Friday Flash, 02.21.14

FAR and Beyond Blog

Show me the Money: How the federal budget will impact business development

By Guest Blogger: Ray Bjorklund, President, BirchGrove Consulting LLC

As a business developer, you follow the money. You trek toward the customers that spend money and the customers that spend the most. Discretionary spending authority, appropriated by Congress, is your bellwether.

As an experienced business developer, you follow that portion of the budget authority intended to be spent on contracts for what your company offers. Discretionary spending does not necessarily correlate to contract spending; about 40% of discretionary spend goes to compensation of government employees and not to contracts; that percentage is slowly rising, as agencies are told to buy less of everything.

Your objective should be to become a savvy business developer.  Savvy business developers, look beyond planned contract spending for any trends that will shift your prospects in the federal market segment you are pursuing, either in specific customer agencies, in the types of services or products purchased, or both.

Using the federal budget, how does the savvy business developer develop the situational awareness to find opportunity?  The President’s Budget is an annual political statement, which the Executive Branch begins preparing approximately 18 months before the fiscal year starts. When you add up the documents prepared by the Office of Management and Budget and all the congressional justification materials prepared by the agencies, the page count is well north of 20,000. There are many messages, some bold and some mysterious, residing in those pages. In the 2014 budget it is clear that spending on infrastructure, education for jobs, and veterans assistance are again important messages.

But consider that federal contracts for “infrastructure” will decline by $700M to $11.1B in 2014. Spending on workforce development contracts will rise 10% to $6.1B. Federal contract spend on veterans programs will increase from $33.5B to $35.7B, or 7%. You may have to decide between growth and revenue. Do you want to pursue growth, perhaps with smaller revenues? Or do you want to do business where the government spends a lot, even though spending is declining in those areas?

And then there are more specific, exciting growth areas like big data and cyber security. Looking beyond the hype, however, we see subtle shifts among the categories of contract spending and a few initiatives that propose new or at least different levels of contract spending.

The Air Force plans to ramp up cyber superiority spending to more than $4.1B, 8% over 2013. Are there cyber contract opportunities? No and yes. There are increases in spending on military personnel and civil service that will suppress spending on services contracts. But one of the largest components of the net increase is $85M in new construction at Fort Meade, the first increment in a new $358M operations center for about 1,400 cyber people. The new facility will eventually require another $64M in equipment and IT and over $6M in furniture. Watch it unfold over the next couple of years.

Worried about another sequester? The lateness of the 2013 decision to sequester budget authority inhibited many spending initiatives and compounded uncertainty about any requirement for a 2014 sequester. Program planning and rationalization suffered.

Then the partial government shutdown in Oct 2013 overrode the Administration’s intent to systematically plan for a 2014 sequester. The bipartisan, bicameral budget deal provided a little stability. But not enough stability to completely overcome the risk aversion that persists. The good news is that a 2014 sequester is extremely unlikely. The bad news is that it’s going to get a little worse, before it gets better.

Still struggling to find new opportunities? Since there will be little overall change in the level of contract spending, a business developer has to peer deeper into the budget to see if the contract spending is really new or is merely going to entrenched incumbents, with little opportunity to get a foot in the door.

To meet your shareholders’ expectations of revenue, you must “up your game” in following the money and become the savvy business developer. Somewhere in those 20,000 pages of nooks and crannies, you’ll find fresh opportunities.

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Increasing DoD Opportunities for SDVOSBs

A recent report, published by the RAND Corporation, explores service-disabled veteran-owned small business (SDVOSB) contracting and what the Department of Defense (DoD) can do to remove barriers for these companies.  RAND’s study identifies a number of reasons why SDVOSB contracting with the DoD consistently falls below the 3 percent federal goal and makes recommendations for improvement.  The reasons identified for the low rate of contracts to SDVOSBs include:

1. The historic level of priority SDVOSBs received in the Federal Acquisition Regulation (FAR).  Although a change to the FAR was made in 2012 to remove any order of precedence among small business contracting programs, RAND found that DoD contracting staff still exercised greater discretion in setting aside or awarding contracts to SDVOSBs compared to other small business categories.
2. A misconception by many SDVOSBs that the government’s procurement goals are mandatory and guaranteed.
3. Limited oversight of subcontracting goals which may discourage some prime contractors from including SDVOSBs in awarded work.
4. The complexities of the FAR, the federal bidding process, a lack of sufficient federal education and networking opportunities, and a lack of communication from key contracting personnel.

The report also makes a number of recommendations to the Secretary of Defense about how SDVOSB contracting rates could be improved.  They include:

1. Educating Federal contracting staff of the parity that exists in the FAR between small business socioeconomic contracting programs.
2. Informing contracting staff of the industries that have ample SDVOSBs.
3. Reviewing prime contractors’ execution of their bid and subcontracting plans and publishing the results.
4. Providing advanced training about the FAR, the bid process, and the roles and responsibilities of contracting staff to SDVOSBs.

Finally, RAND found that SDVOSBs saw “dramatic improvements in their ability to win contracts when they invested effort in understanding the FAR and in the lengthy process of learning how to develop a successful bid.”  To access the full report, visit www.rand.org/pubs/research_reports/RR322.html#abstract.

 

Ecolabels Presentation by the EPA, Feb 25

Join the Coalition’s Green Committee on February 25 to hear from the EPA about their plans to develop guidelines for Federal agencies to follow when using Ecolabels in Federal procurement.  Specifically, we will be discussing the EPA’s recent Ecolabels notice in the Federal Register (comments now due April 25, 2014).  GSA will also have sustainability experts participate in the discussion.  This is a great opportunity for a Myth-buster’s dialogue on green procurement!

The Ecolabels meeting will be at 10am on Tuesday, February 25 at 3M Government Markets (1425 K Street, N.W., Suite 300, Washington, DC).  For directions to 3M, visit https://thecgp.org/images/3M-DC-Office-Logistics.pdf.

For more details and to register, please contact Aubrey Woolley at awoolley@thecgp.org.

 

GSA Briefing on BMO FSSI, Feb 27

Join the Federal Buildings Committee on February 27 for a briefing by GSA’s Mary Snodderly on the Federal Strategic Sourcing Initiative (FSSI) for Buildings Maintenance and Operations (BMO).  The FSSI strategy for BMO is the first specifically targeting services.  Industry Relations from the Public Buildings Service (PBS) will also participate in the meeting to discuss the various offices, programs and resources available within PBS for vendors.  The meeting will be held at 10:00am at Mayer Brown (1999 K St NW, Washington, DC 20006).  To RSVP to attend or request the dial-in information, please contact Roy Dicharry at rdicharry@thecgp.org.

 

Air Force and IT Shared Services

Complex processes, shrinking budgets and a shortage of in-house procurement skills, are all posing challenges to IT acquisition for the Air Force.  According to FCW, the Air Force is utilizing a shared services approach to mitigate these challenges. At an event this week in Arlington, Air Force leaders stressed how difficult IT acquisition has become for the Department of Defense. “There are so many players involved, so many who influence decisions, write policy [and] advise, and basically IT systems are not successful very easily,” said Lt. Gen. Charles Davis, Military Deputy in the Office of the Assistant Secretary of the Air Force for Acquisition. To facilitate the functioning of IT systems, the Air Forces is taking a shared services approach in a number of ways.

• Utilizing Defense Information Systems Agency (DISA) shared services.
• Migrating to DISA’s enterprise email.
• Considering DISA’s infrastructure-as-a-service offerings and turning to the Army IT Agency for other infrastructure needs.

Additionally, the Air Force has added new oversight to IT acquisition with the establishment of an IT governance executive board led by CIO Lt. Gen. Michael Basla, according to FCW.

 

Member Feedback Requested on ODCs

The General Services Administration (GSA) recently released a request for information (RFI) on Other Direct Costs (ODCs).  The Coalition has drafted a response to the RFI.  Members please review the draft and provide any suggestions to Carolyn Alston at calston@thecgp.org by next Wednesday, February 26.

We are also asking members to complete a 5 minute survey on ODCs so that we can provide more details in our response.

ODC Member Survey

https://www.surveymonkey.com/s/YGTG65B

The survey will be open through Wednesday February 26.  Thank you in advance for your submissions!

 

DoD Contracts Fall from FY13 Levels

Defense contracts awarded this January were at their lowest level in almost two years and down 66 percent from December.  Additionally, awards were down 30 percent from the same period last year, according to Bloomberg analysis. The DoD awarded just $8.44 billion and announced 180 awards, none of which exceeded $1 billion in value. The previous low during the month of January was $12.1 billion in 2013.

 

Compliance Lessons from the Office of Inspector General

By: Jack Horan, Partner, McKenna Long & Aldridge LLP

Effective and compliant contract administration should be a primary goal for all government contractors, including, of course, contractors with the Department of Veterans Affairs (VA).  As with any other business goal, compliance should be attained efficiently.  Within the web of statutory, regulatory, and contractual requirements, VA contractors should understand the areas where noncompliance creates the greatest risk and exposure, and spend their resources accordingly.

As with the Offices of Inspectors General throughout the government, the VA Office of Inspector General (OIG) is a central player in the oversight of contracts, enforcing compliance with all major VA statutory, regulatory, and contractual requirements, and redressing compliance failures.  As part of its responsibilities, the VA OIG reports to Congress twice annually on the audits, reviews, and investigations it conducts.[1]  Although intended for other purposes, these reports can assist VA contractors in identifying the requirements that are of the most importance to the VA, and should be most important to the contractor.  In short, VA OIG’s actions over the prior year serve as a lesson to contractors on where to spend their time and money (and the effect of noncompliance).

The VA OIG has “a nationwide staff of auditors, investigators, health care inspectors, and support personnel” in six major component “offices” that conduct “independent oversight reviews to improve the economy, efficiency, and effectiveness of VA programs, and to prevent and detect criminal activity, waste, abuse, and fraud.”  For a VA contractor, the three component offices that are of most importance are:  (1) the Immediate Office of the IG; (2) the Office of Counselor to the IG; and (3) Office of Investigations.^[2]

The Immediate Office of the IG is top-tier management, with the Deputy Inspector General operating as the “Chief Operating Officer.”  In addition to planning, directing and monitoring all [IG] operations,” the Immediate Office establishes investigative priorities for the Office, and identifies and promotes legislative initiatives to Congress.

The new year should bring a new IG to the VA.  On November 6, 2013, GeorgeOpfer announced his retirement as IG after more than 44 years of government service.  Mr.Opfer assumed responsibility as Inspector General on November 17, 2005, after being nominated by President GeorgeW.Bush.  Although President Obama has not nominated a replacement, Mr.Opfer’s long-time Deputy, RichardGriffin, is currently serving as Acting Inspector General.  Mr.Griffin has been a Deputy Inspector General since November 23, 2008, and previously served as Inspector General from November 1997 to June 2005.

A change in Inspector General can have a significant effect on the priorities, policies, and procedures of an office – as demonstrated by the GSA’s OIG under the direction of the current IG, Brian Miller.  Given his status as Acting Inspector General and his long service under Mr.Opfer, it would be surprising if Mr.Griffin made dramatic changes to the VA OIG’s policies or procedures.  Significant changes will likely come, if at all, under the next IG.

The Office of Counselor provides counsel to the OIG on False Claims Act cases affecting the VA and serves as liaison to the Department of Justice on False Claims Act cases.  The Office of Counselor also manages the Office of Contract Review, which  provides pre-award and post-award audits of contractors’ proposals and contracts under an agreement with VA’s Office of Acquisition, Logistics and Construction (OALC).[3]  The majority of pre-award audits of proposals for contracts or modifications under the VA’s Federal Supply Schedule (FSS) program.  The Office automatically reviews the pricing for all proposals when the estimated contract or modification exceeds $5,000,000 under Schedule 65IB, Drugs, Pharmaceuticals, and Hematology Related Products, and $3,000,000 for the other VA Schedules.  The Office of Contract Review also reviews pharmaceutical manufacturers’ compliance with the pricing requirements of the Veterans Health Care Act.  Thus, the Office of Contract Review reviews pricing for major VA contracts and ensures the pricing is compliant with contractual, regulatory, and statutory requirements, and provides a recommendation to the contracting officer on the prices the VA should pay for items on large FSS contracts.

So how did the pricing proposed by potential contractors fare with Office of Contract Review?  During fiscal year 2013, the Office conducted 83 pre-award audits of proposals of all types, and identified $655,056,285 in cost savings, or an average of $7.9 million in cost savings per audit.[4]  It’s safe to say that the Office did not routinely accept pricing as proposed by the contractors.

How about proposals for FSS awards, renewals or modifications?  Forty-six of the 83 pre-award audits were of proposals for awards, renewals or modifications under the FSS program^[5] – 32 for initial award, ten for renewals, and four for modifications to add products.[6]  The Office recommended a price reduction for 72% (23 of 32) of the audited proposals for initial award.  The Office recommended a total of $470,428,110 in price reductions, with an average of $14.7 million per audit (including all 32 audits).  Thus, offerors submitting proposals for an initial award of an FSS contract fared worse than the average contractor subject to pre-award audits.

With pricing established by the existing contracts, one would expect that the contractor would fare better in pre-award audits for contract renewals.  Contractors did fare better but the Office frequently challenged the proposed pricing.  The Office recommended a total of $18,577,827 in price reductions, with an average of $1,857,783 per audit.  The OIG recommended a price reduction for 60% (six of ten) renewal proposals.

Contractors seeking product additions fared the best over the past year with the OIG recommending price reductions in only 25% (one of four) of its audits.  The one price reduction was a significant one though — $8,615,256.

So, here are the lessons learned from the pre-award audits:

• Most obviously, the OIG takes a hard look at proposed pricing, in the past year rejecting 72% of pricing proposed for initial award, 60% for renewals, and 25% for modifications.
• A contractor needs to be prepared to support its pricing not only when it is seeking the initial FSS contract, but also at renewal and for each modification.

Now let’s look at post award audits – audits conducted to determine whether a contractor is complying with its pricing obligations.  The Office reported 33 post-award audits in fiscal year 2013, which resulted in the VA recovering contract overcharges totaling over $17.6 million.  According to the OIG, approximately $11.7 million of that recovery resulted from Veterans Health Care Act compliance with pricing requirements, recalculation of Federal ceiling prices, and appropriate classification of pharmaceutical products.

Fourteen of the post-award audits were of voluntary disclosures.  The Office claimed more than offered by the contractor in nine of 14 voluntary disclosures.  The average recovery to the VA from voluntary disclosures was $1,157,117.[7]

The VA recovered 100 percent of recommended recoveries for post-award audits.

Lessons learned from post-award audits:

• Pay close attention to your Veterans Health Care Act pricing – it is a major compliance area for the OIG, comprising the largest recovery area.
• Be prepared to support your accounting and rationale for any voluntary disclosures.  The disclosure is likely to be audited and the proposed repayment amount is likely to be challenged.
• Your opportunity to affect the government’s view of your liability is through negotiations with the OIG.  The Office has an excellent record – 100% of the time – of recovering what it determines the VA is due.

Now, a look at the focus of the Office of Investigations over the past fiscal year.  The Office of Investigations (OI) investigates crimes committed against programs and operations of the VA.  Within the OI, the Criminal Investigations division investigates all types of crimes (including criminal fraud as well as rape and murder) and civil fraud.  For fiscal year 2013, the OI reported opening 45 cases, making 11 arrests, and obtaining more than $564.1 million[8] in fines, restitution, penalties, and civil judgments “in the area of procurement practices.”

The OI specifically identified twelve criminal cases involving procurement violations by contractors – all twelve involved service-disabled, veteran-owned small business fraud.  In those cases, the SDVOSB business either misrepresented the eligibility of its owner, or the true ownership of the business.

Lessons learned from the OI:

• Exposure under the False Claims Act for VA contracts can be very significant – reaching over $500 million in 2013.
• People get arrested and go to jail for defrauding the VA.
• If you tell the VA that you are a serviced-disabled veteran and own and operate a SDVOSB, you better be a service-disabled veteran and own and operate the SDVOSB.

Finally, one other lesson learned – this one from the structure of the VA OIG.  Contact by the Office of Contract Review and the Office of Investigations can both lead to civil or even criminal liability, but there is a significant difference.  If the contact comes from the Office of Investigations, the issue has already likely been determined to be a potential civil fraud or criminal violation.  There is no doubt that it is time to call your lawyer.

 

Small Business Committee Meeting

Coalition members are invited to join us at the upcoming Coalition Small Business Committee meeting.  This will be a first of its kind meeting in that Chairmen from each of the Coalition’s committees will be present to discuss their objectives and priorities.  In addition:

• Robert Bourne and Matt McFarland from GSA’s Office of Acquisition Management will discuss their efforts on GSA Schedule contractor teaming, and
• A panel of small and large Coalition members will share best practices for GSA Schedule contractor teaming arrangements.

The meeting will be held on March 6 from 10:00 to 12:00 at the law office of Holland and Knight 1600 Tysons Blvd, Suite 700,Tysons Corner, VA 22102. Please RSVP to Roy Dicharry rdicharry@thecgp.org if you wish to attend.

 

Congress and DoD Reviewing Acquisition Regulations

The Defense Department (DoD) and the US Congress have begun reviewing decades of defense acquisition policies to speed up the defense procurement process and leverage the Department’s buying power, reports Defense News. On the DoD side of the project, the effort is being led by Andrew Hunter, head of the Pentagon’s Joint Rapid Acquisition Office, on behalf of Frank Kendall, defense undersecretary for acquisition, technology and logistics. Officials at DoD are hoping to simplify the Defense Federal Acquisition Regulation Supplement (DFARS) making it easier to understand and implement, and more focused on results.

In Congress, the initiative is being led by the House Armed Services Committee’s vice chairman, Rep. Mac Thornberry, R-Texas. On Defense News’ TV show, Congressman Thornberry said he would like to see more efficient use of taxpayer dollars, a simpler system that gives more authority, and more accountability to the people who make decisions. Recently, Defense Procurement and Acquisition Policy (DPAP) requested comments on the impact of certain DFARS requirements on industry.  The Coalition is forming a working group to advise on our comments.  Members interested in participating, please contact Roy Dicharry at rdicharry@thecgp.org.

 

OMB Proposes New Standards Policy

This week the Office of Management and Budget (OMB) released a proposal to revise the Federal government’s policy on the use of voluntary consensus standards.  In a blog post, OMB cited changes in economic activity and the global nature of technology innovation as reasons for the update.  The government’s current policy is based on Circular A-119, Federal Participation in the Development and Use of Voluntary Consensus Standards.  This document is the basis for the government’s approach to standards and conformity assessment in procurement and other areas such as international regulatory cooperation.

A revised version of Circular A-119 has been published in the Federal Register for public comment.  The proposed changes in the guidance are designed to:

• Reduce regulatory complexity, duplication and costs on companies, workers, consumers and the U.S. Government, as well as cumulative burdens on the economy, through promoting retrospective review of existing regulations and increased reliance on private sector solutions, where appropriate;
• Support a flexible, transparent, and innovative U.S. standards system for the 21st Century that promotes economic growth, competitiveness, and job creation;
• Ensure that U.S. regulations reflect state of the art technical solutions for purposes of interoperability, as well as to protect the health, safety, and welfare of the American public and our environment; and
• Strengthen implementation of international trade rules, helping prevent the creation of trade barriers, and avoiding unnecessary regulatory differences with key trading partners.

To access the proposed revisions to Circular A-119 directly, visit www.whitehouse.gov/sites/default/files/omb/inforeg/revisions-to-a-119-for-public-comments.pdf.  Comments are due May 12, 2014.

 

DoD Seeking Feedback on DFARS

Defense Procurement and Acquisition Policy (DPAP) is requesting comments on the impact of certain DFARS requirements on industry.  They are currently conducting an assessment of these impacts as part of a broader effort to reduce compliance burdens.  Comments are due March 14, 2014.  To access DPAP’s request for comments in the Federal Register, click here.

The Coalition will submit comments. First we will request that the comment period be extended to May 14, 2014 in order to provide substantive recommendations and feedback to the Department of Defense.  The Coalition will also have a working group to formulate our comments.  Members interested in participating, please contact Roy Dicharry at rdicharry@thecgp.org.

 

Government Contract Law: News and Trends

 

 

 

 

 

This week on “Off the Shelf”, Jason Workmaster and Jack Horan, partners at McKenna Long & Aldridge LLP, provide a recap of the legal year in 2013. Jack and Jason provide insights regarding 2013 bid protest trends and what to look for in 2014. They also discuss key decisions involving the Civil False Claims Act and the ramifications (both positive and negative) for government contractors. To listen to the discussion, click here.

 

OMB Says Sequestration for FY14 Unnecessary

In a FY 2014 report to Congress and the White House, the Office of Management and Budget (OMB) concludes that sequestration of FY14 discretionary funds is not necessary. As required by the Budget Control Act of 2011, the report provides OMB’s current estimates of the discretionary spending limits, OMB’s scoring of the enacted 2014 discretionary appropriations bills compared to those limits, and comparisons of OMB’s estimates with the estimates provided by the Congressional Budget Office in its Final Sequestration Report for Fiscal Year 2014. Based on its current estimates of statutory discretionary spending limits, OMB determined the appropriations levels enacted in the FY2014 omnibus package are within the limits established by the Bipartisan Budget Act of 2013.

 

Forum with Under Secretary for Science and Technology at DHS, Daniel Gerstein

The Coalition is excited to announce our next breakfast forum event with Under Secretary for Science and Technology at DHS, Daniel Gerstein.  This event will be held on Thursday, March 13 from 8:30 – 10:30 at McKenna Long & Aldridge LLP in Washington, D.C.

PURPOSE/OBJECTIVE:

• Brief federal contractors/industry representatives on DHS S&T
• Explain S&T priority areas, recent successes with industry partners
• Provide insights into how industry can best work with S&T, where S&T is going

THEMES & MESSAGES:

• S&T 101
• Game Changers & hot challenges
• Innovation
• Looking to the future – how industry can help
• How to work in current financial environment
• Importance of industry partnerships

Location:

McKenna Long & Aldridge LLP – 1900 K Street NW, Washington, DC 20006

 

The Coalition’s 2014 Spring Training Conference!

Our 2014 Spring Training Conference will take place on April 10! The event will be held at the Fairview Park Marriot in Falls Church, VA, featuring a robust lineup of speakers.

View the Draft Agenda Here!

Among those that The Coalition has invited for attendance are:

• The Honorable Gerry Connolly, House Committee on Oversight and Government Reform (Invited)
• Cameron Leuty, Senior Budget Analyst, Bloomberg Federal, (Confirmed)
• Richard Levi Counsel to the Inspector General (GSA), (Confirmed)
• Maureen Regan  Counsel to the Inspector General (VA), (Confirmed)
• Harry Hallock, Deputy Assistant Secretary, United States Army, (Tentative)
• Jan Frye, Deputy Assistant Secretary, Office of Acquisition and Logistics, (Invited)
• Jeffrey Koses, Senior Procurement Executive, General Services Administration, (Confirmed)

Be sure to follow The Coalition’s events page online, as registration information and a draft agenda will be posted soon!

 

GOVCon Symposium, February 25

The Coalition for Government Procurement is proud to once again sponsor The Fairfax County Chamber of Commerce GOVCon Symposium – Success Strategies for Surviving in the “New Normal”

Join the Fairfax Chamber and its GovCon Council for the annual GovCon Symposium, which will focus on best practices and success strategies for surviving in the “new normal.” This program will arm you with the tools and insights you need for the year ahead.

Keynote Speaker: U.S. Senator Tim Kaine

Senator Kaine is the junior United States Senator from the Commonwealth of Virginia. As a member of the Committee on the Budget, Senator Kaine will speak about the newly developed federal budget and the implications for the government contracting industry.

Breakout sessions will follow.

Tuesday, February 25, 2014
7:30 AM – 11:30 AM

Hilton McLean Tysons Corner
7920 Jones Branch Drive
McLean, Virginia 22102

For more information and to register visit  www.fairfaxchamber.org