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.