Management," March 7, 2002.

7 "GOP Leader Seeks to Ease Defense Bidding Rules," Associated Press, April 8, 2003.

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