Cuts Coming in Management Support Service Contracts

Last summer, the OMB (Office of Management and Budget) announced a goal of reducing spending on management support service contracts across all agencies by 15 percent. Until recently however, we didn't know what this meant in terms of absolute dollars. Earlier this month, OMB provided that information.

According to OMB, the Federal Government spends about $44 billion a year on management support services such as engineering and technical services, acquisition planning, information technology services, and program management. Ten years ago, that figure was only $11 billion. Many of these contracts are awarded on a "time-and-material" basis which OMB believes put agencies at greater cost risk than when fixed price contracting is used. Also, OMB believes that magnitude of these contracted services creates a potential risk of overreliance on contractors for critical activities related to agencies' missions and operations. By September 30, 2012, OMB wants to reduce spending in this area by $6.7 billion.

To achieve this goal, OMB is requiring agencies justify in writing that their support service contracts are essential and the justification must be accompanied by "high level" approval. Agencies will also need to justify the contracting type used, if not firm-fixed price.

These reductions, if they actually happen, will have a significant and direct impact on many Government contractors, including small businesses who have benefited from support service contracting over the years.

Federal Government Wants to Improve Suspension and Debarment Procedures

The Federal Government pays over a trillion dollars a year to contractors and grantees, and has an ongoing fiduciary responsibility to protect American taxpayer resources and the integrity of the processes for Federal acquisition and for discretionary assistance, loan, and benefit programs.

The suspension and debarment remedy is one of the tools available for protecting taxpayer resources and the integrity of these processes from those contractors and recipients who are "non-responsible" (i.e. who lack business integrity because they have engaged in dishonest or illegal conduct or are otherwise unable to satisfactorily perform their responsibilities. The basic policies and procedures governing suspension and debarment in FAR 9.4 and are well-established and generally sound.

Suspension and debarment are similar but the time periods during which contractors are not eligible to contract with the Government differ. Suspension typically lasts twelve to 18 months. Debarment lasts up to three years. For more information on suspension and debarment, read our 4-part series from last July (Part I, Part II, Part III, and Part IV).

Some Federal agencies have long-standing and robust suspension and debarment programs. However, according to the Office of Management and Budget (OMB), many have failed to adequately use the suspension and debarment tools at their disposal or have failed even to maintain the most basic program capabilities required to suspend or debar non-responsible parties. A recent report by GAO found that fifty percent of agencies reviewed lacked the characteristics common among active and effective suspension and debarment programs; dedicated staff resources, well developed internal guidance, and processes for referring cases to officials for action. The OMB believes these deficiencies have put taxpayer resources at unnecessary risk of waste, fraud, and abuse.

To remedy this situation, OMB, this month, directed every Federal agency to take a series of actions including the appointment of a senior official to oversee the program, beef up internal policies and procedures, make sure contracting officers are reviewing relevant suspension and debarment databases before making awards, and fixing the things that don't work.

Late Proposal Submissions

When submitting proposals to the Government, it is absolutely imperative that offerors follow the solicitation instructions. Submissions arriving after the cut-off date, are rejected from consideration (see FAR 15.208). Additionally, it has been firmly and consistently established through numerous bid protests that it is the offeror's responsibility to deliver its proposal at the proper place and the proper time.

If a Government agency/organization/employee somehow contributes to the delay, there may be a basis for accepting a late bid. However, even in cases where the late receipt may have been caused, in part, by erroneous government action, a late proposal should not be considered if the offeror significantly contributed to the late receipt by not acting reasonably in fulfilling its responsibility (O.S. Sys., Inc., B=292827, Nov. 17, 2003).

In a recent bid protest decision involving an offeror whose proposal was rejected because it was late, the Comptroller General sided with the Air Force. An offeror delivered its proposal to a commercial carrier for delivery to the Air Force. The commercial carrier arrived at the gate in sufficient time to deliver the proposal to the proper place at the proper time, but chose not to enter the base at that time to avoid waiting in a long line. The GAO ruled that the paramount cause for the late delivery was not improper government action.

Offerors should always allow for delays, disruptions, and other encumbrances in their timeline and submission schedules. The Government is very unforgiving of late submissions.

To read the full decision discussed above, click here.

Forward Pricing Rates

Last January, DoD issued a memo that discussed the realignment of work between DCMA (Defense Contract Management Agency) and DCAA (Defense Contract Audit Agency). You can read more about that memo here. In a follow-up memo issued November 16, 2011, DoD adds clarification to its policy regarding forward pricing rates.

Back in January, DoD shifted responsibility for establishing forward pricing rates (indirect rates used by contractors and the Government to negotiate contracts) from DCAA to DCMA. The initial wording caused some confusion however by permitting contracting officers to use DCAA forward pricing rate audit recommendations as a basis for indirect rate recommendations provided to contracting officers (e.g. why would DCAA have rate recommendations when it is no longer in the business of auditing indirect rates?).

The new guidance makes it very clear that contracting officers are to obtain their indirect rate recommendations directly from DCMA. If new information comes along that suggests the rate recommendations require modification, the contracting officer should coordinate with DCMA - not DCAA - as to the impact on indirect rates.

Forward pricing rates was once one of the core competencies of DCAA. Unfortunately, organizational paralysis set in and DCAA is no longer able to provide timely and responsive audits to support contract negotiations. If this trend continues, DCAA will soon be relegated to the "dustbin of history".

Today is This Blog's Second Anniversary

Well, we made it through another year. Today we celebrate the second anniversary of this blog. Every working day for the past two years we have posted news and information pertaining to Government contracting. As an organization, PNWC's focus is to help government contractors (and potential government contractors) grow their business, increase profits, and comply with Government contracting rules and regulations. Readership (as measured by the number of "page views") has increased more than 50 percent from a year ago. We thank everyone for taking time to read our blog and for your comments as well. Suggestions are always welcome and if you are interested in a particular topic, feel free to suggest it. If we feel qualified to write on it, we will.

DoD Issues Final Rule on Accelerating Payments to Small Businesses

On November 18th, DoD amended its FAR Supplement by inserting a provision that formalizes its intention to accelerate payments to small business concerns (see DFARS 232.903). The provision does not specify a particular number of days. It merely states:

DoD policy is to assist small business concerns by paying them as quickly as possible after invoices and all proper documentation, including acceptance, are received and before normal payment due dates established in the contract.

Normal due dates are typically 30 days after receipt so small business concerns should expect to see reimbursements and payments in less than 30 days, and hopefully, significantly less than 30 days. The new rule did not change the interest provision on delinquent payments. Interest on late payments still begin after 30 days.

If you are a small business and payments are not received any sooner than they were in the past, you should contact your contracting officer for assistance.