More Contracting Opportunities?

Last week, companion bills were introduce in the House and Senate with the name "Freedom from Government Competition Act of 2019. The purpose of the two bills is to increase opportunities for private businesses to provide goods and services to the Federal Government without the threat of "unfair competition" from a Government agency.

According to the narrative accompanying the bills, 1.2 million federal Government employees are in positions that are commercial in nature. "At a time when the annual deficit is nearly $800 billion and the national debt is over $23 trillion, the Government cannot simply afford to prolong an inefficient bureaucracy and have the Government providing goods and services better left to private businesses.

This bill would codify an official Government policy that the Government should not compete with its citizens, but instead rely on the private sector for commercially available goods and services. It also requires that every federal agency review all commercial activities to assure performance is providing the best value to the taxpayer and to implement an appropriation action or reform, regardless of whether the activity stays in-house or is transitioned to the private sector. In other words, agencies must provide justification one way or another.

Although the stated purpose of the bill is not to mandate privatization, it should encourage a system where private businesses could compete alongside the federal Government for the opportunity to perform certain functions at a lower cost to taxpayers.

Can private industry do things cheaper, better (more thorough), and quicker than Government employees? That is really an unanswerable question. As they say, you can have some combination of two, but not three. The question is what is most important to taxpayers. And that's where someone will need to weigh costs and benefits.

Financial Help for Small Businesses - Proposed Legislation

Last week, two bills were introduced in the Senate that are designed to ease financial burdens experienced by small businesses who contract with the Government. According to Senator McSally (AZ) who introduced these two bills, small businesses comprise more than 99 percent of all businesses and the U.S. economy depends upon their success. However, small business owners have been complaining about the length of time it takes to receive payment; "... they were being forced to shoulder the cost of federal work for up to a month...".

The Accelerated Payments for Small Business Act would require federal agencies contracting with small businesses to pay those businesses within 15 days, instead of the current 30-day standard. There are regulations in place already to expedite payments to small businesses and from our perspective, they are working fairly well but sometimes inconsistently. This Bill would add statutory authority to the practice and presumably, interest on late payments would begin accruing after 15 days which is not the case now.

The Small Business Payment for Performance Act would require federal agencies to make a partial payment of at least 50 percent to contractors when the project requires adjustments that differ from the original scope of work. This applies to construction contracts where, because of changes in the terms or scope of contract performance, contractors are required to submit REAs (Requests for Equitable Adjustment). This Bill, if enacted, would require the Government to prepay 50 percent of the amount of the equitable adjustment while the REA is being negotiated. Not sure that this Bill will progress too far as it represents significant exposure for the Government. Many (perhaps most) REAs are settled as less than contractors' requests. A lot of them are denied completely.

Legislation Proposed to Repeal the Davis-Bacon Act (DBA)

Senator Mike Lee (Utah) has introduced (or should we say 're-introduced') legislation last week to repeal the Davis-Bacon Act. Six other Senator's signed on as co-sponsors of the proposed repeal.

The Davis-Bacon Act is a wage subsidy law requiring all federally-funded projects (greater than $2,000) to pay workers the "prevailing wage" rate on non-federal projects in the same locality. The problem with the prevailing wage law is, as everyone knows and understands or at least suspects, that the prevailing wage schedules coming out of the Labor Department, are significantly higher than the real prevailing wages. To illustrate with an anecdote, a plumber working for $33 per hour on new residential construction, was temporarily deployed by his employer to a project at a local military installation where he earned more than $40 per hour. After the military job was completed, he returned to his previous job site and began working again at $33 per hour.

According to Senator Lee's press release announcing the legislation,

The Davis Bacon Act exemplifies how big government hurts the people it purports to help, gives unfair advantages to favored special interests (e.g. unions), and squeezes the middle class. The Davis-Bacon Repeal Act would remove these government-imposed obstacles to economic opportunity facing low-skilled workers, and return wasted taxpayer dollars back into the hands of the American people.

There is no doubt that Federally funded construction projects would cost less without the prevailing wage law. However, we don't expect the proposal to get very far in Congress. Also, the Labor Department's Wage and Hour Division (WHD) would lose half its case load.

Read more about the proposal here.

DoD Ethics and Anti-corruption Act of 2019 - Part 2

Yesterday we briefed some of the contents of the proposed DoD Ethics and Anti-corruption Act of 2019. The legislation, if enacted, would create a four-year waiting period between the time an mid-level Government employees and higher could go to work in any capacity for a 'giant' contractor (a giant contractor being one with $1 billion in sales to DoD and DOE. If you missed that article, please refer to Part 1 of this series. There are several other aspects to this proposed legislation that might be of interest to Government contractors that we should briefly mention.

Section 102 of the proposed legislation lays out new annual reporting requirements for contracts greater than $10 million. Contractors will need to file reports that names of certain persons to which they paid some form of compensation within four year of those persons leaving the Government. Those persons include members of the Senior Executive Service, officers retiring at O-6 (Colonel) or higher, and any program manager, deputy program manager, procuring contracting officer, administrative contracting officer, source selection authority, member of the source selection evaluation board, or chief of a financial or technical evaluation team.

The report must list the department where the people served in DoD and their position and the extent they were involved in any acquisition greater than $10 million. But the requirements become much more onerous if the contractor is paying the individual(s) as non-employees. The report must then list each specific issue for which the contractor, any employee of the contractor, or any lobbyist paid by the contractor engaged in lobbying activities directed at DoD and for each lobbying activity, a listing of documents prepared, meeting attended, phone calls made and all electronic communication. That will become an administrative nightmare.

Finally the kicker, the proposed legislation will require DoD to make these reports publicly available on an internet website. Some call this transparency. Others call it intrusion. One thing for certain, it will drive down the market prices for retired Generals.

The full text of the proposed legislation can be accessed here.

DoD Ethics and Anti-corruption Act of 2019 - A Bill

Last month, Rep. Speier from California introduced H.R. 4277, the Department of Defense Ethics and Anti-corruption Act of 2019. This Bill contains a number of provisions that will be of interest to Defense contractors.

Section 105 of the Bill would institute a four-year ban on hiring former senior officials by "Giant" defense contractors. Giant defense contractors are contractors that received an average of more than $1 billion in aggregate annual revenue from (i) the DoD or (ii) the Department of Energy for contracted work related to the U.S. nuclear program, in the previous three fiscal years.

Officials in the context of this prohibition include supervisor positions GS-15 and above, SES position, Executive Schedule positions and any military officer Grade O-6 (Colonel) and above.

This prohibition is to be implemented by contract clause and would prohibit giant contractors from hiring or paying (including as a consultant or lawyer) these (former) officials for a minimum of four years after they leave service with the DoD. The manner in which this Bill is worded prohibits payments regardless of whether the compensation is claimed on Government contracts or excluded from contracts.

There are several other provisions of this proposed legislation that will potentially affect Government contractors. We will look at those tomorrow.

The full text of the Bill can be accessed here.

Proposed Legislation to Encourage Veteran Entrepreneurship

Two Senators have introduced legislation to make it easier for veterans to start businesses. Entitled the 'Veterans Small Business Ownership Improvement Act', the legislation, if passed, is designed to protect and enhance entrepreneurship training and programs for service members and veterans.

Veteran entrepreneurs employ more than 5.7 million workers across America. Well, maybe a little less than that if you back out the companies posing as veteran-owned. Nevertheless, its a significant number. The problem, as the senators see it is that as members of the armed forces transition from the military, they find it difficult to navigate civilian career options and resources available to sustain a business. Probably everyone experiences such difficulty, veteran or not. 

According to the Senators, more than 200 thousand veterans transition to civilian life every year and they're much more likely to be self-employed than those who have never served. Really? Never heard this statistic before. The legislation is designed to make sure veterans who wish to start a business are introduced to the skills, knowledge, and resources they need to live their dream and establish a successful business.

Roughly a third of new businesses exit within their first two years and half exit within their first five years. The survival rate of new businesses has been remarkably consistent over time. The Senators want to improve that survival rate for veterans who desire to be entrepreneurs.

The Veteran Small Business Ownership Improvement Act is designed to:

• Protect, improve, and strengthen SBA's (Small Business Administration) efforts to support transitioning service members, veteran entrepreneurs, and families.
• Empower the next generation of veteran entrepreneurs with training and instruction through the Boots to Business and Veterans' Business Outreach Center programs.
• Ensure veterans have a one-stop online resource for all the information on SBA entrepreneurship programs which support veterans
• Direct the SBA to foster veteran entrepreneur peer-to-peer mentorships.

Like most legislation, the details on how the SBA is to accomplish these objectives are somewhat vague and it will be up to the SBA to implement them through the regulatory processes. This idea of peer-to-peer mentorship seems like an oxymoron. If two entrepreneurs are peers, how can one of them be a mentor?

Small Business Acquisition Transparency Act of 2019 - A Bill

We've had this experience and so have most readers of this blog. You spend a lot of time and resources preparing a proposal to submit to the Government and later find that your were among the unsuccessful bidders. That's not so unusual because many more unsuccessful bidders than there are successful bidders for any given contract. The frustrating part however is the inability to obtain feedback on how the Government viewed your proposal, how it stacked up against the competition, and what deficiencies were noted. These are important questions for which answers and feedback would assist in improving future proposal submissions.

FAR (Federal Acquisition Regulations) do contain provisions for post-award debriefing of offerors. The conditions are somewhat restrictive (e.g. requests for debriefings must be made with three days of being notified that the bid was unsuccessful) and its is up to the contracting officer as to method of debriefing - orally, in writing, or any other method acceptable to the contracting officer (see FAR 15.503 and 15.506). Sometimes these debriefings are conducted en masse so the Government needs to protect against release of trade secrets, privileged or confidential manufacturing processes and techniques, commercial, financial, and past performance information.

A bill introduced in the House earlier this month is intended to ensure that unsuccessful offerors, especially small businesses, get the feedback they need to improve their processes for preparing proposals. The proposed legislation differs from current regulations in that it requires contracting officers to put the information in writing. The legislation reads:

Not later than 180 days after enactment, FAR (Federal Acquisition Regulation) shall be revised to require that with respect to an offer for a task order or delivery order in an amount greater than the simplified acquisition threshold (currently set at $150,000) and less than or equal to $5.5 million issued under an ID/IQ (Indefinite Delivery/Indefinite Quantity) contract, the contracting officer for such contract, upon written request from an unsuccessful offeror, provide a brief explanation as to why such offeror was unsuccessful that includes a summary of the rational for the award and an evaluation of the significant weak or deficient factors in the offeror's offer.

No idea as to whether this bill will get very far in the legislative process. But it is a good idea. It would be even better if the requirement applied to prime contractors in relation to their unsuccessful subcontract offerors.

Proposed Legislation to Strengthen DoD Ethics Policies

The following was extracted from a press release announcing a new bill that was introduced in the Senate - The Department of Defense Ethics and Anti-Corruption Act.

In announcing her proposed legislation, Senator Warren wrote:

Defense contractors often recruit former DoD officials through the revolving door to become lobbyists, then use those former officials' relationships and access to peddle influence at the Pentagon and to secure lucrative defense contracts. According to the Project on Government Oversight's Center for Defense Information, in 2018, nearly 400 high-ranking DoD officials and military officers took a spin through the revolving door to become lobbyists, board members, executives, or consultants for defense contractors. Of these former DoD officials, including top brass in the U.S. military, one in four went to work for one of the DoD's top five contractors.

The proposed DoD Ethics and Anti-Corruption Act would:

• Limit the revolving door and restrict contractor influence by imposing a four-year ban on "giant" contractors hiring senior DoD officials and on contractors hiring former DoD employees who managed their contract.
• Extend to four years the existing prohibition on former military generals lobbying the DoD
• Require defense contractors to submit detailed annual reports to DoD regarding former senior DoD officials who are subsequently employed by contracts
• Raise the recusal standard for DoD employees by prohibiting them from participating in any matter that affects the financial interests of their former employer for four years
• Ban senior DoD officials from owning any stock in a major defense contractor and bans all DoD employees from owning any stock in contractors if the employee can use their official position to influence the stock's value.

Additionally, the 'Act' would require large defense contractors to submit a report of their lobbying activities including who they meet with and what they're lobbying about, and to make that information public.

A companion bill will also be introduced in the House.

The Buy American Act of 2019

Companion Bills were introduced in the House and Senate this month to strengthen "Buy American" requirements. It is uncertain whether these bills which are likely to pass will result in increased buying of U.S. goods or whether its just more oversight on what is already happening.

The Act begins with a "Sense of Congress" as follows:

Every executive agency should maximize through terms and conditions of Federal financial assistance awards and Federal procurements, the use of goods, products, and materials produced in the United States and contracts for outsourced government service contracts to be performed by United States nationals. Every executive agency should scrupulously monitor, enforce, and comply with the Buy American Laws, to the extent they apply, and minimize the use of waivers. Every executive agency should implement processes to routinely audit its compliance with Buy American laws using data from the Federal Procurement Data System.

So what does this proposed legislation really accomplish? Lots of reporting, for one.

• Annual reports from OMB (Office of Management and Budget) on compliance with Buy American laws including monitoring and enforcement
• Listings of each waiver used and an assessment of the waivers' impact on domestic jobs and manufacturing
• Annual reports from each executive agency on compliance with the Buy American Act.
• Assessment of the impact that free trade agreements have on the Buy American Act.
• A new website to include information on all waivers and exceptions to Buy American laws.
• And a few more.

It seems to us that what this legislation intends to accomplish is to discourage or make it more difficult for procurement to waive the requirements of the various Buy American laws. There is no indication that such has been a significant problem historically so perhaps its just Congress trying to appease a constituency. The real problem it seems is that contractors who supply the Government are able to conceal the origin of their products - like the company that supplied baseball caps to the Marine Corps from China that should have been produced and acquired by domestic manufacturers. No waivers were granted in that case - the contractor simply sewed in "Made in USA" labels.

Perhaps Its Time to Examine Your Contract Portfolio Mix

The California Assembly has introduced legislation that would restrict the State and localities from entering into contracts with companies that work with Federal immigration agencies. The Bill, known as AB 1332, would specifically prohibit a state or local agency from entering into a new, amended, or extended contract or agreement with any person or entity that provides a federal immigration agency with any data broker, extreme vetting, or detention facilities services.

There's a few new definitions here that need to be examined; data broker, detention facility, extreme vetting, and Federal immigration agency.

A data broker means the collection of information, including personal information about consumers, from a wide variety of sources for the purposes of reselling that information to their customers, which include both private sector businesses and government agencies. This definition also includes the aggregation of data that was collected for another purpose different from that for which it is ultimately used. This seems like a very broad definition that would include Google and a host of other web-based data mining companies.

Detention facilities means any private party that provides transportation, identification, processing, security, maintenance, or other operational support to a private or public facility intended or actually used for immigration detention purposes..

Extreme vetting means data mining, threat modeling, predictive risk analysis, or other similar service.

Federal immigration agency means any department, subdivision, agency, or agent of the United States government that provides immigration-related services, including, but not limited to, Immigration and Customs Enforcement (ICE), Customs and Border Protection (CBP), Health and Human Services Office of Refugee Resettlement, and the Department of Homeland Security (DHS).

For purposes of determining which person or entity provides a federal immigration agency with data broker, extreme vetting, or detention facilities services, the state or local agency shall consider all of the following:

• information published by reliable sources
• information released by public agencies
• a declaration under the penalty of perjury executed by the person or entity, affirming that they do not provide data broker, extreme vetting, or detention facilities services to a federal immigration agency
• \information submitted to the state or local agency by any member of the public, and thereafter duly verified.

Wonder how far this law will get? Wonder what the consequences will be if it is passed into law?

The full text of the proposed legislation can be found here.

Procurement Related Legislation Introduced in the New Congress

The new Congress has been in session only a few days and already have introduced a number of procurement related bills. At this point, they've only been introduced and no action has been taken except for referral to a committee (or two). It's a fact that most introduced bills never make it to passage. And perhaps none of these will either. Or, they may be folded into another bill like the NDAA (National Defense Authorization Act), as sometimes happens.

Anyway, here's a few of the bills just introduced.

• H.R. 246 - Requires senior procurement executives, procurement center representatives, and the Office of Small and Disadvantaged Business Utilization to assis small business concerns participating in the Small Business Innovation Research Program and the Small Business Technology Transfer Program. We're not so sure that this will accomplish anything. We have yet to encounter anyone in the Government that can answer specific questions that small businesses have when entering the Government contracting arena. Questions like: What accounting software should I use? How should I set up my chart of accounts? What timekeeping software should I use? How do I establish an indirect rate structure?
• H.R. 190 - Eliminates the inclusion of option years in the award price for sole source contracts. We're sure that contracting officers relish the idea of coming back to the negotiating table every year instead of every five years. We're sure that contractors will want to do the same. Any idea of what this will cost contractors or the Government?
• H.R. 206 - Encouraging small business innovation act. This bill would include testing and evaluation in the definition of research and development, include small business investment companies in SBIR and STTR program limited to 33 percent of ownership, allow points in past-performance ratings for businesses that serve as mentors under the mentor-protege program, and a few other provisions.
• H.R. 227 - specifies what credit is given for certain subcontractors and to provide a dispute process for non-payment to subcontractors. There must be subcontractors out there that are not being paid by their primes or are not being paid in a timely manner.

We'll keep you informed and provide more details if any of these progress beyond the committee stage.

Proposed Legislation - Fitness Information Transparency Act

Last February at a hearing in front of the Oversight and Management Subcommittee of the House Homeland Security Committee, representatives of contractors for the Department of Homeland Security (DHS) complained about losing money while waiting for clearances form DHS. The contractors cited a number of problems including

• differing security standards across components
• opaque internal processes, and
• slow communications from DHS to contractors

One contractor testified that his employees wait, on average, 213 days for a DHS fitness determination even though the company has worked with DHS for more than ten years. Another contractor complained that DHS had approved an employee in June but didn't bother conveying that information to the contractor until the following February, eight months later. Other contractors complained that different components within DHS had their own unique standards for clearing contractor employees. Many other anecdotal fumblings by DHS came out in that hearing.

 

Last week, as a direct result of that hearing, two Congressmen introduced a bill in the House that would require the Department of Homeland Security (DHS) to streamline "fitness determinations" for people working under contract for the Department. This is not a bill that addresses fitness as in physical fitness but one that addresses character and conduct.

This Bill, if passed, would require DHS to:

1. coordinate with the heads of components of the Department to review and consolidate all Federal contractor fitness standards used by the Department and its components in order to issue a uniform set of fitness standards that reflect public trust concerns which correspond to each position risk level
2. require the Department to use such uniform fitness standards that corresond to the relevant position risk level as the basis for fitness determinations for a contractor employee; and
3. publish the standards that correspond to each such position risk level on the public website and the Federal Register.

You can read the full text of the proposed legislation here.

Need a Contracting Preference? Open a Day-Care

Nine House Representatives have gotten together to introduce legislation that will require Executive Agencies to give priority to entities with on-site child care for employees when awarding certain contracts. We suppose that if companies are not eligible for any other type of contracting preference - the company is not in a HUBzone, is not veteran owned, is not woman-owned, is not minority-owned - it can open an on-premises day-care center for its employees and get a few bonus points when seeking Government contracts.

Specifically, the proposed legislation provides the following:

In awarding a contract for an amount exceeding $4 million, an executive agency shall give priority to any entity with on-site child care for the employees of the entity.

The proposed legislation also provides that this preference does not take priority to the preference given to small business concerns.

This legislation, if passed, will apply to all executive agencies meaning "an executive department or independent establishment in the executive branch of the Government (or a wholly-owned Government corporation).

The full text of the proposed legislation can be found here.

Bridge Contract Transparency and Accountability Act

Senator McCaskill (Missouri) recently introduced the Bridge Contract Transparency and Accountability Act of 2018. If passed and signed into law, the Bill will require Agencies to limit the use of Bridge contracts and the FAR Councils to report on how prevalent such contracts are used.

Bridge contracts are non-competitive contract extensions with existing contractors to bridge the time between the original end of that contractor's contract and the competitive award of a follow-on contract. Senator McCaskill and others in Congress believe they are used far too often and that's a problem because they are usually cost-reimbursable and the bridge contractors have little incentive to stay efficient and minimize the duration of the bridge performance period.

This new bill will require agencies to develop policies and procedures that seek to minimize the use of bridge contracts while providing for continuation of services and ensure appropriate planning by contracting officials. Such planning must include:

1. Sufficient time and planning to review contract requirements, compete contracts as appropriate, enter into contracts, and consider the possibility of bid protests.
2. For contracts that do not meet timeliness standards or which require entering into bridge contracts, the contracting officer must notify his/her boss's boss's boss.
3. That top boss must approve any bridge contract that exceeds a year.

The bill also seeks to gather information on the use of bridge contracts. Within six months of passage, the bill requires OFPP (Office of Federal Procurement Policy) to report on government-wide policies, practices and uses of bridge contracts. Then every year, OFPP must submit reports showing, among other things,

1. The number of bridge contracts entered into during the previous five fiscal years
2. The estimated value of each contract that required the use of a bridge contract and the cost of the bridge contract or contracts
3. The reasons for and cost of each bridge contract
4. The types of services or goods being acquired under each bridge contract
5. The length of the initial contract that required the use of a bridge contract, including the base and any exercised option years, and the cumulative length of any bridge contract related to the initial contract.
6. A description of how many of the contracts that required bridge contracts were subsequently re-competed and how many of those re-competed contracts were the subject of a bid protest.

Of course, the elephant in the room is bid protests. If it weren't for bid protests, the number and duration of bridge contracts would significantly decrease.

Lowest-Price Technically Acceptable (LPTA) Does Not Always Equate to "Best Value"

Rep. Mark Meadows (NC) introduced a bill last month that would extend certain prohibitions that now apply to DoD contracts, to all executive agencies. In short, the bill establishes a new policy to avoid using lowest price technically acceptable (LPTA) source selection criteria in circumstances that would deny the Government the benefits of cost and technical trade-offs in the source selection process.

The theory goes something like this. LPTA contracts have not always delivered the outcomes that were initially expected. Cheapest does not always equate to the best value in procuring professional services.

Under this bill, federal agencies will have flexibility to seek and obtain innovative solutions, better outcomes and ultimately the best value on behalf of taxpayers.

When it comes to applying LPTA in contract bids, federal agencies must:

1. Comprehensively and clearly describe the minimum requirements in terms of performance objectives, measures and standards that will be used to determine the acceptability of offers.
2. Establish that there is no value in a contract bid that might exceed the technical and performance requirements.
3. Require that technical approaches require no subjective judgment by the source selection authority for one proposal over another
4. That the source selection authority reviewing technical proposals have high confidence that bids other than the lowest would not result in identifying factors that could provide value or benefit to the executive agency
5. That the contract officer provide justification for the use of LPTA evaluation methodology in the contract file.
6. The agency determines that the LPTA reflects full life-cycle costs, including operations and support.

This bill also limits LPTA use on the following:

• information technology services,
• cybersecurity services
• systems engineering and technical assistance services,
• advanced electronic testing
• audit or audit readiness services
• other knowledge-based training or logistics services for overseas contingency operations.

Sounds to us like this bill will result in a lot more work for contracting officers - primarily with a need to prepare more justification and documentation.

Proposed Legislation Designed to Keep Jobs in America

The U.S. Senate wants to add another matter to the long list of factors that the Defense procurement must consider when awarding contracts. Entitled the "American Jobs Matter Act of 2017", this bill would require that contracting officers include the effects on employment within the United States as an evaluation factor that must be considered in the evaluation of proposals. This law would cover competitive procurements greater than $1 million.

Companies submitting proposals will need to included as part of the submission a jobs impact statement. This jobs impact statement must include:

1. The number of jobs expected to be created or retained in the United States if the contract is awarded to the offeror
2. The number of jobs created or retained in the United States by the subcontractors expected to be used by the offeror in the performance of the contract.
3. A guarantee from the offeror that jobs created or retained in the United States will not be moved outside the United States after award of the contract unless doing so is required to provide the goods or services stipulated in the contract or is in the best interest of the Federal Government.

But that's not all. Every year for the duration of the contract, the contracting officer must assess the accuracy of the jobs impact statement. Where will the contracting officer get the data necessary to assess the accuracy of the jobs impact statement? From the contractor, where else?

But even that's not all. The contracting officer must track comparative information showing the projected number of jobs created/saved with the actual number of jobs created/saved. If the number of jobs actually created/saved is significantly less than the estimate, the contracting officer may consider this as a factor that affects a contractor's past performance in the award of future contracts.

Contractors, of course, will be provided an opportunity to explain away those discrepancies before it impacts their past performance rating but contracting officer will have the final word on whether such explanations are sufficient.

According to the Sponsor of the bill, Senator Murphy, the Department of Defense over $200 billion on goods manufactured by foreign firms and during that time, lost over 1.7 million manufacturing jobs. "The Department of Defense should make every effort to buy American, promoting economic growth and military security."

Defense Acquisition Streamlining and Transparency Act - Part 3

Last Friday and Monday, we discussed certain aspects of the proposed Defense Acquisition Streamlining and Transparency Act that seek to speed up the acquisition process by streamlining auditing processes that are "time consuming and low value" so that Government contract audit organizations such as DCAA (Defense Contract Audit Agency) will begin competing head to head with commercial organizations to perform incurred cost audits. If you missed those postings, you can go back and read Part 1 and Part 2.

Today we want to focus on another key provision of the proposed legislation - streamlining the way the Government buys goods. The Government is statutorily required to conduct market research, competition, and price comparisons prior to purchasing products. The resultant processes however are onerous and time consuming. Even for simple products, market research often entails issuing requests for information, while contracting and price comparisons can involve detailed requirements development and evaluation of in-depth proposals.

The proposed legislation would require the Department of Defense to buy commercial-off-the-shelf-items through the same marketplaces that businesses use to acquire goods; places such as Amazon.com or office depot or uLine. Marketplaces would be limited to those that are commonly used in the private sector; provide a dynamic selection of products and prices from numerous suppliers; and provide procurement oversight controls such as two-person approval for purchases.

The House Armed Services Committee (HASC) and its chairman, Mac Thornberry believe that this commercial proposal would allow off-the-shelf items to "radically" reduce costs and lower time to acquire commercial products.

There are a number of cautions introduced by the new legislation. For example, the marketplace cannot feature or prioritize a product of a supplier based on any compensation or fee paid to the online marketplace by the supplier that is exclusively for such featuring or prioritization on the on-line marketplace. Also, suppliers will need to be screened to ensure that they have not been suspended or debarred.

You can read the entire bill here. As we stated earlier, the intent of the HASC is to roll these provisions into the fiscal year 2018 NDAA (National Defense Authorization Act) so its got a long way to go before it becomes law, if it even survives. So far however, we have not heard any significant objections to this bill.

Defense Acquisition Streamlining and Transparency Act - Part 2

Last Friday, we brought you a provision of the Defense Acquisition Streamlining and Transparency Act that will require the Department of Defense to outsource at least 25 percent of the incurred costs audits to QPA (Qualified Private Auditors). This is going to put DCAA in a head-to-head competition with commercial auditors and it will be interesting to see how it all shakes out.

There are a couple of other provisions in the proposed legislation that impacts DCAA that we want to summarize.

Transparency in Audit Savings. The methodologies used by DCAA to calculate cost savings resulting from their audits and ROI (Return on Investment) are often suspect; primarily because they are self-serving, DCAA does not share the information, and there is no transparency or accountability. Last year the Agency claimed to have saved $3.6 billion for the taxpayers or $5.70 for every dollar the Agency spent. Yet those savings are based on a fair amount of judgment on the Agency's part but often accepted as fact.

The proposed Defense Acquisition Streamlining and Transparency Act would attempt to provide more transparency behind DCAA's numbers. The proposed legislation would revise reporting requirements of the Defense Contract Audit Agency (DCAA) to provide more clarity on the cost effectiveness of different types of audits. It would require DCAA to report separately for incurred cost, forward pricing, and other audits with regard to the number and dollar value of audits completed and pending, sustained questioned costs, and the costs of performing audits.

It strikes us as odd that an audit organization needs to justify its existence based on cost savings achieved or how many dollars were returned to the Treasury for each dollar expended. We know of no commercial audit firm that emulates such a practice. Can you imagine KPMG or any other national CPA firm advertising "Hire Us Because We Give the Highest ROI".

Peer Reviews by Commercial Auditor. One provisions of this proposed acquisition and streamlining act is a requirement that DCAA be peer reviewed by a commercial audit firm. Specifically, the Act provides that DCAA may issue unqualified audit findings for an incurred cost audit only if it is peer reviewed by a commercial auditor and passes such peer review. This might actually be good news for DCAA whose peer reviews are now conducted by the DoD Office of Inspector General (OIG) a program, we suspect, that is beset by political considerations rather than by objective criteria and objective reviewers. There is absolutely no question that DCAA audits are extremely detailed but does the Government require that level of detail? If you were going from home to work for the very first time, you might want to enter the destination into your GPS. But would you need to do so on the second day, the 10th day, the 30th day? At some point, someone's going to think you're dumber than a brick if you need to consult your GPS every time you go to work. Yet auditors are expected to drag out the same old audit program when they've done it a hundred times before. And, if they don't, the Agency gets written up for failing to comply with Generally Accepted Government Auditing Standards (GAGAS).

Defense Acquisition Streamlining and Transparency Act - Commercializing Contract Audits

On May 18th, 2017, Chairman Thornberry of the House Armed Services Committee (HASC) introduced The Defense Acquisition Streamlining and Transparency Act, a bill to (i) empower the Defense Department to use "e-commerce" to purchase commercial off-the-shelf items, (ii) reform the defense contract audit process and (iii) a number of other provisions. For purposes of this article, we want to focus on how the bill intends to reform the contract audit process. According to Thornberry,

Right now, the Defense Contract Audit Agency's audits of incurred costs are slow, time-consuming, and often generate little value to the taxpayer. In 2016, it took an average of 855 days to close out an incurred cost audit and these audits account for only a small amount of DCAA's reported savings to the government. In this proposal, materiality standards for incurred cost audits would be raised to avoid spending time and resources on low-value auditing. Acquisition officials would be able to choose either the Defense Contract Audit Agency or a qualified private auditor to conduct incurred cost audits, which would be required to be completed within one year.

You can read the entire 80 page bill, which will eventually be folded into the 2018 NDAA (National Defense Authorization Act) by clicking here.

The crux of the proposed legislation is that by the year 2020, twenty-five percent of all incurred cost audits now performed by DCAA (Defense Contract Audit Agency) must be performed by commercial auditors. To accomplish this, DCMA (Defense Contract Management Agency) will enter into an ID/IQ (Indefinite Delivery/Indefinite Quantity) contract with two or more private CPA firms (called "Qualified Private Auditors" or QPA in the legislation). Then, DCMA can choose either DCAA or a QPA to audit incurred costs of a particular contractor. The legislation would also prohibit DCAA from further auditing or reviewing audits performed by QPAs.

One oft-heard criticisms of DCAA is that auditors frequently get bogged down by minutiae - spending a lot of hours on costs that are immaterial and have no significant impact on Government spending. The proposed legislation specifies a materiality standard for incurred cost audits based on private sector norms for both DCAA and QPAs. It is not clear to us how the minimum materiality standards specified in the proposed legislation is supposed to work; whether they represent reporting standards or risk assessment thresholds. We'll have to wait for additional clarification on this.

Finally, the proposed legislation requires that incurred cost audits be completed within one year of receipt of an adequate incurred cost submission. If not, the submission will be accepted in their entirety without any form of audit. That's not much different than what DCAA does right now - administratively closing out low-risk contractors without audit.

Lest you think that commercializing the contract audit process represents undue risk to the taxpayer, consider that other non-Defense agencies - notably the Department of Energy - have been successfully using private CPA firms to perform contract audits for several years and have had no problems relying on the results of their audits. The HASC (House Armed Services Committee) noted that commercial auditors used by other Federal agencies cost less and are completed sooner. Well, there is no doubt that commercial auditors complete their incurred cost audits sooner but its not a given that it cost less.

Fair Chance Act - Proposed Legislation in the Senate and House

An estimated 70 million people in the United States - nearly one in three adults - have a prior arrest or conviction record. Congress believes that a conviction in one's past shouldn't be a life sentence to joblessness and is following many states lead by introducing legislation to give everyone an opportunity to work for a better life.

Two bills have been introduced that, if passed, will prohibit Federal agencies and Federal contractors from requesting that applicant for employment disclose criminal history record information before the applicant has received a conditional employment offer. These bills are Senate Bill S.842 and House Bill H.R. 1905.

A "conditional offer" means an offer or employment in a position that is conditioned upon the results of a criminal history inquiry.

Application to Government Contractors

Under these bills, executive agencies;

1. May not require that an individual or sole proprietor who submits a bid for a contract to disclose criminal history record information regarding that individual or sole proprietor before determining the apparent awardee and
2. Shall require as a condition of receiving a Federal contract and receiving payments under such contract that the contractor may not verbally, or through written form, request the disclosure of criminal history record information regarding an applicant for a position related to work under such a contract before the contractor extends a conditional offer to the applicant.

There are exceptions where consideration of criminal history record information prior to a conditional offer with respect to the position is required by law. There are also exceptions with respect to contracts that required access to classified information or involve law enforcement or national security duties.

Should contractors violate these prohibitions, the bills contain penalties of increasing severity ranging from written warnings to suspending payments, to contract termination.

Under this law, Government contractors would make employment decisions without regard to an applicants criminal background. After a conditional offer, the contractor would request criminal background information and judge, based on the severity of that criminal background, whether to withdraw the conditional offer.

Something more for HR departments to worry about.