This week’s Comment returns to the Thirteen Thoughts for 2013 addressing “Thought No 7: From Strategic Sourcing to Strategic Acquisition.” With the ongoing budgetary challenges (sequestration) facing the federal enterprise, strategic acquisition represents an opportunity to do more with less. The goals of strategic acquisition boil down to effectively managing “total acquisition cost” (TAC) and achieving best value outcomes that support agency missions. Too often it appears that the effectiveness of strategic sourcing is focused on the unit price paid by the customer. The price paid is merely the tip of the iceberg. However, like an iceberg, the procurement system includes transactional and administrative costs that are “below the water line.” These costs are a tax on the system. The growth of government unique contract and procedural requirements reduce access to commercial solutions, increase prices paid and reduce competition across the federal enterprise. Moreover, these costs have a significant negative impact on small businesses competing in the federal marketplace.
At our 2013 Spring Conference, Shay Assad, Director of Pricing for the Department of Defense, invited the attendees to provide feedback on procurement practices of the Department that are unnecessarily increasing costs (e.g. costs outweigh the benefits). We applaud and appreciate Shay’s challenge! It was a Myth-Busters moment! The Coalition will take up Shay’s invitation and will provide comments and feedback to Defense Procurement and Acquisition Policy (DPAP). Earlier this year the Coalition provided GSA’s Federal Acquisition Service (FAS) with similar comments and feedback in response to an invitation made by FAS at our 2012 Fall Conference. These invitations are part of a strategic acquisition dialogue between government and industry that is vital to identifying cost savings while maintaining best value mission support.
Government unique contract and procedural requirements increase the procurement system’s Total Acquisition Cost (TAC). The last decade has seen a layering on of government unique clauses, regulations and performance requirements on commercial item contracting. In particular, over the years we have seen a significant increase in additional government clauses on commercial item contracts in the FAR. In turn, agencies have also added their own unique requirements that are inconsistent with commercial practice. What is lost to the government customer is the opportunity to leverage the commercial marketplace—the less the government buys like the commercial marketplace the higher the transactional cost. Strategic acquisition should embrace a return to commercial item contracting as authorized by the Federal Acquisition Streamlining Act of 1994.
Another significant cost driver for the entire federal procurement system is contract duplication. Simply put, across the federal enterprise there are too many multiple award IDIQ contracts for the same or similar services and products. Agencies should be looking to pre-existing contract vehicles such as the GSA multiple award schedules (MAS), the IT GWACs managed by NIH, NASA, and GSA and/or long standing enterprise contract programs such as Seaport-E. Conducting streamlined task order competitions under these contract vehicles will save time and money. Unfortunately, too often agencies create their own contract vehicles for services and products that are already available under pre-existing contracts—and companies feel compelled to compete for these new contracts for fear of being shut out of a market. This costly cycle must end! Government and industry can and will achieve significant savings by reducing unnecessary contract duplication.
More troubling is the growth of generic Blanket Purchase Agreements (BPAs) under GSA’s MAS program in the name of strategic sourcing. The result is vertical contract duplication. GSA establishes the MAS contracts. GSA (or a lead agency) then competes and awards a set of generic government-wide multiple award BPAs and finally the ultimate agency customer subsequently competes specific task order requirements among the BPA holders. The generic BPAs are an unnecessary step in the process. GSA’s MAS contracts are the strategic sourcing/acquisition platform that provide a base for subsequent task order competitions for agency specific requirements. The task order competition for specific agency requirements drives the prices paid and best value solutions delivered. The intermediate, generic BPAs are a costly and unnecessary procedural step for government and industry. With that in mind, the Coalition has developed a set of BPA best practices that can be found here.
Measuring and managing TAC is the key to strategic acquisition. Contract duplication and a return to commercial item contracting are key opportunities to achieve savings for government, industry and the taxpayer. The Coalition will respond to Shay’s invitation with additional opportunities for savings. As a strategic matter, reducing unnecessary cost drivers in the system will provide more competition, innovation and best value solutions. For more on strategic acquisition, please take a look at this editorial that appeared in the Federal Times.
On Monday, the Department of Defense issued a directive updating the roles and responsibilities of its Chief Information Officer. The document builds on former guidance to include some of the DoD’s most pressing challenges, according to FCW. The guidance includes CIO tasks pertaining to cybersecurity oversight and the cybersecurity workforce. Specifically, it directs the CIO to work with the commander, U.S. Cyber Command, on matters including requirements and capabilities for cyber operations, network defense and monitoring, and cyberspace threats and domain requirements. Also, the update transfers to the CIO the duties of the previous assistant secretary of defense for networks and information integration. ASI Government notes that the new directive “grants the CIO authority to communicate directly with DoD component heads and with other executive branch officials, state and local officials, nongovernmental organization representatives and members of the public,” among others.
In a report dated April 10, the DHS Office of Inspector General (OIG) reports that the Federal Emergency Management Agency (FEMA) needs to improve its internal controls over the acquisition process, which have led to “insufficient program oversight, the purchase of unnecessary items, and missed opportunities for cost savings.” It is noted that the OIG looked at the acquisition of consumable items such as office supplies and found that certain areas of the acquisition process needed to be addressed. Areas that FEMA should focus on improving include strategic sourcing and acquisition management. The OIG recommends that FEMA “effectively communicate strategic sourcing guidance to acquisition staff at headquarters and in the field, including Joint Field Offices (JFO) as they are established.” Concerning acquisition management, FEMA is tasked with “implementing an agency-wide electronic tracking system for JFO acquisitions, accessible on the FEMA headquarters Intranet.”
On April 23, Director of Defense Procurement and Acquisition Policy Richard Ginman required the DoD to review a sample of 100 applicable contract actions with a value greater than $3,000 from the first and second quarters of FY 2013 to determine if the contract actions include requirements for sustainable products and services. The memo was issued in order to ensure compliance with the DoD Strategic Sustainability Performance Plan (SSPP) 6.1, which requires that 95% of contract actions for applicable products and services, meeting DoD performance requirements, meet the criteria of sustainability by containing green and environmentally friendly materials. For each selected contract action, the reviewer shall identify which of the following item categories apply:
- Environmental Protection Agency designated recycled content products
- Energy-efficient products
- Department of Agriculture designated biobased products
- Environmentally preferred products
- Electronic Product Environmental Assessment Tool (EPEAT) registered products
- Significant New Alternatives Policy (SNAP)/non-ozone-depleting substances
- Water-efficient products
Last week, the House of Representatives passed the Cyber Intelligence Sharing and Protection Act (H.R. 624) by a vote of 288-127. The bill would allow the government to share classified cyber threat information with private sector businesses and encourage U.S. business to share cyber threat information with each other and the government. According to the Washington Post, the bill has drawn a veto threat from the Administration due to a number of issues raised by civil liberties and privacy groups.
On Monday, the Defense Department released a memorandum announcing a new mandatory enterprise service for procurement professionals and contract writing applications. The Clause Logic Service (CLS) will be used for all new contract writing capabilities throughout DoD. The purpose of this service is to ensure uniform application of the Federal Acquisition Regulations (FAR) and the Defense Federal Acquisition Regulation Supplement (DFARS). According to the memo, “CLS is an authoritative, rules driven engine that determines the FAR and DFARS clauses for both solicitations and contracts.” Director of Defense Procurement and Acquisition Policy Richard Ginman also notes that, “to ensure efficiency, lower costs, increase consistency and accuracy of the clause selection in contracts, the CLS will be implemented in phases. Initially, DoD plans to target new or emerging contract writing systems for implementation, while the Defense Logistics Agency, Defense Information Systems Agency and the Air Force have volunteered pilot activities to assess the system early on. For more information, please link to the memorandum above.
Defense News reports that the Pentagon is preparing to ask Congress for permission to shift $7.5 dollars within its FY 2013 budget to pay for increased war costs. The reprogramming action is expected to be submitted to Capitol Hill by the end of April. “The military is experiencing higher operating tempos and higher transportation costs than expected when the budget request was formulated, more than a year ago,” said Defense Secretary Chuck Hagel at an April 17 House Appropriations defense subcommittee hearing. “As a result of these factors, the department is now facing a shortfall in our operation and maintenance accounts for FY 2013 of at least $22 billion in our base budget for active forces.” According to Defense News, the Army is facing the greatest operating shortfalls, meaning money within the reprogramming could likely be transferred to the Army from Navy and Air Force accounts.
On Thursday, the Department of Homeland Security (DHS) issued a Request for Information on FedBizOpps.gov for feedback on how to improve the Acquisition Planning Forecast System (APFS). The DHS APFS is a DHS-wide acquisition portal which captures and consolidates the DHS forecast of planned contract requirements valued at $150,000 or greater, and is used to provide industry with a forecast of planned contract opportunities. DHS is seeking industry comments on the information provided to the public via the DHS APFS acquisition portal. Specifically, DHS would like “industry to look over what DHS is planning on doing and to recommend additions, changes, deletions etc. that industry feels would provide better information than what industry presently has to work with.” Comments and feedback are due to DHS no later than 5:00 pm Eastern Standard Time (EST) on Wednesday, May 1, 2013.
Let’s Just Pretend the FAR Change Didn’t Happen
By Phil Seckman, Partner, McKenna Long & Aldridge LLP
The Federal Circuit’s recent decision in Sharp Electronics Corporation addresses a quandary familiar to federal supply schedule contractors regarding the proper contracting officer (CO) to whom the contractor must direct its contract claims to ensure jurisdiction. Sharp Corporation v. McHugh, 2013 WL 646330 (Fed. Cir. 2013). The Federal Circuit’s decision relates to a 2002 change to the Federal Acquisition Regulation (FAR) and seeks to provide contractors with certainty by announcing a so-called bright-line rule for interpreting the meaning of the disputes provision for schedule contracts. Despite the Federal Circuit’s intentions, ambiguities remain.
Prior to the 2002 FAR change, the FAR provided that “[t]he ordering office shall refer all unresolved disputes under orders to the schedule contracting officer for action under the Disputes clause of the contract.” 48 C.F.R. § 8.405-7 (2000). Because only the GSA CO had authority under the Disputes clause, it was clear before the FAR change that any contractor claim relating to an order placed under a schedule contract must be submitted to the GSA CO to ensure jurisdiction under the Contract Disputes Act (CDA). The FAR also made it clear that the ordering office was to refer any unresolved contractor claims to the GSA CO.
Then, on June 27, 2002, the FAR was amended to incorporate new policies for disputes in schedule contracts. 67 Fed. Reg. 43,514 (the final rule was effective on July 29, 2002). As the FAR councils noted when publishing the proposed rule, the change was being made to “permit the ordering office contracting officer to issue a final decision regarding disputes pertaining solely to performance of schedule orders.” 65 Fed. Reg. 79,702 (Dec. 19, 2000).
The revised regulation provides:
(a) Disputes pertaining to the performance of orders under a schedule contract. (1) Under the Disputes clause of the schedule contract, the ordering activity contracting officer may —
(i) Issue final decisions on disputes arising from performance of the order (but see paragraph (b) of this section); or
(ii) Refer the dispute to the schedule contracting officer.
(2) The ordering activity contracting officer shall notify the schedule contracting officer promptly of any final decision.
(b) Disputes pertaining to the terms and conditions of schedule contracts. The ordering activity contracting officer shall refer all disputes that relate to the contract terms and conditions to the schedule contracting officer for resolution under the Disputes clause of the contract and notify the schedule contractor of the referral.
(c) Appeals. Contractors may appeal final decisions to either the Board of Contract Appeals servicing the agency that issued the final decision or the U.S. Court of Federal Claims….
48 C.F.R. § 8.406-6 (2004) (the text from the 2002 FAR amendment was renumbered in 2004).
The plain language of this regulation establishes that when a contractor submits a claim to an ordering activity CO, it is that CO’s responsibility to determine whether a dispute relates solely to the performance of an order or, instead, pertains to the terms and conditions of the schedule contract. Thus, one might have read the regulation to mean that a contractor could submit a claim to either the ordering activity CO or the GSA CO. Then, the government would determine which CO possessed authority to issue a final decision.
While such an interpretation is certainly logical and reasonable, it is wrong. The Federal Circuit’s decision makes it clear that it is the schedule contractor, and not the CO, that is responsible for determining to whom its claims must be submitted. Failure to identify the correct CO may result in the dismissal of an appeal for lack of CDA jurisdiction. Choosing the appropriate CO is made all the more critical where a schedule contractor is nearing the CDA six-year statute of limitations.
The Sharp Electronics case involved a contractor’s certified claim requesting fees under the termination provisions of an Army order placed against a schedule contract. The contractor submitted its claim to the Army CO. Critically, the Army CO disregarded the clear responsibility under FAR 8.406-6 and ignored the claim. Thus, the 60-day CDA decision period elapsed and — in the contractor’s view — resulted in a “deemed denial.”
The contractor then appealed to the Armed Services Board of Contract Appeals (ASBCA). Sharp Elecs. Corp., ASBCA No. 57583, 12-1 B.C.A. 34,903. Both the contractor and the government believed that their dispute should be decided by the ordering agency CO. Both parties believed the dispute was based on the order contract performance and not the terms of the schedule contract. In fact, neither party raised the jurisdictional issue. The ASBCA raised the issue on its own.
The ASBCA then held that it lacked jurisdiction over the appeal because the dispute did require the interpretation of the schedule contract and, therefore, only could have been decided by the GSA CO. The contractor’s decision to submit the claim to the Army CO, combined with that CO’s failure to forward the claim, meant there had been no properly submitted claim under the CDA and, therefore, no “deemed denial” from which to appeal. Id. The fact that the regulation clearly places the responsibility upon the ordering activity CO to make a determination regarding his/her own authority to resolve the dispute and then to forward claims to the GSA schedule CO when the dispute pertains to the terms and conditions of the schedule contract did not alter the outcome.
In a split decision, the Federal Circuit affirmed the ASBCA decision finding that under FAR 8.406-6 the ordering agency CO did not have the authority to make a determination regarding the contractor’s claim because the dispute involved, at least in part, interpretation of the terms of the schedule contract. The Federal Circuit’s decision announces a so-called bright-line rule that “all disputes requiring interpretation of the schedule contract go to the [GSA] schedule CO, even if those disputes also require interpretation of the order, or involve issues of performance under the order.” See Sharp Elec., supra at *6
The Federal Circuit, in highlighting the bright-line, attempts to address the jurisdictional uncertainty under FAR 8.406-6 created by the 2002 rulemaking. As noted by the dissent, however, the Court has succeeded in, effectively, reinstituting the prior rule that all disputes relating to schedule contracts should be submitted to the GSA CO. In other words, when in doubt, contractors must submit claims to the GSA CO.
Perhaps being defensive regarding the dissent’s objections, the Court noted that under a schedule contract an ordering agency CO remains authorized to make final determinations regarding performance, the terms of an order or its modifications “as long as the dispute does not involve interpretation of the schedule contract.” The Court also states that an ordering agency CO may resolve a dispute by “applying the relevant provisions of the schedule contract “as long as their meaning is undisputed.”
Despite these statements, however, the actual effect of this holding, as the dissent properly points out, will be that most contract disputes under schedule contracts will be submitted to the GSA CO and not the ordering agency CO. Indeed, many disputes can be characterized as requiring interpretation of the schedule contract. Thus, contractors that submit claims to ordering activity COs who are inclined to disregard the claim, as did the Army CO in the Sharp case, run the risk that what seems to be a “deemed denial” is, in reality, a nullity under the CDA.
For these reasons, prudent schedule contractors will submit claims to GSA COs. GSA COs, however, typically have very little, if any, knowledge regarding the facts of a dispute that primarily relates to performance under an order and only tangentially requires the interpretation of the schedule contract. This could lead to increased denials or deemed denials of contractor claims. Nevertheless, after this decision, if a dispute may pertain to interpretation of a schedule contract terms and provisions, a schedule contractor, particularly one with a potential statute of limitations issue, will be wise to submit its certified claim to the GSA CO or risk a similar outcome.
Jim Ghiloni to Join GWAC/MAC Committee, May 1
The Coalition is pleased to announce that Jim Ghiloni, OASIS Program Manager, will be a guest speaker at next week’s GWAC/MAC Committee meeting. This conversation will provide a great opportunity to learn more about the acquisition strategies and potential contract structure of this important program. The meeting is open to all Coalition members and will be held on Wednesday, May 1st at 9:30 am at Deloitte (1750 Tysons Blvd, Lower Level, McLean, VA 22012). For more details and to RSVP, please contact Roy Dicharry at email@example.com.
Carolyn Alston on Off the Shelf
Carolyn Alston, Executive Vice President and General Counsel for The Coalition for Government Procurement, joins Roger Waldron on the Off the Shelf radio program to discuss contract duplication, strategic sourcing, strategic acquisition, and the modernization of GSA’s Multiple Award Schedules (MAS) program. Alston also talks about the Coalition’s Spring Conference held last week and some of the themes that came out of the event. Click here to listen to the program.
Join The Coalition for Government Procurement for a roundtable discussion of the General Services Administration’s $60 billion+ contracting portfolio. GSA oversees the business of the U.S. federal government and provides workplaces for federal employees. GSA’s recently revised mission statement and how those changes will affect GSA customers and your contract will be the focus of the event.
For more information and to register, click here.
Join The Coalition and experts from Berkeley Research Group on May 21 at 12:30 pm for a discussion regarding the systems, processes and controls necessary to comply with the requirements of the PRC and other post-award pricing considerations. The presentation will provide an overview of the requirements of the PRC and common misconceptions related to the clause. In addition, we will share best practices and strategies for minimizing PRC and other pricing compliance risks. Finally, we will discuss processes, controls, roles and responsibilities typically found in effective PRC monitoring systems. Perhaps the most debated and lamented post-award pricing requirement in a GSA and VA schedule contract is the Price Reduction Clause (PRC). Despite being cited as the basis for a number of infamous civil False Claims Act settlements involving GSA and VA Schedule contracts, there is very little information available in the public domain in the form of case law, audit guidance or best practices pertaining to compliance with the clause. Registration and more information!>>
Continuing Legal Education (CLE) credits are now available for the Coalition’s General Services Administration (GSA) Schedule Contracting for In-House Counsel training scheduled for June 27, 2013. Attendees can earn 6 CLEs for the course with the Virginia State Bar.
GSA Schedule Contracting for In-House Counsel Training
June 27, 2013 8:00 am
McKenna Long & Aldridge LLP
1900 K St NW
About the course:
This GSA Schedule Contracting for In-House Counsel training will provide information and tools to help you understand the GSA/VA Schedule contracting program and provide insightful legal advice to your in-house client.
The GSA Schedule, including the delegated VA Schedules, is a $50 billion contracting program that all federal agencies use to acquire commercial services and products. These multiple year, government-wide contracts cover professional services, information technology, pharmaceuticals, medical equipment and a vast array of commercial products.
Schedule contracts offer a huge market opportunity. Thousands of companies including both Fortune 500 companies and a vast number of small businesses have GSA/VA Schedule contracts. All federal agencies, and in some instances state agencies, can place orders against the contracts.
Of particular interest to in-house counsel, Schedule contracts have a pricing methodology, and disclosure requirements that are unique in federal government contracting. The contracts provisions must be correctly understood, managed and monitored to assure that your company realizes anticipated profits. Failure to do so can result in significant monetary, administrative, civil and even criminal penalties.