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.

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.

DHS Rule Protects Small Business? Think Again.

Federal Computer Week reported on a proposed change  to the Homeland Security Acquisition Regulation, the supplement to the Federal Acquisition Regulation by the Department of Homeland Security (DHS), in order to help small businesses fend off rapacious primes contractors from “windfall” payments on Time and Materials contracts.

“Help” like this is not desired by small businesses.

The first part of the proposed change, per the Federal Register notice,  states:

…The first of the two existing FAR policies provides the option to require separate labor hour rates for each subcontractor under a T&M/LH contract, in addition to the labor hour rates established for the prime contractor. See FAR 16.601(e). The current FAR policy authorizes an agency either to permit individual contracting officers to decide if separate labor hour rates are necessary or to establish an agency procedure making separate rates mandatory. This rule proposes to establish a DHS-wide procedure to make the FAR option for consistent use of separate rates mandatory for DHS T&M/LH contracts…

The second part of the ruling is to require consistency with contractors and subcontractors in the way they account for labor hour expenditures, requiring them to check a box for which accounting process will be used to account for overtime labor hours for employees exempt from the Fair Labor Standards Act.

DHS wants “to eliminate unintentional windfall payments to the prime contractor" that can come when work done by subcontractors is billed at the prime contractor's labor rate, according to the notice.

It amazes me when proposed policy changes like this are announced. Does anyone in government understand business anymore? We can expect higher direct labor rates to cover the overhead of managing subcontractors, which would have been previously earned by the markup on the labor.

Those pesky “pass through” fees that subcontractors pay for the privilege of getting crumbs on the contract. Subcontractors can expect fewer profits on a contract, as the “low cost” buying model means even smaller margins.

Profits are not wasteful, and they certainly are not “windfall” payments. Who came up with that language?

More importantly, how does this help small business?

I think one of the commentators on the FCW article gave a very clear picture of the environment that small businesses face:

…The so called "windfall" payments are the only real justification to the Prime to include subcontractors. Do you really think we add subs out of the kindness of our hearts? We do it because you require us to reach out to the small business community. If we lose all incentives to do this, why would we continue to add subs unless they provide a part of the solution that we don't have the ability to provide. The Prime has to get something out of the contract to bring on a sub. There is a cost to administering subcontracts, or had you forgotten that fact? I am sad to see how many skilled acquisition professionals have left the Government for private industry or to retire. The remaining staff just don't understand how Private Industry works. What a shame!...

Small businesses do not need this type of “help.”   

Contractors and Procurement Officials: Customer Service Is A Two Way Street

There seems to be a development that is coming more and more to the forefront: the case of the out-of-control Contracting Officer (KO).

There are usually two paths to interactions with a KO, one being the KO who is overwhelmed with the workload, doing the best they can to handle it, and simply have very little interactions with the contractors. Further, these KOs are very professional, and want to help and guide businesses to be successful, especially small businesses.

This path I would say is the vast majority of the 1102s, and the environment that most contractors work in. That is to say that contract execution, and subsequent performance or contract issues, result in interactions mostly with Contracting Officer’s Representative (COR), and the Program Manager (PM). If you are dealing with the KO, you have some serious problems.

However, there seems to be encroachment in federal acquisition, and government contracting in general, of the second path of KOs, those who act as KO, COR, PM, judge, jury, and executioner. These KOs take advantage of their power over the contractors, and are the first to threaten termination when issues arise in performance, both actual and perceived.

I started a discussion on GovLoop about this topic, but it was something that perhaps no one wants to discuss. Certainly the manifestation of inexperience and subsequent performance issues by 1102s was covered recently in the Washington Post, but talking truth to power and holding those in power accountable can always be difficult, especially with vindictive acquisition personnel.

It should not, and does not, have to be this way. For every conversation I have with a small business colleague on a great relationship with a client, there seems to be another where a company is being crucified for one cent on an invoice, then being threatened with poor past performance and possible termination. What has gone wrong?

I think the pressure cooker that is being an 1102 is creating an environment where those in the trenches are being left to their own devices, without proper leadership, guidance, and direction. Since training on being a business advisor, negotiating, customer service, or understanding how businesses function is effectively non-existent, bad habits develop. Left unchecked, these bad apples rotten the organization, and it seems like more and more rot is advancing. Further, those bad habits get exacerbated by firms that get bullied and intimated, and enable this behavior because they fear being retaliated against through options that get dangled like weapons, or through adverse past performance.

Something has to give.

The mission has to come first, and the “gotcha” attitudes simply help create more problems for performance by both parties. Many contracts call for monthly meetings with stakeholders to discuss issues, and these platforms should be productive ways to help resolve problems, and help create trust and attitudes that enable an environment to work like partners, not adversaries.

It has been alarming at the rate of complaints by small businesses to small business advocates at federal agencies of maltreatment by procurement personnel, and the rise of protests is also a manifestation of these negative and mistrustful attitudes.

Of course, some companies deserve what they get when they under bid work, don’t perform, and simply use the government as an ATM.

However, contracts are expected to provide exceptional service for the taxpayer’s investment. That is a given, and understood. Nonetheless, that goal is a two-way street, and requires both parties to act in the best interest of the taxpayer.

Can’t we all just get along?

Protest Accountability: Mechanisms to Improve Performance

Protests are back in the news, although they never really left. I have been writing about this issue for some time (here and here), but the problem has only exploded in the last five years with the economic implosion, and now sequestration and budgeting Armageddon possible on the horizon.

A recent report from IBM’s Center for the Business of Government also highlight similar issues, but some of the recommendations made in the report are either not realistic or have no chance at implementation.

The current state of the acquisition workforce, and I am including the program office who are (or should) be evaluating a proposal, simply will not allow many of these recommendations to see the light of day.

The report should have focused on the only issues that need leadership support, which is to create confidence in the contract award decision, and to ensure industry understands the requirements, evaluation criteria, and why they did not win a contract.

The critical components that need attention:

Requirements

Poor requirements lead to contract failures, and protests of course. Garbage in equals garbage out, and that cannot be truer when it comes to procurements and subsequent contract award decisions.

Bundled, complex requirements, with hundreds of moving parts, combined with evaluation criteria that do not make sense, is a formula for almost automatic protests.

This is where performance-based contracting comes into play. Focusing on objectives and needed outcomes is where government should be, allowing industry to help solve problems and achieve the ever-illusive outcome: innovation. Instead, the current paradigm is stuck in a quagmire of government’s need to be overly-prescriptive, leading to confusion and poor requirements since industry has the edge in technological knowledge and capabilities. 

Keep requirements simple, use market research to communicate needs and allow industry input, including proper evaluation criteria.

Source Selection Management

Source selections are currently treated as a chore; an unwelcome ancillary duty by government personnel who do not have time for more taskings and who are under pressure from their respective leadership to perform other duties. Further, many senior leaders do not allow their personnel the flexibility needed to focus on a source selection, instead treating it with lesser importance than their subordinate’s day-to-day jobs.

The report makes some good recommendations in this area, but it is leadership that needs change to help them understand the importance of making sound business decisions through effective support of source selections.

I cannot count how many times I have supported a source selection in my consulting career where managers refuse to allow their personnel to focus on a source selection properly. The result is massive frustration and confusion, by both offerors and the evaluation team.

Another significant issue is training, as many program managers are simply not aware of proper evaluation processes, especially when it comes to documentation. Disturbingly, I have also seen many contract specialists also lack these fundamentals.

It is simply a fact that if a contract award decision is transparent and properly documented, this normally leads to confidence in a contract award decision by those in leadership charged to ultimately make the contract award decision, and hopefully industry.

A well-documented source selection, that has followed transparent and proper procedures, combined with effective debriefings, will go a long way to offsetting protest activity.

Transparency

This should include redacted source selection plans and documentation for the losing bidder, which incudes legal and peer review.

The trust issue, as the report mentions, is simply deteriorating to the point of frightening proportions. This should start as early in the acquisition process as possible, but again the fear-factor prevents government from collaborating with industry effectively, at the detriment of the requirement and the ultimate contract award.

Government personnel need to understand that if they do their jobs properly, protests should be sour grapes. It is the risk-aversion here that is a major issue.

Nonetheless, the current state of affairs when it comes to protests is only going to worsen unless accountability is brought into the fray.

Looking at the recent Government Accountability Office (GAO) report on protests, it is hard to not think that protests are out of control. Here is where I strongly agree with IBM’s report, as I have been an advocate of protest accountability for some time. How can one argue that some protests are not simply frivolous? I know of a company, an incumbent on a contract that lost a recompete, who admitted filing a frivolous protest to bilk the government for another three months of revenue while GAO made the decision. The basis for the protest bordered on absurd, but how often does that happen? More often than you think. It is a business decision no doubt, but only at the expense of the taxpayers and the mission.

Protests are disruptive, and firms need to be held accountable for reimbursing the government for losing protest after protest. Further, this is a demonstration of a bad actor, and should also be included in a firm’s past performance rating.

Conversely, firms should automatically be compensated for protests fees should they be upheld. It is a two-way street, and needs to be treated as such.

Protests are a fundamental right by a firm to correct a deficiency by the government. However, the data indicate that this right is being abused. Let’s bring this situation under control, and move forward.

Smaller Piece Of The Pie For Small Businesses

With the end of the fiscal year upon us, the “feeding frenzy,” as I like to call it, is in full swing. With possible sweeping budgets on the horizon through sequestration, and overall declines in revenues, agencies are unloading end-of-year dollars at a dizzying pace.  It should be particularly good times for small businesses, as opportunities should be plentiful.

Alas, that is not entirely the case. It is the same story, but amplified. Smaller sized contracts, especially those that use simplified acquisition procedures, are still going to large businesses. According to the Federal Procurement Data System (FPDS), it is on track to be about 40%.

Large businesses are getting a surprisingly larger share of contracts that should be going to small businesses because they are known commodities, with a wealth of past performance in a risk-averse environment. However, the lack of small business focus by federal buyers is the main reason.

The single greatest factor is the one true common denominator, the acquisition workforce. A recent story in the Washington Post highlighted the problems industry is facing through the rise of inexperienced federal buyers, and the difficulties in not only awarding contracts, but managing them as well.   

One of the greatest challenges small businesses face is this inexperience. We can all acknowledge that the acquisition workforce is overworked and under-resourced. However, that excuse does wear thin. People need to do their jobs at the end of the day, that phantom word in the federal vernacular; accountability.

As a result, insufficient, or simply no market research, is being conducted to qualify small businesses as eligible for a given solicitation. The question seems to be, why be bothered? I have this large company over here doing everything under the sun; so let me make sure they win this contract. They have all the vehicles, the past performance, etc. They are a known entity. Sounds like a plan!

It is the path of least resistance, as qualifying small businesses, conducting a Request for Information, simply doing a Google search, simply takes too much time. Further, many program offices should be conducting this market research, but many do not understand their roles and responsibilities in the acquisition planning phase. A major point I make in training classes to PMs during Acquisition 101 classes.

The trend of awarding “small business” contracts to large businesses is endemic, and will not abate anytime soon. Small businesses can continue to hope for crumbs, or that someone in Congress actually pays attention to real issues affecting small businesses.

Forget Talk of Policy: Focus on People

Since coming onboard as new Administrator of The Office of Federal Procurement Policy (OFPP), Joe Jordan has seemingly looked to policy, regulations, and guidance on tactical execution to help solve the procurement woes that are being faced by the federal government.

However, it has been some time since OFPP focused on what really is the problem, the acquisition workforce.

Granted Mr. Jordan discussed workforce in an interview with Federal Computer Week, and I hope he does indeed focus on it.

However, without a highly trained and functioning acquisition workforce, no initiative or improvements in the abysmal track record of government spending is possible.

Most new “initiatives” are treated with either derision, open hostility, or simply ignored due to lack of attention or even awareness. I recently asked a group of contract specialists about their use of open communication techniques, in accordance with OFPP’s “MythBusters” campaign, and you would have thought I was speaking another language by the blank stares I got.

One of the most respected (definitely by me) thought leaders in this profession, Vern Edwards, said it best on a recent post on this very issue:

…In a complex system like acquisition, any attempt to fix deep seated system faults through policy will fail. The only way to get at the deep seated problems in acquisition is through workforce improvement, and I don’t mean numbers. We need well-educated, superbly trained people for the big stuff, and we do not have enough of them. Mismanagement and poor leadership will prompt many of the best of the new recruits to leave. The problems are beyond the reach of management in the organizational structure we have now for the simple reason that no one is in charge. Only someone with the power and the ruthlessness of a Stalin could fix the system. A few purges might be just the thing…

It is the cold, hard truth. We need to focus on people, and not the numbers as I have previously discussed (here, here and here).

Focusing on tactical issues can certainly help, especially focusing on performance based contracting, better requirements development, and better communications and collaboration with industry. Nonetheless, the state of the acquisition workforce gets worse every day, and the hole keeps getting deeper.

You won’t hear that in any Presidential debate or attack ad. It is easier to focus on the symptoms rather than the disease. 

Your Taxpayer Dollar$ at Work: Final Iraq Audit Report Edition

The “final” report on Iraq reconstruction was released recently, and I have seen little media attention to the astonishing level of waste, incompetence, and outright theft that the report highlights.

How much money is unaccounted for? According to the report, nobody knows. After years of trying to account for the billions we poured into the rabbit hole of Iraq, the government can only say that billions were wasted, but not how much.

Some on the highlights from the report:

…"billions of American taxpayer dollars at risk of waste and misappropriation"...

..."The precise amount lost to fraud and waste can never be known," the report said….

The auditors found huge problems accounting for the larger sums and complex projects, but it was also the smaller sums that also added up to hundreds of millions of waste and fraud:

…"Given the vicissitudes of the reconstruction effort — which was dogged from the start by persistent violence, shifting goals, constantly changing contracting practices and undermined by a lack of unity of effort — a complete accounting of all reconstruction expenditures is impossible to achieve," the report concluded…

Although the Office of the Inspector General (OIG) has spent more than $200 million tracking the reconstruction effort, and producing numerous reports, some accountability has been realized. The OIG investigations resulted in 87 indictments, 71 convictions and $176 million in fines and other penalties.

Among those held accountable are civilians, military personnel, and contractors accused of kickbacks, bribery, bid rigging, fraud, embezzlement and outright theft of government property and funds.

Nonetheless, these actions are just a drop in the bucket trying to account for the outright criminal behavior and complete lack of governance and oversight of taxpayer funds.

One of the major overlying issues was the lack of trained, competent contracting personnel to oversee the mission. In some cases, invoices were reviewed months after they had been paid due to the lack of contracting officers.

The OIG highlighted a case in which the State Department had only one contracting officer in Iraq to validate more than $2.5 billion in spending. No contracting office representative, no help. Further, lack of any invoice review whatsoever was the modus operandi. It is easier to not ask questions, and sign the checks, as opposed to the improper micro-management of contracts on the other spectrum.

Further, the IG goes on to say:

…"As a result, invoices were not properly reviewed, and the $2.5 billion in U.S. funds were vulnerable to fraud and waste,"

"We found this lack of control to be especially disturbing since earlier reviews of the DynCorp contract had found similar weaknesses."

The report did highlight that some funds were recovered ($60 million), but how much was wasted? Again, nobody knows.

It is easy to sit behind a keyboard and Monday-morning quarterback these failures, given the level of violence and danger, shifting sands of priorities and goals, and difficulties in securing the country. However, these failures did not occur overnight.

Endemic waste, fraud, and corruption were rampant, and the lack of trained acquisition personnel was known, or should have been known. Where are the government leaders who allowed this to happen?

The OIG report is silent. Silence seems to be acceptance.

Protest Accountability: Time For Enforcement

Protests are back in the news, although they never really left. I have been writing about this issue for some time (here and here), but the problem has only exploded in the last five years with the economic implosion, and now sequestration and budgeting Armageddon possible on the horizon.

A recent report from IBM’s Center for the Business of Government also highlight similar issues, but some of the recommendations made in the report are either not realistic or have no chance at implementation.

The current state of the acquisition workforce, and I am including the program office who will (or should) be evaluating a proposal, simply will not allow many of these recommendations to see the light of day.

The report should have focused on the only issues that need leadership support, which is to create confidence in the contract award decision, and to ensure industry understands the requirements, evaluation criteria, and why they did not win a contract.

Nonetheless, the current state of affairs when it comes to protests is only going to worsen unless accountability is brought into the fray.

Looking at the recent Government Accountability Office (GAO) report on protests, it is hard to not think that protests are out of control. Here is where I strongly agree with IBM’s report, as I have been an advocate of protest accountability for some time. How can one argue that some protests are not simply frivolous? I know of a company, an incumbent on a contract that lost a recompete, who admitted filing a frivolous protest to bilk the government for another three months of revenue while GAO made the decision. The basis for the protest bordered on absurd, but how often does that happen? More often than you think. It is a business decision no doubt, but only at the expense of the taxpayers and the mission.

Protests are disruptive, and firms need to be held accountable for reimbursing the government for losing protest after protest. Further, this is a demonstration of a bad actor, and should also be included in a firm’s past performance rating.

Conversely, firms should automatically be compensated for protests fees should they be upheld. It is a two-way street, and needs to be treated as such.

Protests are a fundamental right by a firm to correct a deficiency by the government. However, the data indicate that this right is being abused. Let’s bring this situation under control, and move forward.

Saving Money Is Now A Good Thing: The Great Paradigm Shift

I always have to scratch my head at the curiosity of how the federal government operates in regards to budgetary matters. Although commercial best practices are all the rage in government, such as trying to leverage technologies and become more efficient, innovative, and agile, the one area that always seemed to be polar-opposite was the budget.

Commercial entities, specifically publically traded companies, have accountability to their shareholders and Wall Street (mostly Wall Street). As such, increasing productivity and lowering costs has always been a critical driver in efficient corporate operations. Unlike federal leaders, corporate leaders are held accountable for what is viewed as wasteful or excessive spending.

Although the federal government has made several initiatives as of late to increase productivity, it has always been, and continues to be, the accountability issue that has lagged the commercial sector.

That trend has seen a recent reversal. With the focus on cutting contracts, saving money is now a requirement. The Office of Management and Budget recently sent out a memo directing agencies to further tighten their belts, especially given the “TravelGate” scandal from the General Services Administration.  

Cuts are also hurting industry, as salaries, benefits, and jobs are being shed to withstand the environment of lower margins, and lower rates on bids.

…Agencies typically wait until contracts are up for renewal or entering another option year to negotiate with vendors for a better deal. But Hancher's reduced budget drove her to bargain with the agency's help desk support contractor, Computer Sciences Corp., in the middle of an option year…

Different negotiating tactics are being employed, but it is the low-price model that has really taken a solid grip on how the government now buys.

…Donna James, owner of Accent Global System Architects, which helps agencies map their IT network systems, said she started noticing last year that agencies were more focused on price than best value. She lost every bid she competed for based on price.

To be more competitive, her company cut back contributions to employees' health savings accounts and is hiring new staff at lower salaries, she said.

However, most of the contracts she competes for still call for highly skilled workers with special certifications, James said. "They want the sun, moon and stars and they don't want to pay for it."…

The federal government has turned into a buyers market, with procurement executives making difficult requirements without the opportunity for best value. I have seen a marked increase in small businesses getting squeezed to deliver, as the low-price model ensures that margins are squeezed as close to zero as possible just to stay viable. Best value is nothing more than lip service.

Several agencies seem to be getting the message, however, that early and upfront collaboration with industry is vital to understanding what is available, but also, what is affordable.

…At the Veterans Affairs Department, acquisition and IT executives meet with vendors early on about expectations and pricing, so there are no surprises on either side, said Luwanda Jones, VA's executive director of IT acquisition strategy and business relationships…

Nonetheless, we’ll see how the end of fiscal year buying season turns out; the period between July and September that I refer to as the “Feeding Frenzy.”

Will agencies continue to spend like drunken sailors in this period, or will senior leaders demand cuts and finding ways to not spend end-of-year money?

Stay tuned to see if this paradigm shift actually occurs… 

Time versus Money: Taxpayers Take a Bath Again

A recent disturbing story about facilities management by the General Services Administration (GSA) in Chattanooga is a perfect template for how poor (or little) acquisition planning, combined with inadequate market research, creates an environment where questionable acquisition strategy decisions are created. The result is a typical one, where sole-source contracts are created at prices that almost invariable go in only one direction, and quickly surpass any budgets or estimates.

…Taxpayers will foot a $5.75 million rental bill over the 10-year term. The new offices will cost the federal government $1.35 million more than the U.S. General Services Administration's initial estimate over the next decade and triple the amount now spent to house federal prosecutors in Chattanooga…

Here we go, time to buckle up:

…But real estate experts question why the government didn't solicit bids for needed space, which will cost $23,366 per employee for the first five years in the new fifth-floor office at Warehouse Row.

For that much, the U.S. attorney's office could double its number of attorneys and staff to 56 and pay each new worker $11.23 per hour. For the same amount, the feds could buy a median-priced home for each of its employees within the next seven years…

According to the Department of Justice (DoJ), who was the federal customer that GSA was serving, security and proximity where important factors, combined with accessibility standards.

Translation – Our requirements are so unique that our “market research” shows only one source able to meet these requirements. 

…"They would be paying the highest rate in the city," said David DeVaney, president of NAI Charter Real Estate. "You can find space in Chattanooga all day long at $22 per square foot, for full-service, including a generous build-out."

The rent is more than double the previous rate in the same building -- $14 per square foot -- and well above Warehouse Row's advertised lease rate of $16 per square foot.

By not using competitive bidding, federal officials ignored more than 1 million available square feet of office space downtown…

Sole source justifications are of course a vital tool in any procurement toolbox. However, adequate justification is required to circumvent regulations and guidance for ensuring taxpayers will not take a bath.

Regarding the requirements for justification to lease the space that met all the DoJ requirements, which was the impetus for the lack of competition, not to mention the fuzzy math estimates:

…But those justifications weren't mentioned in the original no-bid request…

So the reasons for the sole-source contract were not explained in the justification? Really?

"With the current lease set to expire and facing the need for additional space, the U.S. attorney's office in Chattanooga worked in conjunction with GSA to find an office in proximity to the federal courthouse that met all suitability and security requirements in accordance with applicable regulations," Killian wrote in an email. "GSA conducted a market analysis and determined that the Warehouse Row location was the only location that met all requirements that would serve the office and the community."

However, neither Killian nor the GSA would say what, exactly, drove the rent to the top of the charts.

Translation: We needed the space and we need it yesterday. We checked the boxes, so let’s move forward.

Competition drive price reductions, and in the case of real estate, allows for the government to aggressively negotiate better prices, as real estate managers need tenants to make money. Unused real estate just sits there unproductive.

According to these real estate experts, presumably aware of the DoJ’s requirements, they all unanimously agreed that this was a bad deal.

Translation - Taxpayers lose again.

Service Contract Inventories: Missed Opportunities For Transparency

Last month, the Government Accountability Office (GAO) released a new report in April 2012 detailing a continuing issue at the Department of Defense (DoD) that is not foreign across government; the lack of transparency when it come to service contracts.

The GAO report looks at two issues inherent in the struggles at DoD; lack of clear oversight on service contracts and the continuing issue of contractors performing inherently governmental functions.

One issue identified was the reliance on the Federal Procurement Data System-Next Generation (FPDS-NG) for the inventory for most defense components other than the Army.

DOD acknowledged a number of factors that limited the utility, accuracy, and completeness of the inventory data. For example, FPDS-NG does not identify more than one type of service purchased for each contract action, provide the number of contractor full-time equivalent personnel, or identify the requiring activity. As before, the Army used its Contractor Manpower Reporting Application to compile its fiscal year 2010 inventory. This system collects data reported by contractors on services performed at the contract line item level, including information on labor hours and the function and mission performed. DOD officials noted that the Army’s current process complies with legislative requirements.

What the GAO recommends is for DoD to create processes and adopt similar systems such as the Army, since the other services use their own methodologies, processes, or simply do not follow the requirements.

This problem is endemic across government, and I do not understand why GAO is recommending separate processes for DoD. This is a “big data” problem, as the requirements for transparency are not possible given the current data collection processes and systems anywhere.

The overall issue is one of workforce, and the need to analyze spending on the biggest expenditure, which is on service contracts. Without comprehensive, accurate data, how are decisions to be made on insourcing, continuity of service contracts for mission performance, and ensuring contractors are not performing inherently governmental functions.

The guidance from the Office of Federal Procurement Policy is more than adequate, and agencies are in full swing providing the information. However, the jury is still out on the utility of the information, let alone the accuracy. Further, the information on FTE counts is still mostly a work in progress, which seems to be a vital gap in this data collection exercise.

Most beneficial across government is not to create new systems, but to simply retool FPDS-NG to ensure that the data being collected is complete to meet the overall reporting requirements with a simple data field. Current contract management systems should automate this process, such that the complete data sets are collected from the contract file, which should include contract management data.

Combined with this relatively simple and inexpensive fix (let me take a deep breath as I write that), the Office of Management and Budget should provide more clear guidance on how to use the inventories in decision making regarding manpower, and the appropriate use of contractors.

This is a solid opportunity to consolidate a vital data issue that is common across government, but the GAO recommends that DoD and federal agencies should continue the fragmented approach to collecting this data.

This is one area where the “uniqueness” argument across organizational boundaries does not hold water. Transparency and the ability to make workforce decisions with complete and accurate data is a federal government issue, not just one for the Defense Department.

Ensuring Small Businesses Representation: Enforce the Rules

The issue of subcontracts management is a badly needed topic that has gotten little attention recently, either through proposed legislation, or anywhere else. I attended the Acquisition Excellence 2012 Conference a few weeks ago, jointly sponsored by the American Council for Technology (ACT) - Industry Advisory Council (IAC) and the General Services Administration, discussing with several procurement officials the need for subcontracting accountability. Mainly, ensuring that percent and dollar amounts in subcontracting plans were being adhered to and measured, in regards to performance. All the officials discussed what should happen, but all also acknowledged that not enough was being done.

This is perhaps one of the most important ways that small businesses can be represented in federal contracts. Most contracts have performance reporting requirements, but very rarely do they include a holistic approach to the contract. How is the prime performing on adherence to the subcontracting plan? The importance is usually on lines of code and spend rates, even going so far to manage firm fixed priced contracts like time and materials. An effective tree-killing exercise, but not a very productive one.

Subcontractors have little options when needing to address grievances against large firms. Some small businesses have had contracts terminated, positions taken, or simply not having promises made to them kept.

Procurement officials do not want to get involved, and small businesses have recently taken to the media and the courts for relief.

Performance on a contract should also entail integrity and honesty in dealing with subcontractors in regards to past performance, as the government does itself no favors in dealing with bad actors that don’t adhere to promises and contractual requirements in subcontract execution.

The continued focus on small business is certainly a positive, but the holistic approach and institutional issues endemic to small business contract failures need to be addressed.

Government can achieve its small business goals, no question. It is the desire to change, along with a concerted effort by leadership, which is required to succeed.

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.