Friday Flash, 06.27.14

June 27, 2014

FAR and Beyond Blog

This week’s blog continues the discussion on Schedules Modernization. I was interviewed this week by Federal News Radio’s Francis Rose regarding schedules modernization; to listen click here.

At the beginning of the year the FAR & Beyond blog identified Fourteen Thoughts for 2014 with each thought subsequently being addressed in at least one blog during the year. In light of the Federal Acquisition Service’s (FAS) continuing focus on standardized labor categories as an element of Schedules Modernization, it is time to address Thought No. 6 of the Fourteen Thoughts for 2014: “Standardized labor categories: Towards coin-operated Schedule contracts for professional services.”

Standardized Labor Categories and Innovation

At a time when the Administration and the Office of Management and Budget (OMB) are seeking greater access to innovative solutions that increase Taxpayer return on investment (ROI), standardized labor categories are anti-innovation. Standardized labor categories put the lid on the private sector’s ability to deliver cutting-edge, best-in-class capabilities, services and solutions that save money for customer agencies and the American people. Quite simply, standardized labor categories, like a coin-operated vending machine, limit choice, flexibility and competition. Standardized labor categories do not leverage commercial business practices in delivering high value solutions to meet agency mission requirements. Rather, standardized labor categories force firms to reengineer business practices and processes to fit the labor formula dictated by GSA creating inefficiencies in the procurement and performance of customer service requirements.

Economies of Skills, Flexibility and Innovation

Innovation in government procurement begins with a focus on leveraging economies of skill. Schedule contracts for professional services and information technology (IT) must be structured to leverage economies of skill. That means contracts must provide flexibility at the task order level for contractors to structure complex solutions to meet complex customer agency requirements. Standardized labor categories for commercial services simply do not provide the necessary flexibility.

GSA’s Professional Services schedules and IT Schedule 70 have a wonderful opportunity to leverage economies of skill through innovation in schedule contract structures and pricing models. The Coalition applauds any effort to incorporate ODC capabilities into schedule contracts. Likewise, the Coalition believes it is time to explore the establishment of an unpriced schedule for IT and professional services, as recommended by the SARA Panel in 2007. The government has yet to take full advantage of the ongoing convergence of IT and services in the commercial marketplace. Cloud, software as a service (SAAS), as well as complex, integrated IT service solutions are driving innovation in the market. Flexibility in pricing and task order structure are keys to leveraging economies of skill for these new, cutting edge services, thereby increasing Taxpayer ROI.

The Coalition Innovation Task Force

The GSA Schedule program is in a unique position, with its statutory authority and access to the commercial marketplace, to drive access to commercial innovation in service delivery. In response to this unique opportunity, the Coalition provided GSA and OMB with a white paper on transforming IT Schedule 70 into the Commercial IT Innovation Schedule. As a next step, the Coalition will establish a “Coalition Innovation Task Force (CITF)”. The task force will develop and recommend alternatives that deliver innovative solutions to meet federal agency needs. The goal of the CITF is to harness a broad spectrum of ideas and experience to promote flexible, creative, and dare I say, innovative contracting structures. The ultimate objective is to promote effective, efficient and exceptional solutions for government and its industry partners. How can schedule contracts be restructured to leverage customer-focused supply management and service delivery? How can the government leverage “share in savings” mechanisms to support agency missions? How can cloud offerings be optimized via the Schedules program? The CITF will tackle these questions and more.

In the coming weeks you will hear more about this initiative. We look forward to inviting the participation and thought leadership of government and industry in this important effort.

Roger Waldron

President

Join 18F Leadership Team at IT/Services: July 15

Interested in hearing more about GSA’s latest digital services team, 18F? Attend the IT/Services Committee on July 15 to hear from the 18F leadership about the program. GSA guest speakers will be:

Kathy Conrad, Acting Associate Administrator of the Office of Citizen Services and Innovative Technologies
Lena Trudeau, Associate Commissioner for Strategic Innovations
Greg Godbout, Presidential Innovation Fellow and 18F Co-Founder

The member meeting will be on July 15 at 10am at Northrop Grumman (7575 Colshire Drive, McLean, VA). For more details and to register to attend, please contact Roy Dicharry at rdicharry@thecgp.org. RSVPS required for admittance.

GSA OASIS Small Business to Proceed

In an Interact post this week, GSA announced that has issued a Notice to Proceed (NTP) for OASIS Small Business (SB). As a result, federal agencies can move forward and begin using what GSA describes as its first-of-its-kind, flexible contract solution for procurement of complex professional services. GSA OASIS SB had been on hold due to a number of bid protests.

OMB Drafts Changes to Circular A-11: DATA Act & FSSI

In Jason Miller’s “Inside the Reporter’s Notebook” dispatch on Federal News Radio, he highlights major changes to the Circular A-11 guidance that the Office of Management and Budget (OMB) plan in order to implement the Data Accountability and Transparency Act of 2014 (DATA Act). The major agency requirements for the DATA Act are:

Expansion of Data Posted on USAspending.gov
Establishment of USAspending.gov Data Standards
Recommendations for Streamlined Recipient Reporting Burden
Establishment of a Data Analysis Center
Requirement to Report Non-Tax Debt

Also of note is the A-11 draft’s proposal pertaining to the Federal Strategic Sourcing Initiative (FSSI), which reads:

“To reduce duplication and improve coordination of commonly acquired information technology (IT), agencies will be asked to provide a forecast of the amounts and types of contract support anticipated for each IT investment supported by a Major IT Investment Business Case, as required by OMB’s FY 2016 IT Budget – Capital Planning Guidance. The forecast will help to increase the management and efficiency of agency programs and should include: (1) a description of the amount and type of anticipated contractor support and (2) identify any new agency contracts anticipated that may potentially duplicate the scope of existing Federal Strategic Sourcing Initiative solutions or efforts underway by the Strategic Sourcing Leadership Council.”

SAM Migration

Please see the following list from GSA of electronic tools that have migrated to the System for Award Management (SAM) and what will be next:

The Integrated Award Environment (IAE), a Presidential E-Government initiative managed by GSA, facilitates every phase of the acquisition lifecycle, from market research to contract administration. The federal government is working to make the acquisition of goods and services secure, streamlined and cost-effective with IAE. The goal of the IAE initiative is to integrate and unify the federal acquisition process for government buyers and sellers.

Through IAE, the acquisition functions common to all agencies are now centrally managed as shared systems. In the coming years these shared systems will be integrated into a single system, the System for Award Management (SAM). SAM integrates the capabilities provided by the shared systems, streamlines processes, eliminates redundant data and saves taxpayer money.

Find information below on which systems have and have not been already migrated to SAM.

Already Migrated

Central Contractor Registration/Federal Agency Registration
Online Representations and Certifications Applications
Excluded Parties List System

Planned Migration

FBO (FedBizOpps)

The single government point-of-entry for posting solicitations over $25,000, allowing commercial business suppliers to search, monitor and retrieve opportunities in federal government markets.

WDOL (Wage Determinations On-Line)

This governmentwide web site makes Service Contract Act (SCA) and Davis-Bacon (DBA) wage determinations easily accessible by the contracting community.

PPIRS (Past Performance Information Retrieval System)

The federal acquisition community can access timely and pertinent contractor past performance information via this web-enabled, governmentwide application.

FAPIIS (Federal Awardee Performance and Integrity System) – Module on PPIRS that implements requirements of National Defense Authorization Act Section 872 that provides data on potential awardees to support award decisions.

FPDS-NG (Federal Procurement Data System-Next Generation)

This online repository provides data on all federal contract actions over $3,000. Standard and custom reports are easily accessible.

eSRS (Electronic Subcontracting Reporting System)

This system is designed for prime contractors to report accomplishments toward subcontracting goals required by their contract.

FSRS (FFATA Sub-award Reporting System) – This system is designed to collect subcontract and sub-grant award information in compliance with the Federal Funding Accountability and Transparency Act (FFATA).

CFDA (Catalog of Federal Domestic Assistance)

Provides a full listing of all Federal programs available to state and local governments, organizations, and individuals. Although CFDA is not an IAE system, it is managed by the Program Management Office which oversees IAE systems and is also included in SAM.

Cyber Performance Goals to be Updated

According to Federal Times, the White House and the Department of Homeland Security (DHS) are redeveloping processes to measure cross-agency efforts to improve federal cybersecurity. The revisions include adding metrics to evaluate success and streamlining methods to gather information. Beginning in FY 2015, the government plans to shift away from the current system that requires agencies to report on the status and metrics of relevant cyber goals through performance.gov to DHS. According to White House director of federal agency cybersecurity John Banghart, the cross-agency priority (CAP) goals will refocus on continuous diagnostics and mitigation, more authentication – in particular, user access controls – and anti-phishing and anti-malware activities. At an event in Washington DC, Banghart stated that the CAP goals update will include a reevaluation of metrics that will see new measurements implemented as a subset of Federal Information Security Management Act (FISMA) metrics, and changes to the way information is gathered in reporting.

The 2015 DoD Budget: What does it Look like?

Last week on “Off the Shelf”, Robert Levinson, senior defense analyst for Bloomberg Government, analyzes the Pentagon’s 2015 budget request. Levinson provided his insights on what the proposed budget means for the department and for contractors supporting the warfighter.

Topics included:

What does the budget request reveal regarding the Air Force’s, Army’s and Navy’s approaches to maintaining technologically advanced forces?
How are R&D funds prioritized?
Which programs will see reductions?
Which programs are preserved or prioritized?
What is the future for force structure and personnel costs?

To listen to the program, click here.

Roger Waldron on In Depth with Francis Rose

The Federal Acquisition Service wants to standardize parts of the Multiple Award Schedule to make price comparisons easier for federal agencies. But some of the FAS proposals could signal a drop in diversity of business opportunities for federal contractors. Roger Waldron, Coalition President, explained on Federal News Radio’s In Depth with Francis Rose how FAS’s modernization ideas might affect federal contractors and their agency customers. To listen to the program, click here.

House Passes Defense Appropriations Bill

On June 20th, the US House of Representatives passed HR 4870, the Department of Defense (DoD) Appropriations Act for Fiscal Year 2015. The bill includes $491 billion in base budget funding, along with a $71.4 billion “placeholder” for the Overseas Contingency Operations account. While the Pentagon wants to begin phasing out its fleet of A-10 attack planes and KC-10 refueling tankers in favor of newer aircraft, the House approved two amendments to the bill that would stall the retirement of those vehicles. The White House “strongly opposes” the bill with these amendments, but there is no confirmation that President Obama would veto it if it passes both chambers of Congress. The Senate Appropriations Committee must mark up its version of the bill before it can be voted on in the Senate, but due to ongoing budget debates there, it is not certain when the bill will be sent to the full chamber for a vote.

Healthcare Spotlight

DAPA Holders are Caught in the Middle of a Disagreement between the VA and DLA over the Application of the IFF to DAPA Sales

By Jack Horan, Partner, McKenna Long & Aldridge LLP

Sales to the Department of Defense under its Distribution and Pricing Agreement program are very important to many VA FSS contractors. The VA, itself, views DAPA sales as integral to the success of VA Schedule contracts, telling contractors that “success of your VA FSS contract requires the development of a strong federal customer base and active promotion of your business to these customers” and “[p]articipation in the Defense Logistics Agency’s (DLA) Troop Support Distribution and Pricing Agreements (DAPA) program is a surefire way to penetrate the federal healthcare marketplace.” See VA FSS eNewsletter, No. 55 (March 2014) at 1

Despite the importance of these sales to VA FSS contractors, DOD and the VA are in the midst of a disagreement over whether VA FSS contractors are required to pay the industrial funding fee on sales of items through the DAPA when those items are also listed on the contractor’s VA Schedule Contract. The VA’s position is explicitly set forth in a somewhat unusual appendage to the standard Industrial Funding Fee and Sales Reporting Clause, GSAR 552.238-74, included in VA Schedule contracts:

NOTICE REGARDING DISTRIBUTION AND PRICING AGREEMENTS (DAPA)

If your firm has a DAPA with the Department of Defense, items available therein that are also awarded under FSS contract must, during the course of the FSS contract, be reported as FSS sales and included in quarterly FSS Sales Reports and Industrial Funding Fee (IFF) remittance.

See, e.g. RFP 797-FSS-99-0025-R9, Solicitation Document at 38.

The VA recently confirmed (and justified) its position that FSS Contractors must pay the IFF on DAPA sales in its FSS eNewsletter:

One of the questions we most often receive is “I have a DAPA, do I need to report those sales on my quarterly sales report?” In 1999, DoD and the VA signed a memorandum of understanding indicating that FSS pricing is the preferred method of pricing for products identified on DAPAs and as such sales for items awarded under a VA FSS contract that are also available under a DAPA must be reported as FSS sales.

Any delivery/task order placed against a VA Schedule contract – whether for a base contract item, blanket purchase agreement, or DAPA, is a reportable sale and must be included in the quarterly sales report & IFF payment. Additionally, all sales made to agencies other than the VA, state & local governments, and through prime vendor programs & direct-to-patient distribution must be reported. Direct all FSS sales reporting & IFF remittance questions to the VA Sales Desk.

See VA FSS eNewsletter, No. 55 (March 2014) at 5 (emphasis in original).

So the VA’s answer is a firm “yes” – VA Schedule contractors must pay the IFF on DAPA sales. Based on the VA’s eNewsletter, the VA appears to believe it has two justifications for the requirement: (1) a 1999 memorandum of understanding with DOD; and (2) its apparent view that items purchased under a DAPA is “placed against a VA Schedule contract.” Id.

A major problem with the VA’s position is that DOD apparently does not agree. The Defense Logistics Agency, the DOD Executive Agent for Medical Material. responsible for administration of DAPAs, is instructing its DAPA holders not to pay the IFF for sales to prime vendors under a DAPA:

The following is specific DAPA guidance:

• There is no direct relationship between a Federal Supply Schedule (FSS) and DAPA.

• A DAPA does not require a vendor to establish or have a FSS.

• Prime Vendor contracts are separate acquisitions and sales thereunder using the DAPA catalogue do not require reporting or payment through the Department of Veterans Affairs (DVA) Industrial Funding Fee (IFF) process.

Any DAPA holder given contrary guidance should immediately contact DLA.

See DLA Memorandum to Prime Vendor DAPA Program, found at https://www.medical.dla.mil/Portal/.

DLA views DAPAs as “DLA pricing vehicles used to establish and manage pricing with manufacturers and/or distributors for medical material purchased under DLA’s Prime Vendor contracts” rather than orders “placed against a VA Schedule contract,” Compare, id and VA FSS eNewsletter at 5. DLA also sees its Prime Vendor contracts – “FAR Par 12 acquisitions that use pricing vehicles such as DAPA under FAR Part 16 as single source awards within a region” — as separate from VA’s FSS contracts. Id. Thus, these opposite views on the IFF grow out of a fundamentally different view of the role of VA Schedule contracts in DAPA orders. VA views the DAPA orders as “placed against” Schedule contracts while DLA views them as placed under DLA’s Prime Vendor contracts independent of the VA’s Schedule contracts. In its instruction to DAPA holders, DLA does not address the 1999 memorandum referenced in the VA’s eNewsletter.

So, FSS contractors with a DAPA, at least for now, are caught between the conflicting views of the VA and DLA – one telling them that they have to pay the IFF and the other telling them that they should not. Each relying on a fundamentally different view of the status of orders placed through DLA Prime Vendors based on DAPA pricing.

Moreover, a contractor faces risk in following either position. By excluding DAPA sales from the IFF, as instructed by DLA, the contractor risks a claim by the VA that it is not complying with its FSS contract, or worse, a potential claim under the False Claims Act. By paying the IFF, the contractor faces at least the financial risk of paying a fee that it is not obligated to pay. To the extent the fee is included in the cost in its DAPA, the DAPA holder also faces a potential request for a price reduction under the DAPA to eliminate the IFF. Given these risks, the VA and DLA have an obligation to their contractors to resolve this issue.

VA and DLA are involved in a discussion of these issues and we hope to report a resolution soon.

Legal Corner

DCAA Issues New Audit Guidance Concerning Services By Contractor Employees Not Meeting Qualification Requirements Under T&M Contracts

By: Thomas A. Lemmer, Partner, McKenna Long & Aldridge LLP; Steven M. Masiello, Partner, McKenna Long & Aldridge LLP; Tyson J. Bareis, Associate, McKenna Long & Aldridge LLP

The Defense Contract Audit Agency has issued new audit guidance on the important topic of labor qualifications under time and material contracts. See MRD 14-PPD-008(R). This guidance matters to contractors because it relates to the common DCAA position (based on FAR 52.232-7(a)(3)) that contractors should not be paid any amount for effort performed by employees that fail to meet contractual qualification requirements.

The audit guidance clarifies that contracting officers have authority to approve the use of non-qualifying labor both before and after the labor is provided and directs auditors to coordinate with contracting officers before issuing audit findings in this area. Even in circumstances where contracting officer approval has not and will not be given, the guidance recognizes that:

[I]n many cases, the contracting officer is not going to withhold payment of all labor costs when an employee does not meet the labor qualifications if the work delivered did adequately complete the scope of work. In these cases, the contracting officer will need to modify the contract for a new rate or contract line item to reimburse the costs. Auditors should assist the contracting officer to help in arriving at a rate that is more appropriate than the rate charged by the contractor (e.g., a rate based on the fully burdened rate of pay for the unqualified employee, or the labor category where that employee truly fits).

The above language is helpful to contractors because it emphasizes the need to communicate with contracting officers and contractors to resolve this type of labor issue. This approach is consistent with the fact that, when DCAA questions billings due to employee qualification issues, the agency is not questioning the allowability of costs and, instead, is questioning whether amounts paid to the contractor are appropriate under the terms of the contract. As the DCAA guidance implicitly recognizes, such issues are more akin to contract administration matters, which are within the purview of the relevant contracting officer to address and resolve.

Predictably, the audit guidance also directs auditors to consider whether contractor failures meet labor qualification requirements represent business systems issues. Specifically, the guidance notes:

If the audit team determines that the contractor has a material amount of T&M billings that include hours that do not meet the labor qualifications specified in the contract, a significant deficiency related to DFARS 252.242-7006(c)(12) should be reported. The contractor has failed to establish adequate internal controls to exclude from costs charged to Government contracts, amounts that are not allowable in terms of contract provisions in the FAR 52.232-7 T&M Payment Clause. An adequate accounting system would include procedures for a contractor to ensure that they get the Contracting Officer’s specific authorization prior to the delivery and billing of hours that do not meet the qualifications specified in the contract.

(Emphasis added). By failing to direct auditors to consider whether the conduct observed results from a systemic issue or has a material impact on the reliability of contractor billings, the above guidance vastly oversimplifies the analysis necessary to determine whether conduct represents a significant deficiency under the Business Systems Rule. Unfortunately, this simplistic view of the Rule is consistent with the level of analysis often provided by auditors when determining that a significant deficiency exists in a contractor’s business system. Contractors should continue to be skeptical of these auditor assertions and, when appropriate, resist such assertions as inconsistent with the definition of “significant deficiency” in the Business Systems Rule.

If you have any questions concerning this recent audit guidance, please contact the authors of this alert or the McKenna Long attorney with which you typically work.

Sweeping Counterfeit Reporting Proposed Rule

The FAR Council published a proposed ruleon June 10th extending certain reporting requirements for contractors beyond what is already required for counterfeit electronic parts to a broader scope of products and services. The proposed rule, titled “Extending Reporting of Nonconforming Items”, is intended to reduce the risk of counterfeit items entering the supply chain by ensuring that contractors report suspect items to a government database. According to an articleby Crowell & Moring, “a contractor would be required to report to the contracting officer within 30 days of becoming aware that any ‘end item, component, subassembly, part or material contained in supplies purchased by the Contractor for delivery to, or for the Government is counterfeit or suspect counterfeit’”. It would also require that the contractor report the incidence to the Government-Industry Data Exchange Program (GIDEP) and monitor this site regularly to avoid delivery of any reported items to the government. For more details on the proposed rule, access Crowell & Moring’s article here. Comments on the rule are due August 11, 2014. Members who would like to provide feedback on the rule to the Coalition, please contact Aubrey Woolley at awoolley@thecgp.org.

SBA Proposes Rule on Small Business Size Determinations

On June 25th, the Small Business Administration (SBA) posted a proposed rule in the Federal Register pertaining to provisions of the National Defense Authorization Act of 2013 (NDAA). The SBA rule proposes a safe harbor from fraud penalties for individuals or firms that misrepresent their small business size status if they acted in good faith based on opinions received from Small Business Development Centers or Procurement Technical Assistance Centers. The rule also proposes that SBA’s regulations be amended to establish criteria that small business status advisory opinions must meet in order to be deemed adequate. Finally, the rule would amend SBA’s regulations governing when the SBA may initiate a formal size determination. The SBA is accepting comments on the proposed rule until August 25, 2014. For questions or to provide feedback on the rule to the Coalition, please contact Carolyn Alston at calston@thecgp.org.

Small Business Forum: Hot Topics Impacting Small Businesses and their Large Business Partners – July 23

How will teaming, strategic sourcing and proposed changes to the federal small business programs impact your business? This forum is excellent way for small businesses and small business program managers within large companies to get up to date on key initiatives impacting performance in the federal market. The speakers include key players from the Hill and government agencies, as well as companies with real world experience selling to federal agencies. See below for more details!

Keynote: On the Hill – How the legislative agenda will affect strategic sourcing and other federal initiatives impacting the small business community

Emily Murphy, Senior Counsel, House Committee on Small Business

Panel: Contractor Teaming Arrangements and Joint Ventures, from Formation to Payment – what they are; how they really work; what’s the benefit. Have your questions answered by a panel with hands on experience

Kenneth Dodds, Director, Small Business Administration
Joseph Hornyak, Partner, Holland and Knight, LLP
Mark Lee, Deputy Director, GSA, Office of Governmentwide Policy
Marian Morley, Vice President, Government Sales & Operations, Allsteel
Jim Connal, Vice President, Contracts and Compliance – Red River Computing (Moderator)
Tom Walker, Government Manager – Nucraft, Furniture (Moderator)