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.