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Friday Flash, 06.15.12

1. Comment of the Week

Last week the General Services Administration (GSA) announced its Demand Based Model for the Federal Supply Schedules (FSS) program.   Under the Demand Based Model GSA will close some schedules for new offers ending continuous open seasons for those schedules or for certain SINs within a schedule.  GSA’s goal is to balance the number of schedule contracts with the government demand for the products and/or services on those contracts.  GSA’s goal of balancing schedule workload to demand makes sense.  However, the Coalition is very concerned that closing schedules to new offers sends the wrong message regarding competition and access to the commercial marketplace.  Continuous open seasons are one of the central procurement policy pillars of the schedules program, reflecting the government’s faith in the commercial marketplace to provide the services and products that make a difference for customer agencies and the taxpayer.  Continuous open seasons are also vital to small business concerns seeking to sell to the federal government.  Twenty years ago, there were no continuous open seasons for schedule solicitations.  At that time the FSS program was criticized as uncompetitive and static in the products, services and pricing offered to the government.  The concern is that moving towards closing certain schedules to offers sends the wrong message to customer agencies and contractors regarding competition and access to the commercial market.

GSA already has a rarely used clause in its Schedule contract to address the balance between workload and demand.  FSS Clause I-FSS-639 CONTRACT SALES CRITERIA (MAR 2002), provides that the Government may cancel a contract if sales under the contract do not exceed $25,000 within the first 24 months following contract award, and/or do not exceed $25,000 in sales each 12 month period thereafter.  So the tool is already in the toolbox for balancing workload to demand— a tool that historically GSA has chosen not to use.  In our view it makes more sense to address FSS contracts with low or no sales than close a market to commercial firms wanting to take their shot at competing for government requirements.  Such an approach is consistent with the statutory mandate of the FSS program that it be open to all commercial sources.  Closing schedules or throwing more personnel resources at the FSS program are not the long term answer to improving the efficiency or effectiveness of the FSS program.

Fundamentally, as last week’s Comment highlighted, structural reforms to the FSS contracts, solicitations and pricing policies, coupled with continued investments in e-systems, are the keys to increasing the long term efficiency and effectiveness of the FSS program.

  • Addressing “Other Direct Costs” (ODCs) on FSS service contracts will increase the productivity and access to total commercial service solutions for customer agencies.  It also will reduce contract duplication across government and within the service schedules.  Most importantly, it will enhance competition for customer agencies and opportunities for the private sector thereby increasing use/demand for services via the FSS program.   Importantly, the policy infrastructure for ODCs on schedule is already in place through the FAR commercial item clause 52.212-4.
  • Reducing the number of solicitations and actively promoting and implementing a comprehensive option for consolidating contracts has the potential to dramatically reduce schedule contract duplication and workload for GSA and its contractors.  Contractors should be provided an efficient and effective option to consolidate their contracts if they so choose.  Some companies may want to maintain multiple contracts, but many, especially in the services arena, would love to consolidate their multiple contracts into a single schedule contract.  It saves time and money for all parties while enhancing the government’s ability to conduct more effective market research and the contractor’s ability to market and compete.
  • Reforming the pricing policies to reflect current commercial practices and acknowledging the statutory and regulatory competition requirements at the order level will increase the efficiency and effectiveness of the FSS program.  Services account for over 60 percent of schedule orders.  Pricing is now driven at the order level.  The new FAR 8.4 includes robust competition requirements.  The Defense Federal Acquisition Regulation Supplement instructs contracting officers to seek price reductions for any size order.  Given the new statutory and regulatory requirements for competition at the order level, combined with the growth in services, the time for fundamental reform of the pricing policies is now.
  • Making strategic investments in GSA’s e-systems, particularly the e-systems supporting the FSS program, can reduce workload, streamline the acquisition process and enhance competition.  GSA should bring together customer agencies and contractors in a single strategic forum to map out the future e-systems for the schedules program.  What is working?  What can be improved?  What can be eliminated?  A joint Myth-Busters dialogue with customers and contractors is vital to the future development and maintenance of efficient and effective e-systems for the FSS program.

Implementation of the Demand Based Model should not divert GSA’s attention from addressing ODCs, reducing the number of solicitations and consolidating contracts, reforming pricing policies, and strategically investing in e-systems.

The Coalition looks forward to working with GSA on these four key areas.

2. OFPP, SBA Guidance on Small Business Contracting

The Office of Federal Procurement Policy (OFPP) and the Small Business Administration (SBA) issued a memorandum on June 6 to increase Federal agency utilization of small businesses.  The memo focuses on three key areas, 1) maximizing opportunities for small businesses below the simplified acquisition threshold (SAT) of $150,000, 2) maximizing use of small businesses under the Multiple Award Schedules program, and 3) increasing the accountability of agencies to reach their small business goals.

OFPP and SBA are asking agencies to review their small business contracting practices for purchases below the SAT and make adjustments as necessary.  In a sample agency memo provided by the OFPP and SBA, agencies are reminded of their “statutory requirement of awarding 100% of contracts below the SAT to small business when the rule of two is met”.

In order to maximize opportunities for small businesses under the GSA Schedules program, agencies are to:

  1. Issue a memorandum to the acquisition workforce reminding them of the interim FAR rule on section 1331
  2. Consider requiring order set-asides under multiple award contracts if the agency is not currently meeting its small business goals
  3. Bilaterally modifying existing multiple award contracts to allow for order set-asides
  4. Strengthen internal controls
  5. Review SBA’s proposed rule on Section 1331
  6. Ensure the workforce is trained on set-asides under the Schedules

Finally, to hold agencies more accountable for achieving their small business goals, OFPP and SBA encourage agencies to include small business contracting goals in the performance evaluations of all Senior Executive Service (SES) staff who oversee the acquisition workforce.

3. Coalition Urges DoD to Suspend Furniture Acquisition

The Coalition issued a letter this week to Frank Kendall, Under Secretary of Defense for Acquisition, Technology, and Logistics, outlining the association’s concerns with an Air Force acquisition strategy to procure office furniture.  The Coalition is urging the Department of Defense to suspend the acquisition for a top down review of the strategy by Defense Procurement and Acquisition Policy (DPAP). The procurement of concern is a RFP for systems and modular furniture issued by the Enterprise Sourcing Group at Wright-Patterson Air Force Base.  The acquisition utilizes a two tiered approach.  A copy of the Coalition’s letter is available here. 

3. OMB Guidance on Modular Development

The Office of Management and Budget (OMB) released guidance on June 14 to support modular development, which would divide IT projects into smaller parts. According to OMB, this approach reduces investment risk for agencies, delivers capabilities more rapidly, and permits easier adoption of newer and emerging technologies.  OMB’s new guidance titled Contracting Guidance to Support Modular Development provides instructions for agencies to implement this process from both a technical and contractual perspective.  It also highlights critical success factors for adopting modular approaches, including the need to strengthen collaboration among agency IT, program, acquisition and finance offices in order to design, resource, and manage investments. According to OMB, indefinite-delivery indefinite-quantity (IDIQ) contracts are likely to be the most popular contracting form as agencies migrate to modular development.  The guidance also encourages agencies to employ payment strategies that encourage up front due diligence so that vendors can develop lower risk solutions that can be met with fixed-price contracts.

4. GAO Testifies on Office Supplies FSSI

The Government Accountability Office (GAO) presented testimony on a study of federal office supply purchases before the House Small Business Committee on June 7th.  The subject of the Subcommittee on Contracting and Workforce’s hearing was Success? Issues and Opportunities for Small Businesses on the GSA Schedules.  In its testimony, GAO shared the results of their study of office supply pricing under the Federal Strategic Sourcing Initiative (FSSI) BPAs and some of the savings estimates that GSA has reported as part of the program.  GSA found in 2010 that during FY 2009, the 10 largest federal agencies accounted for about $1.3 billion, or about 81 percent, of the total $1.6 billion spent governmentwide in 14 categories of office supplies.  GSA also estimated that about 58% of these office supply purchase were made outside of the Schedules program, mostly at retail stores.  As a result, GSA estimated that agencies paid an average of 75% more than Schedule prices for these items and 86% more than prices available through the office supplies FSSI BPA (Office Supplies II).  In GAO’s study, they identified some limitations to GSA’s estimates that lead them “to question the magnitude of some of GSA’s reported price premiums and assertions.” That said, federal agencies that participated in the GAO study, including the Air Force, Army, Navy, and DHS, supported GSA’s conclusion in their own studies that “better prices can be obtained through consolidated, leveraged pricing”.  The full GAO report is available at

5. GSA Explores Alternatives to DUNS

On June 12, the Government Accountability Office (GAO) released a letter in response to a GSA request to explore alternatives to the Data Universal Numbering System (DUNS). A DUNS number is currently required of all prospective contractors in order to do business with the Federal Government. The letter, entitled, Government Is Analyzing Alternatives for Contractor Identification Numbers (GAO-12-715R), examines “(1) how the government currently contracts for and uses DUNS numbers; (2) the challenges posed by the government’s use of DUNS numbers; and (3) steps GSA has taken to mitigate these challenges.” According to GAO, there has been a dramatic increase in the number and types of entities that are required to have DUNS numbers to do business with the government. GSA also has expanded the level of business information services that it acquires from Dun & Bradstreet, the owner of DUNS. As a result of this increase GSA’s costs have risen from $1 million in 2002 to approximately $19 million per year under the current contract. These rising costs, restrictions on the government’s data rights, and a lack of competition have prompted GSA to explore alternative options for obtaining unique identifiers. GAO recommends that GSA begin negotiations with Dun & Bradstreet on “ways to reduce the current restrictions on the use of DUNS numbers, so as to ensure that Government agencies have improved access to information needed to effectively fulfill their missions.”  GSA’s analysis of this issue is expected to conclude in September 2012.

6.  Legal Corner

Proposed Rule Would Create SBIR and STTR Opportunities For Investment Companies

Guest Bloggers: Richard Oliver and Agustin Orozco, McKenna Long & Aldridge LLP

The Small Business Administration (“SBA”) recently issued a proposed rule which, for the first time, would allow venture capital operating companies, hedge funds and private equity firms (“investment companies”) to meaningfully participate in the Small Business Innovation Research (“SBIR”) and Small Business Technology Transfer (“STTR”) programs.  This proposed rule would implement provisions of the National Defense Authorization Act for Fiscal Year 2012.  Specifically, the proposed rule would revise the affiliation rules for participants in the SBIR and STTR programs to permit participation by concerns that are majority-owned by multiple investment companies.  See 77 Fed. Reg. 28520-30, May 15, 2012.

Access to the SBIR and STTR programs would be a significant funding opportunity for small businesses that are largely owned by investment companies.  The SBIR and STTR programs were created to award federal research grants to small businesses.  Specifically, the purpose of the SBIR program is to stimulate technology innovation by strengthening the role of innovative small business concerns in federally-funded research and development.  Federal agencies may award up to $150,000 for a Phase I SBIR contract and up to $1,000,000 for a Phase II contract.  Agencies also will have discretion to exceed the SBIR contract award amounts by up to 50 percent and even to award a second Phase II contract.  Similarly, the STTR program requires certain federal agencies to enter into funding agreements with small business concerns that engage in a collaborative relationship with research institutions.

The proposed rule would allow investment companies to participate in the SBIR and STTR programs, as long as no single investment company owns more than 50 percent of the concern.  The proposed rule would modify the affiliation rules solely for the SBIR and STTR programs.  Currently, such concerns would not be eligible, because the concern would be considered to be affiliated with not only the investment companies, but also the other companies owned by these investment companies.  SBA’s general principles of affiliation state that if two or more persons own, control or have the power to control less than 50 percent of the concern’s voting stock, but the blocks of stock are equal or approximately equal in size, the SBA presumes each person to control the business concern.  By contrast, SBA’s proposed rule provides that where an SBIR or STTR applicant’s voting stock is widely held or where two or more persons (including investment companies) hold large blocks of voting stock but no one person owns more than 50 percent of the stock, the board of directors controls the applicant.  The investment companies, therefore, would not be affiliated with the SBIR or STTR applicant.

The proposed rule would also amend the current affiliation rules with respect to an investment company’s portfolio companies.  Under the proposed rule, an SBIR or STTR applicant would not be affiliated with a portfolio company of an investment company solely on the basis of shared investors.  Additionally, the proposed rule states that if an investment company is determined to be affiliated with an SBIR or STTR applicant, the applicant will not be affiliated with a portfolio company of the investment company, unless: (1) the investment company owns a majority interest in the portfolio company; or (2) the investment company holds a majority of the seats of the board of directors of the portfolio company.

There are several aspects of the proposed rule that may be addressed during the public comment period.  While the proposed regulation references stock ownership by “multiple” investment companies, it does not address the allowable percentage amount of minority ownership.  Thus, two investment companies could each own 49 percent of the concern.  The proposed rule also does not require that the multiple investment companies not be affiliated.  Two “sister” investment companies could each own 49 percent of the stock, with the small business being 98 percent owned by two related investment companies.

In order to participate in the SBIR and STTR programs, these small businesses must qualify as a “domestic business concern.”  The proposed rule would revise the definition of domestic business concern in anticipation of the participation of small businesses owned by multiple investment companies.  The new definition would continue to use the SBA’s definition of “business concern or concern,” however, it would also require the business concern to be created or organized in the United States, or under the law of the United States or of any State.

The proposed rule would amend the time at which SBA makes size and eligibility determinations for SBIR and STTR contracts.  Currently, size and eligibility are determined at the time of award for both Phase I and Phase II awards.  The proposed rule, however, would require the SBIR or STTR applicant to meet the size and eligibility requirements both at the time of submission of the application and at award.

Finally, with respect to certification, the proposed rule would require concerns that are majority-owned by multiple investment companies to register with SBA on or before the date they submit a response to an SBIR solicitation.  In addition, these concerns would be required to indicate in their SBIR proposals that they have completed this registration.

Comments on the proposed rule are due on or before July 16, 2012.


7. OFPP Proposes Changes to Value Engineering Model

On June 8, the Office of Federal Procurement Policy (OFPP) posted a Federal Register notice to revise OMB Circular No. A-131, “Value Engineering”.  OFPP is proposing to revise the circular to update and reinforce policies associated with the consideration and use of Value Engineering. According to the notice, Value Engineering refers to an organized effort to analyze functions of systems, equipment, facilities, services, and supplies for the purpose of achieving the essential functions at the lowest life-cycle cost consistent with required levels of performance, reliability, quality, and safety. OFPP is proposing to revise Circular A-131 to reflect present-day buying strategies and practices, such as performance-based service contracting, to ensure that the Federal Government is effectively considering and taking full advantage of VE, whenever appropriate, to cut waste and inefficiency and promote greater fiscal responsibility, according to the notice. The revisions that are proposed would:

  1. Reinforce the importance of giving meaningful consideration to VE to save money and improve performance.
  2. Explain that VE can be used with various contract types and methods of contracting, and with other management tools.
  3. Increase the threshold for the application of VE. The proposal would raise the threshold from $1 million to $2 million.
  4. Strengthen employee training with regard to VE.
  5. Reduce reporting requirements.
  6. Remove outdated terminology and update references; Remove automatic Inspector General (IG) review.

Comments should be submitted on or before August 7, 2012.

8. GSA Completes Vendor Survey

The General Services Administration’s Federal Acquisition Service completed for the first time a survey of its vendors. As reported by Federal News Radio, Steve Kempf, Commissioner of FAS, said GSA wanted to gain insight into specific questions from vendors. According to Kempf, the agency scored high in areas related to contractors’ long-term commitment to GSA and FAS in particular. Some areas of improvement include how GSA shares risks and how it works with federal contractors. The survey also will influence GSA’s work on its next generation of schedules initiative.

9. OASIS One-on-One Feedback Sessions

GSA has announced through an online Interact group called the OASIS Industry Community that they will conduct one-on-one feedback sessions on OASIS.  Details will be announced through the OASIS Industry Community soon. Members interested in learning more are encouraged to join the group.  GSA is in the process of developing a methodology for conducting the one-on-one sessions.  The OASIS team has created a list of ground rules for the sessions and a framework for submitting white papers. These one-on-one feedback meetings are intended to contribute to the content of the draft Request for Proposal (RFP), which GSA says will be released this summer.

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