The Coalition for Government Procurement

Legal Corner 

By: Tom Barletta, Partner, Steptoe & Johnson LLP; Andy Irwin, Partner, Steptoe & Johnson LLP; & George Leris, Associate, Steptoe & Johnson LLP [1]

The Obama Administration has been placing greater emphasis on cybersecurity, including enhancing cybersecurity in the acquisition process.  Three of the Administration’s more recent acquisition related cybersecurity initiatives are discussed below.

Background

On November 18, 2013, the DoD issued a final rule amending the Defense Federal Acquisition Regulation Supplement (DFARS) to impose requirements on contractors for safeguarding unclassified controlled technical information and reporting cyber incidents.  On the same day, the DoD also issued an interim rule amending the DFARS to address supply chain security in defense contracts.

More recently, DoD and GSA issued a DoD/GSA Final Report on Improving Cybersecurity through Acquisition (“Final Report”) on January 23, 2014, containing recommendations for incorporating cybersecurity standards into the acquisition planning and contract administration process.  Those recommendations include instituting baseline cybersecurity requirements; improving cybersecurity training; developing common cybersecurity definitions; instituting a federal cyber risk management strategy; purchasing from trusted sources; and increasing government accountability for cyber risk management.

Safeguarding Unclassified Controlled Technical Information and Cyber-Reporting

The DoD final rule and implementing contract clause require a contractor who has access to or stores specific types of unclassified “controlled technical information” (UCTI) to implement certain security standards on its computer network and to report certain “cyber incidents” to DoD.  See DFARS 304.734 & 252.204-7012; see also DFARS 204.703 & 212.301 (regarding solicitations and contracts for commercial items).

The final rule focuses on “controlled technical information” — technical data or computer software, as defined in DFARS 252.227-7013, with a “military or space application” that is subject to restrictions on access, release, and disclosure.  In that regard, the final rule references DoD Directive 5230.24, Distribution Statements on Technical Documents, and (in the preamble) DoD Directive 5230.25, Withholding of Unclassified Technical Data from Public Disclosure.  Those Directives generally deal with sensitive but unclassified information that is subject to marking or release restrictions under U.S. government programs.  Much of this information is likely to be subject to US export control laws and regulations, such as the International Traffic in Arms Regulations (ITAR).  

The final rule imposes three requirements on covered contractors.  First, the contractor must implement certain National Institute of Standards and Technology (NIST) information systems security procedures in its project, enterprise, or company-wide unclassified information technology (IT) systems to safeguard any UCTI transiting through or residing in its systems.  These procedures, drawn from NIST Special Publication 800-53, Revision 4, cover fourteen areas of information security: access control; awareness and training; accountability; configuration management; contingency planning; identification and authentication; incident response; maintenance; media protection; physical and environmental protection; program management; risk assessment; system and communications protection; and system and information integrity.  Alternate methods of protection may be proposed to the contracting officer, and additional security measures beyond the NIST procedures may be required if warranted by risk/vulnerability assessments.  (In assessing the security of their information systems, contractors may also want to consult NIST’s more recent, February 12, 2014 Framework for Improving Infrastructure Cybersecurity, which sets out guidelines and processes for cybersecurity activities.)

Second, the final rule requires a contractor to report to DoD any cyber incident affecting UCTI information within 72 hours of the incident.  The definition of “cyber incident” in the final rule suggests that the term refers to a deliberate use of a computer network (e.g., “hacking”) that has an adverse effect on a contractor’s IT system or the controlled information residing therein.  However, the final rule may have a broader reach, as a “cyber incident” potentially includes “an adverse release” of controlled information (as set forth in DFARS 252.304-7012(d)(1)(xi)), or “any other activities … that allow unauthorized access to the Contractor’s unclassified information system” (as set forth in DFARS 252.204-7012(d)(2)(ii)).  The final rule also requires contractors to further investigate any cyber incidents after making the initial report and to cooperate in any DoD damage assessment activities, including responding to requests for information.  The reporting requirement also presents difficult parallel export control considerations for contractors, as they may need to consider whether they should file parallel self-disclosures with the export control regulatory agencies.

Third, the final rule’s implementing contract clause includes contains a mandatory flow down to all tiers of subcontractors, including to subcontracts for commercial items.  The final rule does not have a separate definition of “subcontractor” and vendors that may not consider themselves subcontractors may therefore be subject to the new rule.  For example, the preamble to the final rule states that the requirements can apply to Internet service providers (ISPs) and cloud computing vendors.  Furthermore, if a subcontractor experiences a cyber incident, the final rule requires reporting to the Government through the prime contractor.

Interim Rule on Supply Chain Security

This interim DFARS rule grants “pilot” authority to the DoD (to expire on September 30, 2018) to place certain restrictions on IT supply chains in procurements related to “national security systems” (NSS) (as defined in 44 U.S.C. § 3542(b) and including contractor NSS) in order to address supply chain risks.  Specifically, the interim rule authorizes certain DoD officials to exclude a source for IT, whether acquired as a service or a supply, based on certain qualification standards and evaluation procedures.  It also authorizes them to withhold consent to a subcontract with a particular source or to direct a contractor to exclude a particular source from consideration for a subcontract.

The interim rule includes a new solicitation provision and a new contract clause to be included in all solicitations and contracts for the development or delivery of information technology that are subject to the DFARS (i.e. not just for contracts for NSS).  Those provisions give notice that DoD may use its exclusionary authority to manage supply chain risk.  Contractors are required to flow the clause down to “all subcontracts involving the development or delivery of any information technology, whether acquired as a service or supply.”  (Emphasis supplied).

The interim rule includes required procedures for taking exclusion actions and indicates that those actions should only be taken where there is a significant supply chain risk to a particular NSS.  However, the interim rule does not define what qualification standards or evaluation factors DoD officials will use in considering supply chain risks and excluding supply sources.  Furthermore, the interim rule gives DoD authority to limit disclosure of information relating to an exclusion decisions and provides that exclusion actions are not reviewable in a bid protest.

DoD/GSA Final Report on Improving Cybersecurity through Acquisition

The Final Report aims to establish a unified framework to address federal cyber risk management and acquisition processes, and, in particular, cyber risk in the acquisition of commercial information and communications technology.  (The report essentially indicates that it does not apply to acquisition practices applicable to NSS.)

The Final Report identifies several important cyber risk related issues affecting federal acquisitions, and provides joint DoD/GSA recommendations on mitigating them at the federal level.  At the top of the list are intentional or unintentional vulnerabilities that may come from inside or outside the supply chain, but which increase acquisition risk.  The risk of counterfeit, “grey market,” or other nonconforming information and communications technology (ICT) components entering the supply chain also adds to the risk in supply chain management.  Finally, the operations, maintenance, and disposal stages of ICT present significant risks when supervised and/or implemented improperly.  The Final Report indicates that a well-functioning and unified federal acquisition approach to such issues is likely to reduce cybersecurity threats to the supply chain.

To that end, the Final Report lays out six recommendations which aim to reduce exposure to cyber risks in commercial ICT federal acquisition.  First, it recommends establishing “baseline cybersecurity requirements” as a condition to awarding a contract.  These requirements encompass basic protections (e.g., up-to-date virus protection and software patches; multiple-factor logical access; and methods ensuring data confidentiality).  These elements should be expressed as technical requirements, and include performance measures and be clearly described in the relevant contract language.  Importantly, the Final Report recommends that these requirements should be harmonized with other FAR/DFARS rule making actions, including the final rule discussed above on safeguarding UCTI in contractor IT systems.

Second, the Final Report recommends increasing the cybersecurity awareness of employees and entities working in federal acquisitions.  It suggests that additional education and training opportunities for employees involved with procurements will lead to improved cyber risk management, including avoiding over-specifying and under-specifying cybersecurity requirements.  It also proposes a government-sponsored cybersecurity outreach campaign targeting stakeholders to familiarize them with the government’s changing approach to cybersecurity.

Third, the Final Report recommends adopting common cybersecurity definitions for federal acquisitions.  It acknowledges that use of unclear and inconsistently defined terms in the acquisition process (e.g., “cyber incident”) can lead to “suboptimal outcomes for both cybersecurity and efficiency” (e.g., changes, terminations, and disputes).  The Final Report suggests that a having common definitions will reduce problems with, inter alia, cost estimates, solicitations, and award and performance of contracts.

Fourth, the Final Report recommends the creation of an interagency “federal acquisition cyber risk management strategy,” which would identify a unified hierarchy of cyber risks. It would also develop “overlays” – i.e., sets of flexible, risk-based security requirements and supplemental guidance – that an agency would tailor to its specific needs for specific products.  These overlays would, for example, identify different security controls depending on the type of acquisition.  As the Final Report highlights, different acquisitions present different risks and warrant different cybersecurity responses.  Applying standardized but flexible overlays across markets segments and similar types of procurement will, according to the report, reduce the costs and duration associated with an acquisition.

Fifth, the Final Report emphasizes that federal agencies must ensure that the goods they acquire are authentic, as any sub-par goods drastically increase cyber risks (e.g., they may arrive with outdated security updates, or built to different specifications).  Accordingly, it recommends identifying “trusted sources” – manufacturers, suppliers, or resellers, and taking other steps, appropriate to the particular acquisition, to qualify vendors as a means of reducing cyber risks. Further, the Final Report indicates that in cases involving the greatest risk, it may be appropriate for government personnel to determine whether a vendor is a “trusted source,” while in other less risky cases, attestation of company conformance to external standards may be appropriate.

Finally, the Final Report recommends increasing government accountability for cyber risk management.  It details a four-step process for holding key personnel accountable for upholding cyber standards.  Specifically, such personnel should: 1) address cyber risks when a requirement is being defined and a solution is being analyzed; 2) certify that the solicitation includes the appropriate cybersecurity requirements; 3) participate in the proposal evaluation process and provide for consideration of cybersecurity in best value decisions; and 4) continue to monitor post-award performance to the extent relevant to cybersecurity.

Conclusion

The three actions discussed above reflect the increased emphasis on cybersecurity in the acquisition process and indicate that cybersecurity will be an important issue for the acquisition community going forward.


[1] Tom Barletta is a partner in the Washington D.C. office of Steptoe & Johnson LLP and head of the Government Contracts group.   Andy Irwin is a partner in its International Regulation & Compliance and Government Contracts group. George Leris is an attorney in Steptoe’s Privacy and Cybersecurity practice.

Yesterday Dr. Daniel M. Gerstein, Under Secretary for Science & Technology (Acting), U.S. Department of Homeland Security (DHS) , provided the Coalition with a thoughtful, engaging and very informative presentation on Science & Technology’s (S&T) cross-cutting mission.  S&T supports a broad customer base, including the DHS components, federal departments and agencies, and first responder emergency management.  The S&T value proposition focuses on operations, innovation and building partnerships to provide the Homeland Security Enterprise with technologies, solutions and capabilities to better protect the Homeland.  Dr. Gerstein’s discussion with the Coalition and its membership reflected the best in the Myth-Busters tradition of positive, informative dialogue between government and industry.  The Coalition for Government sincerely thanks Dr. Gerstein for his engagement and we look forward to continuing the dialogue!

On April 10th the Coalition will be hosting our 2014 Spring Training Conference, Opportunities for Success in the Federal Market, in Fall Church, Virginia.  The Training Conference provides a wonderful opportunity for members to hear directly from senior procurement leaders and program managers from across the Federal enterprise.  Speakers include:

  • Harry Hallock, Deputy Assistant Secretary (Procurement) U.S. Army
  • Dr. Angela Billups, Senior Procurement Executive, Department of Health and Human Services
  • Mr. Randall Culpepper, Program Executive Officer for Combat and Mission Support, U.S. Air Force
  • David Grant, FEMA Chief Procurement Officer
  • Tiffany Hixon, Regional Commissioner for FAS
  • Richard Ginman, Director of DPAP

The conference also will include a presentation from Cameron Leuthy, Senior Budget Analyst for Bloomberg Government on the current federal fiscal profile, winners and losers under the current budget, and who is buying.

Oversight, contract compliance and risk assessment are all keys to success in the federal market.  To that end, the Training Conference will include a session “Oversight and Enforcement – The OIG Perspective with Richard Levi, Counsel to the GSA Inspector General and Maureen Regan, Counsel to the Department of Veterans Affairs Inspector General.  We will also have our annual Legal Panel—Maximizing the Benefits Avoiding the Risks with Jason Workmaster, Partner at McKenna Long & Aldridge LLP, Jonathan Aronie, Partner at Shep

Yesterday Dr. Daniel M. Gerstein, Under Secretary for Science & Technology (Acting), U.S. Department of Homeland Security (DHS) , provided the Coalition with a thoughtful, engaging and very informative presentation on Science & Technology’s (S&T) cross-cutting mission.  S&T supports a broad customer base, including the DHS components, federal departments and agencies, and first responder emergency management.  The S&T value proposition focuses on operations, innovation and building partnerships to provide the Homeland Security Enterprise with technologies, solutions and capabilities to better protect the Homeland.  Dr. Gerstein’s discussion with the Coalition and its membership reflected the best in the Myth-Busters tradition of positive, informative dialogue between government and industry.  The Coalition for Government sincerely thanks Dr. Gerstein for his engagement and we look forward to continuing the dialogue!

On April 10th the Coalition will be hosting our 2014 Spring Training Conference, Opportunities for Success in the Federal Market, in Fall Church, Virginia.  The Training Conference provides a wonderful opportunity for members to hear directly from senior procurement leaders and program managers from across the Federal enterprise.  Speakers include:

  • Harry Hallock, Deputy Assistant Secretary (Procurement) U.S. Army
  • Dr. Angela Billups, Senior Procurement Executive, Department of Health and Human Services
  • Mr. Randall Culpepper, Program Executive Officer for Combat and Mission Support, U.S. Air Force
  • David Grant, FEMA Chief Procurement Officer
  • Tiffany Hixon, Regional Commissioner for FAS
  • Richard Ginman, Director of DPAP

The conference also will include a presentation from Cameron Leuthy, Senior Budget Analyst for Bloomberg Government on the current federal fiscal profile, winners and losers under the current budget, and who is buying.

Oversight, contract compliance and risk assessment are all keys to success in the federal market.  To that end, the Training Conference will include a session “Oversight and Enforcement – The OIG Perspective with Richard Levi, Counsel to the GSA Inspector General and Maureen Regan, Counsel to the Department of Veterans Affairs Inspector General.  We will also have our annual Legal Panel—Maximizing the Benefits Avoiding the Risks with Jason Workmaster, Partner at McKenna Long & Aldridge LLP, Jonathan Aronie, Partner at Sheppard Mullin LLP and David Dowd, Partner at Mayer Brown LLP.

We are very excited to have Steve Schooner, Nash & Cibinic Professor of Government Procurement Law and Co-Director of the Government Procurement Law Program, George Washington University Law School as our Keynote speaker.   It is fitting that Steve will be addressing the Conference on the key procurement trends, challenges and opportunities in the federal marketplace as the Spring Training Conference will mark the beginning a new initiative working with The George Washington University Law School to celebrate and honor the Coalition’s 35th Anniversary!

So not only will the Spring Conference provide an opportunity to hear and learn from procurement leaders from across the federal enterprise, it will also provide an opportunity to be the first to hear about the Coalition’s new initiative to honor our 35th year, promote common sense in government procurement, and support our veterans!  I am confident our members will be pleased and proud of this new initiative.

We look forward to providing our members with an exciting and engaging Training Conference.  See you all April 10th!

Roger Waldron

President

 

Strategic acquisition offers government and industry an opportunity to work together to identify unnecessary costs in the acquisition process and pass those savings along to federal agencies.  However, a new term has entered the dialogue regarding the Federal Strategic Sourcing Initiative (FSSI).  That term is “supplier suppression.”  What does “supplier suppression” mean in the context of FSSI?

At bottom, “supplier suppression” means constricting the supply chain and, ultimately, restricting competition through a limited set of generic, government-wide contract vehicles.  GSA is currently repeating its past.  Over 20 years ago, GSA had a limited set of FSS contracts that were mandatory for use across the federal government.  The result was static pricing, restricted competition, limited access to best in class commercial companies, and high customer dissatisfaction.  Customer agencies avoided using GSA.

“Supplier suppression” will have long term negative consequences for customer agencies and the American people.  Limiting competition in the supply chain will inevitably lead to higher prices and lower quality for customer agencies and the American people.

In response to FSSI and the concept of supplier suppression, the Coalition has begun work on a white paper focusing on FSSI and its impact.  The Coalition will host a Forum focusing on FSSI and its impact on customer agencies, contractors and the American people.  The Coalition has also developed a set of “Strategic Acquisition Principles” that, if adopted, would deliver best value solutions for customer agencies while maintaining a vigorous, robust commercial supply chain.  At the heart of these principles are sound requirements development and volume commitments as driving value for customers and sound business opportunities for contractors.  Effective requirements development is the key.

Strategic Sourcing initiatives, appropriately structured, could be a win for all stakeholders.  The current FSSI approach, however, creates significant detachment between customer agencies and contractors.  It is a top down approach rather than a bottom up one.

The Coalition’s “Strategic Acquisition Principles” are built around the fundamental procurement principle that the closer the acquisition is to the requirements holder the more likely a best value outcome will result for all.  The closer a procurement is to the actual requirements holder, the better opportunity for clear, consistent requirements with corresponding volume commitments.  Clear, consistent requirements and volume commitments drive competition and savings.  Here are the Coalition’s principles:

 Strategic Acquisition Principles

  1. Strategic acquisition offers government and industry an opportunity to work together to identify unnecessary costs in the acquisition process and pass those savings along to federal agencies.  Commercial item contracting is a model that reduces the cost of acquisition.  By eliminating government-unique requirements in favor of commercial practices, the costs involved in doing business with the Federal government are reduced and the taxpayer saves. In essence, put “commercial” back into commercial item contracting and save.
  2. Savings calculations should cover the Total Acquisition Costs to the government including the administrative costs involved in planning, conducting acquisitions, data collection, and contract management.  How the government calculates its strategic sourcing savings should also be transparent to the American public.
  3. GSA Schedules are a strategic source. Agency specific BPAs with well-defined requirements and volume commitments lead to innovative solutions through robust competitions, at competitive prices, with improved efficiency.  Generic government-wide BPAs add costs without commensurate value.
  4. Continuous open seasons enhance competition and innovation while meeting the Multiple Award Schedule program’s statutory mandate that it remains open to all sources.  Continuous open seasons facilitate an active supplier base; provide access to the latest commercial services, products, and solutions for GSA and its customer agencies; and encourage task order competition.

We look forward to your feedback on these principles.  More importantly, we look forward to delivering our Strategic Sourcing White Paper and hosting our Strategic Sourcing Forum in June.

Roger Waldron

President

As March enters in like a polar bear, it is time to provide an update on the Coalition’s event schedule for March and April.

Myth-Busters Forum with Daniel Gerstein, Acting Under Secretary for Science & Technology (S&T) at the Department of Homeland Security, March 13

On the morning of March 13th the Coalition will be hosting a Myth-Busters Forum with Daniel Gerstein, Acting Under Secretary for Science & Technology (S&T) at the Department of Homeland Security.  The forum will held at the law offices of McKenna Long & Aldridge, LLP.  DHS S&T plays a central and strategic role in supporting/facilitating requirements development, acquisitions and the implementation of cutting edge technologies supporting DHS component offices nationwide.

Cyber solutions, chemical/biological detection technologies, behavioral sciences, and first responder infrastructure, are among the mission capabilities DHS S&T supports across the homeland security enterprise.  DHS S&T is a key interface connecting requirements to technologies through its work with stakeholders within DHS, at the state and local level, internationally, and the private sector.  Our DHS S&T Myth-Busters Forum with Daniel Gerstein focuses on how technology is supporting the DHS mission, and importantly, how industry can engage DHS.  The forum also provides an opportunity for dialogue on the vital role technology identification, development and implementation plays in protecting the homeland.  The forum is a must attend event for industry program managers, account managers and executives focusing on the DHS market.

Myth-Busters webinar on Contractor Assistance Visits under GSA Multiple Award Schedules, March 25

On March 26th, the Coalition will be hosting a Myth-Busters webinar focusing on the processes and procedures for Contractor Assistance Visits under the GSA Multiple Award Schedule program.   As you know, Contractor Assistance Visits are conducted by the Industrial Operations Analysts (IOA) from GSA’s Federal Acquisition Service (FAS).  An MAS contractor can expect 2-3 visits from an IOA over the course of a five year contract period.  It is vital to understand the IOA role and expectations for MAS contractors.

The Myth-Busters webinar features Tom Brady, Director, Supplier Management Division, Office of Acquisition Management at GSA’s Federal Acquisition Service.  Tom will be discussing the respective roles of the Administrative Contracting Officer (ACO) and the IOA.  Topics will include the updated review parameters and processes for IOA visits as well as key compliance issues (e.g. Industrial Funding Fee) surrounding MAS contracts.  This webinar is a “must dial in” event for contractor compliance managers, in house counsel, contracting officers, and executives responsible for management and oversight compliance.

2014 Spring Training Conference on Opportunities for Success in the Federal Market, April 10

On April 10th, the Coalition will hold our Spring Training Conference at the Fairview Marriott in Falls Church, Virginia.  The theme for this year’s Spring Training Conference is Opportunities for Success in the Federal Market.  The Spring Training Conference’s speakers include representatives from:

  • Department of Army
  • Department of Air Force
  • Department of Health & Human Services
  • Defense Procurement and Acquisition Policy (DPAP)
  • GSA Office of the Chief Acquisition Officer
  • Offices of the GSA Inspector General and VA Inspector General

Our breakout sessions include a session focusing on the GSA FAS Acquisition Centers, the Department of Homeland Security, the IT GWAC programs (GSA, NASA, and NIH), the Small Business Administration, and GSA’s Office of Acquisition Management.  It is a jam packed line up!  To review the agenda and register click here.

The breadth and depth of speakers demonstrates our commitment to fostering a robust Myth-Busters dialogue between government and industry.  Robust dialogue and communication improves understanding and opportunities to deliver best value procurement solutions that support agency missions for the American people.  We look forward to seeing you there!

Roger Waldron

President

 

By Guest Blogger: Ray Bjorklund, President, BirchGrove Consulting LLC

As a business developer, you follow the money. You trek toward the customers that spend money and the customers that spend the most. Discretionary spending authority, appropriated by Congress, is your bellwether.

As an experienced business developer, you follow that portion of the budget authority intended to be spent on contracts for what your company offers. Discretionary spending does not necessarily correlate to contract spending; about 40% of discretionary spend goes to compensation of government employees and not to contracts; that percentage is slowly rising, as agencies are told to buy less of everything.

Your objective should be to become a savvy business developer.  Savvy business developers, look beyond planned contract spending for any trends that will shift your prospects in the federal market segment you are pursuing, either in specific customer agencies, in the types of services or products purchased, or both.

Using the federal budget, how does the savvy business developer develop the situational awareness to find opportunity?  The President’s Budget is an annual political statement, which the Executive Branch begins preparing approximately 18 months before the fiscal year starts. When you add up the documents prepared by the Office of Management and Budget and all the congressional justification materials prepared by the agencies, the page count is well north of 20,000. There are many messages, some bold and some mysterious, residing in those pages. In the 2014 budget it is clear that spending on infrastructure, education for jobs, and veterans assistance are again important messages.

But consider that federal contracts for “infrastructure” will decline by $700M to $11.1B in 2014. Spending on workforce development contracts will rise 10% to $6.1B. Federal contract spend on veterans programs will increase from $33.5B to $35.7B, or 7%. You may have to decide between growth and revenue. Do you want to pursue growth, perhaps with smaller revenues? Or do you want to do business where the government spends a lot, even though spending is declining in those areas?

And then there are more specific, exciting growth areas like big data and cyber security. Looking beyond the hype, however, we see subtle shifts among the categories of contract spending and a few initiatives that propose new or at least different levels of contract spending.

The Air Force plans to ramp up cyber superiority spending to more than $4.1B, 8% over 2013. Are there cyber contract opportunities? No and yes. There are increases in spending on military personnel and civil service that will suppress spending on services contracts. But one of the largest components of the net increase is $85M in new construction at Fort Meade, the first increment in a new $358M operations center for about 1,400 cyber people. The new facility will eventually require another $64M in equipment and IT and over $6M in furniture. Watch it unfold over the next couple of years.

Worried about another sequester? The lateness of the 2013 decision to sequester budget authority inhibited many spending initiatives and compounded uncertainty about any requirement for a 2014 sequester. Program planning and rationalization suffered.

Then the partial government shutdown in Oct 2013 overrode the Administration’s intent to systematically plan for a 2014 sequester. The bipartisan, bicameral budget deal provided a little stability. But not enough stability to completely overcome the risk aversion that persists. The good news is that a 2014 sequester is extremely unlikely. The bad news is that it’s going to get a little worse, before it gets better.

Still struggling to find new opportunities? Since there will be little overall change in the level of contract spending, a business developer has to peer deeper into the budget to see if the contract spending is really new or is merely going to entrenched incumbents, with little opportunity to get a foot in the door.

To meet your shareholders’ expectations of revenue, you must “up your game” in following the money and become the savvy business developer. Somewhere in those 20,000 pages of nooks and crannies, you’ll find fresh opportunities.

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Legal Corner

By: Brian Miller, Inspector General , U.S. General Services Administration

The mandatory disclosure rule contained in the Federal Acquisition Regulation has now been in effect for slightly more than five years.  Under the rule, federal contractors are required to report potential fraud and false claims related to their contracts to the Office of Inspector General (OIG).  We believe implementation of the rule at the General Services Administration (GSA) has been successful, but we also believe more can be done.  In this article, we outline the GSA OIG disclosure program, why contractors should make disclosures, and some best practices for contractors that we have noted.

The GSA OIG Disclosure Program

When the mandatory disclosure rule was made final at the end of 2008,[1] the GSA OIG implemented a program to process contractor reports.  My office has received over 120 disclosures and recovered almost $15 million under this program so far.

When the GSA OIG receives a disclosure, we provide a copy to the responsible contracting officer and the Department of Justice (DOJ), and we notify the OIGs of other affected agencies.  We regularly coordinate with the Department of Defense (DOD) OIG since a significant number of disclosures involve both GSA and DOD (for example, an affected DOD program purchased goods or services through a GSA schedule contract).

We make an effort to keep contractors up-to-date on the status of the disclosure, starting with an acknowledgement letter after receipt of a disclosure and an initial in-person meeting to talk about details of the reported conduct.  After the meeting, we request further details as necessary to better understand the nature of the conduct or verify the amount owed the government.  These requests may include documentation of facts and figures, explanations of calculation methods, or interviews of company employees who can explain how problems occurred and any mitigating factors that will prevent future problems.  As explained below, we have noticed some best practices by contractors that we suggest all should follow.

Why it’s a Good Idea to Make Disclosures

While we are encouraged by the number of contractors making disclosures, we believe that more should do so.  It is in the contractor’s own interest to disclose.  Making disclosures is legally required and making a disclosure by itself will not result in suspension or debarment.  However, a failure to disclose can lead to suspension or debarment.  In addition, a good-faith disclosure and full cooperation can go a long way toward demonstrating a contractor’s integrity and present responsibility, and should be in compliance with the contractor’s ethics program.  In this regard, my office has not referred any contractor that has made a disclosure to GSA’s suspension and debarment official, and only in two unique instances has my office referred a disclosure to DOJ.

Another reason for making a disclosure to the OIG is that it gives a contractor an opportunity to do an internal investigation and to present its side of the story to the OIG, without being distracted by litigation or in the middle of an OIG investigation or audit.  We suggest that contractors are better off disclosing before we begin an investigation or audit.  After contacting us, we prefer that the contractor do an internal review, as long as we are informed as the internal review progresses.

We recognize that a few contractors may hope that their conduct is never discovered and they are never held accountable for their actions.  In today’s world, however, that belief may be unrealistic. We live in a world where most things come to light in one way or another.  Contractors may choose to balance the risk of getting caught against the potential penalties, but in our view that balance is clear:  reporting produces benefits that outweigh the risks — besides it being the right thing to do.

Best Practices When Making Disclosures

During the course of processing disclosures, we have seen some contractor practices that are particularly helpful in resolving disclosures efficiently, and we are hopeful that all contractors will:

1)      provide timely and thoroughly documented factual information with the initial disclosure (or in an update to the disclosure as soon as an internal investigation is complete);

2)      include a description of the conduct that occurred, an explanation of the date range, how the conduct was discovered, its consequences, remedial action taken, an assessment of the amount owed to the government, and an explanation of how the amount was calculated, including any legal conclusions used for the calculation;

3)      identify relevant issues and witnesses;

4)      keep the OIG informed on the progress of an internal investigation and the collection   of additional materials and information; and

5)      err on the side of over-communicating.

Of course, contractors have amassed experience during the past five years of the disclosure program as well, and we are interested in hearing your lessons and suggestions.


[1] Contractor Business Ethics Compliance Program and Disclosure Requirements, 73 Fed. Reg. at 67,064, 67,066 (Nov. 12, 2008).

Wednesday night brought 14 inches of snow—significantly more than predicted! (Gee, how did that happen?)  I spent Thursday morning shoveling the driveway and sidewalk.  Everything is closed.  The streets are not plowed.  It is Washington, DC.  Enough already!  It is time for Olde Man Winter to retire!  And with the venting done, let’s turn to this week’s comment.

Earlier on Wednesday the Department of Defense (DoD) issued a request for public comment as part of the Director of Defense Procurement and Acquisition Policy’s (DPAP’s) “assessment to identify impacts experienced by industry resulting from contracting statutes.” The Federal Register notice can be found here.   DPAP has identified approximately 400 DFARS requirements based solely on statute.   As part of the assessment, the DPAP Director is seeking public input with regard to—

  • Particular impacts associated with specific contracting statutes;
  • Why the identified impact does not achieve the intended benefit of the identified legislation, or why the identified benefit is not helpful to the Department; and
  • Any recommendations for alternative approaches to achieve the intended benefit of the identified legislation.

The notice also states that DPAP is interested in feedback on DFARS provisions that are not based on statute, but warrant similar consideration.   Public comments are due March 14th.

DPAP’s request presents a wonderful opportunity to provide information/data regarding statutory requirements where the costs outweigh the benefits.  Just as important, the public should use this opportunity to also address the benefits of certain statutes.  In particular, the benefits of the current statutory definition of “commercial item” far outweigh perceived costs.  With the budget challenges facing the federal government, innovation can drive savings, efficiency and effectiveness.  The flexibility provided by the “of a type” definition enhances competition and expands the commercial market across the federal enterprise.  Simply put, the commercial item definition facilitates access to new technologies, solutions and services.  We cannot afford to restrict it.

Our first comment in response to the notice will be a recommendation to extend the due date for comment to May 14th.  Given the importance of the task combined with the extensive number of statutory requirements to review, additional time is needed for the public to respond with fulsome, sound comments for consideration by the Secretary of Defense..

Finally, the Coalition will be responding to the request for comment.  We will be providing our members with the 400 statutory cites with the corresponding DFARS reference as compiled by DPAP.  We look forward to your feedback.  Next week we will be seeking volunteers for a working group to develop consensus comments for submission to DPAP.

On January 10th the “FAR and Beyond” blog published a comment identifying fourteen key procurement items for 2014 that will be addressed throughout the year in future blog postings.   This week it is time to address “GSA’s Strategic Plan:  Plan versus Implementation.”  We appreciate GSA providing the public an opportunity to comment on the draft plan and look forward to continuing the dialogue on delivering best value procurement solutions for customer agencies and the American people.

As you know, my Federal Times Blog highlighted the GSA Strategic Plan’s lack of focus on GSA’s biggest, most strategic program, the Multiple Award Schedule (MAS) program.  In addition, the Coalition submitted comments to GSA on the strategic plan which can be reviewed here.  GSA, with its unique statutory procurement authorities can be the innovation laboratory for streamlining the procurement process.

In the spirit of Myth-Busters, the Coalition would like to offer GSA a list of strategic implementation initiatives to include in the Strategic Plan that would deliver efficiency, savings and best value procurement solutions to customer agencies and the American people:

  • Create an Innovation Schedule (The goal is to embrace the commercial marketplace, reduce barriers to entry and deliver innovative, flexible, best in class solutions to customer agencies.  For example, the innovation schedule could enhance and grow flexible, cloud solutions, and software as a service.)
  • Review, reform, and/or eliminate acquisition regulations, procedures, terms and conditions where the costs outweigh the benefits.
  • Reform the MAS pricing policies to better leverage and reflect the current commercial marketplace as well as the statutory requirement for competition at the order level.   This includes implementing “other direct costs” on MAS contracts and orders.
  • Embrace the MAS program for the Networx follow on procurement. (GSA has incorporated SATCOM services onto IT Schedule 70—it’s time to add all forms of commercial data transmission/management to the MAS program.)
  • Pursue the Alliant follow on procurement (The Alliant follow on procurement will be a critical part of GSA’s ongoing IT portfolio.  It is a portfolio that can reduce contract duplication, increase efficiency and deliver best value solutions to customer agencies.)
  • Improve the effectiveness and cost savings under the Federal Strategic Sourcing Initiative by shifting strategic sourcing to agency specific BPAs. (It is clear that the closer the procurement is to the agency requirements holder, the greater the opportunity for a best value outcome.  Agencies can articulate their requirements, schedule, buying patterns and dollar volume commitments better than can ever be set forth in a set of generic, government-wide BPAs or contracts.  The result will be enhanced competition, greater value and a vibrant supply chain for years to come.)

At their core, these recommendations are about simplifying the procurement process for customer agencies, GSA acquisition professionals, and contract partners.  There is power in simplicity!  Streamlining processes empowers customer agencies and contractors to focus on competing requirements and delivering best value solutions.  We have had more than a decade of layering on additional processes, procedures and oversight—we can no longer afford costly procurement policies and procedures that increase transactional costs.

Roger Waldron

President

Before tackling the comment of the week there are some updates I’d like to share with you.  First, it is an exciting time with the launch of my new Federal Times Blog!  The first blog posting appeared last week and can be found here.  I encourage all Friday Flash readers to follow this new blog focusing on GWACS and GSA.  The next blog will be posted the second week of February and will focus on the “GSA supplier” relationship.

MAS Contract Compliance and the 5th Anniversary of the Mandatory Disclosure Rule, Feb 5th

With GSA Inspector General, Brian Miller

Second, next week is Compliance Week at the Coalition!   On Wednesday, February 5th, Brian Miller, GSA Inspector General (IG), Aleksandra Doran, Assistant General Counsel to the IG, and Jonathan Aronie, Partner at Sheppard Mullin will participate in a Myth-Busters dialogue focusing on MAS Contract Compliance and the Mandatory Disclosure Rule!  Space is filling up fast and this is a great educational opportunity!  Attendees will hear the ins and outs of the Mandatory Disclosure Rule and contract compliance from those on the front lines of compliance management.   The Forum is a “must attend” event for contractor in-house counsel, compliance managers, contract managers, and executives.  There is still time and you can register here.

Fundamentals of Ethics and Compliance Webinar, Feb 6th

Steptoe & Johnson

The following day, the Coalition will be hosting a webinar, ”Fundamentals of Ethics and Compliance” by Steptoe & Johnson.  Tom Barletta, Partner at Steptoe & Johnson will focus on the latest developments in the unique world of government contract ethics rules.  These two sessions provide a powerful package of insight, information, and best practices around the business imperative of contract compliance!

The Cost-Build Approach for GSA Schedule Labor Pricing, Feb 11th

Baker Tilly

On February 11th, Baker Tilly will present a Coalition Webinar on “The Cost-Build Approach for GSA Schedule Labor Pricing.”  Another great opportunity to learn about key trends, issues and strategies associated with the negotiation of labor rates using the cost-build approach.

ITS Priorities for 2014, Feb 20th

With Mary Davie, Assistant Commissioner for GSA’s Integrated Technology Service (ITS) and Mark Day, ITS Deputy Assistant Commissioner

Finally, the Coalition is pleased to announce that Mary Davie, Assistant Commissioner for GSA’s Integrated Technology Service (ITS) and Mark Day, Deputy Assistant Commissioner for ITS will be providing an update on ITS Priorities for 2014 at our February 20th  Myth-Busters Forum.  The forum will be from 7:30 am to 10:00 am at the Tower Club.  You can register here.

Today marks the target release date for the new FSSI IDIQ for office supplies (OS3).  As you know, last week’s “FAR and Beyond” blog focused on OS3.  GSA’s decision to create a duplicate IDIQ contract program that overlaps the GSA schedules is troubling.   The apparent rationale for creating the new IDIQ is that customer agencies have indicated that some MAS terms and conditions could hinder pricing.   If that is the case, we must ask the obvious question. Why not fix the MAS program, which accounts for 75 percent ($40 billion) of the Federal Acquisition Service’s total annual dollar volume?

The MAS program is the backbone of GSA, Federal Acquisition Service.  It is the leading commercial item contracting program across the federal enterprise.  It provides a streamlined marketplace for commercial firms and customer agencies to efficiently and effectively compete for and acquire commercial services, products and solutions.  But the full potential of MAS has not been achieved.  The MAS program can be a driver for— innovation in services, solutions, and technologies.  It can bring new, creative commercial practices, pricing and contract structures to customer agencies.  By better mirroring the commercial marketplace, the MAS program will better serve the American people.

It is time to for reform of the MAS program that achieves greater, openness, flexibility, and streamlining.  It is time to innovate the MAS program!

Rather than focusing on innovation, GSA focuses on “supplier suppression.” For example, without any fanfare or advance notice, GSA closed one of the largest, most important SINS on Schedule 51V to new offers.

The closure of the schedule is an anti-competitive, anti-market approach.  To the extent the goal is simply to reduce the number of contractors, the long term implications for customer agencies and the American people are not good.   Limiting the supply chain could reduce quality and increase prices over the long term.  Closing schedules is making a symbolic statement that innovative best in class small, medium and large businesses need not apply!

Roger Waldron

President

Here in DC it has been cold and snowy—and parents across the region are wondering if school is going to last through July 4th given all the cancellations. It seems that everyone in DC has lost productive time due to our winter weather. The Coalition is no exception.

Our “Fundamentals of Ethics and Compliance” webinar presented by Tom Barletta, Partner at Steptoe & Johnson, originally scheduled for January 21st has been rescheduled for February 6th. This makes the week of February 3rd “Coalition Compliance Week” as on February 5th we are excited to host Brian Miller, GSA Inspector General, and Aleksandra Doran, Assistant General Counsel to the GSA Inspector General, as well as Jonathan Aronie, Partner at Sheppard Mullin for a Myth-Busters Forum on “MAS Contract Compliance and the 5th Anniversary of the Mandatory Disclosure Rule.” For more information on these two important contract compliance events please click here.

Touching on the compliance theme, this week’s blog focuses on the impact that the Price Reduction Clause is having on GSA’s acquisition strategies for its Federal Strategic Sourcing Initiatives (FSSI). As many of you know, last Fall GSA issued a draft Statement of Work (SOW) for the establishment of Multi-Agency Multiple Award Indefinite-Delivery Indefinite Quantity (IDIQ) contracts for Office Supplies Strategic Sourcing (OS3). GSA’s previous office supply (OS1 and OS2) FSSI efforts utilized Blanket Purchase Agreements (BPAs) under the Multiple Award Schedule (MAS) program as the contracting platform. In a change of direction, the draft OS3 SOW made clear GSA’s intent to create a new contract vehicle, apart from the MAS program for office supplies. The proposed new contract vehicle will essentially duplicate the MAS program.

GSA’s MAS program was designed to be a cost effective platform that could be used across a broad spectrum of commercial services and products. If the program no longer achieves that objective, now is the time to fix the schedule rather than creating a duplicative contract that in the long term will raise costs for both contractors and customers and reduce access to the Federal market for both large and small businesses.

We have a situation where MAS contractors and customer agencies apparently agree that the PRC may play a counter-productive role in the program by driving costs and prices up. The Coalition provided GSA with insight into the costs associated with the PRC via our 2012 response to GSA’s Paperwork Reduction Act public notice seeking comment on the burdens associated with the clause. GSA’s response to our comments can be found here. The Coalition’s White Paper on MAS Pricing provides positive framework for reform. Central to the Paper are recommendations to eliminate or change application of the PRC. We look forward to a robust dialogue on reforming the pricing policies.

More immediately, GSA still has the opportunity to conduct a streamlined competition for FSSI office supply BPAs under the MAS program that will reduce transactional costs for all. I know, I know–but what about the potential for the PRC driving up costs under the resulting BPAs? GSA has options!

Last year, in order to enhance competition, GSA waived application of the PRC for the Air Force’s commercial furniture strategic sourcing procurement! If GSA can waive application of the PRC for a customer agency’s procurement why can’t it waive the clause for its own acquisition? Moreover, as authorized in the General Services Acquisition Regulation (GSAR), GSA can issue a class deviation from the PRC under the office supply schedule. As such, these two options would allow customer agencies, GSA and its MAS contractors to save time and money through a streamlined BPA competition under the MAS program. Under the circumstances, GSA’s decision to duplicate the MAS program with a new contract vehicle rather than address the underlying PRC is troubling.

Roger Waldron

President

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