Authorize Multiyear Contracts

Authorize Multiyear Contracts

Background

Most federal agencies operate with annual appropriations. This limits
their ability to contract for periods that extend beyond the end of the
fiscal year. The lack of authority to cross fiscal years creates
uncertainty as to whether a contractor and its services will be
available to agencies after September 30, and imposes additional
paperwork burdens on contracting personnel.  There are circumstances
where contracting for more than one year would reduce the overall cost
of acquiring supplies and services.  The use of multiyear contracts
provides contractors with a guarantee of work over a period of years,
lowers risk, and as a result produces lower contract prices. It would
also provide agencies with a smaller number of contract actions and
reduce the workload associated with exercising contract options. Special
legislative authority to conduct multiyear procurement has been given to
some agencies for selected programs. However, the authority is limited.

Need for Change

The General Accounting Office (GAO) has identified several benefits of
multiyear contracting.1 Specifically, GAO indicated that:

-- contract prices could be reduced for agency service and supply needs,

-- administrative costs to federal agencies could be reduced,

-- the quality of performance and service from contractors could
increase,

-- competition for government contracts could increase, and

-- small business interests would be enhanced and be able to compete
better in their market segment.

The Department of Defense (DOD) has multiyear contracting authority and
multiyear funding authority for many of its weapons programs. The
authority enables defense contractors to spread their costs over a
larger production base, thus reducing the cost per item. While not in
the same business, many civilian agencies buy supplies, equipment,
systems, and services to support vital mission programs that go beyond
the fiscal year appropriation.

Another problem, which is tied to the limitation on contracting with
annual funds for periods that extend beyond the end of the fiscal year,
relates to severable services (e.g., services that are performed on a
regular basis over a period of time like housekeeping, guard services,
etc.). Currently, agencies are precluded from contracting for severable
services for periods that extend beyond the fiscal year unless they have
specific statutory authority to do so. While a few agencies (e.g.,
Department of Health and Human Services) have been authorized to
contract for periods that cross fiscal years so long as the term does
not exceed one year, most agencies do not have similar authority. As a
result, agencies are placed in an impossible situationeither award all
severable service contracts so they expire September 30 or take the risk
of being accused of technically violating the Antideficiency Act.2

The inability to award multiyear contracts causes a major paperwork
burden that increases federal administrative costs. At the end of each
fiscal year, contracting officials must modify every federal contract
funded with annual funds to add funding for the new contract period.
This exercise is costly and unnecessary and is exacerbated when Congress
fails to pass appropriations bills before the start of the fiscal year.
In such cases, a notice must be sent to every one of these contractors
each time there is a continuing resolution, even if the resolution is
only for a few days, as has often been the case.

The ability to award multiyear contracts will allow federal agencies to
reduce the administrative time and resources associated with recompeting
contracts annually. It will also provide federal managers with
continuity of service and avoid going through a learning process every
year with a new contractor.


Cross References to Other NPR Accompanying Reports

MissionDriven, ResultsOriented Budgeting, BGT05: Provide Line Managers
with Greater Flexibility to Achieve Results.

Endnotes

1. U.S. General Accounting Office, Federal Agencies Should Be Given
General Multiyear Contracting Authority for Supplies and Services,
PSAD7854 (Washington, D.C.: U.S. General Accounting Office, January
1978).

2. 31 U.S. Code 1341.