Sunday, September 23, 2012

Small Businesses as Primes: Beware the Scorpion

As the 2012 Fiscal Year comes to a close, procurement shops are in full gear awarding contracts in the shadow of sequestration. Many large firms are also trying to close business after months of business development, only to see last minute decisions to make their solicitation a small business set-aside. This creates another potential avenue of abuse, where small businesses are used to “prime” a contract for a large business.
We have seen constant abuse of small businesses as subcontractors, most notably large firms using small businesses to check boxes, win awards, then not provide what was promised. Although small business subcontracting plans are required per FAR Subpart 19.7, they are rarely enforced.
However, the abuse of small businesses as “primes” is really the perfect storm of potential abuse, and calls to small businesses are going on all over the greater Washington area this time of year, as large businesses cannot afford to realize loss of revenues after months of business development, and looking for a pawn to realize profit.
Small businesses struggle to get a toehold in the government contracting arena. It is a very tempting offer to prime a contract for a large business, as it creates new relationships, new sources of revenues, and opportunities for growth. Further, the past performance experience is vital for new work.
However, careful consideration and “bid/no-bid decisions,” similar to submitting a Request for Proposal, need to be made if the small business wants to prevent being used by both government officials, and large businesses.
First, what is the firm’s relationship with the agency, and the contracting official? Understand that the large business has a very close relationship with procurement personnel, and perhaps a relationship that is beyond what many consider ethical or arms-length. The large business is trying to steer a contract to you, but at what price?
Second, and under no circumstances, can the small business allow the large business to occupy the program manager (PM) position. The large business will make the case that they have the relationship, they understand the customer’s needs and requirements, and they are better positioned to support the client. Further, they may play hardball, and insist that they get the PM position, or no deal.
Be prepared to walk away. The benefits do not outweigh the costs, as it is the small businesses’ past performance and reputation on the line, not the large business. The arguments made by the large business are false. If you could not support the customer yourself, how can you even be considered for the award?
Small businesses are trusting large businesses to treat them fairly, equitably, and to ensure mutual success. Seems like a no-brainer? Think again.
In this treacherous environment of government contracting, the competition is ferocious, and every penny is being accounted for, as large businesses need to weather the storm and keep margins and market share stable.
From the perspective of the large business, why not use a small business to get 49% of a contract, and then undermine them to get it all?  Again, it is not their reputation or past performance that will suffer, and they have positioned themselves where they can show they are not at fault. Anyway, there are a hundred small businesses at the door waiting for the same “opportunity.”
Further, the undermining is convincing the procurement official that a small business cannot do the work, or to prevent a socioeconomic set-aside designation, so now the large business is in the position to get it all. They may even go as far to write the Determination and Findings for the procurement official!
Regretfully, this happens much more than either side wants to admit. Accountability and oversight are lax to begin with, but at this time of the year, contractual irregularities happen with an alarming degree of frequency to satisfy last-minute requirements, spend money, and award contracts. Leadership is simply asleep at the switch, and OSDBU offices seem to be shrugging their shoulders at these complaints.
Before you put the scorpion on your back to cross the river, understand that the scorpion has a stinger, and is prepared to use it. Only in this scenario, the small business drowns by itself.

Tuesday, September 18, 2012

Buying In Now Effectively Policy Across Government

In a recent breakfast  hosted by the Coalition for Government Procurement, Office of Federal Procurement Policy Administrator Joe Jordan effectively punted on the notion of best value versus the realities of federal procurement; lowest priced offers win contracts.

…Generally speaking, he said industry likes best-value procurements. They allow companies to propose higher prices, since officials will consider other evaluation criteria beyond price. On the other hand, the government is pushing low price and not always fully analyzing the entire lifecycle of a project, Jordan said. Both sides have good arguments, so the contracting officer's judgment is the final arbiter….

Due to the intense focus on budget cuts, and sequestration still casting a very ominous shadow on the federal government, price has become the most important factor in any source selection, and will remain so for the foreseeable future.
Any talks of best value are out the window, so agencies should state as such in their solicitations. The issue really is about how do determine technical acceptability, given the foundations of what are normally poorly defined requirements.
Firstly, requirements for proper use of Lowest Price, Technically Acceptable (LPTA) should be very standardized, commodity based purchases that require no other factors other than price. That means just the commodity itself through very rigid, specific, and accurate requirements. No opportunities for customer service, shipping, transport, customization, etc. These requirements require the use of best value, and the ability to offer better service.
You get what you pay for. There lies the rub.
Often times, the government simply does not know what it wants. It thinks it does, so it puts horribly written Requests for Proposal on the street, that result in dozens and dozens of questions, since the requirements are either redundant, confusing, circular logic, not achievable, unrealistic, boilerplate and not applicable, etc. Further exacerbating the problem is the lack of engagement with industry during the pre-acquisition phase, assuring poor requirements. Lack of leadership, poor capabilities, and the excuse of lack of time are the usual suspects.

The pressures to save money are overwhelming, so prices are driven downward to unrealistic levels. Is anyone still doing cost realism assessments? You know the answer.

How often does the Government Accountability Office sustain a protest where the losing offeror, and often an incumbent, claims they lost to a competitor who underbid them by 40%, even though the incumbent knows exactly what the real cost of doing, at a satisfactory level, entails?

This vicious circle ensures performance will fail, and it is the lack of a long-term focus that is troublesome. Poor leadership, combined with continued declines in the skills and capabilities of the acquisition workforce (I include PMs in that bunch) have created a perfect storm of continued poor performance and waste. Just look at the fiasco that is the System for Award Management (SAM) for a perfect example of this.

The General Services Administration can claim SAM was best value, but price is kingmaker. “Buying In” is seen as an improper business practice per Federal Acquisition Regulation 3.501, but it seems to be standardized now.

Investment analysis is a foreign concept, since saving a few bucks today will lead to inevitable rise in costs tomorrow, failed programs, and poor performance.

Awarding to the lowest bidder is a disaster waiting to happen. Only when innovation is desired, through the use of performance-based contracting, combined with properly written requirements and effective contract management and execution, can best value be realized.

That is the best outcome for the taxpayer. Easier said than done.