Discussion Question: Government Contracting

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Read the Presidental Directive and answer the question below. 250 word min

Why does the President want to reduce Cost-reimbursement contracts? Why is it preferred to use a Firm Fixed type contract? Who accepts the greatest risk under each type of contract? Why is competition favored over sole source?

Presidential Directive on Government Contracting

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Office of the Press Secretary

For Immediate Release March 4, 2009

March 4, 2009


SUBJECT: Government Contracting

The Federal Government has an overriding obligation to American taxpayers. It should perform its functions efficiently and effectively while ensuring that its actions result in the best value for the taxpayers. Since 2001, spending on Government contracts has more than doubled, reaching over $500 billion in 2008. During this same period, there has been a significant increase in the dollars awarded without full and open competition and an increase in the dollars obligated through cost-reimbursement contracts. Between fiscal years 2000 and 2008, for example, dollars obligated under cost-reimbursement contracts nearly doubled, from $71 billion in 2000 to $135 billion in 2008. Reversing these trends away from full and open competition and toward cost-reimbursement contracts could result in savings of billions of dollars each year for the American taxpayer.

Excessive reliance by executive agencies on sole-source contracts (or contracts with a limited number of sources) and cost-reimbursement contracts 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. Reports by agency Inspectors General, the Government Accountability Office (GAO), and other independent reviewing bodies have shown that noncompetitive and cost-reimbursement contracts have been misused, resulting in wasted taxpayer resources, poor contractor performance, and inadequate accountability for results.


It is the policy of the Federal Government that executive agencies shall not engage in noncompetitive contracts except in those circumstances where their use can be fully justified and where appropriate safeguards have been put in place to protect the taxpayer. In addition, there shall be a preference for fixed-price type contracts. Cost-reimbursement contracts shall be used only when circumstances do not allow the agency to define its requirements sufficiently to allow for a fixed-price type contract. Moreover, the Federal Government shall ensure that taxpayer dollars are not spent on contracts that are wasteful, inefficient, subject to misuse, or otherwise not well designed to serve the Federal Government’s needs and to manage the risk associated with the goods and services being procured. The Federal Government must have sufficient capacity to manage and oversee the contracting process from start to finish, so as to ensure that taxpayer funds are spent wisely and are not subject to excessive risk. Finally, the Federal Government must ensure that those functions that are inherently governmental in nature are performed by executive agencies and are not outsourced.


I hereby direct the Director of the Office of Management and Budget (OMB), in collaboration with the Secretary of Defense, the Administrator of the National Aeronautics and Space Administration, the Administrator of General Services, the Director of the Office of Personnel Management, and the heads of such other agencies as the Director of OMB determines to be appropriate, and with the participation of appropriate management councils and program management officials, to develop and issue by July 1, 2009, Government-wide guidance to assist agencies in reviewing, and creating processes for ongoing review of, existing contracts in order to identify contracts that are wasteful, inefficient, or not otherwise likely to meet the agency’s needs, and to formulate appropriate corrective action in a timely manner. Such corrective action may include modifying or canceling such contracts in a manner and to the extent consistent with applicable laws, regulations, and policy.


The Director of OMB is hereby authorized and directed to publish this memorandum in the Federal Register. BARACK OBAMA


This established character is observed by the organization’s employees, service providers, and the community as a whole.  The key standards to follow include integrity in the decisions and actions made, value for the employer, and loyalty to the profession.

To give another example, one of the most common ethical concerns among organizations involve gifts and gratuities.  Whether it is a casual lunch or tickets to a professional football game, nowadays organizations are very careful when accepting gifts such as these in order to prevent a breach of the ethics policy.  It is smart business for all parties involved when these policies are followed accordingly.

Organizational policies may permit the acceptance of gifts or meals that have a de minimus amount, ranging from $5 to $50 USD. It may be customary in some industries, such as the travel industry, to expect and expect free trips and accommodations. Similarly, in some cultures, the giving and receiving of a gift such as an expensive bottle of wine may be customary.

This article provides some brief tips on how to effectively manage contracts, regardless of the industry. The Institute of Supply Management has defined principles, standards, and guidelines for supply management professionals. Recall from Lesson 3 the ISM statement about Ethics and Business Conduct, and the ISM Principles and Standards for Ethical Conduct with Guidelines document.

Buyers / Supply Chain Managers may utilize systems like Ariba for spend & supplier management, payables, and e-commerce and account management.  Such systems enable them to manage virtual supply networks, and maintain relationships with the suppliers. Learn more about Ariba at their website.


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