FAR and Beyond Blog
On behalf of the Coalition for Government Procurement’s Board of Directors and Board of Advisors we are truly excited to be hosting our 35th Anniversary Celebration, Excellence in Partnership Honors and the 2014 Fall Conference! The 2014 Fall Training Conference: “35 Years in Government Procurement: Looking Back and Moving Forward” brings together procurement leaders from across government and industry for a “Myth Busters” dialogue honoring the past, but more importantly, focusing on the procurement system of the future. Engaging, thoughtful dialogue among and between government and industry procurement leaders is critical in striving towards a procurement system that delivers best value mission support for customer agencies and the American people.
Luncheon DoD Speaker Announced!
Mr. Alan Estevez, Principal Deputy Under Secretary of Defense for Acquisition Technology and Logistics
The Coalition is excited to announce that Mr. Alan Estevez, Principal Deputy Under Secretary of Defense for Acquisition Technology and Logistics, will be the Luncheon Keynote Speaker for the 2014 Fall Training Conference. In his leadership role, Mr. Estevez develops and implements strategies, policies and programs that increase the Department’s warfighting capabilities, management efficiency, and buying power in support of the warfighter. Mr. Estevez will be addressing better buying power and the role of commercial contractors in supporting the warfighter.
The Honorable Tom Davis, Director, Government Relations for Deloitte will kick off the day providing his insights regarding the post-election dynamic and what it means for the budget and procurement. Underscoring the 2014 Fall Training Conference’s focus on the evolving state of the procurement system, Ms. Beth Cobert, Deputy Director for Management, Office of Management and Budget, will provide her thoughts on Managing the Federal Government for Future Excellence.
Competing in the FY2015 Federal Market
Understanding the changing federal marketplace is vital for firms competing for agency requirements and delivering best value products, services and solutions for the American people. The Coalition is extremely pleased to bring acquisition leaders from the Department of Defense, the Air Force, Department of Homeland Security, GSA, OMB, NASA, Department of Veterans Affairs, and the Department of the Treasury together for a cross cutting, Myth-Busters dialogue. As such, the 2014 Fall Training Conference provides a wonderful opportunity for firms to learn more about key procurement programs, operations, and initiatives like Better Buying Power, the Federal Strategic Sourcing Initiative (FSSI), GSA Schedules, OASIS, NASA SEWP, NIH CIO-SP3, and the Human Capital and Training Solutions (HCaTS). There also will be sessions focusing on cybersecurity, electronic platforms (FEDMALL to GSA Advantage!) and innovation in federal procurement! Simply put, the 2014 Fall Training Conference is a “can’t miss” opportunity to learn more about the policies, procedures and programs shaping the future of the federal procurement marketplace.
For more information on the agenda and to register please click here!
We look forward to seeing you there!
The Excellence in Partnership (EIP) Awards were developed 15 years ago to promote government and industry partnership and to honor individuals and organizations in the acquisition community that have made significant contributions to the procurement system while providing best value to the taxpayer. The EIP awards also highlight exceptional public and private sector programs that promote sustainability and support our nations’ veterans.
Last week Coalition President, Roger Waldron, announced the 2014 honorees for the Excellence in Partnership (EIP) Lifetime Acquisition Award. Today we are announcing the honorees in the remaining distinguished categories—Government Savings, Myth-Busters, Best Veteran Hiring Program and Green Excellence in Partnership. The full list of 2014 EIP Awardees are:
Lifetime Acquisition Excellence Award
Katherine Jocoy, General Services Administration
Stephen Viar, FEDSIM, General Services Administration
Joanne Woytek , NASA SEWP, National Aeronautics and Space Administration
Jan Frye, Deputy Assistant Secretary, Office of Acquisition and Logistics, Department of Veterans Affairs
Government Savings Award
Continuous Diagnostics & Mitigation Program, General Services Administration
Carol England, General Services Administration
Rose Dominguez, General Services Administration
OASIS Team, General Services Administration
Best Veteran Hiring Program
Veterans Affairs Acquisition Academy
Green Excellence in Partnership
The 2014 Excellence in Partnership honorees will be recognized as part of the Coalition’s 35th Anniversary Gala and Excellence in Partnership Awards banquet in conjunction with the 2014 Fall Training Conference—35 years of Commonsense in Government Procurement: Looking Back and Moving Forward. The gala will be held on November 5th at the Ronald Reagan Building and International Trade Center in Washington, DC with the conference being held on November 6th. Please join us in congratulating the 2014 EIP Awardees for their outstanding public service and dedication to best value on behalf of the American people as well as their commitment to supporting sustainability and veterans!
The Center for Strategic International Studies (CSIS) has recently released a report that studies the effects of the Sequester on government contracting for the DoD. The report reached some interesting findings about the areas that have been most impacted by the sequester.
The report focused on defense-funded contract obligations which includes all unclassified contracts funded by DoD including those implemented by other agencies. Another key indicator in the report is total defense gross outlays which includes DoD—military programs, Army Corps of Engineers—Civil Programs, and International Assistance Programs funded by DoD.
Due to sequestration, gross outlays for DoD declined by 8% and defense-funded contracts declined by 16%—which was four times as severe as the 2009-2012 budget drawdown. Also the share of defense-funded contracts as a percentage of outlays decreased from 53% to 49%. Not only has the DoD budget gone down, but the amount of that budget being allocated for contracts has gone down as well.
When looking at the contracts by component, the Army and the Air Force was the most effected declining by 21% and 22% respectively. The Navy however only declined by 2%. As the report explains: “The category trends for Navy contract obligations are the opposite of those for the Army and Air Force: contract obligations for products increased, service declined disproportionately, and R&D declined the same as it had in previous years.” The DLA share of contracts decreased by 23%. However, this was also caused by a spike the price of fuel in 2012.
One of the hardest hit areas, according to the report, was research and development. R&D declined by 21%, while services and products declined by 14% and 17% respectively. However a 2012 fuel spike accounted for the decrease in products. When controlling for this products only decreased by 12 to 13% as a share of contract obligations.
The cuts to R&D are some of the most severe. According to the report, “The sequester has led to real, significant cuts in DoD investment in research and development.” The worst hit sectors of R&D were those projects in the middle-to-late-stages of development such as technology development (27% decrease), advanced component development (24% decrease), and systems development and demonstration (21% decrease). During the 2009-2012 budget decrease, R&D has decreased costs by targeting underperforming programs and shifting maturing programs into procurement. However these options had been exhausted by the sequester, and it forced DoD to cut programs that were almost complete.
Finally the report looked at the share of contracts that vendors had by the size of the vendor. The report divided vendors into four categories: small, medium, large, and large (Big Six). Small included businesses that fit the government definition of a small business. Large were considered any business with annual revenue of $3 Billion or more including nonfederal sources. Medium companies were any businesses that were neither small, nor large. Finally the Big Six are the six largest defense contractors—Boeing, Lockheed Martin, Northrop Grumman, General Dynamics, Raytheon, and BAE.
The sequester impacted most vendors equally. Small, medium, and large vendors all decreased by 19%. However the Big Six were not hurt as much and saw a decline of 9%.
The sequester affected almost every aspect of the DoD. However this CSIS report concluded that the worst effects were in R&D, which has been drawing back since 2009 even before the sequester was implemented. To read the full CSIS report, visit http://csis.org/files/publication/140929_Ellman_DefenseContractSpending2013_Web.pdf.
The GSA Alliant 2 team has released a new Interact Question concerning sustainability management for the future Alliant 2 contract. According to the Interact notice, the GSA GWAC Program is proposing to incorporate into the Alliant 2 solicitation, the requirement to report a Contractor’s sustainability management practices and use_ of third-party systems for contract holders to use to report progress towards meeting certain sustainability milestones. For a full description and list of the proposed milestones and third-party systems, Flash readers can link to the notice above. In order to provide feedback to GSA concerning Alliant 2, the Coalition has established a working group for member organizations. If you are interested in providing feedback on sustainability management or other Alliant 2 issues through the working group, please contact Roy Dicharry at email@example.com.
GSA Issues Class Deviation to FAR Part 51
In an Interact notice this morning, GSA announced a class deviation allowing contracting officers to authorize all GSA contractors, performing on a time-and-material or labor-hour basis, to purchase ancillary supplies and services from Federal Supply Schedule (FSS) contractors or process requisitions through the GSA Global Supply Program. This class deviation is valid for five years from 10/23/2014.
SEWP V Protests
According to FCW, four companies have filed protests over NASA’s $20 billion SEWP V IT contracting vehicle. The companies currently protesting are Unicom Government Inc., BahFed Corp., NCS Technologies Inc. and KPaul Properties. Also noted in the article, additional protests are expected. Before the closing of the RFP, NASA received 233 proposals and has made awards to 73 companies for SEWP V.
GSA recently announced a new category for the Federal Risk Authorization Management Program (FedRAMP) delineating which cloud service providers are cleared to perform assessments and authorizations with potential agency customers. The new category is named, “FedRAMP Ready Systems.” According to the cloud.cio.gov website, systems in this category cover a range of documentation and FedRAMP accredited third-party assessment organization (3PAO) assessment results. Not all systems in this category will be a cloud service provider (CSP). Other categories of systems will include build specifications and documentation for open source code that agencies can deploy. Additionally, GSA notes that agency reviewers and authorizing officials should review the details of each system designated as FedRAMP Ready to fully understand how much work a CSP has completed and how much work remains to fully assess and authorize them to become FedRAMP compliant.
- Total amount invoiced
- Number of contractor hours
- DUNS, subcontract number, and number of subcontracted hours (for applicable first-tier subcontractors).
Any contracts that contain FAR clauses 52.204-14 or 52.204-15 must conduct SCR. In order to submit completed SCR’s, contractors must have a SAM account and complete the following steps:
- Log into SAM before October 31, 2014 and click on the “Register/Update Entity” link
- Click on the “Service Contract Reporting (SCR)” link
- Complete the SCR’s for pending actions (displayed by DUNS Number).
If an SCR link does not appear for a contractor then they either do not have reporting privileges or are not subject to SCR requirements. For more information about the SCR requirements, service contractors are advised to contact the Federal Service Desk (FSD) at 866-606-8220 (U.S.) or 334-206-7828 (international) Monday – Friday 8:00 a.m. to 8:00 p.m. ET.
GSA’s Integrated Workplace Acquisition Center (IWAC) has announced the full agenda for the Quality Partnership Council (QPC) meeting at NeoCon East on October 28, 2014.
QPC at NeoCon East
Tuesday, October 28, 2014
Baltimore Convention Center
1 West Pratt Street
Baltimore, MD 21201
Room: 337, Level 300
GSA Quality Partnership Council
10:30 – 10:35 Welcome
Federal Acquisition Service
10:35 – 10:50 Category Management
Federal Acquisition Service
10:50 – 11:10 Total Workplace: FIT Program
Contracting Branch Chief
Federal Acquisition Service
11:10 – 11:30 Reverse Auction
Senior Contracting Officer
Federal Acquisition Service
11:30 – 11:50 Veteran Affairs
Christine R. Johnson, NCIDQ
Program Manager, Interior Design
VHA-Environmental Programs Service (10NA7)
11:50- 12:10 Department of Navy
Jennifer L. Andrews
Navy Strategic Sourcing Program
12:10- 12:30 Army Corps of Engineers (Virtual)
Leslie Yarbrough, Program Manager
Christina Bott-Lamb, Contracting Specialist
12:30 –12:35 Business Development Update and Conclusion
Director of Business Development
GSA Integrated Workplace Acquisition Center
2:00 – 2:30 Federal Strategic Sourcing Initiative (FSSI) – Furniture
Linda Valdes, Furniture FSSI Project Team Lead and Dianne Juba, Interior Designer
2:45 – 3:30 Panel Question and Answer Session
For more information or to register for NeoCon East visit www.neoconeast.com.
Veterans Access Choice and Accountability Act – Implications of the New Supplemental Veterans Health Care Program for Drug and Device Manufacturers
By: Donna Lee Yesner, Partner, Morgan Lewis & Bockius LLP and Stephen E. Ruscus, Partner, Morgan Lewis & Bockius LLP
In the wake of the scandal over veteran wait time for health care at certain Department of Veterans Affairs (“VA”) medical facilities, Congress acted quickly to improve the care available to veterans, including access to providers outside the VA system. On August 7, 2014, President Obama signed into law the Veterans Access, Choice, and Accountability Act of 2014 (“Veterans Choice Act”), which authorized veterans to obtain hospital care and medical services from non-VA providers and $10 billion to pay for such care. Prior to the enactment of the Veterans Choice Act, the VA had voluntarily adopted a policy of paying for veterans’ medical care outside the VA system under certain circumstances; however, VA approval was required for these referrals. By contrast, the new law gives veterans greater access to the hospital care and medical services to which they are entitled under section 17 of title 38 of the United States Code.
The Veterans Access, Choice and Accountability Act – Key Provisions
The new law applies to veterans who are:
- enrolled in a patient enrollment system at the VA established under 38 U.S.C. 1705 and have contacted the VA seeking an initial appointment for the receipt of hospital care or medical services; and
- eligible for hospital care or medical services under 38 U.S.C. 1710(e)(1)(D) and have either
- unsuccessfully attempted to schedule an appointment at a VA medical facility within the Veterans Health Administration wait-time goals (posted on the internet),
- live more than 40 miles from the closest VA medical facility,
- reside in a state lacking a VA hospital, emergency care and surgical care or live more than 20 miles from such a medical facility, or
- live 40 miles or less from a medical facility but must travel by boat, air or ferry to reach it or travel is otherwise burdensome due to geographic challenges.
A veteran who meets any of these conditions is referred to as an “eligible veteran.”
Section 101(a) of the Veterans Choice Act requires the VA to either place an eligible veteran on an electronic waiting list for hospital care or medical services at a VA facility or, at the veteran’s election, authorize care outside the VA through agreements authorized by the statute, or any other laws, from one of four categories of care providers. Further, the VA must inform eligible veterans of the available care and ensure the electronic waiting list is accessible in order for veterans to determine the wait time and make an informed choice. If an eligible veteran elects to receive medical care outside the VA, he or she may obtain care from any of the following entities that have entered into agreements with the VA as described in the statute: 1) any health care provider in the private sector, including any physician, that is participating in the Medicare program; 2) any federally-qualified health center as defined in 42 U.S.C. 1396d(1)(2)(B); 3) the Department of Defense, and 4) the Indian Health Service. To avoid affirmative action program compliance issues, the law expressly prohibits the Department of Labor, Office of Federal Contract Compliance Programs from treating an entity that signs an agreement to furnish health care to veterans as a federal contractor or subcontractor.
When entering into participation agreements under section 101(d) of the Veterans Choice Act, the VA must negotiate rates for furnishing hospital care and medical services and reimburse the entities at the negotiated rates. In general, negotiated rates may not exceed the rates paid by the Medicare program to providers of services and suppliers as defined in sections 1861(u) and (d) of the Social Security Act for the same care or services. However, the VA may negotiate higher rates for care or services furnished to veterans in highly rural areas. The law prohibits providers from collecting more than the negotiated rate and from collecting a co-payment in excess of any amount that could be collected under chapter 17 of title 38 if the veteran received care from a VA provider.
Veterans must disclose whether they are covered under a health care plan other than Medicare, Medicaid, or Tricare. If they are covered by another plan, that plan will be primarily responsible. , for hospital care and medical services for a non-service related disability, to the extent the plan covers the care furnished. The VA will be secondarily responsible. The provider will be responsible for seeking reimbursement first from the primary payer. Authority to pay for hospital care and medical services through non-VA providers – as either the primary or secondary payer – has been transferred from the Veterans Integrated Service Networks and VA medical centers to the Chief Business Office of the Veterans Health Administration. Within 90 days after the August 7, 2014 enactment date, the VA must prescribe regulations for the implementation of a system for processing claims and paying bills for authorized care and services.
Impact of Expanded Care on Drug and Device Suppliers
Furnishing medical care to veterans through non-VA providers is a positive development for suppliers of drugs and medical devices as it should increase the utilization of their products. For example, the VA may pay for products that are manufactured in countries that are not designated countries under the Trade Agreements Act (“TAA”) without a non-availability determination, because the TAA only applies to products acquired under a federal procurement contract, not products purchased by private sector health care providers through commercial channels. At the same time, the law authorizing access to care outside the VA system raises questions regarding reimbursement of supplies, particularly pharmaceutical and biological products, which need to be resolved, perhaps through the claim processing system regulation. For example, the law specifies that veterans may elect to receive medical services including supplies furnished incident to a medical service from Medicare providers. It also contemplates that VA provider agreements will cover drugs and devices covered by Medicare Part B, cap the negotiated rate paid for such supplies at the Medicare rate, and follow procedures applicable to participation agreements under the Medicare program. What is unclear is whether the VA will pay for any drug administered by a non-VA physician and covered by Medicare, or impose its own restrictive formulary on contract providers.
Prior to the Veterans Choice Act, any drugs paid for by the VA were subject to VA formulary requirements. Not only would it be burdensome for non-VA providers to adhere to the VA formulary as a condition of reimbursement, physicians participating in the Medicare program may be unwilling to sign agreements to treat veterans if they cannot use the same products covered by Medicare and receive the same payment. Similarly, military treatment facilities and federally-qualified health centers will want to be reimbursed for whatever supplies they use in treating all their patients, not just veterans. If the VA formulary restrictions do not apply to drugs administered by non-VA physicians, manufacturers of non-formulary drugs may increase utilization of their drugs in the VA market.
Another area requiring clarification concerns prescriptions written by non-VA physicians. Although the Veterans Choice Act authorizes VA payment for supplies furnished as medical services under the Medicare program, it does not provide a pharmacy benefit outside the VA system, and does not cover drugs dispensed by private sector pharmacies. If veterans want the VA to pay for their prescriptions, the prescriptions must be dispensed by a VA pharmacy or the agency’s mail order pharmacy. Before enactment of the new law, prescriptions written by non-VA physicians often could not be dispensed by VA pharmacies without a VA physician first seeing the patient and approving the prescription. In those situations, a veteran still had to wait to schedule an appointment at a VA facility to get the medication. Hopefully, the VA will not continue that practice under the new law.
It is unclear, however, whether the VA will still require veterans to make appointments with VA doctors in order to obtain certain prescriptions. Requiring a veteran to wait weeks for a VA appointment or drive many miles to see a VA doctor in order to receive medication, which could be prescribed outside the VA and dispensed by the VA’s mail order pharmacy, is clearly contrary to the spirit of the law. If the VA is concerned with the expense of a drug prescribed by a non-VA doctor, a requirement for electronic or telephonic consultation between the prescribing doctor and a VA doctor should suffice. In addition, veterans will be issued Veterans Choice cards in order to process payment claims. Thus, it would be relatively easy for a Pharmacy Benefit Manager to manage prescriptions written by authorized non-VA doctors and dispensed by the VA’s mail order pharmacy to Veterans Choice beneficiaries, including any prior authorization requirements.
Finally, it is worth noting that if veterans elect to be treated by DoD physicians, any drugs or devices furnished to veterans at a military treatment facility will be procured by DoD at contract prices available to DoD, including prices under Blanket Purchase Agreements. Similarly, if veterans elect to be treated at federally-qualified health centers, as defined in section 1905(1)(2)(B) of the Social Security Act, drugs used to treat the veterans will be acquired at deeply discounted prices under pricing agreements authorized by section 340B of the Public Health Service Act. Thus, the acquisition cost for these providers is well below the Medicare rate, which, for drugs, is generally based on the weighted average sales price for the drug, exclusive of federal sales. The Veterans Choice Act caps the negotiated reimbursement rate paid non-VA providers for medical supplies at the Medicare rate; however, the statute does not, prohibit the VA from negotiating prices below this amount with providers that are beneficiaries of other federal contracts or pricing agreements and have much lower acquisition costs. Accordingly, the VA could negotiate payment terms with DoD facilities or federally-qualified health centers consisting of a service fee plus the acquisition cost of the drug.
“Incomplete, Inaccurate, and Unverifiable”: An Evening with the OIG’s Recent Audit Report on GSA’s Administration of Contractor Team Agreements
By: Jonathan Aronie, Partner, Sheppard Mullin Richter & Hampton
I acknowledge it runs counter to the traditional, universally-accepted, ultra-cool image of DC Government Contracts lawyers, but I must admit I like reading GSA OIG Audit Reports. So it was with great anticipation that I poured myself a generous glass of milk the other night and curled up in front of a warm desk lamp to devour the pages of the OIG’s latest commentary, engagingly titled “Audit of Contractor Team Arrangement Use.”
As its title foreshadows, the Report, dated September 8, 2014, recounts the exhilarating tale of the OIG’s exploration of GSA Contractor Team Arrangements (“CTAs”). The noble objectives of the audit team, established in the Report’s opening pages, were to “(1) determine the extent to which contracting officers follow existing guidance and regulation in the administration of contractor team arrangements and (2) assess contracting officer awareness of risk in improperly administering team arrangements.” They had me at “objectives.” Snuggling up closer to my desk lamp, I read on.
Because GSA’s CTA records were “incomplete, inaccurate, and unverifiable” (a finding, incidentally, that would spell disaster for a contractor), the OIG’s audit was performed on a limited sample of GSA task orders – 7 orders, to be exact. The auditors, however, did interview numerous contracting officers and supervisors, and the conclusions they were able to draw from their review are nothing short of hair-raising. According to the auditors – wait for it – GSA’s contracting officers “have been provided minimal instruction and have received no formal training relating to the award and administration of team arrangements.” The auditors also concluded GSA has provided inadequate guidance regarding the use and administration of CTAs. I was pulled deeper and deeper into the story with each new paragraph. As I flipped the pages with zest, hungering for the surprise around the next corner, I . . . .
Okay, I give up. The truth is, there is absolutely nothing surprising, engaging, hair-raising, or even particularly interesting about the OIG’s audit findings. We all have known for years that GSA contracting officers don’t understand Contractor Team Arrangements – and, frankly, most contractors don’t either.
For the last 15 years or so, I’ve taught an Advanced Issues in MAS Contracting Course – previously with Carolyn Alston (currently with the Coalition) and currently with Larry Allen (previously with the Coalition) – and the issue of CTAs comes up in every class. The pervasiveness of the confusion among Government COs and contractors never ceased to amaze me – at least until I attended a CTA course at GSA Expo a few years back taught by a now-retired CO. With due respect (and apologies) to the many good COs and Government teachers out there, the course was awful. The information was vague, not useful, and, in many ways, just plain wrong. Thus, it came as no surprise to me, as it probably didn’t to you, that the GSA OIG auditors concluded COs are not being well educated on this topic.
I was more interested in the OIG’s view of the consequences of the lack of training and guidance. The consequences identified by the auditors, however, were presented through the lens of a Government actor – not a contractor. While I don’t quibble with the correctness of the auditors’ findings, I do regret they ignored most of the risks to the contractor of misunderstanding CTAs. And there are several. But before getting to that, let’s get some basics out of the way.
A CTA is an agreement between two (or more) GSA Schedule contractors to provide a solution to an authorized Schedule purchaser that neither could provide on its own. In GSA’s words, a CTA allows Schedule contractors “to meet the government agency needs by providing a total solution that combines the supplies and/or services from the team members’ separate GSA Schedule contracts. It permits contractors to complement each other’s capabilities to compete for orders for which they may not independently qualify.” Here are a few other important elements of CTAs:
- All participants in a CTA must have their own Schedule contract, and must contribute something to the CTA.
- The products or services offered through the CTA must be “on Schedule” just as they would have to be if offered by a sole Schedule holder. (Open market items may be offered only as provided in FAR Part 8.)
- Notwithstanding the penchant of Schedule contractors to characterize one member of the CTA as the prime and the other member as the sub, in fact, all CTA participants are primes. The leader commonly is known as the “Team Lead,” while the others commonly are known as “Team Members.” But, legally speaking, they all are primes. As the OIG pointedly reminded GSA in its Audit Report, “each team member is a prime contractor and should be treated as such.” The point is critical for reasons discussed further below.
- As prime contractors, all CTA participants have “privity of contract” with the Government. In other words, all participants assume the rights of, take on the obligations of, and subject themselves to the risks of being a prime contractor.
- All CTA participants are responsible for complying with the terms and conditions of their respective Schedule contracts, including pricing terms, TAA requirements, Price Reductions Clause obligations, labor qualification requirements, etc.
- Each CTA participant is responsible for reporting its own revenue and paying its own IFF.
And importantly, each CTA participant – whether it views itself as the lead or as a member – is at risk for any non-compliance, including breach risk for its or its teammates’ non-compliance, past performance risk for its or its teammates’ performance failures, False Claims Act risk at least for its own recklessness (and possibly for its teammates’ recklessness if it was known), and, as a practical matter, reputational risk for most anything that goes wrong regardless of fault.
With that as background, let’s now take a look at the aspects of a CTA that create some of these risks from the perspective of the contractor.
Billing Errors Risk
In the context of a Subcontract, the prime contractor must have all products/services on its Schedule and must bill the Government at or less than its Schedule price – even if the products/services are provided by a subcontractor. This means that, unless a unique solicitation provision directs otherwise, the prime contractor can “mark up” the subcontractor’s price to the prime’s Schedule price. In the context of a CTA, however, each participant is beholden to its own price list. Thus, the team lead cannot “mark up” a team member’s products/services beyond that team member’s Schedule price. Failure to appreciate the difference between a Subcontract and a CTA can create the risk of pricing errors and, at the very least, the risk of confusion among COs and auditors.
IFF Reporting Risk
Each team member is responsible for paying its own IFF on sales made through a CTA. Where CTAs are structured so the Team Lead handles all interactions with the customer, however, the Team Lead sometimes pays the entire IFF obligation and, consequently, the Team Members may lack visibility into the timing or even the amount of Schedule revenue. While GSA typically receives its due tribute in any case (since, as noted, the Team Lead sometimes pays the full IFF amount), the absence of a specific, traceable payment by the Team Member can create all sorts of problems when it comes time for IOA reviews and/or OIG audits.
Labor Qualification Risks
A prime contractor must ensure all personnel working on the project meet the labor qualification requirements set out in the prime contractor’s GSA Schedule contract – whether or not the individual performing the work is employed by the prime contractor or a subcontractor. In contrast, each participant in a CTA must ensure its personnel meet the labor qualifications set forth in its own Schedule contract. Here again, a clearly written CTA is essential. Lack of clarity regarding the nature of the contracting relationship can increase the risk of an inadvertent contract breach in an area (i.e., labor qualification issues) that increasingly is a favorite among auditors.
As GAO has made clear again and again over the years, except in very limited situations, Schedule procurements require the proposal of Schedule items. The failure to offer products or services on the offer’s valid Schedule contract can result in rejection of the proposal, or, if it does not, will provide fodder for an easy bid protest. While a contractor bidding under a CTA can pull from any/all of its teammates Schedule contracts to prepare a compliant 100%-Schedule solution, a prime contractor cannot pull from its subcontractor’s Schedule if the prime does not have the product/service on its own Schedule. The prime contractor must have 100% of the items on its own Schedule. One unlucky contractor found this out the hard way back in 2007 when it submitted a quotation in response to a management operations RFQ, but didn’t make clear it was proposing as a Contractor Team. Consequently, GSA rejected the quotation, finding it not to be a CTA and finding the offeror did not independently hold all of the necessary Schedule items required by the RFQ.
Price Reductions Clause Risk
This one is best described through the ancient and time-honored art of a war story. I had a client years ago that entered into what it thought was a prime/sub relationship with another Schedule holder. It was a service contract for the military and the “prime” didn’t have all the necessary labor categories on its Schedule so it “subbed” to my client. As many companies do, the companies structured their relationship as a prime/sub arrangement, with the “sub” providing personnel at a discount to the “prime,” and then the “prime” marking up the personnel to its Schedule price; the markup serving as the “prime’s” fee.
A year or so after the project came to an end, the “sub” was hit with an OIG audit. The auditor saw the “discounts” to the “prime” and accused it (the “sub”) of violating its Price Reductions Clause. (The company’s Basis of Award included prime contractors.) The auditor did not particularly care that the Government was the ultimate customer. He saw only a discount to a BOA customer and, to him, that spelled PRC violation.
Nor was the auditor taken by the company’s argument that the relationship actually was a CTA and, therefore, the sales to the “prime” actually were sales to the Government because (as you know if you’ve read this far) each CTA member is a prime contractor. The company’s argument was not made any easier when the auditor reviewed the order (which only referenced the “prime”), reviewed the agreement between the “prime” and the “sub” (which was titled a “Subcontract” and referenced only a “prime” and a “sub”), and recognized that the “prime” had paid the totality of the IFF (an action consistent with a prime/sub relationship, not a CTA). Had the parties clearly identified the agreement as a CTA, employed the correct terminology, and acted consistent with GSA’s CTA guidelines, there would have been no PRC violation allegation.
The moral of this little tale is this: Words matters. Contractors should use prime/sub when dealing with a subcontract, and use lead/member when dealing with a CTA.
Risk Mitigation Techniques
Add to the foregoing risks the additional, mostly-Government-facing risks identified in the OIG’s Audit Report and you have yourself one very confusing, very misunderstood, and very risky contract vehicle. This is not to say, of course, you should avoid entering into CTAs. But you should look before you leap, understand the rules and the risks, and take compliance seriously. And, oh yes, don’t read the OIG Audit Report as though it sets forth all the risks!
In its Audit Report, the OIG identified a number of measures GSA can/should take to help reduce some of the confusion around CTAs. These involved better training for COs, better internal record keeping systems within GSA, and better policies. While industry awaits these enhancements, there are things contractors can do to protect themselves. Here are a few:
- Understand the difference between a Subcontract and a CTA, and clearly identify which vehicle you are employing. Be clear internally, be clear to your teammates/ subcontractors, and be clear to the Government.
- Do not rely on oral CTAs (or oral subcontracts for that matter). Prepare properly crafted CTAs in writing. While, as confirmed by the OIG, GSA historically has paid little attention to the content of CTAs, the agency’s website does offer a pretty good list of what contractors should include in their CTAs. See www.gsa.gov/portal/content/202253. While GSA identifies these elements as requirements of a CTA (i.e., “The CTA document must address” X or Y), they are not. They are, however, quite good recommendations.
- Share the CTA with the contracting officer. GSA “strongly encourages” contractors to do so, and so do I.
- Use correct terminology. If you are establishing a CTA, call it a CTA and identify one company as the Lead and the other as the Member. If you are establishing a subcontract, call it a subcontract and identify one company as the prime and one as the sub. Do not use the terms interchangeably.
- Try to have the award issued in the name of the CTA rather than in the name of one member of the CTA. If this is not possible (e.g., because the agency, for whatever reason, resists), then try to have the CTA identified on the face of the award document. As the OIG recognized in its Audit Report, contracting officers often do not remember to do this on their own.
- Identify clearly in the CTA (and in the proposal and/or contract) which team member will submit invoices and how payment is expected to be made. Remember, while the Government should pay each team member independently, agencies rarely want to take that approach, and GSA does not force them to. Failure to deal with invoicing and billing issues early can create great confusion down the road as auditors struggle with reconciling reported revenue to internal records. The OIG correctly recognized this issue in its Audit Report as well.
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In hindsight, perhaps I was too hard on the OIG in my introduction. While GSA’s CTA files may be incomplete, inaccurate, and unverifiable, the Audit Report nonetheless got it right. CTAs are misunderstood by the contracting community – industry-wise, CO-wise, and otherwise. So maybe the Audit Report was not as exciting as I had hoped, but it did provide a good opportunity to reflect upon a risky area of GSA Schedule contracting. Perhaps the sequel will be more riveting. GSA estimates it will publish updated CTA regulations by April 2016. I plan to be the first in line to get a copy so I once again can curl up in front of my warm desk lamp with a nice glass of milk and get lost in the world of GSA Schedule contracting. Oh, what a life!
Jonathan is the co-managing partner of Sheppard Mullin’s Washington, DC office, and has been practicing government contracts law since 1994. He is the co-author of the GSA Schedule Handbook (West Publishing), teaches on a variety of Government Contracts topics across the country, and is a frequent speaker at Coalition events. When not reading or writing about Government Contracting, he can be found trying to get control over his two young girls, one of whom became a teenager this month.
 The Computer Cite protest (B-299858) is an interesting one and a good read for contractors participating in CTAs. In the bid protest that followed GSA’s rejection of the offer, the offeror contended its teaming agreement satisfied “the essential requirements for a CTA. . . .” GAO disagreed.
 For those interested, the audit actually came to a very interesting and successful conclusion. Since the “prime” did not have the necessary labor categories on its Schedule and the “sub” did, we explained to the auditor that either (1) the prime and the Government agency violated the procurement rules by providing/procuring non-Schedule services under a Schedule procurement or (2) the parties actually had intended to establish a CTA, but simply failed to use the proper language. Ultimately, the auditor went with door number two, which, legally, was the correct result. The parties’ poor terminology and documentation, however, caused what should have been a simple audit to turn into a very expensive one.
 To add to the confusion, in the context of a CTA, either team member also may have subcontractors of its own. But that’s an article for another time.
SBA Size Standards Correction
This week the Small Business Administration published a Federal Register notice making corrections to the previous proposed rule on Small Business size standards that was released on September 10, 2014. The notice corrects several incorrect figures in the preamble text. To view a complete list of the corrections, review the notice. Comments are due November 10, 2014.
GSAR Proposed Rule: Part 538 Federal Supply Schedule Contracting
GSA published a proposed rule recently to update three sections of the General Services Administration Acquisition Regulation (GSAR)—part 15, Contract by Negotiation; part 538, Federal Supply Schedule (FSS) Contracting; and corresponding areas of part 552, Solicitation Provisions and Contract Clauses. Thirty-five new FSS specific clauses are being added to GSAR parts 538 and 552. According to GSA, these clauses and provisions have already been implemented into the program through internal policy and current FSS solicitations and contracts. Comments on the rule are due November 10, 2014. The Coalition is in the process of reviewing the proposed rule and will submit comments. The deadline for members to submit input to the Coalition is Oct 24. Please send your feedback to Aubrey Woolley at firstname.lastname@example.org or (202) 315-1053.
Addition to the Procurement List
Effective November 17, AbilityOne will add a new service to their procurement list—Third Party Logistics. It will provide contract management service and warehousing and supply chain management for Army Contracting Command-Aberdeen Proving Ground (Natick Contracting Division). For more information, visit the link here.