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.”   

Acquisition Reforms Will Focus on Oversight

As the lame duck session of the 111^th Congress comes to a close, some in the acquisition community are left to wonder what lays ahead for the acquisition reform initiatives of the Obama Administration. According to many experts, the shift in political power may not make much difference for the IT and procurement communities.

I am not sure that is the case, according to plans that Rep. Darrell Issa (R-Calif.) has stated as incoming chairman of the House Oversight and Government Reform Committee. Issa has said that the Telework Enhancement Act (H.R. 1722) lacks many of the safeguards necessary to prevent fraud, waste, and abuse. Specifically, Issa claimed employees can take advantage of the lack of direct manager oversight, does not require agencies to prove how much money they’re saving, and does not create jobs.

Although Rep. Issa continues to draft his agenda for the new Congress, I am not going to hold my breath that this process will not be politicized, when Rep. Issa makes statements such as “I want seven hearings a week, times 40 weeks.” Rep. Issa also stated he looks forward to working with the Office of Management and Budget (OMB) and industry on ways to address wasteful spending from failed government IT programs. I think OMB is really making some important strides on this front, so we’ll either see either a real oversight agenda moving forward or more political witch-hunts as in the past.

On the Senate side, Sen. Claire McCaskill (D-Mo.) remains chairwoman of the Homeland Security and Governmental Affairs Committee’s Contracting Oversight Subcommittee. Sen. McCaskill will continue her focus on interagency contracts and reforms to the 8(a) set aside programs for Alaska Native Corporations. I hope these initiatives continue, as Sen. McCaskill has much unfinished work to do regarding abuses in these programs, so I hope that Rep. Issa seizes the opportunity to really craft bipartisan and meaningful relationships with other members on ferreting out waste, fraud, and abuse.

Another important issue is the effect of the midterm elections on open government, transparency, accountability, and the overall Gov 2.0 movement. I believe that significant movement will come on this issue, as politicians move from political use of Web 2.0 for campaigns, to executing Gov 2.0 initiatives to execute transparency initiatives and hold government accountable. Again, I hope that this renewed focus on using Gov 2.0 tools to advance Open Government and allow for more citizen engagement. However, it is hard to fathom considering this hyper partisan political environment where Congress scores so low in providing these services themselves.

I would like to see the latter happen. But I have reason to lack hope. Tim Evans, a program analyst who works on Web analytics and customer service measurement at the Social Security Administration, posted a story by Larry Freed of The Digital Citizen about a recent survey in which ForeSee Results found “a clear and proven relationship between transparency, satisfaction and trust,” and “higher transparency leads to higher citizen satisfaction with government, which in turn leads to higher trust.”

Unfortunately, “when it comes to transparency, citizen satisfaction, trust, accountability, perceived goodwill, competence and integrity, American citizens give Congress the worst scores across the board,” Freed wrote.

Not the most encouraging situation, but let’s give Rep. Issa the benefit of the doubt that he will wield his gavel responsibility to protect the taxpayers and not a political party and its agenda. Change we can believe in? We have heard that before.

DoD Acquisition Chief Leaves Post by Firing Parting Shots

In a refreshing piece of candor, outgoing Under Secretary of Defense for Acquisition, Technology & Logistics John J. Young, Jr. gave his final media roundtable, where he expressed concerns that the attention being paid to acquisition reform and revamping the acquisition process will lead to more regulations and oversight, and put additional burdens on the acquisition community. Of particular concern was the need to allow acquisition professionals to focus on running their programs:

…"The process we're heading further into is a tax code-like governance process for defense acquisition," Young said. "The more we do this, the more program managers will have to do to comply and they'll spend less time managing their programs."…

I share this concern with Mr. Young, particularly with the focus on contracting tools and procedures that have come out of the White House in President Obama’s OMB directive, and the possible handcuffing of contracting tools by limiting cost type contracts in favor of fixed type contracts. What I am referring to is the creation of further regulations and legislative actions that do not make sense, and may make the difficult jobs of acquisition professionals even harder. Further, these legislative actions rarely are done with a concern for empirical data and impact on costs, as legislators only focus on perceived benefits which also are difficult to measure without a sound business case for why a change may be needed. The costs of implementing legislation should never exceed the desired outcomes or benefits, but this type of logic is demanded by acquisition leaders without being considered by the same legislators who create the legislation in the first place.

Also of note in his comment was his attention to program managers. I am not sure if he misspoke, but the acquisition process would be best served by having a fully functioning IPT of both program personnel (program mangers, engineers, budget analysts, etc.) and contracting personnel (contracting officer, COTR, etc.). In reality it is the contracting personnel that have to adhere to the burdensome rules for acquisition execution, while program managers often are faced with different challenges in respects to acquisition regulations in the execution of programs.

I applaud and thank Mr. Young for his service, as he mentioned his focus during his tenure:

…"People run programs, not documents and processes," he said. "You need to have good people and leave room for judgment to get the best deal for the taxpayer."…

Acquisition reform cannot, and should not, focus just on processes and legislation. It needs to focus on rebuilding a workforce that has been decimated by underdevelopment and being undervalued, which requires a focus on changing the culture of the federal government such that acquisition professionals are seen as strategic business advisors and not an impediment to progress. The approach needs to be balanced, as although Stimulus funding was provided for acquisition workforce improvement issues, I do not believe it is nearly enough to fund workforce issues at civilian agencies when compared to DoD.

One comment from Mr. Young, sadly, was his perceived inability participate in the economy:

…"I don't think you should come into this building and essentially give up any right to participate in the economy," Young said. "You get paid a salary, but beyond that you become almost a monk and get all kinds of restrictions levied on you trying to help your country and do the right thing."…

I don’t think anyone comes into federal service with the intention on getting wealthy. Mr. Young, I am sure, has a very specialized and high-demand skill set that will command a very healthy compensation package wherever he may go. I hope that is the case, but I was disappointed in his comment as he seemed to be bitter at the fact that public service entails sacrifice and a dedication to duty. If he was not willing to make these sacrifices, why serve?