At Risk Contracting Is The New Federal Standard

On stage shoulder to shoulder with his former nemesis Senator John McCain, President Obama signed a presidential memo yesterday establishing fixed price government contracts as the new federal standard, even for defense procurement. Blasting rampant waste and fraud in Iraq, Kuwait and Afghanistan under cost-plus federal contracts, as uncovered by more than 140 investigations of those dealings, the memo directs OMB chief Peter Orszag to issue guidance by July 1 for review of all government contracting and identification of wasteful and inessential contracts which can be terminated. The second deadline, September 1, is for an overhaul of all federal procurement to increase contracting oversight, reduce privatization of government functions, and reestablish fixed price competitive bids as the standard for federal procurement.

The moral is, if you are bidding on federal projects, have a sharp pencil, but know what you are doing, because the risk of loss will be on the contractor rather than on the government.

Obama Will Sign '09 Appropriations Despite Earmarks

According to both Chief of Staff Rahm Emanuel and OMB Director Peter Orszag, speaking on the Sunday talk shows, President Obama will sign the appropriations legislation for fiscal 2009 Congress is expected to send him this week, after clearing the Senate and the conference committee, despite 8,330 earmarks costing about $7.7 billion out of the $410 billion appropriated, or a little less than 1.9% of the total expenditures authorized in the bill.

Despite heavy Republican criticism that the Oval Office is now backing down from the campaign pledge of "no earmarks," these two high level staffers characterized the '09 appropriation measure as "last year's business," and emphasized that Obama will not be so forgiving in connection with the future budget and appropriation bills coming to his desk.

Obama is letting no grass grow under his feet or those of his staff, naming Kansas governor Kathleen Sebelius as his nominee to head his Health and Human Services Department, and spearhead the drive for health care reform. This could indeed prove to be the first multitasking administration in a long time. We hope we can continue cutting through the blizzard of activity to keep readers focused on those legislative actions affecting the construction industry.

Obama Signs Stimulus Law

Today, February 17, 2009, President Obama signed the American Recovery and Reinvestment Act into law at a ceremony at the Denver Museum of Nature and Science. The economic stimulus law is the largest public spending in this country since World War II.

Appropriations in the legislation include a total of over $149.8 billion in funding for various construction projects by federal, state and local government agencies. As finally passed by Congress and signed by President Obama, the bill made a few significant changes from earlier versions passed separately by the House and Senate. Provisions specifically appropriating $20 billion for elementary school, high school and college construction projects were dropped from the law, though states are permitted to use education program funds provided elsewhere in the legislation for modernization of existing school buildings if they choose to do so. Given the threat of program cutbacks and teacher layoffs in so many public school districts, however, such use of these other monies seems unlikely.

The "use it or lose it" clawback provisions in the earlier versions of the legislation were softened in the final law, which now requires half the funds to be appropriated within 120 days, and the other half appropriated within one year, in recognition of the seasonal nature of much construction and the inability of the industry to absorb half the cash by the end of 2009.

The final law as signed by the President also includes three tax provisions important to construction industry businesses, including delaying the effectiveness of the new 3% withholding tax on construction project payouts until 2011, extension of the tax loss carry back period for up to five years for businesses with less than $15 million in annual revenue, and deferral of the recognition of income from discharge and renegotiation of business debts until 2014.

Key dates for government agencies and contractors under the new law are June 17, 2009, when half the money appropriated for state governments must be obligated under contract, and February 17, 2010, when all of the funds must be obligated.

President Obama Personally Pushes Stimulus Legislation

President Obama met with House and Senate leadership from both parties in the Roosevelt Room of the White House Friday morning January 23 to push for quick adoption of the pending economic stimulus legislation. Acknowledging that the legislative package is a "heavy lift" for all concerned, Obama repeated his prediction the new spending and tax cuts will create between three million and four million new jobs. He said "it appears we are on target to make our Presidents' Day weekend," referring to the upcoming Congressional recess and the day he expects to sign the legislation.

The bills have been reported out of the House Ways and Means, Appropriations and Energy and Commerce Committees, and a floor vote is expected in the House Wednesday, January 28, according to Majority Leader Steny Hoyer of Maryland. Markups are expected to begin in the Senate Appropriations and Finance Committees Tuesday, January 27, even before the House passes the measure.

Complaints about the package can be heard from both sides of the legislative aisles, including Highways and Transit Subcommittee Chairman Peter DeFazio's remark that the construction portion of the spending measure is "a pathetic amount of money just to deal with deferred maintenance," and House Minority Leader Boehner's comment that the measure "spends too much and spends it too late." Nevertheless, the $153 billion appropriated for construction projects remains intact.

Meanwhile, business lobbyists are opposing the "buy American" provisions regarding steel for construction and hardware and software for medical record computerization which have been written into the legislation, on the grounds that such protectionist legislation will ultimately hurt American exports to other countries, China in particular. Executives of certain tech industry companies, though, praise the appropriation of $40 billion for IT projects, asserting that such spending will create 949,000 technology jobs, more than half in small businesses.

Next week's Senate committee markups will determine whether the package can gather bipartisan support, or whether voting is likely to fall out along strict party lines.