Thursday, December 14, 2017

Losses Incurred in Operating Company Cafeterias

Many Government contractors have on-site cafeterias for their employees where it makes economic sense to do so. Obviously, there needs to be quite a few (potential) users of such services, the cost to employees must be reasonable, quality must be descent, and there needs to be a variety of daily offerings. A nice atmosphere helps as well. If its too expensive, the quality is diminished or there is not enough variety, employees will migrate to off-site establishments or perhaps, bring their own lunches.

Most contractors providing cafeteria services do not try and operate the facilities themselves. There are many food service providers (e.g. Aramark, Guckenheimer, and a host of regional companies) that provide such services more efficiently and cost-effective than can be performed in-house. Some contractors will subsidize food services and this is where things get a little contentious when contract auditors start asking questions.

The FAR cost principles at 31.205-13 has something to say about cafeteria losses. Essentially, losses from operating cafeterias will be allowed only if the contractor's objective is to operate such services on a break-even basis (there are a couple of exceptions that we'll get to in a moment). That should be fairly easy to figure out, right? Contract with a food service provider, to come in and operate your cafeteria at no cost to the company; easy.

But its not that easy at all. You see, contract auditors are going to want to add in "occupancy costs" (and they're correct). That would include the facilities, utilities, depreciation, repair and maintenance, taxes, janitorial, and any other kind of directly associated costs they can conjure up. Adding in the cost of facilities, which are often significant, make is more difficult to prove intent to operate at break-even.

FAR does allow cafeteria losses in limited situations. A loss may be allowable, provided the contractor can demonstrate that unusual circumstances exist such that even with efficient management, operating the service on a break-even basis would require charging inordinately high prices or prices higher than those charged by commercial establishments. Examples of unusual circumstances include (i) adequate commercial facilities are not available and (ii) reasonable prices are a necessary incentive to keep employees on-site to avoid the more significant costs of lost productive time due to longer lunch periods.

When cafeteria losses are claimed, it is always the contractor's responsibility to demonstrate that unusual circumstances exist and to provide sufficient supporting documentation. This could be difficult but would probably include price comparisons with similar commercial establishments or the distance to off-site restaurants. Contractors having cafeteria facilities can always expect contract auditors to inquire concerning the break-even analysis. Failure to sufficiently justify cafeteria losses will always result in questioned costs.

Wednesday, December 13, 2017

The 2018 National Defense Authorization Act is Now Law

Yesterday, the President signed into law the 2018 National Defense Authorization Act (NDAA) as had been predicted. The NDAA establishes spending levels of about $626 billion for the base defense budget and an additional $66 billion for contingency operations (e.g. Afghanistan). It calls for a 20,000 member increase in the number of armed forces and a 2.4 percent salary increase for existing armed services members. And, of course, it includes all of the various provisions we've been discussing here on this blog over the past few weeks.

A couple of provisions we have not addressed are those related to improving the hiring and training of the acquisition workforce. These are included in Sections 841 and 843. Although improved hiring practices and better education might improve the acquisition process, one of the most glaring weaknesses among the acquisition workforce is the excessively high employee turnover rates resulting in little continuity and slim experience levels among those most responsible for ensuring wise and effective expenditures of taxpayer dollars.

Section 841, Enhancements to the Civilian Program Management Workforce, establishes a Program Manager Development Program for civilian Defense Department and military department personnel. The Secretary of Defense is required to implement a new career development program for highly qualified, competitively selected civilian employees to increase the pool of experienced civilian employees qualified to serve as program manager for major defense acquisition programs (MDAPs). It also requires an independent study of personnel policies and incentives needed to attract, retain, and hold accountable civilian and military program managers for the largest and most complex acquisition programs. Attracting highly qualified program managers does not seem to be the problem. Figuring out how to keep them (retention) is a problem.

Section 843, Improvements to the Hiring and Training of the Acquisition Workforce, among other provisions, will require the Comptroller General (GAO) to submit a report on the effectiveness of existing hiring flexibility for the acquisition workforce, as well as the need for acquisition training for personnel who work in acquisition programs but are not formally considered part of the acquisition workforce. The GAO study must also include a description of the flexibilities available to the Department to remove under-performing members of the acquisition workforce and the extent to which any such  flexibilities are used. It also includes a provision that requires DoD to evaluate gaps in knowledge of industry operations, industry motivation, and business acumen in the acquisition workforce.

Initially, this provision included a requirement for DCAA to report on strategies to enhance the professionalization of its workforce to meet "increasing demands" but this provision was omitted in conference committee.

Tuesday, December 12, 2017

What's the Big Deal With Two Extra Pages Beyond a Stated Page Limitation?

The Defense Threat Reduction Agency (DTRA) issued a solicitation for help in preparing various survivability assessments. Award was to be made on a best-value basis considering mission capability, past performance, and cost. The mission capability factor included two sub-factors; management approach and technical approach. Six firms submitted bids. DTRA awarded the contract to Centra. Two of the losing bidders, PAE and Ensco appealed challenging DTRA's evaluations of their own and Centra's proposals. The focus of this article is on DTRA's assessment of Centra's (the winning bidder) proposal.

The protesters argued that DTRA improperly relaxes the solicitation requirements by accepting two resumes submitted by Centra that exceeded the two page limit specified in the RFP (Request for Proposal).

The RFP required offerors to provide a maximum two-page resume for each of the 39 personnel, or in lieu of resumes, to submit the information in the form of a table, with the same page limits being applied. The RFP further instructed offerors that page limitations shall be treated as maximums. If exceeded, the excess pages will not be read or considered in the evaluation of the proposal.

Two of the resumes submitted by Centra exceeded the RFP's two-page limit. Both were four pages in length. Thus, on their face, the excess information of the resumes (everything beyond two pages) should not have been considered.

DTRA took the position that the two resumes were withing the page limits because if the information is extracted, and the minimum allowable formatting set forth in the RFP is applied, the text would fit within the page requirements. GAO noted however that DTRA did not cite any authority to support its argument, no could it find any, that would permit evaluators to extract and manipulate the text of an offeror's proposal in order to satisfy the pagination requirements set forth in the solicitation.

As such, GAO concluded that DTRA erred in considering those portions of Centra's proposal that exceeded the RFP's stated page limitations and recommended that DTRA re-evaluate the proposals accordingly. GAO also recommended that DTRA reimburse the protesters for their costs of filing and pursuing their protests.

You can read the entire GAO decision here.

Monday, December 11, 2017

2018 NDAA - New Prohibitions on Use of LPTA as a Basis for Contract Award

The Government's use of LPTA (lowest price technically acceptable) as a source selection technique has been very popular. It certainly drives prices down as bidders compete only on price and contracting officers like it because its less work for them. They don't have to consider the relative merits of benefits in excess of the basic requirements offered by competing proposals.

However, the Government is now realizing that the use of LPTA might be short-sited. In 2016, DoD tried limiting the use of LPTA techniques with the following guidance: LPTAs may be used in situations where the Government would not place any value on a product or service exceeding the Government's threshold technical or performance requirements and these requirements can be objectively defined in measurable terms."

In the 2017 NDAA (National Defense Authorization Act), Congress moved to further limit the use of LPTA techniques. That NDAA restricted DoD from using LPTA when purchasing (i) information technology services, (ii) cyber-security services, (iii) systems engineering and technical assistance services, (iv) advanced electronic testing, (v) audit or audit readiness services, (vi) other knowledge-based professional services, (vii) personal protective equipment, and (viii) knowledge-based training or logistics services in contingency operations.

The 2018 NDAA (expected to be signed into law shortly) places more limitations on the use of LPTA techniques. Under the new NDAA, LPTA can be used only where DoD would realize minimal innovation if LPTA was not used and when goods are purchased. Goods are defined as those that are predominantly expendable in nature, nontechnical, or have a short life expectancy or short shelf life (see Sec 822).

Additionally, the new NDAA will prohibit the use of LPTA techniques for the engineering and manufacturing development contract of a major defense acquisition program (see Sec 832).

It is apparent that the heyday of LPTA is over. That should be a good thing because it will allow prospective contractors to offer products as other than lowest prices.

Friday, December 8, 2017

Government Leases Are Subject to Socioeconomic Programs

The AbilityOne program is among the nation's largest sources of employment for people who are blind or have significant disabilities. The program is administered by the U.S. AbilityOne Commission, which is the operating name for the Committee for Purchase From People Who Are Blind or Severely Disabled.

The Javits-Wagner-O'Day Act (JWOD) and its implementing regulations are intended to increase employment and training opportunities for persons who are blind or have other severe disabilities through authorization of the noncompetitive acquisition of specified products and services from qualified nonprofit agencies (NPAs) that employ persons with such disabilities. The Act established the AbilityOne Commission and granted exclusive authority to the Commission to establish and maintain a procurement list of products and services that must be purchased from qualified NPAs.

In 2004, custodial services at the Charlottesville Courthouse were added to the AbilityOne procurement list. Since that time, Goodwill Industries of Roanoke Virginia has performed the custodial services at the courthouse.

The current lease expires at the end of this year and GSA (General Services Administration) is negotiating a lease renewal with the building's owner, VVP, LLC. This new lease was intended to be a full-service lease that would include custodial services. GSA informed Goodwill that it would no longer contract directly with them and had no authority to direct VVP to use any particular contractor.

Goodwill protested on the basis that GSA's actions violated the requirements of the JWOD Act. Specifically, Goodwill maintained that GSA is required to either contract directly with Goodwill for custodial services or direct VVP to subcontract for those services.

GSA asserted that the award of a lease for real property is not subject to the requirements of the JWOD Act.

GAO (Government Accountability Office) disagreed with GSA and sustained Goodwill's protest. GAO stated that a real property lease is a contract, leases are subject to socioeconomic programs, GSA offered no statutory provision that would exclude leases from JWOD.