Termination of Federal Construction Contracts: Boon or Boondoggle?


In March 2009, President Obama issued a memorandum to the heads of

executive departments and agencies concerning government contracting. The

President stated that the federal government should consider terminating

existing contracts that are "wasteful, inefficient or not otherwise likely to meet

the agency's needs." The Office of Management and Budget (OMB) was

directed to issue a governmentwide guidance by July 1, 2009 to create

processes to take corrective actions that may include modifying or canceling

such contracts.

The President followed up this memorandum in May 2009 with his proposed

2010 budget. In it, approximately $1.5 billion in existing construction programs

are to be eliminated. Cuts are proposed for construction programs with the

Army Corps of Engineers, EPA, Department of Transportation, etc.

On July 29, 2009, OMB issued a memorandum titled "Improving Government

Acquisition." Each federal agency was instructed to develop a plan to save 3.5

per cent of contract spending in FY 2010 and another 3.5 per cent in FY 2011.

OMB specifically targeted certain "high risk" contracts. These include cost

reimbursement contracts, time and material contracts and noncompetitive

contracts. Each agency is to aim to reduce spending on such contracts by 10

per cent. Joseph C. Kovars of Ober|Kaler explains what this means for the building industry.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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