Last week the Coalition provided shutdown information for our members in anticipation of the current stalemate. This week we have continued to provide updates to our members regarding the operational mechanics of the shutdown. On Tuesday, Beth Ferrell, Partner at McKenna Long & Aldridge LLP, was my guest on “Off the Shelf” and discussed the shutdown process, including useful information for contractors in dealing with the government during this difficult time. Also on Tuesday the Coalition provided an update on GSA operations during the shutdown. Last night the Coalition provided members with the notice that due to the shutdown GSA has suspended the OASIS procurement indefinitely. Below is a current list of shutdown information available on our website for your review.
Government Shutdown Information:
- GAO Bid Protest Shutdown Procedures
- OMB: List of Agency Contingency Plans
- McKenna Long & Aldridge LLP: Costs and Delays Resulting From The Government Shutdown (10/3/2013)
- Coalition Notice on GSA Shutdown Operations (10/1/2013)
- Off the Shelf Radio Interview with Beth Ferrell, Partner, McKenna Long & Aldridge LLP (10/1/2013)
- GSA Shutdown Guidance (9/27/2013)
- Letter to Coalition from DHS Chief Procurement Officer Nick Nayak (9/26/2013)
- Letter to Coalition from DoD Undersecretary for Acquisition Technology & Logistics Frank Kendall (9/26/2013)
- DoD: Guidance for Potential Government Shutdown (9/23/2013)
- McKenna Long & Aldridge LLP: Déjà vu: Preparing (Again) for a Possible Government Shutdown (9/19/2013)
- OMB: Planning for Agency Operations during a Potential Lapse in Appropriations (9/17/2013)
The Coalition will continue to serve our members through the shutdown by providing the latest information regarding government operations. If members have questions regarding the shutdown, please contact the Coalition at (202) 331-0975.
This week the Coalition distributed a notice for members about our expectations when dealing with GSA’s Federal Acquisition Service (FAS) during the government shutdown. Our understanding of how GSA will operate in this environment:
- GSA is a centralized acquisition agency, responsible for providing mission critical services to other federal agencies.
- GSA FAS is funded by the industrial funding fee and other fees assessed on sales under GSA contracts, not by direct appropriations.
Consequently during a partial federal shutdown such as the government is now experiencing, the Coalition anticipates that initially GSA FAS will continue to operate normally. We expect that contracting officers will be on the job, and that unless you are notified to the contrary negotiations, meetings, IOA visits, due dates, etc. will remain unaffected. Should the shutdown continue for a period of time such that the amounts in the GSA’s revolving fund may be impacted, we anticipate that GSA may begin to reduce operations. Our best guess is that GSA will assess this situation over the next week.
The GSA Order on Operations in the Absence of Appropriations states that the agency will not make payments to contractors for products and services not obligated before the funding lapse. Consequently, we expect that contractors will be paid for products and services obligated on or before September 30, 2013.
FAS advises that vendors contact their respective FAS Contracting Officer if you have any questions related your company’s specific contracts. If you have any questions regarding this message please contact Carolyn Alston at email@example.com.
This week on “Off the Shelf”, Beth Ferrell, partner at McKenna Long & Aldridge LLP, talks to Coalition President Roger Waldron about what every contractor needs to know about the government shutdown. Ferrell provides a due diligence checklist for contractors in dealing with their customer agencies and contracts during the shutdown. Ferrell’s checklist is an essential contract risk management tool for contractors. Listen to the program here.
The government delayed major procurements until further notice in the wake of the government shutdown—GSA’s $60 billion OASIS contract and NASA’s $20 billion SEWP V contract. GSA issued a notice on FedBizOpps Thursday stating that, “In consideration of the Government shutdown and the associated potential impact on the OASIS proposal preparation process, the proposal due date of this solicitation is hereby suspended indefinitely.” GSA will notify the public once a definitive OASIS due date is established after FY2014 appropriations have passed and standard government operations resume.
NASA also announced on Wednesday, October 2, that the due date for its $20 billion NASA SEWP V solicitation is “to be determined”. NASA will provide an update on the due date for proposals when the government shutdown has ended. The announcement also stated that, “NASA will be unable to respond to any individual emails or phone calls until the furlough has ended.”
The U.S. Government Accountability Office (GAO) posted a notice stating that the GAO bid protest office would be closed during the government shutdown. There will not be any personnel monitoring protest filings during this time. According to the GAO website, the following procedures apply while the bid protest office is closed:
- GAO will endeavor to decide protests within 100 days of when they are filed. If necessary, decision deadlines will be extended one day for each day that GAO is closed.
- Any deadline for a protest filing from a private party that falls on a day that GAO is closed is extended to the first day that GAO resumes operations. This extension operates in the same manner as when a deadline falls on a weekend or federal holiday.
- Any deadline for an agency filing–such as an agency report or other filing requested by GAO–may, upon request, be extended by up to one day for each day that GAO is closed.
- Any new protest received by GAO during the time that GAO is closed will be treated as filed on the day that GAO resumes operations.
- The procedures for filing a protest-related document during the time GAO is closed are as follows:
- GAO will continue to receive email at firstname.lastname@example.org. The email@example.com email address will be the only method by which GAO will receive filings during the time GAO is closed.
- GAO’s mail center is closed. We will not receive any filings by U.S. Mail, commercial carrier, or hand delivery.
- GAO will not receive any filings submitted by fax during the time our Office is closed. The fax machines will be disabled.
Although the GAO’s bid protest office is closed during the government shutdown, the Civilian Board of Contract Appeals and the U.S. Court of Federal Appeals will continue to accept protest filings.
The Washington Post published a map this week of the top 100 metro areas with government and military workers, demonstrating the impact of the government shutdown nationwide. Colorado Springs is at the top of the list with 18.8% of all workers being employed by the government or military. The D.C. metro area is fourth on the list behind Colorado Springs, Virginia Beach- N.C., and Honolulu. To view the interactive map, click here.
In a hearing before the Senate Judiciary Committee this week, Director of National Intelligence James Clapper told members that approximately 70% of civilians in the intelligence community are on furlough, and their absence presents a danger to national security. “I’ve been in the intelligence business for about 50 years. I’ve never seen anything like this…This affects our global capability to support the military, to support diplomacy and foreign policy matters. The danger here is that this will accumulate over time. The damage will be insidious, so each day that goes by the jeopardy increases.”
Until Congress passes FY2014 appropriations, agencies that comprise the intelligence community, including the Central Intelligence Agency, the Defense Intelligence Agency and the National Security Agency, are operating at reduced capacity. To watch the hearing, visit www.judiciary.senate.gov/hearings/hearing.cfm?id=0c23b88fc3b21bc51f6445cd14baddfe.
GSA issued FAS Instructional Letter 2013-06 on September 16, 2013, to provide guidance on clause I-FSS-125, Requirements Exceeding the Maximum Order. The clause is no longer used in GSA Schedule contracts. An Office of the Inspector General (OIG) audit last spring found that the clause remained in some old contracts and further found that the OIG disagreed with how contractors interpreted the clause. The Friday Flash previously reported on the audit report and promised updates when appropriate.
The Instructional Letter does not change any policy regarding when a price decrease to a commercial customer will trigger a reduction to the government pursuant to the GSA Schedule Price Reductions Clause. Rather, the instructional letter addresses how the amount of the price reduction to the government should be calculated. Specifically, it states the government’s position that if a price reduction is triggered, the reduction must be applied to all government orders regardless of size, For example:
- Government and contractor both agree that the Basis of Award customer received a 2% price decrease
- The Maximum Order Threshold is $1 million
- Total sales to the government under the GSA schedule contracts was $15 million
(a) The government has 10 orders under $1 million dollars, totaling $5 million
(b) The government has an additional 5 orders over $1 million totaling $10 million
The Instructional Letter would take the position that the price reduction owed to the government is 2% of $15 million. The OIG audit found that MAS contractors previously took the position that the 2% should be applied only to orders under the MO; in this example $5 million. You can read the entire Instructional Letter here.
Costs and Delays Resulting From The Government Shutdown
By: Elizabeth Ferrell, Partner, McKenna Long & Aldridge LLP, Thomas Lemmer, Partner, McKenna Long & Aldridge LLP, and Tyson Bareis, Associate, McKenna Long & Aldridge LLP
The government shutdown is already creating headaches for government contractors. Among other things, closed government sites, lack of government direction, and the absence of critical government employees is impacting the cost and schedule of government contract performance.
Understandably, contractors are wondering who will be responsible for the costs and delays resulting from the shutdown. While the answer to this question will depend on the circumstances of a particular contract and the impact the shutdown has on that contract, as a general matter, contractors should keep in mind the following guidance as they consider how best to protect their interests during the shutdown:
- Document that cost impacts and performance delays result from government contractual action. There is risk that a government shutdown is a sovereign act, precluding any contractual recovery. To mitigate this risk, ensure that you have received, or will receive, a stop work notice or some other contractual direction and that this direction is maintained in the contract file.
- Costs resulting from the government shutdown should be recoverable. When contractual direction exists, costs reasonably incurred as the result of the government shutdown should be recovered through the Stop-Work Order, Government Delay of Work, or Changes clauses, so long as the impacts and delays arise during a period where the contract is funded (see below). The existence of funding establishes that the government has an obligation that it must honor.
- Schedule impacts from the government shutdown should be addressed through extensions to the period of performance. Schedule impacts resulting from the government shutdown also are likely addressable through the Stop-Work Order, Government Delay of Work, or Changes clauses of the contract.
- Contractors must mitigate the impact of the shutdown. While contractors may be entitled to recover costs and/or receive schedule adjustments to address the impact of the government shutdown, contractors are responsible for taking reasonable actions to reduce the cost and/or schedule impact of the shutdown. These actions may include examining the feasibility of work-arounds, diverting employees to commercial efforts, and potentially furloughing employees. If a contractor fails to take mitigation steps, the government may attempt to reduce the total costs and/or length of the extension provided to address the impact of the shutdown.
- Cost and schedule impacts should be tracked carefully. In order to recover increased costs or receive a schedule adjustment because of the shutdown, contractors must be able to demonstrate that the impact occurred and tie the impact to the shutdown. Employees that are prevented from performing work, therefore, should provide detailed time entries and record their labor costs in segregated accounts to demonstrate the labor cost impact of the shutdown. Other cost impacts, such as costs associated with rescheduling work or deliveries, should be similarly documented. Likewise, any schedule impact should be fully documented and demonstrated through a critical path or similar schedule analysis.
- Funding is critical! Contractors are required to track the use of funds under incrementally-funded contracts and notify the government if costs incurred (including potential termination liability and delay costs) will exceed 75% of the total amount of funding available. When costs reach the available funding, the government must either terminate the contract or provide more funding. Any work performed that results in costs incurred in excess of the available funding will be “at risk” and may not be recoverable under the contract, depending on the circumstances.Until the shutdown is resolved and appropriations are obtained, no new funding will become available for contract performance. Thus, contractors performing incrementally funded contracts must closely monitor performance costs (including potential termination liability and delay costs) because, once those costs exceed the available funding, contractors risk non-recovery of costs incurred during performance.
- Options are at risk. Contract options must be exercised in strict accordance with their terms. If an option expires, the government can no longer exercise the option. The government, however, can only exercise an option if money is available to fund performance. Thus, the shutdown means that the government will likely be unable to exercise contract options and, instead, may be forced to allow contracts to expire and, later, obtain those same goods or services through a reprocurement, which might involve a competition and/or the submission of updated cost or pricing data.
The government shutdown may be short-lived, but its implications for contractors will likely persist long after the current budget dispute is resolved. Contractors must act now to best position themselves to obtain full reimbursement of costs and/or contract extensions to address the impact of the shutdown, including, critically, documenting on a contract-by-contract basis why certain actions were taken or not taken.
If you have any questions on this Alert or the government shutdown, please contact the authors of this Alert or the McKenna attorney with which you typically work.
By: Donna Lee Yesner, Partner, Morgan, Lewis, & Bockius, LLP
The Department of Defense (DOD) contracts with managed care organizations to provide medical benefits to TRICARE beneficiaries in the private sector. DOD carves out of those contracts and separately provides a pharmacy benefit through its TRICARE Mail Order Pharmacy (TMOP) and retail pharmacy programs. These programs were initially managed by a commercial Pharmacy Benefit Manager (PBM) under separate contracts. In recent years, however, mail and retail pharmacy services have been combined in a single contract. That contract is up for renewal in the fall of 2014. On September 30, 2013, GAO issued a report in which it recommended that DoD evaluate alternative structures before renewing its PBM contract.
Background of Pharmacy Service Contract
Until 1997, the regional TRICARE managed care support contracts included mail order and retail pharmacy services, which were managed by subcontractors. As they did for their other client health plans, the subcontractor PBMs managed pharmacy benefit costs by establishing formularies, negotiating payment rates with the pharmacies in their networks, and negotiating manufacturer rebates in exchange for formulary position. DoD then carved out the pharmacy benefit from the TRICARE managed care contracts, established a uniform formulary for all the venues in which it provided prescription drugs, including military treatment facilities, and contracted with a PBM to provide a network of retail pharmacies, process and reimburse claims, and operate the TMOP. Unlike the services PBMs provided as subcontractors, the TRICARE PBM does not establish the formulary or negotiate manufacturer rebates to control the benefit costs. In addition, DoD acquires and furnishes as Government property the drugs that are dispensed by the dedicated TMOP facility operated by the PBM.
GAO Report Findings
GAO found that DoD has not assessed the appropriateness of its current pharmacy services contract in the ten years since it removed the pharmacy benefit from its managed care contracts. GAO concluded that there are potential cost savings from an integrated medical and pharmacy benefit that should be assessed. According to the report, studies found integrated services yielded lower medical costs, attributable in part to increased coordination of care, while carve-out plans had higher admission rates. GAO also found that data sharing to facilitate disease management was problematic in the current system. Thus, continued segregation of TRICARE pharmacy services from medical services raised coordination of care issues that could increase overall cost of patient care and evaluation of a more holistic approach was warranted.
DoD told GAO that its arrangement provides more control over data used to manage formularies, increased transparency into prescription drug costs, and consistency across the TRICARE regions. It also gives DoD a means to leverage volume discounts in excess of the federal ceiling price. DoD fears it would lose the volume discounts it now enjoys for the combined MTF, TMOP and retail market if it were to carve-in the pharmacy benefit, and that dividing the beneficiary population among contractors would dilute the leverage a single PBM would have. GAO found DoD’s use of a carve-out structure consistent with other large employers that seek to better leverage economies of scale and cost savings that a stand-alone PBM can achieve. However, GAO also found that there have been significant changes in the pharmacy benefit management market in the past decade and that managed care organizations can provide in-house pharmacy benefit management services that they could not do previously. GAO concluded that DoD could not assess whether its current structure is better than alternative options, such as carving pharmacy services back into its managed care contracts or carving in just mail order pharmacy services, until it evaluates and compares their costs and benefits.
October 30, 2013
How has the federal market changed in the wake of the government shutdown and budget cuts?
What business intelligence is needed to succeed in FY 2014?
How do actions from The Hill affect your business strategy?
How will changing Agency Budget Priorities impact your business?
Learn the answers to these questions from Federal Acquisition Leaders, Agency CFOs and Government Officials at The Coalition’s 2013 Fall Training Conference – The New Federal Market.
Breakout sessions will address new developments in government-wide acquisition programs including Strategic Sourcing, GSA Acquisition Center Initiatives, Veterans Affairs, GSA e-marketing, Professional Services and more.
Confirmed Speakers include
- Frank Kendall, Under Secretary of Defense for Acquisition, Technology and Logistics – Department of Defense
- Major General Wendy M. Masiello, Director of Contracting—Air Force
- Peggy Sherry, Chief Financial Officer, Dept. of Homeland Security
- Emily Murphy, Senior Counsel, House Committee on Small Business
- Norman Dong, Deputy Controller— Office of Management and Budget
- Kathleen Turco, Chief Financial Officer—Veterans Health Administration
- Anne Rung, Chief Acquisition Officer—General Services Association
- Troy Cribb, Chief Counsel for Government Affairs—Senate Homeland Security & Government Affairs Committee
Proposed Rule on Past Performance
A proposed rule was released in the Federal Register on August 7 that would reduce the amount of time contractors have to submit responses to past performance evaluations, making the evaluations available to source selection officials sooner. The revision would allow contractors up to 14 calendar days from the date of delivery of past performance evaluations to submit comments, rebuttals, or additional information pertaining to past performance. In addition, past performance evaluations are to be made available to source selection officials not later than 14 days after the evaluation was provided to the contractor, whether or not the contractor has responded. These changes to the FAR are being proposed in accordance with the FY12 and FY13 National Defense Authorization Acts.
The Coalition will submit comments on the proposed rule, which are due on October 7. Please contact Carolyn Alston at firstname.lastname@example.org or (202) 600-2915 by COB today if you have any feedback you would like to include in the comments.
DPAP Class Deviation on Commercial Item Acquisitions
This week, Defense Procurement and Acquisition Policy (DPAP) Director Richard Ginman released a class deviation from Federal Acquisition Regulation (FAR) 12.301(b)(4) and the clause at 52.212-5, which requires contracting officers to identify clauses applicable to specific commercial item acquisitions. Rather than requiring the contracting officers to “check the applicable clauses,” contracting officers may now use The Standard Procurement System (SPS) which has a clause logic capability that automatically selects the applicable clauses. This class deviation will remain in effect for five years, or until otherwise rescinded. If members have any questions, the DoD point of contact, Ms. Lisa Romney, may be reached at 703-697-4396 or email@example.com.
Interim Rule: VOSB and SDVOSB Status Protests
The Department of Veterans Affairs (VA) published an interim final rule on September 30, 2013 amending its adjudication procedures for Service-Disabled Veteran-Owned Small Businesses (SDVOSB) and Veteran-Owned Small Businesses (VOSB) status protests. According to the rule, the VA’s Director, Center for Veterans Enterprise (CVE) will initially adjudicate SDVOSB and VOSB status protests. Protested businesses that are denied status may appeal to VA’s Executive Director, Office of Small and Disadvantaged Business Utilization (OSDBU). The interim final rule went into effect September 30, 2013. The VA is accepting comments on the rule through November 29, 2013.
Boot Camp for VA Schedules Contracting
Like GSA Schedule contracts, the VA Schedules are IDIQ type contracts awarded to pre-approved vendors using full and open competition; however, there are subtle differences between the GSA and VA Schedules that can make a significant impact on negotiating and administering a VA Schedule contract. Take advantage of Centre’s extensive experience with the VA FSS Program by registering for the VA Schedules Contracting class.
 GAO Report, Defense Health Care: Evaluation of TRICARE Pharmacy Services Contract Structure Is Warranted (GAO-13-808), September 2013.