Contract duplication is one the central strategic acquisition challenges facing the Federal Government and its contractors. Contract duplication (i.e. many contracts for the same and/or similar services and products across the federal enterprise) unnecessarily increases government and contractor administrative, bid and proposal, and other overhead costs. These unnecessary costs are ultimately borne by the American taxpayer. Duplicative contracts create confusion and uncertainty in the federal marketplace further increasing transactional costs for all. Significantly, contract duplication also robs the economy of productive employment as contract overhead costs increase at the expense of resources dedicated to direct performance of government requirements. Finally, the proliferation of contracts across the federal enterprise, rather than enhancing competition, actually creates barriers of entry for commercial firms, especially small businesses.
As you know, this Spring and Summer the Coalition surveyed our members regarding the trends and costs associated with contract duplication. We thank those member firms who responded to our questionnaire. The feedback we have received confirms that contract duplication does needlessly increase operational and transactional costs for contractors. More troubling, a majority of respondents to our survey (over three quarters) have seen an increase in contract duplication over the last twelve months. In September, the Coalition will be providing the results of our questionnaire to the Office of Procurement Policy (OFPP), the Department of Defense (DoD), the General Services Administration (GSA), the Department of Homeland Security (DHS) and the Department of Veterans Affairs (VA).
We hope and anticipate that by sharing our survey results with OFPP, DoD, GSA, DHS, and the VA, it will promote a “Myth-Busters” dialogue focusing on the challenge of contract duplication. The time is now. Given our budgetary challenges, addressing unnecessary contract duplication is a vital, strategic imperative that the entire federal procurement community, government and industry, must address. Reducing unnecessary contract duplication costs is good for government, good for industry and is in the best interest of the taxpayer.
Contract duplication must be addressed on a strategic cross-cutting basis as well as on an operational basis. On a strategic level, OFPP’s September 29, 2011 memorandum establishing guidance for the “Development Review and Approval of Business Cases for Certain Intragency and Agency-Specific Acquisitions” is a good first step in bringing more government-wide discipline to the creation of multiple award IDIQ contracts. However, more can and should be done to reign in unnecessary contract vehicles. We look forward to a robust “Myth-Busters” dialogue that identifies additional, appropriate and strategic measures further addressing contract duplication.
On an operational level, existing contract vehicles must be structured to meet agency requirements. In particular, implementing an effective, efficient and accountable contract structure for the inclusion of “Other Direct Costs” (ODCs) on task orders under GSA’s multiple award schedule program will have a significant, positive impact on reducing contract duplication. Simply put, agencies want the ability to craft comprehensive service solutions, including ODCs, at the task order level. The inability to do so via GSA’s multiple award schedules has resulted and continues to result, in potential customer agencies creating their own contract vehicles rather than using the GSA schedules program to meet their needs. Addressing ODCs is an operational, tactical measure that can have a profound impact on the strategic direction of multiple award IDIQ contracts across the Federal Government. Implementing an ODC capability (the key FAR Clauses are already in schedule contracts) will empower GSA’s schedules program to more efficiently and effectively deliver comprehensive solutions to customer needs. In sum, implementing ODCs on the GSA schedules is a powerful operational tool that will create a positive framework for reducing unnecessary contract duplication.
Finally, on a personal note, on Wednesday the Coalition held its annual charity golf tournament supporting wounded veterans. Once again the tournament was a great success and we were able to present two worthy organizations, Operation Second Chance and Hope for the Warriors, with checks for $5,000 each. Thank you to all those who supported and/or participated in the event! Thank you to my staff for another job well done!
Have a wonderful Labor Day holiday everyone!
The Coalition’s 2012 Annual Charity Golf Tournament benefitting our returning veterans was a resounding success… thanks to our generous players and sponsors! We were able once again to donate two $5,000 checks to two very deserving charities – Hope For the Warriors and Operation Second Chance. We were very proud and honored to find out that on top of that, these organizations also received nearly $2,000 in on-site donations. Your generosity and support will be forever appreciated by the Coalition as well as the wounded veterans. Please take a moment to view our pictures from the event.
The Coalition would like to extend a special thanks to our sponsors:
Crivella Investment Group
We look forward to continuing our support of wounded service members and their families again next year!
Join the Coalition for a dialogue with new OFPP Administrator, Joe Jordan, on September 11 for an in-depth look at the Office of Federal Procurement Policy’s initiatives for FY 2013 and a conversation about the potential impact on contractors.
After being appointed as Administrator, Office of Federal Procurement Policy in May, Joe Jordan introduced a set of agency goals to buy smarter, lead the federal government in strategic sourcing, provide small business opportunities and streamline the procurement process.
Become part of the conversation and learn more about how OFPP plans to address the challenges facing Federal agencies in the upcoming fiscal year and what that means for agencies, contractors and acquisition stakeholders.
GSA is analyzing data in GSA Advantage! to compare the prices of identical products on agency contracts. GSA has provided comparative data to contractors with prices that are higher than their competitors in an effort to encourage voluntary price reductions. The analysis includes 7 data elements
Manufacturer name and product number
Average catalog price (The average price in GSA Advantage!)
Minimum catalog price (The lowest price in GSA Advantage!)
Minimum sales price (The lowest price at which the part number was actually sold through GSA Advantage! or e-mall)
We expect that several thousand contractors will receive letters from GSA. Contractors on Schedules that contain many identical products should pay particular attention to this effort. GSA has indicated that they would like to get feedback on whether the type of information provided is helpful to the contractor in making pricing decisions. In light of this on-going analysis by GSA we suggest that members review data in GSA Advantage! to assure that it is accurate.
This week the Coalition for Government Procurement attended the swearing in ceremony for OFPP Administrator Joe Jordan on August 24. The Coalition was represented by Chairman of the Board, Bill Gormley, Roger Waldron, President, and Carolyn Alston, Executive Vice President and General Counsel. We look forward to working with Joe Jordan on acquisition policy issues to advance the mutual goal of common sense in government procurement on behalf of the public and private sectors and above all, the American taxpayer.
The General Services Administration (GSA) announced on August 30 that cloud based email services are now being provided to Federal customer agencies. According to GSA, 20 BPAs have been awarded to 17 companies, which will allow Federal, state and local governments to procure cloud email services. Last year, GSA was the first Federal agency to move to a cloud based email system, saving $2 million dollars to date. “Our innovative cloud solutions are another example of how GSA offers the best value, low cost services that help agencies serve the American people,” said Mary Davie, acting Federal Acquisition Service commissioner. GSA estimates that transitioning to a cloud solution lowers the cost of email by up to 50 percent annually and saves $1 million for every 7,500 email boxes. These cloud service email contacts will allow vendors to provide the government with email, cloud-based office automation, electronic records management, migration services, and integration services. The move to cloud based solutions has been motivated by the release of President Obama’s 25 Point Federal IT Reform Plan and “Cloud First” mandates, which require agencies to consider cloud-based solutions as the default IT program. 11 of the 17 companies awarded contracts are Coalition members! Congratulations to the following companies!
Accenture Federal Services LLC
CGI Federal Inc.
Computer Sciences Corporation
Dell Federal Systems L.P.
General Dynamics Information Technology Inc.
Harris IT Service Corporation
IBM Global Business Services
Science Applications International Corporation
Exec Compensation & Subcontractor Reporting Begins
Contractors are required to report executive compensation and first-tier subcontract awards as of August 30 according to Reporting Executive Compensation and First-Tier Subcontract Awards final rule published July 26, 2012. The rule requires contractors to report executive compensation and first-tier subcontract awards on contracts and orders expected to be $25,000 or more (including all options), except classified contracts and contracts with individuals. For more information about the applicability to contractors and the impact on public disclosure trends, please see the August Legal Corner compliments of Jay Gallagher & Phil Seckman of McKenna Long & Aldridge.
A Significant Expansion of Public Access – Executive Compensation Disclosure Rule Is Finalized
Guest Bloggers: Jay Gallagher & Phil Seckman, McKenna Long & Aldridge LLP
Pursuant to an interim rule, published July 8, 2010, contractors awarded certain prime contracts and first-tier subcontractors under those prime contracts have been obligated to disclose, among other information, details regarding the total compensation of their five most highly compensated executives. The interim rule represented a phased implementation of the 2006 Federal Funding Accountability and Transparency Act (Pub. L. 109-282) and its 2008 adjustments (Pub. L. 110-252). The final rule, published July 26, 2012 and effective August 27, 2012, has made only minor adjustments to the interim rule despite significant public comments.
Absent the applicability of certain exceptions discussed below, based on the phased approach in the interim rule, as of March 1, 2011, any newly awarded prime contract valued at $25,000 or more must contain FAR § 52.204-10. Pursuant to that clause, among other things, a prime contractor must report the names and total compensation (without regard to the limits on amounts treated as allowable costs) of its five most highly compensated executives for its preceding fiscal year. Moreover, the prime contractor must report its first-tier subcontract awards valued at $25,000 or more through the Federal Funding Accountability and Transparency Act Subaward Reporting System (“FSRS”), and for each such subcontract, also must report the names and total compensation for the prior fiscal year of each of the five most highly compensated executives of such first-tier subcontractor.
The standard FAR clause also contains a definition for total compensation. The definition is not necessarily an exhaustive list of sources of compensation, but includes both the cash and noncash executive earnings, including: salary and bonus; stock awards, options, and appreciation rights; earnings for services under non-equity incentive plans; changes in pension value; above-market earnings on deferred compensation that is not tax-qualified; and other compensation such as severance and termination payments that exceed $10,000. Contractors should take care when determining whom in the organization qualifies as its executive and should consider establishing a procedure to ensure that changes in the identity of the highest paid executives are captured and accurately reflected in the required periodic reporting.
There is a change in the final rule that is likely to cause some consternation for contractors awarded classified contracts. The interim rule had made clear, in FAR 4.1403(b), that the standard contract clause at FAR 52.204-10 was not required in classified solicitations and contracts. The final rule makes an important change, now stating that the rule does not require the disclosure of “classified information.” In other words, classified contracts no longer are likely to be exempt from the reporting requirement and, therefore, may include FAR 52.204-10 in the future. Prime contractors facing this circumstance should assess, based on the security agreement for each classified contract, whether any of the information to be disclosed under the rule constitutes classified information. Another consideration would be to seek approval prior to disclosure regarding the information to be released, consistent with DFARS 252.204-7000.
In addition to the foregoing, prime contractors awarded contracts subject to this requirement need to ensure that they flow appropriate requirements down to their first-tier subcontractors. In this regard, prime contractors may wish to seek indemnity from subcontractors to address a subcontractor’s failure to provide accurate and updated information.
There are important exceptions to the requirement imposed on the prime contractor to disclose the compensation information called for by the rule. Specifically, disclosure is required only if the contractor received:
- 80 percent or more of its annual gross revenues, totaling at least $25 million in revenues from federal sources (i.e., contracts, subcontracts, loans, grants, etc.); and
- The public does not have access to the contractor’s compensation information through reports filed with the SEC or IRS.
In addition to the foregoing, if the contractor or first-tier subcontractor had gross income, from all sources, of less than $300,000, the contractor or first-tier subcontractor is exempt from the reporting requirement.
These exceptions may enable some small businesses and private firms with modest government sales to avoid the reporting obligation. Nonetheless, the very low $25,000 threshold for applicability of the rule and the fact that it is applicable to commercial item procurements and small businesses means that executive compensation information will be required from literally hundreds of thousands of contractors. Moreover, this information must be updated whenever it changes, and prime contractors in particular face yet another on-going compliance responsibility, which, given the statutorily-imposed low contract value threshold, would appear to be of questionable value to the U.S. taxpayer.
The preamble to the final rule makes clear that prime contractors are obligated to ensure compliance by their first-tier subcontractors. Accordingly, primes will be imposing, by contract, that compliance obligation and any liability associated with non-compliance, on its first-tier subcontractors. This makes sense given that the subcontractor is in the best position to ensure the accuracy of its information reported in FSRS and will also know when a change occurs that warrants updating reported information. For these reasons, to the extent prime contractors have not already done so, they must have methods in place to ensure the required information is reported and periodically updated.
The rule represents a significant expansion of the public’s access to federal award information with the stated goal of reducing ‘‘wasteful and unnecessary spending.’’ From the perspective of the legislation’s drafters, this goal will be achieved by “empowering” the American taxpayer with information that can be used to demand greater fiscal discipline from both executive and legislative branches of the federal government. In other words, government officials ostensibly will be less likely to earmark funds for special projects, because the public will have access to information regarding the transaction.
Avoiding unnecessary federal spending is, of course, a laudable objective. Unfortunately, the cost of this new rule is estimated to exceed $20 million in added reporting costs and the FAR Council concedes the rule could result in anti-competitive behavior. Specifically, contractors can use the information regarding subcontract awards and executive compensation to improve their competitive position in future procurements and to lure away executive talent.
Particularly important, however, is the fact that the rule continues the persistent retrenchment from the reforms in commercial item and commercial-off-the-shelf procurements represented by the Federal Acquisition Streamlining Act. And, while the preambles to the interim and final rules state that 41 U.S.C. §§ 1906, and 1907 (which require affirmative findings by the FAR Council to impose the requirements of new regulations on commercial item or commercially available off-the-shelf item procurements, respectively) were considered when making the decision to impose the reporting requirement on commercial procurement, the actual justifications in the preambles are bereft of any meaningful analysis. 75 Fed. Reg. 39,414 (July 8, 2010).
Only time will tell, but at this point there is no evidence that the taxpayers are using the newly disclosed information to realize the legislators’ vision of greater fiscal discipline from the executive and legislative branches. In its absence, the estimated cost required to implement the rule appears likely to achieve just the opposite of its intended objective, i.e., more, not less, wasteful and unnecessary spending.
Save the Date – CGP Small Business Forum
The Coalition for Government Procurement is pleased to launch its Small Business Committee. As a kick off for the new committee we will have a Small Business Forum on October 30 from 8 to 10:00 a.m. in Washington DC. Speakers from both SBA and GSA have been invited to address their initiatives and priorities for utilization of small business concerns. Watch the Friday Flash and www.cgp.org for additional information. If you are interested in being a member of the small business committee please e-mail your contact information to Roy Dicharry at email@example.com.
Join Cherry, Bekaert & Holland for an educational webinar on Tuesday September 11 at 12:30 PM.
- Overview of what Limited Scope Audits entail
- Explanation of the different audit objectives between Department of Defense Limited Scope Audits and the Department of Labor limited-scope audit exemption option under ERISA
- Why do these audits occur?
- Potential Impacts of Limited Scope Audits on your business and business systems
Brad Smith, CPA and Chris Wade, PMP, CFCM from Cherry, Bekaert & Holland’s Government Contractor Services Group will be presenting.
The Coalition regularly provides public comments on rules that impact the membership. The following is a list of upcoming rules. We ask that members note the proposed rule on Basic Safeguarding of Contractor Information Systems which was published in the Federal Register last week. The Coalition plans to submit comments on this proposed rule and will provide further analysis on it in an upcoming edition of the Friday Flash.
Summary: DoD, GSA, and NASA are proposing to amend the FAR to add a new subpart and contract clause for the basic safeguarding of contractor information systems that contain information provided by or generated for the Government that will be resident on or transiting through contractor information systems.
Due October 23, 2012. If you have any comments regarding this proposed rule, please contact Aubrey Woolley.
Summary: DoD, GSA, and NASA are proposing to amend the Federal Acquisition Regulation (FAR) to clarify the use of a price analysis technique in order to establish a fair and reasonable price.
Due September 10, 2012. If you have any feedback on this proposed rule, please contact Carolyn Alston.
Notice of Request for Comment
Summary: The Office of Federal Procurement Policy (OFPP) has developed a Request for Comment asking whether changes to current regulations and other guidance might improve contracting officers’ access to relevant information about contractor business ethics in the Federal Awardee Performance and Integrity Information System (FAPIIS).
Due September 17, 2012. If you have any feedback on this notice, please contact Carolyn Alston.
Notice of Proposed Rulemaking
Summary: DHS is proposing to amend its Homeland Security Acquisition Regulation to require contracts for time and material or labor hours to include separate labor hour rates for subcontractors and a description of the method that will be used to record and bill for labor hours for both contractors and subcontractors.
Due October 22, 2012. Please contact Carolyn Alston if you would like to contribute to the Coalition’s comments on this issue.
Notice of Proposed Rulemaking
Summary: The Department of the Treasury is proposing to amend the Department of the Treasury Acquisition Regulation (DTAR) to include a contract clause on minority and women inclusion, as required by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the Dodd-Frank Act).
Due October 22, 2012. Please contact Carolyn Alston if you have any feedback on this notice.
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