Aligning Margins And Performance At DoD

Stan Soloway, president and chief executive officer of the Professional Services Council (PSC), wrote a piece recently about the issues defense contractors face and the tough times that lay ahead for industry as the federal budgets continue to shift and shrink. Mr. Soloway’s piece was in conjunction with the PSC’s recent Marketview 2012 conference, and as he states, I agree they deserve continued attention and discussion.

While the road ahead will be rocky and uncertain, if it is navigated properly by both government and industry, a stronger government-focused industrial base could emerge. But it wasn’t until the last panel of the conference, which focused on the changing policies and strategies the military departments are using to procure services that the challenges associated with achieving that goal became most evident. 

Said one government panelist: “If you’re thinking about margins, you’re thinking about the wrong thing. The fiscal environment is such that you should only be thinking about booking revenue, not margins.” 

A moment later he said, “We have decided that the vast majority of what we buy is appropriately bought on a low price, technically acceptable basis" and "We are going to require that any component that seeks to use a ‘best value’ approach justify their reasons for doing so.” 

And finally, “If you bid too low, know this: We’re going to hold you to your contract and demand that you deliver what you promised."

What seems to be lost at DoD is that low-price, technically acceptable (LPTA) is only going to worsen what is an already difficult situation when it comes to program performance and outcomes. As mentioned, most programs of significance (budget-wise) are severely underperforming on all three of the “triple constraints,” yet now we want to further reduce prices and lower margins to the point where firms need to make even tougher decisions about the market.

The model for rapid acquisition was the Mine Resistant Ambush Protected (MRAP) armored vehicles, where capability and innovation were delivered quickly into the field. The ultimate success factor for this program was a blank check, where capability and not margins was the focus. This world has been flipped on its head, and now similar results are expected with constrained budgets, with no regard to profits. Industrial base be damned! 

Also lost on the conversation is the double-whammy of performance, from both an execution and ratings standpoint. I have yet to see the type of accountability one of the panelists mentioned, as the price needed to win a competition is often driven lower than a realistic cost (or should-cost for that matter). It is sanctioned “buying in,” so modifications and increased funding allow for the completion of the requirements and what the customer needs. Performance suffers, and the firm “underperforming” at the unrealistic price needed to compete also stands to suffer with a past performance rating. 

Further exacerbating the problem is some officials are arguing for firms to not be given the chance to challenge these poor ratings. Poor results for the taxpayer are assured in this environment.

Keep the Doors To A Protest Closed

There is no question that protests are dramatically on the rise. Outside of the data, one only need look at the Government Accountability Office (GAO) decisions to see it. I subscribe to this daily alert of decisions from GAO, always on the look out for protests that get sustained. Although the levels are actually falling as protest rise, I have to just shake my head at protests that get sustained as a result of an all too often fatal mistake by procurement oficials: improper discussions.

A recent GAO decision sustaining a protest illustrates this issue and procedural violations that should not occur. According to the Digest:

…Protest that agency engaged in discussions with the awardee, but not the protester, is sustained where record shows that awardee was permitted to make material changes to its quote that had the effect of rendering its original, technically unacceptable quote acceptable, but the agency did not afford protester an opportunity to revise its quote…

What basically happened here is that the General Services Administration (GSA) made the decision that discussions with this one offeror were simply clarifications, and thus did not warrant communications with all offerors. This decision regretfully happens with regularity, as contracting officers are trying to work through the process and not delay it.

Further, discussions can create significant more work for both the contracting officer and the evaluation team. The problem with these decisions is that clarifications are often not treated as the basic changes they should be. In fact, the intent may have been to correct basic errors, but they evolve into more material changes.

Certainly contracting officers are not acting in bad faith, but a cutting corner exercise nonetheless that opens protest doors needlessly.

Simply put, government officials should be very careful in communicating with some and not all offerors. Although offerors should be instructed in the solicitation that discussion items area at the government’s discretion (and to submit your best and final proposal), discussions under a “best value” Federal Acquisition Regulation (FAR) Part 15 process are normally perfunctory due to poorly written requirements, a poorly submitted proposal, or as usually is the case, both.

Best Practices for Government 

Ensure that FAR Subpart 15.306 is being followed regarding communications with offerors. Discussions will occur when an agency indicates to an offeror the significant weaknesses, deficiencies, and other aspects of its proposal that could be altered or explained to materially enhance the proposal.

In other words, the “acid test” for deciding whether discussions have been held is when an offeror has been provided the opportunity to modify its proposal, and improve the chances of contract award. Keep this in mind with communications.

Further, do not pick and choose the types of weaknesses and deficiencies that are communicated with the offeror. This is another fatal flaw that I have seen with alarming frequency. Just because you do not think it is important does not mean it should not be communicated, as I can assure you that the offeror will think it is important.

This “non-important” deficiency or weakness could be the one differentiator that the offeror needs to be selected for an award. Protests can be put soundly in the “sour grapes” category and never be sustained through following processes to the letter, ensuring the contract award is properly documented, and proactive communications to provide transparency and confidence in the contract award decision.


Best Practices for Industry 

Do not be satisfied with the “no phone calls or emails” attitude of some procurement officials. Transparency needs to be demanded, especially when it is not forthcoming.

GSA’s defense in the protest decision is common, not to mention alarming. How many times are clarifications actually discussions, but never discovered?

Companies need to be diligent and keep an eye on the contract award process to ensure competitors are not being given an upper hand unfairly. That does not mean harass extremely busy contracting personnel, but again, don’t be satisfied if you encounter a “closed door” policy.

Contract Management 101: A FFP contract is not T&M

One thing that I have seen a lot of is the misapplication of performance-based contracting tenets, especially when it comes to requirements. Basically, some requirement offices slap “Performance Work Statement” as the title, delete “Statement of Work,” and maybe add some metrics and measures. Voila, a “performance-based contract” is born.

However, the contract line item numbers (CLINs) is really where I see performance-based acquisition (PBA) fall off the tracks. This text is straight out of a recent solicitation for a services contract on Federal Business Opportunities, commonly referred to as “fedbizopps” or FBO:

The Offeror shall provide their proposed firm-fixed price for this project by completing the CLIN Listing, in its entirety, as provided in the RFP. Additionally, the Offeror shall also provide a basis for the price, identifying all prospective labor categories, showing labor rates for all labor categories and discounts offered. (The Offerors shall also show profit, and any overhead costs if not included in the labor rate). Lack of detail may result in a rating of a higher risk by the Selection Authority in the selection process. 

Significant discounts are considered highly desirable. Discounts offered must be explicit. (There is no page limit for this factor, however Offerors are encouraged to only provide that cost and pricing data mandatory to a comprehensive review and that data which would allow the evaluation team to determine price reasonableness.)

Certainly great material to include in my classes when I teach PBA, Contracting Officer Representative (COR), or FAC P/PM courses on how not to structure CLINS under a PBA, or for a Firm Fixed Price (FFP) contract.

For starters, why do you care about this information? You shouldn’t. As a project manager (PM) or COR, you care about performance. Period. The other contract management efforts that will be expended on managing labor rates, labor categories, expenditures, etc. is inappropriate for this contract type, it adds extra administration and complexity into the contract management function, and takes the focus away on what you really care about; performance.

Further, the main objective of a FFP contract is to transfer risk to industry, with the assumption on a FFP contract type that the requirements are clearly defined and baselined. This model wants to eliminate that risk premium, and further drive prices down by threatening to add risk if these factors, which you shouldn’t care about, are not deemed “reasonable?” Protest anyone?

This model is creating a culture of “buying in,” deemed an improper business practice per FAR Subpart 3.5, but now a necessity as a result of budget cuts and the pressure to cut contracts.

PBA is about performance, and incentivizing industry to exceed requirements through a strategic partnership of trust and communication for both parties to excel. Let’s focus on that, and leave the administrative burdens where they belong.

Can Communications Prevent Protests?

I was interested in hearing from both the vendor and 1102 community on the "triggers" of a protest, and if any best practices could be conducted to avoid a protest or avoid a protest from being upheld.

The post on GovLoop and LinkedIn elicited some great feedback, although it was interesting to see the source of the comments (e.g. industry or government). Although the comments from industry focused on debriefs, government commentors focused on process. Nonetheless, a few best practices that government should exercise were understood by all:

1. Keep the evaluation as simple as possible;
2. Tell the offerors exactly what you are going to evaluate;
3. Evaluate exactly what you told the offerors you were going to evaluate; and when the source selection is over,
4. Tell the offerors exactly what you did evaluate (and ensure it's what you said you were going to do---no more, no less). 

If the playing field is kept level for all players and the government has a reasonable rationale for source selection decisions, a protest may not be avoided, but the government will "win" by having the protest denied.

Nonetheless, in today's budget constrained environment, more companies are vying for fewer available government dollars, resulting in more protests. In the past, companies may have been hesitant to file a protest because there was another opportunity coming up or concerned about the relationship with the agency, but now the mentality is "throw something against the wall and see if it sticks." 

Here is the where the divergence exists, in regards to debriefs. Industry continues to complain about the seemingly lack of transparent and quality debriefs, or being told no debriefs because they are not required.

Questions:

• Would you say your agency conducts transparent debriefs that encourage relationships and communications?
• Are your agency's debriefs described as hostile and difficult by industry?
• Are protests at your agency going up, and if so, why do you think that is?
• If protests are going down or have been steady at your agency, what can you attribute to this decline or rate?

Contract Management not Sexy, but Necessary

A recent Defense Department inspector general report found that contracting officers and their representatives (COR) at the U.S. Army Medical Research Acquisition Activity need to step up their game when it comes to improving contract performance and acquisition outcomes.

The report shins a light on a reality hitting many procurement offices, where the intense workload, combined with a lack of enough skilled and trained 1102s, is creating an environment where quality is being sacrificed at the expense of performance.

Just taking a look at the topic headers is an eye-opening example of a procurement organization that is in need of serious improvements:

• Sole-Source Awards Not Adequately Justified
• Price Reasonableness Not Adequately Determined
• Quality Assurance Surveillance Plans Not Prepared
• Inadequate Quality Assurance Surveillance Plans
• Contracting Officer’s Representative Acceptance of Deliverables Not Documented
• Language in Contracting Officer’s Representative Letters Too General
• Invoice Review Needs Improvement

The recommendations are also somewhat disturbing, in that they basically outline what needs to happen to realize improvements and work to improve this organization. Mainly, the recommendations state that contracting officers and CORs need to do their jobs, since some of the responses the IGs received where common in this environment: lack of time, resources, and a focus on production.

Simple tools, such as checklists, can be created to ensure that ALL the requirements of a contract action are achieved. This may seem simplistic, but following the checklists, and having them executed through automated contract systems and solutions, will ensure that the proper steps have been conducted. Basically, contract actions can not bee executed until these issues have been eliminated by ensuring the proper steps an actions by procurement personnel have been followed and verified. This is ultimately creating an environment of accountability, and hopefully improved quality.

I don't have time is not a legitimate excuse, not under any circumstance. However, leadership needs to understand the needs of the organization, provide the proper level of oversight, resources, and training to the procurement staff, and ensure that things are being done properly. 

Best practices are plentiful, and they need to be acted on.

How Does a Small Business Get on an IDIQ?

Some of the trends that have been written about in 2012, and beyond, is the government relying more and more on issuing task orders via IDIQ vehicles, as opposed to full and open competition and the normal acquisition process.

Although many courses and consultants discuss winning these task orders, little information is available on actually winning the IDIQ, and as a result, winning the ability to even compete for a task order.  

• What is the best way to research these IDIQ opportunities?

• How does a small business get on these IDIQs?

• What is the best strategy to position yourself to win the IDIQ?

Contractors Are Mission Critical, Not a Necessary Evil

Former head of the Coalition for Government Procurement Larry Allen, now President of Allen Federal Business Partners, wrote a spot on article recently calling out the absurdity of the current environment of anti-contractor sentiment running rampant throughout the federal government.

Recent examples of these activities, among many, includes the Office of Management and Budget’s recent directive to ramp suspension and debarment operations, and the Air Force’s actual debarment of Iron Bow Technologies. Although this debarment was later overturned, it seems that this action was a direct result of the “get tough” policies.

Of note was the actual reversal, as a direct result of the Air Force and Iron Bow working together to address the issues leading up the debarment, and mitigation strategies to prevent any future occurrences. In other words, actions that should have occurred without the need of the seemingly knee-jerk debarment by the Air Force.

Further exacerbating the “greedy contractor” paradigm, and as noted by Allen, is Shay Assad, the director of pricing for the Department of Defense, announcing a more stringent pricing policy with contractors, in addition to the directions to cut service contracts by another 20 percent. Now with the Senate passing a Defense Authorization Bill that caps executive pay for contractors at $400,000, it seems that senior federal officials feel the need to squeeze the vice even further.

With the government continuing to freeze pay and hiring in critical areas, in addition to offering early buyouts, the expected outcome can only be further erosion of performance. With fewer government personnel, in addition fewer qualified and trained personnel since training is also getting cut, waste, fraud, and abuse will keep the Government Accountability Office (GAO) and Inspector Generals gainfully employed. On second thought, GAO is also cutting staff. Perhaps the Commission of Wartime Contracting will reopen its doors in the near future to report on billions in waste, and just drop the Wartime from its title.

Contractors perform vital functions, and more pressure will be put on industry to perform more with less. However, it is being done in an environment where profit margins are being cut to the bone, lowest cost is now the only variable, and many small businesses are in danger of extinction with cuts to contracts, and subcontracts.

The fact is this: Contractors perform messy services that no one else wants to do. They fix things that break in the middle of the night. They are absolutely essential to the efficient running of the enterprise. They should be treated with the respect commensurate with the role they play. Mistakes happen, and bad actors exist. But it’s past time to give credit where it is due.

We would be better served working together, and stopping this animosity.