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Considerations for Updating the Budget Enforcement Act

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What's Considerations for Updating the Budget Enforcement Act

We ask a great deal of our budget process. We use it to determine aggregate fiscal policy and to allocate resources across different claims. We use it to drive program management. In the context of the Government
Performance and Results Act of 1993, we turn to the budget to tell ussomething about the cost of obtaining a given level of results. Asking the process to take on the job of avoiding a “train wreck” may be more than can reasonably be expected.

While an orderly process may be important, and avoiding a “train wreck” desirable, I believe there are other important issues to consider in designing the budget process. As I have testified before, the budget represents the decisions made about a large number of often conflicting objectives that citizens want the government to address. We should not be surprised that it generates controversy. As BEA expires and you move from fighting current deficits to prudent management of surpluses, you face a wealth of options and choices. I appreciate the invitation to talk about some of these today. Some of these points are discussed more fully in our recent BEA compliance report2 that we prepared at your request.,

About Principles for a Budget Process

1. Provide information about the long-term impact of decisions, both macro—linking fiscal policy to the long-term economic outlook—and micro—providing recognition of the long-term spending implications of government commitments;
2. Provide information and be structured to focus on important macro tradeoffs—e.g., between investment and consumption;
3. Provide information necessary to make informed trade-offs between missions (or national needs) and between the different policy tools of government (such as tax provisions, grants, and credit programs); and
4. Be enforceable, provide for control and accountability, and be transparent, using clear, consistent definitions.

Extending Caps on Discretionary Spending

There are other issues in the design of any new caps. For example, for how long should caps be established? What categories should be established within or in lieu of an overall cap? While the original BEA envisioned three categories (Defense, International Affairs, and Domestic), over time categories were combined and new categories were created. At one time or another caps for Nondefense, Violent Crime Reduction, Highways, Mass Transit, and Conservation spending existed—many with different expiration dates. Should these caps be ceilings, or should they— as is the case for Highways and Conservation—provide for “guaranteed” levels of funding? The selection of categories—and the design of the applicable caps—is not trivial. Categories define the range of what is permissible.

“Emergency” Label

In the budget resolution for fiscal year 2001 [H. Con. Res. 290], the Congress said it would limit emergencies to items meeting five criteria: (1) necessary, essential, or vital (not merely useful or beneficial), (2) sudden, quickly coming into being, and not building up over time, (3) an urgent, pressing, and compelling need requiring immediate action, (4) unforeseen, unpredictable, and unanticipated, and (5) not permanent, temporary in nature. The resolution further required any proposal for emergency spending that did not meet all the criteria to be accompanied by a statement of justification explaining why the requirement should be accorded emergency status.

Federal Emergency Management Agency (FEMA)

Others have proposed providing for more emergency spending—either in the form of a reserve or in a greater appropriation for the Federal Emergency Management Agency (FEMA)—under any caps. If such an approach were to be taken, the amounts for either the reserve or the FEMA disaster relief account would need to be included when determining the level of the caps. Some have proposed using a 5- or 10- year rolling average of disaster/emergency spending as the appropriate reserve amount. Adjustments to the caps would be limited to spending over and above that reserve or appropriated level for extraordinary circumstances. Alternatively, with additional up-front appropriations or a reserve, emergency spending adjustments could be disallowed.

Extending and Refining PAYGO

The PAYGO requirement prevented legislation that lowered revenue, created new mandatory programs, or otherwise prevented direct spending from increasing the deficit unless offset by other legislative actions. As long as the unified budget was in deficit, the provisions of PAYGO—and its application—were clear. The shift to surplus raised questions about whether the prohibition on increasing the deficit also applied to reducing the surplus. Although the Congress and the executive branch have both concluded that PAYGO does apply in such a situation, any extension should eliminate potential ambiguity in the future.

Dealing With the Uncertainty of Projections

As the budgeting horizon expands, so does the certainty of error. Few forecasters would suggest that 10-year projections are anything but that— projections of what the world would look like if it continued on a line from today. And long-term simulations are useful to provide insight as to direction and order of magnitude of certain trends—not as forecasts. Nevertheless, budgeting requires forecasts and projections. Baseline projections are necessary for measuring and comparing proposed changes. Former Congressional Budget Office (CBO) Director suggested that 5-year and 10-year projections are useful for and should be used for different purposes: 5-year projections for indicating the overall fiscal health of the nation, and 10-year projections for scorekeeping and preventing gaming of the timing of costs.

Other Ideas Proposed to Smooth the Process

Others have suggested that mechanisms such as a joint budget resolution and/or an automatic continuing resolution could avert the year-end disruption caused by an inability to reach agreement on funding the government. Biennial budgeting is also sometimes suggested as a better way to budget and to provide agencies more certainty in funding over 2 years. Let me turn now to these ideas.
Since agreement on overall budget targets can set the context for a productive budget debate, some have suggested that requiring the
President’s signature on budget resolutions would facilitate the debate within such a framework. Proposals to replace the Concurrent Resolution with a Joint Resolution should be considered in the light of what the budget resolution represents. Prior to the 1974 act only the President had a budget—that is, a comprehensive statement of the level of revenues and spending and the allocation of that spending across “national needs” or federal mission areas. Requiring the President to sign the budget resolution means it would not be a statement of congressional priorities. Would such a change reduce the Congress’ ability to develop its own budget and so represent a shift of power from the Congress to the President? Whose hand would it strengthen? If it is really to reduce later disagreement, would it merely take much longer to get a budget resolution than it does today? It could be argued that under BEA the President and the Congress have—at times—reached politically binding agreements without a joint budget resolution.

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