Friday Flash 06.08.12

1. Comment of the Week

In thinking about the Next Generation Schedules initiative, I am reminded of Redskins Coach George Allen’s famous quote “The future is now.”   The time for the Next Generation Schedules is NOW.  In responding to the budgetary challenges facing GSA’s customer agencies, the federal government will increasingly look to shared services models to leverage resources and save taxpayer money.  The Office of Management and Budget’s focus on shared services for information technology is just one example.

The GSA schedules are one of the, if not the most successful, shared services model in government today, accounting for over $50 billion in government purchases annually (includes GSA and VA schedules).  Customer agencies rely on the GSA schedules framework to compete and place tens of thousands of delivery and/or task orders each year.  It is a framework that allows customer agencies and contractors to focus on requirements and pricing at the order level.  However, more can be done via the GSA schedules to create sound, competitive opportunities for contractors that deliver best value to customer agencies and the taxpayer.  In my view, that is what the Next Generation Schedules is about—addressing key contracting issues in order to deliver a more efficient and effective program for government, industry and the taxpayer.  And for the GSA schedules the “The Future is Now!”   There are three key structural contract issues GSA can address now to enhance the value of the program and respond to the budgetary and procurement challenges currently facing customer agencies.

First and foremost, provide “Other Direct Cost” (ODC) capability on GSA schedule service contracts.  This important step would allow schedule contractors to more effectively provide comprehensive service solutions to agency requirements through the GSA schedules.  Currently the lack of ODCs hinders the effectiveness of the GSA schedules program.  It leads agencies to create their own contract vehicles rather than use the schedules.  Addressing ODCs will empower agencies to more efficiently and effectively compete and acquire comprehensive service requirements through the GSA schedules. Addressing ODCs now will increase opportunities and competition through the GSA schedules, reduce contract duplication, and deliver greater value to customer agencies and the taxpayer.   And it can be done now!   Federal Acquisition Regulation (FAR) Clause 52.212-4 (Alternative I) authorizes the acquisition of ODCs and materials at cost through task orders for services under commercial item contracts.   The FAR clause is currently in GSA schedule contracts.  The addition of ODCs is also the first step in implementing a general cost reimbursement capability for the GSA schedules.  A capability that Shay Assad, Director of Pricing, Department of Defense, has asked GSA to address.

Second, reduce the number of schedule solicitations.  Currently there are 40 solicitations (GSA and VA).  The solicitations should be consolidated down to a handful—with a goal of a single solicitation (contractors could then choose to consolidate their contracts or maintain separate contracts depending on their business models).  The current structure of the schedules often forces companies to submit multiple offers for multiple contracts when a single contract would be more efficient.  Consolidating solicitations allows companies to efficiently and effectively consolidate contracts rather than having multiple contracts across schedules and business lines.  This approach would provide the opportunity for contractors and GSA to reduce costs associated with seeking, obtaining and managing multiple schedule contracts.  It is an opportunity to leverage contractor and GSA resources through a more efficient structure.  Consolidating schedules would lead to a more efficient and effective platform for market research by customer agencies.

Third, reform the outdated schedule pricing policies.  The current schedule pricing policies in the General Services Acquisition Regulation essentially date from the early 1980’s.  The 1982 policies were written to address commercial pricing practices for products which made good business sense at a time when the majority of GSA schedule purchases by the federal government were for products.  However, today the majority of purchases through the GSA schedules are for services.  As a result, preparing, submitting, evaluating, negotiating and awarding a services schedule contract using the current pricing policies is like putting a square peg in a round hole. Moreover, for both services and products, schedule pricing for customer agencies is driven by the second level competition for task orders based on individual agency requirements.   The new task and delivery order competition requirements for schedules are the result of statute and regulation.   The current pricing policies do not reflect this new dynamic.  The current regulations increase the complexity and cost of price negotiations and contract compliance for government and industry.  It is time to bring the schedule pricing policies into the 21st century.

We believe these steps align with Administrator Tangherlini’s vision of expanding and improving GSA’s shared services model.

A final note, the Coalition is moving forward with a MAC, GWAC, Enterprise Contract Committee based on significant member interest. The Coalition management team’s extensive experience with IDIQ contracting provides unique domain credibility to lead this important effort in leveraging member resources in the federal IDIQ marketplace. We will be discussing next steps at the Joint IT/Services Committee meeting next Tuesday, June 12th at Northrop Grumman.

2. GSA Plans to Close Schedule SINS

Yesterday, GSA announced its plan to introduce a Demand Based Model to the Multiple Award Schedules program that will close “oversaturated” schedules to new vendors. In testimony before the House Small Business Committee’s Subcommittee on Contracting and Workforce, FAS Commissioner Steve Kempf introduced the new model. GSA will determine if a contract has an appropriate number of contractors to successfully meet its mission. If so, the contract will be closed to new vendors for a year. According to Kempf, while the number of contractors on the Schedules program has increased exponentially over the last decade, the number of new products and services has not grown at the same rate. This disproportion has resulted in a lack of sales for many contractors, causing them to fall short of the $25,000 minimum threshold in sales GSA requires in the first two years. Kempf stated that the new model is an effort to reduce duplicative contracts and create savings in contract management.  The Coalition will be reviewing the Demand Based Model and providing input on the plan to GSA.

3. MAS Basic Training in June

Don’t miss the Coalition’s upcoming MAS Basic Training, June 14 -15 at the offices of McKenna Long in Washington, DC. The intensive, two-day training workshop teaches the basics of utilizing the Multiple Award Schedules program. Over the course of the workshop you will learn how to obtain and manage your GSA schedule, market GSA contracts, comply with Federal procurement requirements, follow policy changes, and prepare for MAS audits. A highlight of the course is training on GSA’s electronic tools including, eBuy, GSA Adavantage! and GSA eLibrary. Other material covered will include structuring your contract to address the schedule compliance requirements while retaining flexibility to compete in the federal and commercial market place, as well as training on the new FAR 8.4 ordering procedures.  The courses will be taught by those on the front lines of GSA schedule negotiations and contract management, including experts from Baker Tilly, McKenna Long & Aldridge LLP, Washington Management Group and The Coalition for Government Procurement.  Attendees are eligible to earn up to 10 CLP credits with submission of an attendance certificate and course training packet available for pick-up after the event.

4. Appropriations Bill to Increase GSA Oversight

The Financial Services and General Government Appropriations Act, which funds GSA among other agencies, proposes a number of new GSA oversight procedures.  The House bill proposes that GSA report spending data on a quarterly basis and limit employee cash awards.  In addition, the GSA Administrator would have to certify that conferences are appropriate and in compliance with all laws and regulations before funds can be used for this purpose.  The House Appropriations Committee has allotted $28 million for GSA policy, management, communications and services.  GSA’s Office of Inspector General is allocated $68 million, of which $10 million is dedicated to audits and investigations related to travel, conferences, employee reward programs and other agency programs and activities.  The bill also limits the Federal Buildings Fund to $7.9 billion, a cut of $101 million compared to last year’s level and $702 million below the President’s request.

5. GSA Reports Regulatory Review Progress

In response to the January 2011 Executive Order on regulatory reform, Federal agencies released progress reports this week on their review of regulations to streamline operations and achieve cost savings.  GSA is one of more than two dozen agencies that have submitted plans in accordance with the executive order.  GSA’s most recent review covers more than 25 regulations including the Price Reductions Clause (GSAR Clause 552.238-75), Federal Supply Schedule Contracting (GSAR Case 2006-G507, Rewrite of Part 538), the Identification of Products with Environmental Attributes (GSAR Clause 552.238-72), and Contracting by Negotiation (GSAR Case 2008-G506, Rewrite of Part 515).  The Coalition’s recent comments on the Price Reduction Clause are specifically mentioned in the review, which states that “The Coalition for Government Procurement compiled and submitted significant comments from among its membership… The existing information collection has been extended through October 2012 to allow time to reconcile the public comments with input from FAS.” The Coalition is following up with GSA to discuss their plans for regulatory review in more detail.

6. Agencies on Track to Exceed Property Savings Goals

In a May 31 blog post, Danny Werfel, controller of the Office of Management and Budget (OMB) reported that agencies are on track to exceed the Federal real estate savings goals set by the Administration in 2010. According to OMB, agencies have saved over $5.6B in the first quarter of FY 2012 by consolidating and disposing of under-utilized property. The President’s June 2010 directive set two savings goals to be met by the end of FY 2012:  $5B savings through the Base Realignment and Closure Commission (BRAC) and $3B from non-BRAC closures and consolidations. Agencies have currently saved $3.25B in BRAC and $2.4B in non-BRAC savings through selling excess property, reducing operating costs and consolidating data centers. In a memo released this May, OMB issued a policy to continue the savings by freezing the Federal property footprint. The policy prohibits agencies from acquiring new property unless it is offset by consolidation or disposal of existing property. Werfel also called on Congress to act by supporting the proposed Civilian Property Realignment Act (CPRA) as a way of streamlining disposal and cutting through the Congressional red-tape.

7.  Legal Corner

Proposed Rule Would Create SBIR and STTR Opportunities For Investment Companies

Guest Bloggers: Richard Oliver and Agustin Orozco, McKenna Long & Aldridge LLP

The Small Business Administration (“SBA”) recently issued a proposed rule which, for the first time, would allow venture capital operating companies, hedge funds and private equity firms (“investment companies”) to meaningfully participate in the Small Business Innovation Research (“SBIR”) and Small Business Technology Transfer (“STTR”) programs.  This proposed rule would implement provisions of the National Defense Authorization Act for Fiscal Year 2012.  Specifically, the proposed rule would revise the affiliation rules for participants in the SBIR and STTR programs to permit participation by concerns that are majority-owned by multiple investment companies.  See 77 Fed. Reg. 28520-30, May 15, 2012.

Access to the SBIR and STTR programs would be a significant funding opportunity for small businesses that are largely owned by investment companies.  The SBIR and STTR programs were created to award federal research grants to small businesses.  Specifically, the purpose of the SBIR program is to stimulate technology innovation by strengthening the role of innovative small business concerns in federally-funded research and development.  Federal agencies may award up to $150,000 for a Phase I SBIR contract and up to $1,000,000 for a Phase II contract.  Agencies also will have discretion to exceed the SBIR contract award amounts by up to 50 percent and even to award a second Phase II contract.  Similarly, the STTR program requires certain federal agencies to enter into funding agreements with small business concerns that engage in a collaborative relationship with research institutions.

The proposed rule would allow investment companies to participate in the SBIR and STTR programs, as long as no single investment company owns more than 50 percent of the concern.  The proposed rule would modify the affiliation rules solely for the SBIR and STTR programs.  Currently, such concerns would not be eligible, because the concern would be considered to be affiliated with not only the investment companies, but also the other companies owned by these investment companies.  SBA’s general principles of affiliation state that if two or more persons own, control or have the power to control less than 50 percent of the concern’s voting stock, but the blocks of stock are equal or approximately equal in size, the SBA presumes each person to control the business concern.  By contrast, SBA’s proposed rule provides that where an SBIR or STTR applicant’s voting stock is widely held or where two or more persons (including investment companies) hold large blocks of voting stock but no one person owns more than 50 percent of the stock, the board of directors controls the applicant.  The investment companies, therefore, would not be affiliated with the SBIR or STTR applicant.

The proposed rule would also amend the current affiliation rules with respect to an investment company’s portfolio companies.  Under the proposed rule, an SBIR or STTR applicant would not be affiliated with a portfolio company of an investment company solely on the basis of shared investors.  Additionally, the proposed rule states that if an investment company is determined to be affiliated with an SBIR or STTR applicant, the applicant will not be affiliated with a portfolio company of the investment company, unless: (1) the investment company owns a majority interest in the portfolio company; or (2) the investment company holds a majority of the seats of the board of directors of the portfolio company.

There are several aspects of the proposed rule that may be addressed during the public comment period.  While the proposed regulation references stock ownership by “multiple” investment companies, it does not address the allowable percentage amount of minority ownership.  Thus, two investment companies could each own 49 percent of the concern.  The proposed rule also does not require that the multiple investment companies not be affiliated.  Two “sister” investment companies could each own 49 percent of the stock, with the small business being 98 percent owned by two related investment companies.

In order to participate in the SBIR and STTR programs, these small businesses must qualify as a “domestic business concern.”  The proposed rule would revise the definition of domestic business concern in anticipation of the participation of small businesses owned by multiple investment companies.  The new definition would continue to use the SBA’s definition of “business concern or concern,” however, it would also require the business concern to be created or organized in the United States, or under the law of the United States or of any State.

The proposed rule would amend the time at which SBA makes size and eligibility determinations for SBIR and STTR contracts.  Currently, size and eligibility are determined at the time of award for both Phase I and Phase II awards.  The proposed rule, however, would require the SBIR or STTR applicant to meet the size and eligibility requirements both at the time of submission of the application and at award.

Finally, with respect to certification, the proposed rule would require concerns that are majority-owned by multiple investment companies to register with SBA on or before the date they submit a response to an SBIR solicitation.  In addition, these concerns would be required to indicate in their SBIR proposals that they have completed this registration.

Comments on the proposed rule are due on or before July 16, 2012.

LA:17954701.3

8. Senate Armed Services NDAA FY13 Report

The Senate Armed Services Committee commented on a number of key acquisition matters in a recent report accompanying the FY2013 National Defense Authorization Act (NDAA). On executive pay, the committee recommends that the government lower compensation for defense contractor employees to $230,700— the salary of the vice president.  The current allowable compensation that the government will pay for contractor senior executives is $763,029.  The report also addresses reverse auctions.  The committee encourages DoD “to expand their use of reverse auctions for appropriate types of commodities and simple services, whenever doing so would be expected to result in savings.” Finally, the report orders the Secretary of Defense to submit a report to Congress on the impact of the sequestration of funds, which are set to go into effect on January 2, 2013.  Sequestration is a mechanism built into the Budget Control Act that would trigger an additional $500 billion across-the-board cut in defense spending over the next decade if Congress fails to identify that level of spending cuts by January 2013.  The Defense Secretary’s sequestration report must include the impact on military readiness, the ability to carry out military strategy, and the effect on industry and employment.

9. GAO: DoD Business Modernization Systems Need Improvement

In a June report, the GAO determined that the Department of Defense (DoD) has made limited progress in modernizing its business systems and that the program will remain categorized as high-risk. In compliance with the National Defense Authorization Act for FY 2005, DoD must take steps to satisfy system modernization management guidance and record the actions in a report submitted to Congress, and reviewed by GAO. After reviewing the report, GAO determined that DoD has taken steps to comply with NDAA guidance, however ambiguity of organization and senior leadership roles and responsibilities has continued to slow implementation. GAO reported some of the shortcomings found in the report:

  • The most recent business enterprise architecture released has not produced modernization because roles and responsibilities associated with developing and implementing the plan are not clearly defined.
  • There is a lack of a comprehensive inventory of DoD business systems.
  • DoD has not changed investment management practices outlined in GAO’s 2011 review of the Information Technology Investment Management framework.
  • DoD reported $2.2B in modernization spending under certification actions, but there is limited support of the basis and approvals of these actions.
  • DoD lacks the staff to carry out necessary modernization responsibilities.

GAO recommended that the Department take steps to improve the mechanisms for governing business systems modernization activities.

10. Veterans Hiring Reporting Scrutinized

During a June 4th Senate Contracting Oversight Subcommittee meeting, Senator Claire McCaskill (D-Mo.) expressed concern over Department of Labor (DOL) reports on veteran employment by contractors are inaccurate.  Since 2002, contractors are required by law to report the number of veterans hired and employed each year to DOL. If the company is large enough, or employs a substantial number of veterans (more than 50), it is required to implement an affirmative action plan for veterans. However, Labor reports issued over the last three years contain incomplete and inaccurate data, according to Sen. McCaskill. Despite some contractors submitting their numbers, the numbers were not included in the reports and some numbers were obviously incorrect (veteran employment numbers were higher than total employment numbers). The Office of Federal Contract Compliance Programs (OFCCP) stated that it plans to change regulations on the affirmative action programs within the year. The current proposed changes would require companies to engage in a minimum of three recruitment programs, report the number of veteran applicants and the number of referrals from state services. Veteran unemployment continues to be above the average unemployment rate, at about 13%. The proposed changes continue the Administration’s efforts to lower the veteran unemployment rate and increase oversight on the issue.

11. IG Reports on GSA Cloud Computing BPAs

On June 4, the Office of the Inspector General issued an audit report on the Federal Acquisition Services’ (FAS) Infrastructure-as-a-Service Blanket Purchase Agreements (BPAs) awarded to 12 contractors in 2010 for cloud computing services. The purpose of the audit was to investigate whether FAS had planned, documented and awarded the service BPAs under FAR guidelines, and to identify areas for the Office of Integrated Technology Services (ITS) to make improvements in the award process. The audit found that FAS did not plan, award and document the BPAs in accordance with FAR policies, and the contracts were not reviewed by the ITS Review Board.  The IG identified four problems during the audit that reduced the contracts’ efficiency, effectiveness and cost savings:

  1. There was no strategy for determining the number of BPAs to award
  2. A BPA was awarded to an offeror that did not meet the technical requirements
  3. There was no collaboration between evaluation teams
  4. The contract documentation did not support award decisions and did not provide a complete history of the procurement

The IG offered recommendations to the FAS Commissioner to improve the BPA award process:

  1. Strengthen the ITS Contract Review Board by insuring that board members address special considerations associated with the contract vehicle, verify that awards are based on evaluation, and document the contract’s complete history in the official file
  2. Take action to certify that awardees comply with technical solicitation requirements
  3. Structure future acquisition teams to encourage collaboration and utilize expertise