Are you a small business with a federal government contract? Not for long…

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There is no question that the current environment in the federal market for small businesses is challenging, to say the least. However, the environment for small business may soon need to be declared a full on disaster zone.

Two recent developments are moving forward to continue making being a prime contractor and a small business more difficult, if not impossible.

First is the recent decision by a federal judge to rule against the small business community. One of the leading voices fighting for small business federal government contractors is Lloyd Chapman, President of the American Small Business League (ASBL). Mr. Chapman had hoped to bring to light the state of the small business federal government contracting market, and the way that small businesses get cheated out of billions of dollars in potential contracts.

In the wake of the decision, Mr. Chapman stated:

"This case would uncover billions in fraud in federal small business contracting programs. If the Federal courts cannot stop fraud in federal small contracting, where do you go?"

According to a Government Accountability Office report, the Small Business Administration had included billions of dollars in federal small business contracts to over 5,300 Fortune 500 firms and other large businesses. Therefore, the government's compliance with the goal of awarding 23% of government contracts to small business continues to be in question.

Even government contract experts agree that the small business community is seeing a large share of lost contracting opportunities:

Professor Charles Tiefer, one of the nation's leading experts in federal contracting law and former Commissioner of Wartime Contracting in Iraq and Afghanistan, submitted a declaration in support of the ASBL case. "If the lawsuit had been allowed to get its rightful day in court on the merits, the lawsuit would have required the SBA to give all small businesses -- and doubly so for minority, women-owned, and disabled veteran businesses -- a larger and proper share of federal procurement."

The ASBL plans to appeal the ruling to the 9th Circuit Court of Appeals.

Second, and more pernicious, is the unthinkable actions by Congress, who are supposed to be fixing this problem.

With no surprises behind the impetus, Section 838 of the 2017 National Defense Authorization Act, Counting of major defense acquisition program subcontracts toward small business goals, is nothing short of a small business killer.

The impact would be catastrophic on the small business community, since the Pentagon spends the most. This provision allows the Department of Defense to count first tier and second tier subcontract dollars towards the current goal established for competitive and noncompetitive set-aside awards to small business. Subcontract dollars would therefore replace dollars being awarded to small contractors today.

To see the potential impact, and the potential disaster awaiting small businesses, Guy Timberlake, the Chief Visionary Officer of the American Small Business Coalition, has an excellent analysis on the situation.

In three separate events in Washington D.C. this week where this issue was mentioned, all three representatives of the small business office for agencies at the individual events were excited at the prospect. They falsely believe this will help meet their numbers, but correctly believe this will be much less work for them. It was clear where the priorities are for these, and other, small business offices across federal government.

All small businesses should be up in arms over these developments, as the powers that be are aligned to punch down and cheat small businesses out of billions of dollars in federal contracts. Small businesses need to be aware of what is happening, and contact their members of Congress.

If this gets adopted across the federal government, small business government contracting can be a thing of the past. 

Reverse Auctions: Where Are The Cost Savings?

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Reverse auctions are back in the news this week, highlighted by a Government Accountability (GAO) report critical of the process, and by the Small Business Committee’s Contracting and Workforce Subcommittee, which held a joint hearing with the Veterans’ Affairs Committee’s Oversight and Investigations Subcommittee earlier this week as well.

The title of the hearing, Contracting Away Accountability – Reverse Auctions in Federal Agency Acquisitions, was a good indication of what Congress thought of the procurement tool.

Firstly, I think reverse auctions are a great tool to save money, increase competition (especially for small businesses), and speed up procurement times. However, there is one caveat: when used appropriately.

I have written about this issue in the past (click here), and the GAO report started the salvo of calling into the question the use of reverse auctions through disturbing findings at the center of testimony provided by Michelle Mackin, Director of Acquisition and Sourcing Management at the GAO

…Competition and savings-two of the key benefits of reverse auctions cited by the agencies we reviewed-are not always being maximized… because not all reverse auctions involve what we refer to as interactive bidding, where vendors engage in multiple rounds of bids against each other to drive prices lower. We found that over a third of the fiscal year 2012 reverse auctions had no interactive bidding-and agencies paid $3.9 million in fees for these auctions…

Further disturbing news in the report and testimony from Mackin was that many federal users did not understand that fees were associated with the reverse auction platform, most notably through the use of FedBid, a Vienna, Va.-based company that offers the most popular tool. FedBid charges a fee of 3 percent of the winning contract, not to exceed $10,000. However, FedBid can, and sometimes does, offer discounts on those fees.

…”We were, frankly, a bit surprised to learn that agencies didn’t know how much they were paying FedBid in fees. They didn’t know how much duplicative fees–for lack of a better word–they were paying when they were using a schedule contract, for example, for a reverse auction,” said Mackin…

Some agencies, such as the Department of Veterans Affairs (VA), are now trying to capture and track fee data, but it remains an illusive goal. VA had halted the use of reverse auctions last year, as according to Jan Frye, deputy assistant secretary at VA’s Office of Acquisition and Logistics, who said in a keynote at the April 26 Coalition for Government Procurement 2012 Spring Conference:

…“I’m not against reverse auctions, but I’m concerned that sometimes we don’t know what we’re doing when we set about to do reverse auctions”…

Apparently the doubt remains, as the VA has once again halted the use of reverse auctions this week, further pointing to issues on the use of this technique at the VA, and especially when it comes to construction contracts.

Also disturbing in the testimony from GAO was that more than one-third of auctions reviewed by the GAO in their report had only one bidder, and over half of auctions were used to procure items from pre-existing contracts.

…There’s a notion, said Mackin, that reverse auctions result in the lowest price. But at times the final price exceeded the government estimate and agencies may have been able to get a better price through other mechanisms…

GAO auditors also found issue with FedBid’s savings calculation across the four agencies GAO analyzed, which according to Mackin, was an estimated $98 million in 2012.

…”We have questions about the accuracy of these savings. For example, if there was no interactive bidding, agencies perhaps could have gotten a better price using other mechanisms,” she said. “Also, the target price or government estimate may not be sound. For example, we found over 1,000 cases where the winning bid actually exceeded the government’s estimate even with interactive bidding.”…

Some of the most insightful testimony came from construction firms, who denounced the use of reverse auctions. Nigel Cary, president of Cox Construction Co., discussed the negative effects of using reverse auctions  for complex construction projects, and further stated agencies are hindering competition on specific contracts due to issues with unrealistic requirements for unrealistic prices.

“Reverse auctions ignore best value,” he said. “It’s unfortunate and misguided that each agency learns the lesson on their own.”

Not to be outdone was Louis Celli Jr., director of the legislative division of the American Legion, who shared the message with the Committee on how his members feels about reverse auctions, as he stated that his members believe reverse auctions “unfair, deceptive and fraught with cheating.”

What is the path forward?

It seems that reverse auctions are a “love them or hate them” proposition. The vast majority of small businesses I know who actively use reverse auctions have negative attitudes toward the use of this tool, for the same reasons highlighted in the testimony. The overwhelming feedback is that they are being used for the wrong procurement (e.g. wrong requirements for the wrong price point), and not necessarily think that reverse auctions in and of themselves are a negative procurement method.

What do we do about this issue? Some solutions that were offered at the hearing included increased oversight and training, and passage of H.R. 2157, which prohibits the use of reverse auctions on construction contracts which are specifically suitable for awards to small businesses. Mackin also stated that the Office of Federal Procurement Policy (OFPP) has also agreed that new guidance is needed.

Nonetheless, I think construction contracts are the wrong requirement for reverse auctions, as sealed bidding is a preferred method to ensure best value, and ensure the right vendor, with the right requirements, at the right price.

Further, OFPP guidance, along with oversight, is clearly needed, as reverse auctions seem to be doing more harm than good. 

We’ll see what comes of this, but I hope reverse auctions do not go away entirely, as I am not a fan on taking tools away from the procurement process. We just need to do a better job of using the right tool for the right job.

Will VA certifications of SDVOSB go away? We in the Veteran’s community can only hope so

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Recent contracting missteps, as reported by the Washington Business Journal (WBJ) and Microtech by the Washington Post, seem to have endangered the Veteran’s Affairs (VA) programs for certifying firms as either Service Disabled Veteran Owned Small Business (SDVOSB) or Veteran Owned Small Business (VOSB).

Although the current certification process is challenging enough, this recent issue by VA really is inexplicable, and a glaring example of the overall mismanagement of the VA contracting process for a program that supposedly is “critical” for the VA mission:

The Department of Veterans Affairs abruptly ended a three-year contract with an Alexandria company nearly three months earlier than planned, leaving in limbo the crucial task of processing applications from contractors hoping to be verified as veteran-owned small businesses…

To give VA cover, in typical bureaucratic fashion, was Tom Leney, chief of small and veteran business programs at the VA:

…The VA’s head of small and veteran-owned business programs is apologetic about the change, though short on details. He’s also vowing that the agency’s application processing work — which has drawn fire from critics — will continue, and be done efficiently…

…”I recognize the impact that this change has and I am sorry that we have not been able to avoid this situation,” Tom Leney, the VA’s executive director of the small and veteran business programs, wrote in an email to Ardelle employees who support the contract, which was obtained by Washington Business Journal…

Where Do Certifications Go From Here?

What to make of all this? Well, one of the main contractors processing applications, Ardelle Associates, is trying to figure out what do. Ardelle President, Art Forcey, had some interesting ideas as to what is happening:

…”I think it was political. I think delays in getting a new competition started caused infighting about what to do and people took some heat for extending our contract,” he said. “But this wasn’t the right way to go.”…

Was it political? Of course it was. However, one of the principal reasons that I believe caused this misstep was simply a lack of proper acquisition planning. I am sure there was infighting, but this program is a great foundation for “empire building”, as I like to call it, and as further demonstrated by the recent power grab by the VA to take control of SDVOSB eligibility away from the Small Business Administration (SBA).

Nonetheless, we can only hope that these continued issues will allow the VA to get back to its core mission, which should not include certifications of SDVOSBs and VOSBs. In fact, the $40 million being spent on these programs should be diverted to the backlog of claims that are both an embarrassment, and a disservice, to veterans waiting in almost perpetuity for their claims to be processed.

Common Sense Legislation Can Solve This Problem

Recent investigations and legislation into the certification process by both the House Small Business Committee and the House Committee on Veterans’ Affairs will hopefully correct these VA lapses and bring improved efficiency and consistency to the process, currently known for mismanagement and waste.

Further, legislation to this effect can hopefully now move forward. Representative Mike Coffman (R-CO), has introduced or co-sponsored several pieces of legislation to correct these issues, most notably H.R. 2882, “Improving Opportunities for Service-Disabled Veteran-Owned Small Business Act of 2013,” which requires VA to relinquish control over the verification of SDVOSBs and VOSBs to the SBA.

I believe this is the way to go, as this exercise in futility is simply not working, and drastic change is needed. There is simply too much overall, redundancy, and a lack of defined methodology and processes that subject the firms seeking verification to subjective terms. Furthermore, the process is needlessly complicated and cumbersome, and lengthy delays and rejections are inevitable in this environment.

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Although the numbers seemingly are gamed as to the length of time for certification coming out of the Center for Veterans Enterprise at 27 days, a line longer than Black Friday lines at Best Buy can be formed of firms that can refute this ridiculous statistic of the time and documentation required for certification.

I hope this legislation moves forward, as it makes sense. The SBA already has the processes, infrastructure, and experience in place to certify firms for socioeconomic certifications and eligibility. That is what they should be doing. It is a matter of sticking to your strengths, and certifications should not be part of the VA mission any longer.

Contact your Congressional representative, and get them on board with H.R. 2882. You can do this directly from govtrack.us.

Don’t our veterans deserve better?

How Healthcare.gov Will Not Drive Federal IT Acquisition Reform

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After weeks of reports about the debacle known as healthcare.gov (here and here), the latest news and actions around preventing the next IT boondoggle are now headed in the direction of reforming IT acquisition.

Although President Obama got in on the action, I do not expect any significant reforms to take place, until the root cause of the problems are addressed. Further, “fixing” IT acquisition is not a silver-bullet endeavor, but as the Professional Service Council highlights in their latest report, there are some fundamental approaches to improving the current situation that do not require any new legislation or further regulations (thankfully).

Nonetheless, if real IT acquisition reform is to be realized, the answer is to dig deep and not focus on outlying issues. Not an easy proposition.

Fixing IT Acquisition: Strip It Down to the Bolts

Just weeks before the failed launch of healthcare.gov, I was having an interesting and enlightening debate with Clay Johnson on LinkedIn regarding innovation and RFP-EZ. Clay is CEO at The Department of Better Technology and one of the original Presidential Innovation Fellows of the RFP-EZ project.

He and I were debating about the need for IT innovation and its definition, in addition to creating software and technologies that provide rapid capability at a fraction of what most IT projects cost. That is to say, it is possible to create and deliver technologies and capabilities that meet end-user expectations for functionality without breaking the bank or requiring being hauled before Congress.

My main concern regarding RFP-EZ is that this technology already exists; mainly through Federal Business Opportunities or FedBizOpps.gov. Wasn’t RFP-EZ a redundant technology? Shouldn’t we be more focused on fixing the real IT acquisition issues, like the workforce?

No question infrastructure, human capital, and execution are major problems, but after seeing healthcare.gov rolled out, and Clay’s remark about the possibilities that exist to solve the issues of IT in the federal space, I believe his vision to reform how government purchases technology is what can lead to real change.

“Big Bang” Means “Big Bucks”, With Little To Show For The Investment

One of the biggest issues I see is simply culture, as government is fully entrenched in purchasing large programs with thousands of disparate requirements and no clear vision of what capabilities are desired. Combined with an aversion to change how business is conducted, and further exacerbated by strong business (e.g. lobbyists) interests that prefer the status quo, this will be one of the hardest issues to combat.

Recent federal leadership comments, I believe, illustrate this point. Comments by former Department of Homeland Security CIO Richard Spires and former acting administrator at the General Services Administration, Jim Williams, illustrate this problem. Although their recommendations are very useful and helpful, one has to wonder about the level of success of IT programs at their respective agencies when they held their respective positions. Furthermore, they both effectively state “Next time we undergo another large program like healthcare.gov, we need to do better.”

To realize real change, we need to put the brakes on this “Big Bang” approach to purchasing IT and ensure return on investment is at the forefront of future technology acquisitions.

Photo by BCW, UK

Innovation Can Not Happen With “Big Bang”

Everyone talks about how there is ample competition in the federal acquisition marketplace, and how regulations promote this competition. If you really believe this, I have a bridge to sell you.

There is a reason that such a vast majority of federal business is won by a small number of firms, and this entrenched environment is part of the “IT Cartel” that former Federal CIO Vivek Kundra discussed. Although this moniker was regrettable, and pounced on by large government contractors and the media, his analysis was very accurate.

Although his “25 Point Implementation Plan To Reform Federal Information Technology Management” laid the groundwork for real transformation, I would argue that little has been done to fully execute these initiatives, outside of cloud computing and data center consolidation.

Until government understands that huge multi-million dollar IT programs simply are a continued recipe for waste and little innovation, we will continue to build more projects like healthcare.gov.

What Does Real Change Look Like?

For starters, Requests for Proposals (RFPs) that are hundreds of pages of requirements, that no one understands (especially with requirements that are TBD), go away. After 30+ RFP amendments and months, if not years to award the final contract where the technology requirements are now obsolete at contract award, who thinks this is a good idea anymore?

Further, getting more small businesses in the federal technology space is what will drive more innovation in technology, and improve the level of technological capability that IT projects deliver. As opposed to the business model of requiring large businesses to run these massive legacy systems at enormous expense that total billions every year, smaller firms are simply closer to cutting edge, ground-breaking technological capability that is required to change the paradigm, and improve the level of services the federal government delivers.

All at a fraction of the cost, I might add.

The requirement for Open Systems Architecture would also go a long way to improving capability, since the current environment is to purchase “Commercial-of-the-Shelf” technologies, then spend hundreds of millions of dollars to customize the software for government use that ultimately creates proprietary software, and a nightmare for data rights and licensing fees. This only encourages less competition, since usually only the incumbent (a large business) has the resources to manage these enormous undertakings, or compete on them for that matter. Security issues, for the most part, are also nothing more than a red herring at this point.

Of course, holding those accountable for failure is also woefully lacking in the federal environment. Only in the federal government can you manage a program that wastes millions of dollars, only to have it fail, and possibly canceled, and the only response seems to be a shoulder shrug.

Risk taking and bad management are two separate things, and the former is what needs to be encouraged. Combined with using more Agile development techniques, and a renewed focus on workforce capabilities and not just box-checking certification requirements, are further areas of improving the status quo.

We do not need the next healthcare.gov to drive change. I think we taxpayers have had enough.

Contingency Contracting Failures: It's About the People

The big story before the Labor Day holiday was the release of the final report by the Commission on Wartime Contracting in Iraq and Afghanistan (CWC). According to the Project on Government Oversight (POGO), the enormous dollar volume of waste and the assumption of the over-reliance on contractors for contingency operations was the focus of the report. I very much respect POGO's work, but I respectfully disagree.

The major issue is the quality of the acquisition workforce. In agreement was Sen. Claire McCaskill (D-MO), who stated that two areas in the report that jumped out to her was the Defense Department culture and the lack of qualified and too few contracting professionals as main reasons for the waste. Although I normally focus on quality, it was the quantity on this issue that was also a major failure.

..."I think the dirty little secret that has now been exposed-in fact this goes governmentwide and not just in wartime contracting-is that if you don't have the personnel that work for the federal government, rather than increase the personnel and the costs associated with that, go out and contract," she said. "This has occurred to a large extent in the Department of Homeland Security, it's occurred in a number of places and we have been doing that while we have hollowed out our acquisition personnel. We need to make investment in government employees that know how to police this and we frankly have dropped the ball in that regard."...

What the report simply fails to address is the political realities made with these decisions. Hearts and minds needed to be won, and thus materialized the pictures in Iraq of U.S. personnel sitting a top pallets of U.S. currency, handing it out like candy to win favor in line with local cultural norms. In Afghanistan, bounties were paid to find "terrorists,"so locals sold their neighbors up the river to win favor with the U.S., make more money than they ever have before, and take over land and settle old scores. Warlords also were paid off, although sympathies to al Qaeda and Taliban forces continue to be difficult to determine. How much waste went to the enemy? Perhaps that is the $30 Billion that the report mentions in possible unaccounted for waste. Any oversight with these issues?

The realities for personnel are that contingency contracting may be one of the most difficult areas of contract management, as local customs and norms may interfere with transparency and oversight, making the glaring lack of adequate training even more difficult to comprehend. Further, how many people across Defense, State, and USAID have any formal training? Obviously not enough. It got so bad that Defense was actually considering giving every lowly grunt going into theatre some form of contract training!

Coordination and collaboration across these agencies means creating a Contingency Contracting Corps, shared among the agencies, that can perform the contingency contracting mission across the globe. They would be the "special forces" of contracting; the tip of the spear to ensure accountability to the taxpayer. This of course requires a massive overhaul in the training curriculum available to the acquisition workforce, which of course needs to include revamping services contracting and commercial item acquisition. A much broader skill set would also need to be considered, one that needs to be factored in for hiring or designation to this mission.

After 10 years of war, and the 15 strategic recommendations made by the Commission, I hope that Congress understands the issues at stake. We need to invest in the acquisition workforce, and fully fund these initiatives that can have vast returns with upfront investments. I would like to think that government management of this scale would easily be an election year issue, but perhaps it will not make effective sound bites.

Oversight of Contracting Needs To Be Overhauled In Rebuilding Efforts

As the devastation unfolds in the aftermath of the earthquake in Haiti, it is clear that rebuilding the country will be one of the greatest nation-building exercises ever undertaken. To that end, federal agencies have started turning to contractors to support the missions of recovery and relief, and ultimately, reconstruction.

What is troubling is the lack of oversight and accountability whenever disaster strikes, both domestically and abroad. The United States is certainly no stranger to devastation, most notably with Hurricanes Katrina and Rita, and the floods that devastated the Midwest last year. However, processes and systems seem to still lack the capability to track the contract funding and ensure that performance is being managed and monitored. The Department of Defense has predictably been spending the most in Haiti, on items such as barges, ships, and relief supplies. However, there never seems to be little efforts to account for the spending. It is always a focus after the fact, but even then contract data is either incorrect or non-existent. It is this lack of accountability that seems to be unfolding in Haiti, and the Department of State and the U.S. Agency for International Development (USAID), who will no doubt be heavily involved in any reconstruction mission, have had their contract management failures in the spotlight with the their reconstruction efforts in Iraq and Afghanistan.

The Special Inspector General for Iraq Reconstruction recently issued a scathing report taking State to task on it contracting and oversight practices.

…The Department of State (DoS) Bureau of International Narcotics and Law Enforcement Affairs (INL) contract with DynCorp International includes task orders to support the Department of Defense’s (DoD) Iraqi police training program...

…INL continues to exhibit weak oversight of the DynCorp task orders for support of the Iraqi police training program. INL lacks sufficient resources and controls to adequately manage the task orders with DynCorp. As a result, over $2.5 billion in U.S. funds are vulnerable to waste and fraud…

Apparently in 2005, the Inspector General told State that INL's staffing was inadequate to keep pace with its workload, and oversight of the contracts for Iraq needed to be strengthened. Again the calls went out in 2007, with the same response that INL “planned” to increase staffing and improve contract management. Those “plans” seem to still be in the works, as by November 2009, there were three contract monitors in Iraq for the police training work; a $2.5 billion contract. State had responded with plans to boost that figure to 11. Although I am not a fan of talking about numbers, but rather favor skills and capability, it seems that fraud, waste, and abuse will continue to be difficult to manage with such few personnel.

The situation in Afghanistan is no different. Recent congressional hearings focused on Defense and the State departments' ability to handle a rise of contractors in Afghanistan.

…According to the Congressional Research Service, if the ratio of contractors to U.S. military personnel remains roughly the same, the deployment of 30,000 more troops to Afghanistan would require 26,000 to 56,000 additional contractors. The number of contractors in Afghanistan already is growing; from June to September, there was a 40 percent increase in Defense contractors alone...

…Auditors found "much of [the] waste [in Iraq] stemmed from inadequate contracting management, including contractors overseeing contractors, poor coordination of interagency efforts, continual personnel turnover and the challenges of contracting in a war zone," Senator Claire McCaskill (D-Mo) said…

USAID responded with their mitigation plan for Afghanistan by hiring more contracting officer technical representatives (COTR) and regional inspectors general, improve COTR training for quality-control and assurance, and boost the number and quality of site visits, according to Charles North, senior deputy director of the USAID Afghanistan-Pakistan Task Force. The report also stated that the agency also is modifying contracts to include more stringent reporting measures and providing additional guidance for COTRs in ensuring compliance. This would certainly be a step in the right direction, but it is the accountability to execute that ultimately will lead to results and improvements in ensuring the mission is being achieved and that taxpayer funds are not being wasted.

These efforts by USAID needs to be established by all contracting offices as a matter of course and contracting strategies before execution and not after the fact, as it is seems to be unfolding in Haiti. Only by establishing procedures and processes upfront can the reconstruction mission be done effectively and efficiently. Further, lessons learned need to be incorporated and accountability needs to be brought into the process in hopes of putting Inspector General reports and recommendations to good use as tools for improvement and not triggers for congressional hearings and investigations.