No-Bid U.S. Government Contracts Jump 9% Defying Obama Direction
By Danielle Ivory 
March 15, 2013

President Barack Obama in 2009 told federal agencies that no-bid contracts were “wasteful” and “inefficient.” Four years later, his administration spent more money on non-competitive contracts than ever before.

Federal agencies awarded $115.2 billion in no-bid contracts in fiscal year 2012, an 8.9 increase from $105.8 billion from 2009, according to data compiled by Bloomberg. The jump unfolded even as total contract spending decreased by about 5 percent. Lockheed Martin Corp., Boeing Co. and Raytheon Co. were top recipients of sole-source contracts.

Those top Pentagon vendors and other large contractors can draw on established relationships with procurement officers to claim a greater share of non-competitive work, said Robert Burton, former acting administrator of the Office of Federal Procurement Policy under George W. Bush.

“It highlights a growing problem in the procurement system,” said Burton, who represents contractors as a partner at Venable LLP in Washington. “The pie is shrinking, but, at the same time, the number of non-competitive awards has increased. That’s a bad combination.”

Joe Jordan, head of the Office of Federal Procurement Policy, said the administration “believes in taking maximum advantage of competition, including efforts to reduce sole-source contracting, and this is an important component of our overall efforts to achieve the best value for the taxpayer.”

Record Amount

Still, Obama ended his first term spending more on noncompetitive orders. In 2009, contracts awarded without competition made up about 20 percent of total dollars awarded, compared with about 23 percent in fiscal 2012. The figures may be understated because the data excluded contracts for indefinite quantities of goods or services.

“While there is more work to be done, agency efforts have produced good results in our efforts to increase the use of competition,” Jordan said in an e-mail.

He didn’t answer questions about why no-bid contracts had increased during Obama’s first term or describe any concrete steps taken to curb the awards.

Federal agencies consider just one company for a job when they need urgent action, when a vendor has specialized expertise or when they want to keep working with a proven supplier. Such contracts save time in procuring equipment and services, though they lack the competitive bidding that can drive down prices.

Bethesda, Maryland-based Lockheed Martin, the No. 1 U.S. contractor, captured the greatest share of no-bid contracts in the budget year that ended on Sept. 30, with about $17.4 billion. Boeing Co. received the second largest amount, about $17.1 billion. Raytheon Co. in Waltham, Massachusetts, was third with about $7.04 billion.

Pentagon Awards

The Pentagon last year spent about $100 billion on no-bid contracts, the most of any federal agency, compared with $90 billion in fiscal 2009. The Department of Defense didn’t provide a comment for this story.

“We compete for many of our contracts while in other cases we are awarded single-source contracts in those situations where the government determines that is the best course for meeting their requirements,” saidDaniel Beck, a spokesman for Chicago-based Boeing.

“It is typical for a company to receive follow-on contract awards on programs that have been openly competed in the past,” Melissa Hilliard, a spokeswoman for Lockheed, said in an e-mail. “Such follow-on contract awards would be considered non-competitive contracts.” A spokesman for Raytheon didn’t comment.

U.S. Representative Sam Graves, a Missouri Republican and chairman of the House Small Business Committee, said the increase in sole-source awards “is proof that this administration is paying lip service to small business and competition.”

Small Business

Contracts awarded to small businesses fell by about 4 percent in Obama’s first term, according to data compiled by Bloomberg.

“It is unacceptable that noncompetitive awards grew by $9 billion while small business awards shrunk,” Graves said in an e-mailed statement. “It will require more work from senior agency officials, and possibly the White House, but more must be done.”

In his March 2009 memo to agencies, Obama said a reliance on non-competitive orders “creates a risk that taxpayer funds will be spent on contracts that are wasteful, inefficient, subject to misuse, or otherwise not well designed to serve the needs of the Federal Government or the interests of the American taxpayer.”

Shifting to full and open competition “could result in savings of billions of dollars each year for the American taxpayer,” he said.

Market Mechanism

The Office of Management and Budget released guidance on the contract awards process the following October, calling for agencies to evaluate their use of no-bid contracts.

The memo said that non-competitive “contracts carry risk of overspending because they have been negotiated without the benefit of a direct market mechanism.” The document directed agencies to consider mitigating that risk by limiting the length of awards, ensuring fair prices and regularly assessing contractor performance.

Obama can “send out nice memos, telling agencies not to sole source, but the law hasn’t changed,” said Joe Hornyak, a Tysons Corner, Virginia-based partner at law firm Holland & Knight LLP.

Hornyak said that by law, many sole-source contracts require the approval of a senior official, meaning that the administration could have crafted a better record on competition.

“I would expect senior officials to be more sensitive to the optics of a sole-source award under this administration,” Hornyak said.