Friday, April 29, 2016

SBA Publishes 2015 Small Business Procurement Scorecard

The Small Business Administration released it annual Small Business Procurement Scorecards for fiscal year 2015 yesterday. These scorecards provide an assessment of each federal agency's annual small business contracting achievement against its goal using a grade of A+ down to F. Overall, the federal government received an A on the government-wide scorecard.

The federal government reached its small business federal contracting goal for the third consecutive year, awarding nearly 26 percent of all federal contract awards to small businesses. The goal was and still is 23 percent. The 26 percent equates to $91 billion in contracts. Also noteworthy from the Government's perspective is for the first time in history, the Government met its Congressionally-mandated goal of 5 percent of "eligible" awards to women-owned small businesses. The Government also achieved all-time highs in meeting its goals for service disabled veteran-owned and small disadvantaged businesses.

On an Agency level, no Agency received less than a B although three Agencies received lower scores than the previous year. Three Agency's were specifically called out for their "noteworthy" performance; GSA, Transportation, and SBA.

We can't help but think the Government is playing around with definitions - particularly with the term "eligible contracts". We couldn't find SBA's definition of eligible contracts but it is evidently a sub-set of total contracts. For example, DOD's fiscal year 2015 procurement budget was somewhere in the neighborhood of $500 billion. DOD reported that it had achieved nearly 25 percent of dollars awarded to small businesses. That should be about $125 billion ($500 billion times 25%). Yet the reported award dollars associated with that 25% was only d$52 billion.

Another example that suggests the SBA's scorecards are based on, perhaps, subjective elements, is their admission that the underlying data is subject to interpretation.
While each federal agency is responsible for ensuring the quality of its own contracting data, SBA conducts additional analyses to help agencies identify potential data anomalies. As part of its ongoing data quality efforts, the SBA is working with federal agency procurement staff to provide tools to facilitate review of data, implement improvements to procurement systems and conduct training to improve accuracy.
Nevertheless, even allowing for these anomalies, the overall trend in federal procurement awards to small businesses is upwards.

Thursday, April 28, 2016

Limitations on Subcontracting - Protester Bears the Burden

Express Medical Transporters (EMT) protested the award of a Veterans Affairs (VA) contract to Wheelchair Transport Services (WTS) for non-emergency special mode transportation services. EMT contended that a clear reading of WTS's proposal should have led the VA to conclude that WTS's proposal had specifically taken exception to the applicable subcontracting limitation found in FAR 52.219-14.

GAO (Government Accountability Office) denied the protest.

The decision noted that as a general matter, an Agency's judgment as to whether a small business offeror will comply with the subcontracting limitation clause is a matter of responsibility and the contractor's actual compliance is a matter of contract administration. If a proposal, on its face, leads an Agency to conclude that an offeror has not agreed to comply with the subcontracting limitation , the matter is one of proposal acceptability. This is because the limitation on subcontracting is a material term of the solicitation, and a proposal that fails to conform to a material term or condition of a solicitation is unacceptable and may not form the basis for an award.

An offeror need not affirmatively demonstrate compliance with the subcontracting limitations in its proposal. Rather, such compliance is presumed unless specifically negated by other language in the proposal. Accordingly, where an offeror submits a proposal, the offeror agrees to comply with the limitation, and in the absence of any contradictory language, the agency may presume that the offeror agrees to comply with the subcontracting limitations.

The presumption may be rebutted by other language in the proposal but the protestor bears the burden to affirmatively demonstrate that the awardee's proposal takes exception to a material term of the solicitation.

The GAO looked over WTS's proposal and found nothing on the face of WTS's proposal or associated attachments that should have led the VA to determine that WTS had taken exception to a material term of the solicitation, specifically the limitation on subcontracting. Neither could EMT point to any portion of WTS's proposal in which WTS states an intent to take exception to a material term of the solicitation.

You can read the entire decision here.

Wednesday, April 27, 2016

Using Blended Labor Rates to Implement New Compensation Caps - Part 4

Before we conclude this series on blending labor rates, here's a link to most of the published guidance on the matter. It includes the initial authorization from the Undersecretary of Defense for Acquisition, Technology, and Logistics dated October 24, 2014, the DCMA (Defense Contract Management Agency implementing guidance on the use of blended rates dated January 29, 2016 (this is the guidance we've been discussing in this series) and DCAA's (Defense Contract Audit Agency) own implementing guidance on blended compensation caps dated February 19, 2016. The latter simply authorizes auditors to support DCMA's efforts in negotiating advance agreements with contractors.

The decision to implement blended labor rates is solely that of the contractor. Contractors are not compelled by law or regulation to go forward with such a plan. The Government has offered up the blending option as a means of facilitating implementation of the significantly lowered compensation caps applicable to contracts awarded after June 24, 2014. Once a contractor chooses to use a blended compensation cap methodology however, the contracting officer must execute an advance agreement (FAR 31.109). The advance agreement is only the beginning of contractor responsibilities. The advance agreement will set forth the agreed to process and frequency for providing auditable data necessary to support the calculation and application of the blended compensation cap for forward pricing, interim billing, and final rates, as well as the expiration date for the ending of the blended compensation cap estimating method. Some contractors might find the requirements onerous.

The use of blended compensation caps can continue as long as contractors are incurring costs on pre-June 24, 2014 contracts. In extreme cases, this could be a decade. However, each year, the number of pre-June 24, 2014 contracts will diminish and eventually, so small that it makes continued operations under advance agreements not cost-effective. Advance agreements are written in such a way as to allow either party to exit whenever they want. Item 12 of the advance agreement template provided as part of the aforementioned DCMA guidance reads: "The parties retain the right to unilaterally and immediately cancel this agreement upon written notification to the other party. However, it is understood that each party will give the other party at least 30 calendar days' written notice, unless urgent and compelling reasons exist, prior to cancelling the agreement."

As we stated in the introduction to this series, the blended compensation cap methodology is not for everyone. For contractors having no employees that exceed the new compensation cap, there is clearly no applicability. Contractors that can implement the old and new caps within their existing system without significantly re-engineering their ERP systems should probably do so. This may not be too difficult if the highly paid employees (e.g. scientists and engineers) charge direct. Contractors where the impact is minimal may decide that the additional work required to develop, maintain, and support blended rates is not worth the added cost.

Tuesday, April 26, 2016

Using Blended Labor Rates to Implement New Compensation Caps - Part 3

We began this series on DoD's initiative to allow contractors to blend labor rates in order to facilitate the implementation of the new limitation on compensation by discussing the impetus behind the program (see Part 1)Yesterday, we demonstrated how the blending would be calculated for incurred cost (see Part 2). Today we tackle the slightly more difficult task of blending rates for forward pricing proposals.

At first blush, one would think that there would be no reason to blend labor rates for forward pricing purposes. After all, if the contract is going to be awarded after June 24, 2014 it must comply with the new compensation cap. The complication arises when factoring in modifications and change orders for contracts awarded prior to June 24, 2014. Those contracts and modifications thereto are still subject to the old compensation caps.

The greatest challenge in this exercise is to estimate the value of pricing for new solicitations and for modifications to existing contracts. This is not an easy task and will require the exercise of judgment. How easy is it to estimate the value of contracts it will be awarded during the year? To some extent, its always a guess. How can one estimate the value of modifications to existing contracts that will be awarded during the year? Often times contractors have no idea that the Government is contemplating contract modifications.

Once those two baselines are established, the mathematics to blending rates are the same as for incurred costs.

Like the blended rate calculations for incurred costs, the blended rate examples from DCMA rely on total contract costs. But as we warned yesterday, total contract costs might not be a good basis for blending rates. Contractors need to be aware of their indirect rate allocation methodologies to ensure that the blending method achieves an equitable result.

Tomorrow we will conclude this series by highlighting other aspects of the newly issued DCMA guidance on blending labor rates.

Monday, April 25, 2016

Using Blended Labor Rates to Implement New Compensation Caps - Part 2

The Department of Defense has formally authorized contractors to used blended labor rates to implement the new compensation cap applicable to contracts awarded after June 24, 2014. If you missed Part 1 of this series, click here. Briefly, the Bipartisan Budget Act of 2013 established a new compensation ceiling applicable to all employees (not just the top level management) of $487 thousand. The challenge for contractors and the Government is to find a method to implement that new compensation ceiling in fiscal years where there are contracts with different ceiling amounts.

The Government would love to have contractors implement the new compensation cap on all contracts regardless of when they were awarded. This makes is easy for everyone. However, for many contractors, this would create a significant adverse impact on the bottom line. There is an option for contractor to develop discrete rates for contracts under each of the caps. For example, two G&A rates; one for pre-June 24, 2014 contract and the other for post-June 24, 2014 contracts. While this may be feasible for some contractors, it is probably very difficult to implement in most of today's accounting software or ERP systems.

The calculation of blended rates are going to be different for incurred costs and for forward pricing purposes. The incurred cost calculation is the easiest to calculate so we'll start there. There are three steps to calculating a blended rate.

  1. Identify the total costs incurred for contracts awarded before and after June 24, 2014 and calculate percentages to the total
  2. Identify the compensation cap applicable to both groups
  3. Multiply the percentages from Step 1 by the respective compensation caps and add the results.
For example, if in 2014 a contractor incurred cost under pre-June 24, 2015 contracts of $700,000 and incurred cost under contracts that were awarded after that date, the blended rate computation would look like this:

This method prescribed by DCMA (Defense Contract Management Agency) could result in some inequities so contractors need to be cognizant of their indirect rate structure. For example, if a contractor were on a value-added G&A allocation base and all of the the post-June 24, 2014 costs were subcontract costs, the above calculation would not result in an equitable blended rate because no labor costs would be charged to post-June 24, 2014 costs and the labor charged to pre-June 24, 2014 costs would be "watered-down" by costs charged to post-June 24, 2014 contracts.

Tomorrow we will look at blended rate calculations for forward pricing purposes.

Friday, April 22, 2016

Using Blended Labor Rates to Implement New Compensation Caps - Part 1

This is a follow-up to our posting of March 18, 2015, Subject: Compensation Caps Cross the $1 Million Threshold. In that posting, we promised to discuss DCMA's (Defense Contract Management Agency) newly released guidance on blending labor rates. We did not get around to doing so as soon as we had hoped. Other news seemed more urgent. Today we rectify that situation.

The Bipartisan Budget Act of 2013 implemented a compensation limitation of $487 thousand applied to all contractor employees contracts awarded after June 24, 2014. As a result, contractors may be subject to multiple compensation limits each year beginning in 2014 until such time as all contracts issued prior to June 24, 2014 have been completed.

This "blending" concept only applies to contractors paying employees in excess of $487 thousand per year. If you are not one of those contractors, you can move on. Keep in mind however, that these are only compensation caps. These are not "reasonableness" determinations. You will still need to establish reasonableness of compensation amounts. For example, $487 thousand is most likely not going to be reasonable for a entry-level engineer.

One note of caution. This policy allowing blended labor rates applies to DoD contracts only. It is not binding on other Governmental agencies. However, we suspect that other agencies will be quite willing to accept DoD's methodologies.

Back in October 2014, the Director of Defense Pricing authorized the use of blended labor rates to help contractors avoid undue complexity and related cost to implement multiple labor rates in the same accounting period. Last January, DCMA issued guidance for implementing the blended rate approach.

DCMA's basis policy reads as follows:
The cap amount for each year should be calculated as a weighted average by blending the separate cap amounts based on the contract actions entered into before June 24, 2014 and on or after June 24, 2014. The relative percentage that the new cap contributes to the blended rates will increase over time as the business mix shifts from modifications to older contracts to new contracts. DCMA's method does not require the contractor to develop multiple sets of rates and relies on the contractor's existing cost accounting practices and processes to apply the cap to all contracts subject to FAR 31.205-6(p). Contractors will be required to demonstrate the accuracy of their calculations based on their accounting records and to provide objective, auditable support for the basis selected for forward pricing rates, interim billing rates, and final incurred cost rates. The information used to calculate the blending should be consistent in quantum and detail with the information used to calculate the proposed rate.
Next week, we will provide an example of how the blending might be calculated.

Thursday, April 21, 2016

Milestone Payments and Adequate Accounting Systems

Progress payments for construction projects are typically based on a percentage of work complete. FAR (Federal Acquisition Regulations) 52.232-5 provides for progress payments monthly as the work proceeds ... on estimates of work accomplished which meets the standards of quality established under the contract, as approved by the contracting officer. The FAR clause also requires

  • an itemization of the amounts requested, related to the various elements of work required by the contract covered by the payment requested
  • a listing of the amount included for work performed by each subcontractor under the contract
  • a listing of the total amount of each subcontract
  • a listing of the amounts previously paid to each subcontractor
  • additional supporting data in a form and detail required by the contracting officer

The form and content of the progress payment requests and the substantiation accompanying it vary from Agency to Agency but common among them is a signature block where the contractor and the Government agree with the percentage complete for specific tasks. For example, mobilization might be one of the progress payment line items. When mobilization is completed, the contractor and Government will agree and the contractor can bill for 100 percent of that line item.

The question often arises concerning the importance of an adequate accounting system when progress payments based on performance (as opposed to progress payments based on costs) are part of the contract. Since progress payments are based on a percentage of work complete and have nothing to do with actual costs incurred, why the focus and importance on an accounting system that can record costs by job?

The Government has an answer for this. The Government position is that the two should correlate, i.e. percentage complete should correlate to actual costs incurred. The contractor when doing their scheduling should also be allocating the associated costs with each activity. It is the job of the contracting officer to approve the schedule and the associated costs with each activity. The contractor should then be tracking and reporting their actual cost incurred as well as progress. If cost exceed its anticipated percentage complete, that is a warning sign that the contractor could be in trouble and the contracting officer will (or should) begin asking questions.

It is not difficult to establish an accounting system that is acceptable for Government contracting purposes. If you need help, give us a call.

Wednesday, April 20, 2016

Cannot Agree to Do Something and then Fail to Perform Accordingly

In February 2014, DLA (Defense Logistics Agency) awarded a contract to Third Coast Fresh Distribution LLC (TCF) to deliver fresh fruits and vegetables in the Dallas, TX area. The contract was a small business set-aside and contained a "non-manufacturer" clause which required the contractor to take ownership or possession of the items with its personnel, equipment or facilities in a manner consistent with industry practice.

After contract award, an unsuccessful bidder protested arguing that TCF did not qualify as a small business entitled to a set-aside contract because of its affiliation with other entities. SBA denied the size protest and also found that TCF complied with the non-manufacturer rule because it would take ownership and possession of the produce from the growers at its 65,000 square foot warehouse, store it, and deliver the produce itself.

During the first month of performance, the contracting officer became aware that a different company, Brothers Produce, was making deliveries under the contract. When confronted with that observation, TCF admitted that it was using Brothers Produce as a subcontractor to make deliveries. The contracting officer then asked the SBA for another size-determination based on the new facts. This time, the SBA opined that TCF was not a small business because it violated a specific contract requirement, namely the non-manufacturer rule.

After receiving the updated SBA size-determination, the contracting officer terminated the contract for cause, stating that TCF had failed to perform in the manner it represented to both the SBA and the contracting officer. TCF appealed the termination for cause to the  ASBCA (Armed Services Board of Contract Appeals) asking for the termination to be converted to a Termination for Convenience and for additional contract costs incurred up to the date of wrongful termination.

The ASBCA denied the appeal. The ASBCA stated that the clear purpose of the non-manufacturer rule is to prevent brokerage-type arrangements whereby small 'front' organizations are set up to bid on government contract, but furnish the supplies of a large concern. It would be senseless if contractors could merely say they will comply with the non-manufacturer rule at the time of proposal, but not have to perform accordingly. The undisputed facts demonstrate that TCF did not comply with a condition and performance requirement of the contract.

You can read the entire ASBCA case here.

Tuesday, April 19, 2016

Use of Non-compliant Part Leads to $450 Thousand Settlement

A Defense subcontractor out of Colorado has agreed to pay the Government $450 thousand to settle civil charges in violation of the False Claims Act. The investigation and subsequent settlement arose when a whistleblower notified the Department of Defense through the OIG (Office of Inspector General) Hotline.

The case involved parts that did not meet Government specifications. In this case, the parts were phenolic insulating washers used to prevent electronic shorts and catastrophic failures of the Bradley Fighting Vehicle.

During testing of one of the units, the washer failed and production was halted until washers that met Government specifications could be procured. The issue that got the subcontractor in trouble was that these faulty or noncompliant washers had been used in more than 100 units manufactured and shipped during a six month period in 2013 and the subcontractor hadn't disclose the fact. Based on the whistleblower's claim, all 100 units were ultimately recalled and during retrofit, the Government found that 96 out of the hundred units had cracked washers.

In the charging papers, the Government stated: "Despite knowing that over 100 (units) manufactured and shipped between April 1 and September 19, 2013 contained washers not manufactured to the contract specification, and despite knowing that a failure of a washer could result in an electronic short and catastrophic failure of the (unit), the (subcontractor) did not notify the Prime Contractor or the United States of the defective parts."

Phenolic washers meeting MILSPEC standards cost less than $2 and less than $1 in bulk. Quite possibly, the subcontractor was trying to avoid the cost of the retrofitting process. In the end, it cost them much more.

The DOJ (Department of Justice) press release did not say whether the whistleblower shared in the amount recovered. You can read the entire press release here.

Monday, April 18, 2016

GAO to Begin Charging a Fee for Filing Bid Protests

The GAO (Government Accountability Office) published a proposed rule that, among other things, will establish a new electronic filing and document dissemination system for the filing of bid protests with that organization. That's not the news. In addition to requiring each person who files a bid protest to use the new system, the proposed rule will also require the protester to pay a filing fee of $350. Heretofore, filing has been free.

Although $350 doesn't seem like much - and it isn't compared to all of the other costs associated with filing a protest including legal fees and document production - it could be a deterrent to those who recognize their chances of prevailing are slim. It will be interesting to see whether the new $350 filing fee will act as a deterrent to such filings or otherwise reduce the number of bid protest challenges.

The cost was computed by taking the actual costs that GAO has incurred to date plus estimates of future costs for hosting and maintaining the system, divided by the estimates of future bid protests over the next six years. This way, GAO can recover its development costs and cover the annual cost of maintenance over a six year period.

Friday, April 15, 2016

Installment Payments to Repay Debts to the Government

Yesterday we discussed DFAS's (Defense Finance and Accounting Services) program to accept installment payments in lieu of an immediate payback of overpayments made under Government contracts. The Government will charge interest of course, currently its set at three percent but adjusts each quarter. We mentioned that the approval for installment payments is conditional upon a satisfactory financial capability audit. The whole purpose of an audit is to assess whether a company has the financial resources to repay a debt over time. DFAS is understandably concerned that if a contractor has disclosed that it is experiencing financial difficulty in its inability to repay in lump sum, it may also be unable to repay in installments.

There are four possible outcomes from a DFAS financial capability audit.

1. Acceptable financial condition - contractor can make lump sum payment without adversely affecting acceptable financial condition. DFAS will usually deny the contractor request and demand a lump sum payment.

2. Acceptable financial condition - contractor can make installment payments without adversely affecting acceptable financial condition. DFAS usually grants the installment payment request.

3. Unfavorable financial condition - contractor can make installment payments without further adversely affecting unfavorable financial condition as long as extraordinary actions are taken. Knowing that the contractor may have difficulty making the proposed installment payments, DFAS will have to use its judgment as to whether to grant the installment payment request. Extraordinary actions are not defined but would have to include something more than business as usual. It could mean divestiture of product line, sale and leaseback of facilities, or bringing in additional capital.

4. Adverse financial condition - substantial doubt that contractor can make installment payments. The contractor does not have the financial resources to make the proposed installment payments. In these cases, DFAS will normally request immediate full payment of the debt amount.

Obviously, if your a contractor asking for installment payments to repay a debt, you will want to be in Category 2. If you find yourself in Category 3, there will be a lot of on-going oversight by DFAS until the debt is paid. At a minimum, you will be required to submit future financial statements and cash flow forecasts for the life if the installment agreement.

Thursday, April 14, 2016

Owe Money to DFAS? Consider Installment Payments

From time to time, contractors, especially small contractors, find themselves in situations where they owe a significant amount of money back to the Government. Perhaps they were billing at provisional indirect billing rates that were higher than their final rates. Perhaps a contracting officer found unallowable costs in their billings. Or, maybe there was a billing error that resulted in an overpayment. The prospect of paying back the Government can hit a small contractor very hard because of cash flow concerns. Sometimes these contractors are under capitalized. Sometimes these firms forego salaries to their owners to help keep the company afloat or to invest in new capital equipment. If you find yourself in such a situation, don't despair. There is hope.

The DoD (Department of Defense) Financial Management Regulation, Volume 10, Chapter 18 may provide some relief. When a debtor to the U.S. Government can establish sufficient justification, a series of installment payments may be approved by DFAS (Defense Finance and Accounting Services) to liquidate the debt within a reasonable time frame.

When contractors anticipate having financial difficulty repaying the debt, the contractor may approach DFAS for a repayment installment plan. Prior to approving the installment agreement, DFAS may request the contracting officer to perform a financial capability audit taking into consideration the proposed installment payments to ensure that the contractor has the financial capability to repay the installments.

Here's the process set up by DFAS:

  1. The contractor submits a request to DFAS for an installment agreement on debt owed of $50 thousand or more.
  2. DFAS provides the contractor with a proposed monthly payment amount.
  3. DFAS informs the contractor of a pending audit and request the contractor to provide its financial statements for the past three years and a twelve month cash flow forecast reflecting the proposed monthly installment amount.
  4. DFAS submits a request for a financial capability audit to the contracting officer. The contracting officer may decide to perform the financial capability audit in-house or request a more formal audit from DCAA (Defense Contract Audit Agency).
  5. DFAS uses the information from the financial capability audit to make a determination whether the proposed installment agreement amount is acceptable.
  6. DFAS coordinates their decision on the installment agreement with the contractor.

Tomorrow we will discuss the four possible outcomes of a financial capability audit.Two are good and two, not so good.

Wednesday, April 13, 2016

What is a Cost Accounting Practice?

One frequent argument between contractors and contracting officers and/or contract auditors is whether "something" a contractor want to do accounting-wise, represents a change in a cost accounting practice. It is an important question because if the contractor is CAS (Cost Accounting Standards) covered, a change in a cost accounting practice will require contracting officer approval (pre-approval if everyone is doing their jobs correctly) and the contractor may owe the Government some money if the cost accounting change results in increased cost to the Government.

Before there can be a change to a cost accounting practice, there has to be a cost accounting practice. And here's where disputes arise. To the Government, everything having to do with accounting, estimating, accumulating, and reporting costs is an accounting practice. To the contractor, not so much. A lot of disputes can be avoided however if the parties read the regulations. Fortunately, the Cost Accounting Standards Rules and Regulations provide a definition of "cost accounting practice".

According to the Cost Accounting Standards Board (CASB), a "cost accounting practice" is any disclosed or established accounting method or technique which is used for allocation of costs to cost objectives, assignment of cost to cost accounting periods, or measurement of costs (see 48 CFR 9903.302-1). So, let's parse that definition.  Note the three-pronged test. The accounting method or technique must be

  • used for allocation of cost to cost objectives.
  • used for assignment of cost to cost accounting period
  • used for measurement of cost

Measurement of cost in this context encompasses accounting methods and techniques used in defining the components of costs, determining the basis for cost measurement, and establishing criteria for use of alternative cost measurement techniques. Examples include the use of either historical cost, market value or present value, the use of standard cost or actual cost, the designation of those items of cost which must be included or excluded from tangible capital assets or pension costs, etc.

Therefore, if a disclosed or established accounting method or technique is not used for allocation of costs, for assignment of costs or measurement of costs, it is not a cost accounting practice. If it is not a cost accounting practice, a change in the method or technique then, is not a change to a cost accounting practice.

Tuesday, April 12, 2016

Compounding Profit

The following was reported last week in the Tri-City Herald.

The Department of Energy Office of Inspector General (OIG) released a report last week noting that one of the major contractors engaged in clean-up work at Energy's Hanford site improperly awarded $63.5 million in taxpayer money as profit to a subcontractor with which it shared ownership ties.

Lockheed Martin is the principle owner of Mission Support Alliance (MSA). MSA subcontracted some of its work to Lockheed Martin Services (LMS) with a $232 million five year subcontract. The OIG calculated the profit included in the $232 million was $63.5 million and represented unallowable profit because Lockheed Martin was also earning profit at the prime contract level. Normally, profit on inter-company transactions are excluded from Government contracts.

DOE stated that it informed MSA from the beginning of the LMS subcontract that it should prevent profit payments to LMS. DOE stated that MSA ignored the directive.

MSA, of course, disagreed with the OIG report but its position is unknown as the article did not go into that level of detail. Nevertheless, the issue has been festering awhile because the contracting officer's final decision on the matter, requesting MSA to return the compounded profit, is now before the Civilian Board of Contract Appeals (CBCA).

The full report by the OIG is available here.

Monday, April 11, 2016

Navy Award Was Not Biased

It is very difficult to win a discrimination case of any kind in Federal Court. The number of discrimination cases have steadily declined to less than half the number there were in 2000. In 2006, only 15 percent of cases were settled in favor of plaintiffs. In fact, the odds of winning a discrimination case have many attorneys unwilling to even try. Many attorneys will no longer take individual discrimination cases because of the high likelihood of losing. Of course, the low probability of winning could be a reflection of out-of-court settlements. Employers who are charged with discrimination often settle out of court if there is any substance to the claim. Employers are not stupid. Or perhaps, employers settle out of court because they've calculated that settling is cheaper than the cost to litigate - even if they think the discrimination case has no merit.

The GAO (Comptroller General) recently published a bid protest case involving discrimination. The unsuccessful bidder for a Navy contract involving architectural-engineering services challenged the Navy's evaluation of its experience and technical competence and alleged that the Navy's evaluation reflected gender bias against women architects and engineers. The protestor is an economically disadvantaged women-owned small business (EDWOSB).

The GAO denied the request because the record demonstrated that the Navy reasonably evaluated the protester's experience and technical competence consistent with the solicitation's selection criteria and the record did not support the protester's allegation of gender bias.

The Navy evaluation of the protester's qualifications determined that it did not meet the experience and technical competence selection criterion. Three of the projects submitted to support experience were not relevant, involving only construction inspection services. The Navy found that the protester presented a high risk to the Government because it submitted only two relevant projects. The protester was asked to address this lack of experience during an interview. After it and other bidders were interviewed, the Navy ranked the three bidders among which the protester was last. The protester had the least amount of relevant projects among the three firms.

The Comptroller General (CG) reviewed the record and essentially determined that the Navy did everything correct. The CG reported "Quite simply, the contemporaneous record here supports the Navy's conclusion that (the protester's) limited experience and technical competence presented a high risk."

The protester alleged bias against the firm because it was woman-owned. In that regard, the protester submitted a number of reports and academic papers supporting the protester's arguments that women are discriminated in scientific fields such as architecture and engineering. The CG dispatched this argument quickly. "Government officials are presumed to act in good faith, and we will not attribute unfair or prejudicial motives to procurement officials on the basis of inference or supposition; where a protester alleges bias, it must not only provide credible evidence clearly demonstrating bias against the protester or in favor of the successful firm, but must also show that this bias translated into action that unfairly affected the protester's competitive position."

Those last words are key: "credible evidence clearly demonstrating bias".  If you cannot show or demonstrate that, you have no case.

You can read the entire GAO decision here.

Friday, April 8, 2016

SBA Cutting Corners to Sign Up New "8(a)" Business Development Firms

The Small Business Administration (SBA) 8(a) business development program provides economically and socially disadvantaged, small business owners with business development assistance and preference-based Federal contracts. The SBA has established stringent eligibility criteria for entrance into the program including (i) American citizenship, (ii) majority owned controlled and managed by socially and economically disadvantaged individuals, (iii) a potential for success, and (iv) showing good character. From January through May 2015, the SBA approved 249 firms applications for the 8(a) program.

The SBA's Office of Inspector General (OIG) recently published an audit report on its assessment of whether the 8(a) applicants met the SBA's eligibility criteria for the program. The results were not encouraging. Of the 249 firms approved for the 8(a) program, the OIG selected 48 of them to determine whether they qualified. Of the 48 selected, reviewers recommended not approving 46 of them because the firms did not meet one or more criteria for eligibility. These concerns included potential for success, economic disadvantaged, whether the disadvantaged individuals exerted control of the company among others. In two cases, the reviews questioned whether the applicants demonstrated good character. Some of the applicants approved were previously rejected by SBA.

Not to be undone, the director of the Office of Certification and Eligibility (OCE) and the Associate Administrator for Business Development (AA/BD) gathered  additional information for 18 of the 46 firms and based on this information, approved the 18 firms for entrance into the 8(a) program. However, for the remaining 28 firms (or 30 firms if you trust the OIG's math), the AA/BD approved the firms without documenting how the areas of concern raised by lower-level reviewers were resolved. As a result, the OIG concluded that it was not clear whether those 28 firms (or 30 firms) should have been approved into the 8(a) program.

The OIG noted that during the past year within SBA, the 8(a) program has experienced a change in leadership, identified an aggressive growth plan for the coming years, began testing a streamlined application process, and shifted responsibilities for continuing eligibility reviews. This new emphasis on expanding the program most likely contributed to the management override of lower-level concerns and recommendations.

The OIG recommended that the SBA improve its documentation of 8(a) eligibility. The SBA, of course, concurred, promising to do a better job of documenting applicants' qualifications.

You can read the entire OIG report here.

Thursday, April 7, 2016

Email Notification vs. Hard-Copy Notification

Here's something to tuck into the back of your mind should you ever find yourself in a situation where a few days one way or another matters when filing an appeal.

The Army Corps of Engineers awarded a contract to HK&S Construction to perform repairs to a jetty at Block Island, Rhode Island in September 2014. On June 5, 2015, the contracting officer terminated the contract for default. We don't know why the contract was terminated for default but ultimately it doesn't matter for purposes of this discussion. What does matter is the date that the contractor was notified of the termination for default (TforD).

As stated, the Government notified the contractor that it was terminating the contract on June 5, 2015. The notification was sent via email on the same date as an attachment. The email advised that a hardcopy of the attached letter had been mailed overnight via Federal Express. The mailed notice of termination was received by HK&S on June 8, 2015, three days after the emailed copy.

Once a contract has been terminated for default, the contractor has only 90 days to appeal the contracting officer's decision. HK&S filed its appeal with the ASBCA (Armed Services Board of Contract Appeals) on September 4, 2015 - 91 days after the email notification but only 88 days after receipt of the hard copy notice. The Government then moved to dismiss the contractor's ASBCA appeal because it was one day late. The ASBCA denied the Government's motion on the basis that the date the contractor received the hard copy notification applied for determining the 90 day period, not the date that the email copy was sent and received.

The Board ruled:
Sending multiple copies of a contracting officer's final decision without indicating which of them is intended to begin the running of the appeal period entitles the contractor to compute the date from receipt of the last copy. However, where an appellant has previously requested to receive correspondence by means of a particular medium, an earlier copy of the decision received through that medium may start the 90-day appeal clock.
Since the Government's email did not specify which of the two notifications was intended to begin the running of the appeal period. Consequently HK&S was entitled to compute the commencement of the appeal period from its receipt of the hard-copy notification.

Its probably not a good idea to wait until the last minute when filing an appeal. The contractor got lucky in this case.

Wednesday, April 6, 2016

SBA Has Free Training Resources for Government Contracting

If you are like us, you receive numerous offers (perhaps daily) of training, seminars, and conferences related to Government contracting. We've taken a few of these ourselves, participated in some, and a few years back offered training as part of business. Typically, these offerings are very good with excellent content and experienced and competent speakers. But they are also expensive. One could easily spend $2,000 and more to register for a two-day seminar/conference. If you have to travel to get there, that's added cost. There are alternatives to spending a lot of money. The Small Business Administration, for example, offers a number of FREE online training modules that cover many topics of interest for companies desiring to enter the Government contracting arena. Let's look at a few.

Learn How to Prepare Government Contract Proposals. This is a 30 minute course comes with a 50 page workbook and explains the Government's contract solicitation process and describes how to prepare a proposal. Topics include:

  • Building the foundation
  • Types of solicitations
  • Standard forms
  • How to actually write the proposal
  • Cost and pricing
  • Relationships and the wisdom of others
  • Resources and assistance

You can burn through this course in 30 minutes but if you take the time to follow and study many of the "links" provided in the course, it will take longer.

Government Contracting 101, Parts 1,Part 2, and Part 3. These three courses lasting 30, 18, and 33 minutes each respectively, cover topics that help small business understand Government contracting programs. All three courses come with workbooks. Part 1 provides a small business introduction to Government contracting, describing prime and subcontracting assistance programs, SBA certification programs as well as woman-owned and veteran-owned business programs. Parts 2 and 3 provides a lot of information on how the Government buys and how to sell to the Government.

There are many other free training courses available in SBA's Learning Center (59 as of today). If you're interested in Government contracting, using SBA's resources is an economical way to proceed.

Tuesday, April 5, 2016

Estimates for Complying with Government Regulations

From time to time, the FAR Councils publish notices asking for public comments regarding an extension to a previously approved information collection requirement. These notices are required under the provisions of the Paperwork Reduction Act.

These are primarily formalities and most of the time, no one from the public bothers to comment. We don't pay much attention to them either except when they pertain to matters that we write about in this blog and even then, we read them only to learn what the Government's estimate for contractor hours required to comply with the collection requirements.

As an example, today the FAR Councils published a notification pertaining to purchasing systems. FAR Part 44 discusses contractor purchasing system reviews (CPSRs), the objective of which is to evaluate the efficiency and effectiveness with which a contractor spends Government funds and complies with Government policy when subcontracting.

A CPSR provides the administrative contracting officer (ACO) a basis for granting, withholding, or withdrawing approval of a contractor's purchasing system. A review is generally required for contractors expected to receive $25 million or more in the upcoming 12 months but that threshold can be raised or lowered depending upon perceived risk to the Government.

A CPSR covers such things as market research accomplished, price competition obtained, pricing policies and techniques, methods of evaluating subcontractor responsibility, implementation of small business goals, compliance with Cost Accounting Standards, management controls systems, and more.

The FAR Councils estimate that the Government will perform 1,580 CPSR reviews per year. That estimate doesn't sound out of line. But here is what's laughable. They estimate that contractors will expend an average of 25 hours preparing for and supporting each CPSR. We have been involved in many CPSR reviews, primarily as Government auditors in support of DCMA (Defense Contract Management Agency) review teams and have never experienced one where the contractor expends only 25 hours. Contractors are more likely to spend ten times that number of hours by the time the review is completed.

Monday, April 4, 2016

Where the Defense Department Spends its Money

The USS Minnesota is a Virginia-class fast attack submarine that cost the Government $2.7 billion. The builder, Huntington Ingalls Industries announced in 2013 that it had delivered the USS Minnesota eleven months ahead of schedule. The boat didn't get too far however. Soon after sea trials began, a defective weld was discovered in a hard to access spot and for the last two plus years, the boat has been in port undergoing repairs. The same defect has been found in two other submarines in the class.

This post is not about defective submarines however. It is about comparative cost of military programs. As mentioned, the USS Minnesota cost $2.7 billion. A Nimitz-class aircraft carrier cost a bit more than that at 4.5 billion. The fly-away cost on the B-2 Spirit was $737 million (in 1997 dollars). An F-22 Raptor cost $150 million (in 2009 dollars) while the F-35 Joint Strike Fighter is costing a paltry $135 million.

But, get a load of this. The Department of Defense recently awarded an ID/IQ (indefinite-delivery, indefinite quantity) contract for linguist support services supporting military operations and exercises throughout the world. The total value of this procurement is estimated at $9.8 billion over a ten-year period. Is that possible? Ten billion for translators! For that price, DoD could buy a couple of Nimitz-class carriers, or a carrier and a Virginia-class submarine with a few F-22s or F-35s thrown in.

So, what do these linguists do? Well, they communicate with other foreign military units, the host nation government , and the local population, in order to gather information for force protection. They transcribe, translate, and interpret information gathered from a variety of sources to meed operational requirements. There is an intelligence gathering element to their jobs.

So, how many linguists will $10 billion buy over a 10 year period? We don't really know because we haven't seen any proposals or contracts but if you consider each one earns $100,000 per year with fringe benefits, that would work out to 10,000 linguists.

Honestly, we had no idea that the Government was spending that much money for interpreting and translating services.

Friday, April 1, 2016

Responsibility Determinations - Refresher

Yesterday we discussed the U.S. Court of Federal Claims decision to essentially vacate a contracting officer's responsibility determination because it was not based on factual data. The decision actually called the contracting officer's decision arbitrary and capricious (i.e. impulsive or unpredictable). Being called arbitrary and capricious is not a tag to have associated with one's name, especially a contracting officer who, above all else, strives to be fair and objective in all matters pertaining to Government contracting. Those are fighting words.

Now we've discussed several times over the years the components of a responsibility determination. Perhaps the most comprehensive coverage was a seven-part series in November 2013. But by way of review, we'll summarize them here. The requirements to be deemed "responsible" come from FAR (Federal Acquisition Regulations) 9.104-1 which reads:

To be determined responsible, a prospective contractor must:

  1. have adequate financial resources to perform the contract, or the ability to obtain them; 
  2. be able to comply with the delivery or performance schedule; 
  3. have a satisfactory performance record; 
  4. have a satisfactory record of integrity; 
  5. have the necessary organization to perform the work; 
  6. have the necessary production, and technical equipment, and facilities; and 
  7. be otherwise qualified and eligible to receive an award under applicable laws. 

If you recall yesterday's write-up on the Remington bid protest, the Court was particularly skeptical that Colt qualified under items 1 and 6; financial resources and production facilities.

Concerning the production facilities, FAR 9-104-3 defines evidence to support the existence of necessary production facilities to include commitments or explicit arrangements that will be in existence at the time of contract award, to rent, purchase, or otherwise acquire the needed facilities, equipment, other resources, or personnel. So, a prospective bidder need not actually have the facilities but must be able to show a firm commitment to acquire the needed resources. In the Remington case, the availability of the production facilities was in doubt at the time of the award due to uncertainties surrounding Colt's bankruptcy proceedings.