One Step Closer ODCs on the Multiple Award Schedule Program!
Yesterday, via posting for advance review on the Federal Register Public Inspection site, GSA announced that it had issued a proposed General Services Acquisition Regulation (GSAR) rule to incorporate Order Level Materials (OLMs), also known as ODCs, into the Multiple Award Schedule Program. This proposed rule would create a new GSAR clause to govern the acquisition of OLMs/ODCs at the task and delivery order level. It will appear formally in today’s Federal Register, and here are some of its key features.
The proposed rule defines OLMs/ODCs to include supplies and/or services acquired in direct support of an individual task or delivery order placed against an MAS contract or BPA. Fundamentally, the rule provides that OLMs/ODCs are included and priced at the order level and are not separately identified and priced at the MAS contract level. Using a new, separate Special Item Number, OLMs/ODCs are identified and priced at the time of order, thereby enhancing MAS flexibility in meeting customer agency requirements. According to the Federal Register, one objective of the rule is to create parity between FSS contracts and other commercial indefinite-delivery/indefinite-quantity (IDIQ) contracts, with respect to the ability to acquire order-level materials.
Under the proposed rule, the total value of OLMs/ODCs is limited to 33 percent of the overall order value, and ordering agency contracting officers are required to make a fair and reasonable price determination for all order-level materials. In turn, for the purpose of supporting the fair and reasonable price determination, MAS contractors are required to submit at least three quotes obtained for each OLM/ODCs above the micro-purchase threshold or provide a rational why they cannot obtain three quotes.
The proposed rule would incorporate OLMs/ODCs into the following schedules:
- Federal Supply Schedule 03 FAC: Facilities Maintenance and Management
- Federal Supply Schedule 56: Buildings and Buildings Materials/Industrial Services and Supplies
- Federal Supply Schedule 70: General Purpose Information Technology Equipment, Software, and Services
- Federal Supply Schedule 71: Furniture
- Federal Supply Schedule 84: Total Solutions for Law Enforcement, Security, Facilities Management, Fire, Rescue, Clothing, Marine Craft, and Emergency/Disaster Response
- Federal Supply Schedule 99: All Professional Services
- Federal Supply Schedule 738X: Human Resources and EEO Services
Incorporating OLMs/ODCs functionality into the MAS program will enhance the overall efficiency and effectiveness of the MAS program. Customer agencies and MAS contractors will have greater flexibility to seek, compete, award, and perform commercial-based solutions to meet agency mission requirements. The result will drive competition and access to innovation from the commercial market place through the MAS program, reducing unnecessary contract duplication. Significantly, small businesses especially will benefit through increased opportunities as MAS prime contractors, as well as subcontractors, providing OLMs/ODCs. For all these reasons, through our ODC White Paper and FAR & Beyond Blogs, the Coalition has supported adding “ODCs” (now OLMs) to the MAS program. It will be a win for government, a win for industry partners, and ultimately a win for the American people.
The proposed rule marks a significant, positive step forward towards a more flexible, efficient, effective, and innovative MAS program. The Coalition will be examining the rule in greater detail and submitting comments to GSA. We look forward to working with GSA and all other stakeholders to incorporate this vital capability into the MAS program.
On August 3, the Government Accountability Office (GAO) sustained pre-award protests related to the Defense Information Systems Agency’s (DISA) Encore III contract. Specifically, protesters argued that the ten-year, $17.5 billion contract relied on a flawed cost/price evaluation scheme and that DISA used an unsuitable lowest price, technically acceptable (LPTA) approach in awarding the contract. GAO published their full decision last Friday, September 2.
GAO concluded that DISA did not provide a meaningful basis for consideration of proposed costs to be incurred by the government and that the agency could not meet its needs using an LPTA approach on the contract. Notably, GAO stated that, although insufficient in this case, they do not object to the use of LPTA in general.
As a result of GAO’s decision, DISA issued a revised Encore III request for proposal on September 7.
Earlier this week, the General Services Administration (GSA) announced a new roll-out date for the Transactional Data Reporting (TDR) pilot program. Specifically, a mass modification for Schedule 75 is expected to be released on or before October 7, 2016. In addition, GSA announced that it will be hosting additional training webinars for those who wish to learn more about the planned changes associated with the TDR final rule:
Date: Wednesday, September 14, 2016
Time: 1:00 – 2:30 pm EST
Registration Link: https://meet.gsa.gov/e26c940m0ny/event/registration.html
Date: Wednesday, September 21, 2016
Time: 1:00 – 2:30 pm EST
Registration Link: https://meet.gsa.gov/e26c940m0ny/event/event_info.html
GSA began rolling out the TDR pilot program late last month, with the mass modifications for Schedules 72 and 58 I issued on August 26, 2016, and will continue through the beginning of calendar year 2017. The mass modifications for Schedules 51V and 03 FAC are expected to be released at the end of this week.
On September 7, the House Committee on Veterans’ Affairs received testimony related to a recently submitted report from the Commission on Care (the Commission). Pursuant to the Veterans Access, Choice, and Accountability Act of 2014, the Commission was charged with developing recommendations for how the government could improve the delivery of services at the Department of Veterans Affairs (VA). The Commission’s June 2016 report included eighteen recommended actions, including modernizing IT systems, transforming the management of the supply chain, and increasing integration with the private sector.
Significantly, the Commission’s report details how VA has the opportunity to save hundreds of lives, as well as millions of dollars, by improving the effectiveness of its supply chain management. Confusing organizational structures, however, create systemic issues that hinder VA’s ability to provide a competitive health care delivery system. Based on their findings, the Commission made several recommendations for legislative and administrative changes that would fundamentally alter the way in which the VA delivers services.
In a letter submitted to the House Committee, President Barack Obama expressed strong support for many of the Commission’s recommendations. The President, however, did not support recommendations that would alter the way in which VA’s healthcare system is run. Specifically, President Obama expressed concerns related to the efficiency and feasibility of the Commission’s proposed governance structure.
Last Friday, Claire Grady, the Director of Defense Procurement and Acquisition Policy (DPAP), issued a memorandum with guidance for contracting officers (COs) related to commercial item and price reasonableness determinations. Specifically, the memo directs COs to adopt the practices set forth in recent legislation and rulemaking that direct them to presume that a prior commercial item determination shall serve as a determination for subsequent procurements of the same item. In the event that a CO disagrees with a determination, they are directed to engage the Defense Contract Management Agency (DCMA) Commercial Item Center of Excellence (CoE).
In addition, the memo details ongoing efforts by the Director of Defense Pricing and the Defense Contract Management Agency’s Cost & Pricing Center Director to streamline the process for commercial item determinations. Specifically, they are working with companies to define the type of information needed to support commercial item determinations prior to individual procurements.
IT/Services Meeting on the Acquistion Gateway, Sept. 13
On Tuesday, September 13, the Coalition’s IT/Services Committee will host guest speaker Laura Stanton, Assistant Commissioner for the Office of Strategy Management at the General Services Administration. Ms. Stanton will discuss the government-wide approach to Category Management for IT and professional services, and the market research information available to agency customers in the Acquisition Gateway. For more details about the meeting and to RSVP, members please contact Jason Baccus at firstname.lastname@example.org.
Earlier this week, Federal News Radio reported that Congress will once again reject most of the Administration’s requests for funding that would be used to create digital services offices within every Federal agency. These offices would support efforts to improve digital services that have the greatest impact on how citizens and businesses interact with the government.
Indeed, only the Office of Management and Budget (OMB) and the Department of Homeland Security (DHS) received any form of support from legislators. Specifically, although lawmakers left its funding requests unaddressed, OMB’s U.S. Digital Services Office did received praise for its efforts to identify the ten highest priority IT investment projects from Congress. In addition, DHS received $2.5 million for its Digital Innovation Program, which will focus on procuring innovative digital technology products and services to meet DHS’ critical mission needs.
Cyber SINs Released in Schedule 70 Refresh
On Friday, September 2, the General Services Administration issued its General Purpose Commercial Information Technology Equipment, Software and Services Refresh 39 of the Schedule 70 Solicitation. Included in the refresh were the Highly Adaptive Cybersecurity Services (HACS) SINs:
- 132-45A (Penetration Testing)
- 132-45B (Incident Response)
- 132-45C (Cyber Hunt)
- 132-45D (Risk and Vulnerability Assessment)
All amendments have been incorporated into the refreshed solicitation.
GSA Releases Other Direct Costs Proposed Rule
On Thursday, GSA released the Federal Supply Schedule, Order-Level Materials Proposed Rule. This proposed rule will amend the GSAR to clarify the authority to acquire order-level materials when placing a task order or establishing a BPA against a Schedule contract. The proposed rule authorizes order-level materials under the following Schedules: 03FAC, 56, 70, 71, 84, 738X, and the Professional Services Schedule.
The Coalition supports allowing for other directs costs (ODCs) under the Schedules program and provided our recommendations to GSA in a 2011 ODC White Paper. The Coalition will be providing comments to GSA in response to the proposed rule and your input will be essential to this process. Please send any feedback to Aubrey Woolley by COB Friday, October 7.
Steve McBrady, Partner, Crowell & Moring LLP
Kris D. Meade, Partner, Crowell & Moring LLP
David B. Robbins, Partner, Crowell & Moring LLP
Jason M. Crawford, Associate, Crowell & Moring LLP
Laura Baker, Associate, Crowell & Moring LLP
On August 25, 2016, the Obama Administration published the long-awaited Federal Acquisition Regulation (FAR) final rule and Department of Labor (DOL) final guidance implementing the “Fair Pay and Safe Workplaces” executive order (“Executive Order”) (available here and here). The underlying executive order has been amended (available here) with purportedly technical corrections to conform the final rule and guidance to the Executive Order.
The rule adds subpart 22.20 to the FAR and imposes new obligations on government contractors and subcontractors, including: pay transparency obligations, restrictions on arbitration provisions, and a requirement to report labor “violations.” In response to feedback from interested parties on the proposed rule, the FAR Council and DOL incorporated several notable changes prior into the final rule and guidance. Nevertheless, many are concerned that the rule as written will create significant new burdens – at extraordinary cost – and potentially pave the way for “blacklisting” companies from procuring federal government contracts. Below is an overview of key provisions of the final rule, along with a summary of changes from the proposed rule.
Implementation. The administration extended the compliance timeline, and will implement the rule in phases. Starting on October 25, 2016, the rule will only apply to contracts of at least $50 million. Beginning on April 25, 2017, the rule will apply to contracts of at least $500,000. Subcontractors will not to start reporting violations until October 25, 2017. In addition, the disclosure reporting period will be limited to one year and gradually increase over the next three (3) years, with a full three-year reporting period required beginning on October 25, 2018.
Applicable Labor Laws. Under the reporting requirement, contractors bidding on covered contracts will be required to disclose whether there has been any “administrative merits determination,” “arbitral award or decision,” or “civil judgment” rendered against the contractor for violations of 14 enumerated statutes and executive orders: Fair Labor Standards Act; Occupational Safety and Health Act; National Labor Relations Act; Americans with Disabilities Act; Family and Medical Leave Act; Title VII of the Civil Rights Act; Age Discrimination in Employment Act; Davis-Bacon Act; Service Contract Act; Section 503 of the Rehabilitation Act; Vietnam Era Veterans’ Readjustment Assistance Act; Migrant and Seasonal Agricultural Worker Protection Act; Executive Orders 11246 (Equal Employment Opportunity) & 13658 (Contractor Minimum Wage). In a notable departure from the original executive order, but consistent with the proposed rule, the only “equivalent state laws” covered by the rule are OSHA-approved State Plans. According to the final rule, the administration will identify additional “equivalent state laws” in a future rulemaking. In short, the final rule did not contain any material changes to the proposed rule with regard to the labor laws at issue.
Administrative Merits Determinations, Arbitral Awards or Decisions, and Civil Judgments. These key terms are defined in the Guidance and incorporated into the FAR rule. The Guidance defines “administrative merits determinations” to include, among other things: (1) issuance of a Form WH-56 or a “letter indicating that an investigation disclosed a violation of sections six or seven of the FLSA or a violation of the FMLA, SCA, [or] DBA” issued by the DOL’s Wage and Hour Division; (2) an OSHA citation or notice of imminent danger; (3) a “show cause” notice issued by the Office of Federal Contract Compliance Programs; (4) a complaint issued by any Regional Director of the NLRB; and (5) a letter of determination from the EEOC that reasonable cause exists to believe that an unlawful employment practice has occurred or is occurring. In short, under the definition of “administrative merits determinations” contractors will need to disclose alleged violations that haven’t been fully adjudicated. Thus, a contractor might ultimately prevail on the merits but be forced to report the violation for several years potentially jeopardizing a contract award. These key provisions of the proposed rule, including the requirement to report “administrative merits determinations,” are unchanged in the final rule, notwithstanding significant contractor concern over reporting on alleged violations that have not yet been the subject of a full and fair hearing on the merits.
Pre-Award. FAR 22.2004-2 mandates that Contracting Officers (COs) address labor law compliance when determining contractor and subcontractor responsibility. COs must carefully consider a contractor’s actions (either through a labor compliance agreement or remediation) when making a responsibility determination. Where previous attempts to secure adequate remediation by the contractor are unsuccessful, and it is necessary to protect the Government’s interests, the CO may consider a non-responsibility determination or exclusion action. In addition, under FAR 22.2004-2, COs must consider a prospective contractor’s compliance with labor laws when past performance is an evaluation factor. FAR sections 22.2004-1(c), 22.2004-2(b) and 22.2004-3(b) address the newly established role of the Agency Labor Compliance Advisor (ALCA). Federal agencies are required to designate a senior agency official to serve as an ALCA in order to advise COs when assessing labor law violations, mitigating factors, and remedial measures. According to the rule, the ALCA provides COs with analysis and advice, but the final rule notes that this does not disturb the CO’s independent authority in determining contractor responsibility. Again, these key provisions of the proposed rule and guidance remain unchanged.
Post-Award. Under FAR 22.2004-3, a contractor’s obligation to disclose alleged labor law violations continues after an award is made. Semiannually during the performance of the contract, contractors must update the information provided. If a contractor discloses information regarding labor law violations during contract performance, or similar information is obtained through other sources, the CO, in consultation with the ALCA, considers whether action is necessary. Such action may include requiring the contractor to enter into a labor compliance agreement, declining to exercise an option on a contract, terminating the contract in accordance with relevant FAR provisions, or referring the contractor to the agency suspending and debarring official. It remains to be seen whether COs, who have needed to be reminded to conduct meaningful FAR 9.1 present responsibility determinations in recent years, will have the bandwidth or the capability to conduct this analysis, or whether they will outsource the decisions to the ALCAs or suspending and debarring officials. These provisions of the proposed rule and guidance remain unchanged in the final rule.
Weighing Violations of Labor Laws. The Guidance defines the terms “serious,” “repeated,” “willful,” and “pervasive” and attempts to provide guidelines for COs who are weighing and considering alleged labor law violations. For example, violations of particular gravity (such as terminating employees in retaliation for exercising their rights under the covered labor laws, or violations related to an employee’s death) are given the most weight. The guidance also addresses mitigating factors that COs must consider when weighing violations, including good faith efforts to remedy past violations, internal processes for expeditiously and fairly addressing reports of violations, and/or plans to proactively prevent future violations. The Appendix to the Guidance includes an extensive chart of illustrative examples.
Paycheck Transparency. FAR 22.2005 requires contractors performing work on covered contracts and subcontracts to provide employees covered by the FLSA, the Davis Bacon Act, and the Service Contract Act with information concerning the individual’s pay, hours worked, overtime hours, if applicable, and any additions made to or deductions made from the individual’s pay. The rule also requires contractors to provide to any independent contractors performing work on the contract a document informing them of their status as independent contractors. The paycheck transparency requirements will become effective on January 1, 2017. These provisions of the proposed rule and guidance remain largely unchanged in the final rule.
Dispute Resolution. For contracts over $1 million, FAR 22.2006 requires contractors to agree that the decision to arbitrate claims arising under title VII of the Civil Rights Act of 1964 or any tort related to or arising out of sexual assault or harassment may only be made with the voluntary consent of employees or independent contractors after such disputes arise, subject to certain exceptions. This flows down to subcontracts exceeding $1,000,000 other than for the acquisition of commercial items. This provision of the proposed rule and guidance likewise remains largely unchanged and a significant concern for employers who have adopted robust arbitration and claims resolution procedures.
- Perhaps the most significant change in the final rule is the reporting regime for subcontractors. Under the proposed rule, subcontractors were to report alleged labor law violations to prime contractors. This would have required subcontractors to share such alleged violations with potential competitors for future procurements, and would have increased the administrative burdens placed on prime contractors, who would have had to process and report subcontractor labor compliance data as well as their own. The final rule addresses this concern by requiring subcontractors to report directly to the DOL via a web portal. However, it remains to be seen if DOL will have the bandwidth to review and analyze what could be a large of volume of information, since the rule provides incentives for subcontractors to provide information about mitigating factors and remedial measures.
- Public Disclosure. In another significant change, the proposed rule did not specify what labor law violation history would be made publicly available, but the final rule compels public disclosure in the Federal Awardee Performance and Integrity Information System (FAPIIS) of some basic information about violations. Contractors will have the option to publicly disclose mitigating factors.
- Pre-assessment. In a new development, DOL has created a voluntary “pre-assessment” process through which contractors can proactively have their labor compliance history reviewed before a specific acquisition. If there are concerns, this change permits the contractor to attempt to negotiate a labor compliance agreement and start taking steps to mitigate issues before there is a specific acquisition. According to the information presently available (the “pre-assessment” process is unprecedented and was not contemplated in the proposed rule), participating in pre-assessment “will be considered in future acquisitions as a mitigating factor.” This change only amplifies the importance of “labor compliance agreements” – a heretofore undefined term – and likely only heightens contractor concerns over the apparent authority of so-called “Labor Compliance Advisors.”
Potential Legal Challenges and Congressional Action. Based on the scope of the requirements and its impact on the contracting community, the final rule – along with the Executive Order – could be subject to a legal challenge by a combination of affected companies and industry trade groups. Moreover, Congress could impede the rule’s implication. For instance, the House and Senate passed National Defense Authorization Act bills for fiscal year 2017 that would exempt defense contractors from the Executive Order. That provision of the NDAA is subject to removal when Congress reconvenes in September, and the White House has issued statements opposing this provision of the bill.
Next-Steps for Contractors. Given the rapid phase-in of the new rule over the next several months, contractors who are not already preparing for “Day One Compliance” should take steps immediately to do so. Significantly, contractors without a compliance plan in place will be at risk of (i) competitive disadvantage in the procurement process, and worse, (ii) potential suspension and debarment action if the Government determines that their labor compliance history – and failure to “mitigate” or explain that history in context – warrants exclusion from the contracting process.
Hiring the Right Monitor to Help Your Company and Not Hurt It
Brian Miller, Shareholder, Rogers Joseph O’Donnell, PC
David Robbins, Partner, Crowell & Moring LLP
Like many of the really important things in life, corporate integrity and compliance monitors are generally not thought about until they are needed. In a crisis situation forethought is impossible. You’re in the midst of negotiating the terms of a settlement of an enforcement action, and you now have to hire a monitor. This kind of rushed decision making can cost companies dearly in terms of time spent dealing with the monitor, efficiency of corporate operations, money, and lost opportunity to align the company with ethical and compliant business practices.
So let’s plan for something you don’t want and don’t need-yet! What would a successful monitor for your company look like? As former federal enforcements officials, we have worked closely with companies that sought to redeem themselves in the eyes of the government through the use of independent corporate monitors, and, since we have left government service, we have served as monitors ourselves in civil and criminal contexts. This experience can help you plan (and, if necessary, negotiate) an effective corporate integrity and compliance agreement with the right monitor.
But first things first. A corporate integrity and compliance monitor is independent-neither working for the company nor for the government-engaged by contract to provide impartial analysis concerning a company’s ethics and compliance programs and risks for certain types of misconduct. Monitors need unfettered access to a company, its records, and its people and generally will not be dissuaded from doing their jobs. Monitors can, and sometimes do, make recommendations that require substantial changes in company operations. But, when a company chooses the “right” monitor and approaches the engagement in the “right” way, the monitor can also advocate for a company with enforcement officials, helping the company regain the trust of the government and, in certain circumstances, exit the monitorship agreement early.
Monitors are often appointed pursuant to an administrative agreement between a suspension/debarment official and a government contractor that wants to continue doing business with the government. Monitors are also appointed to monitor Foreign Corrupt Practices Act compliance and in connection with securities enforcement actions. Federal prosecutors use monitors to ensure that companies follow a deferred prosecution agreement or non-prosecution agreement. In healthcare fraud matters, independent review organizations perform a monitoring role, and in serious quality of care cases a monitor may also be appointed.
Even if you think you will never need a monitor, every general counsel should give at least some thought and planning toward a possible future corporate monitoring engagement because of their increasing prevalence.
Or, stated more colloquially, “these days, all the cool kids have monitors.” For example, HSBC, General Motors, Deutsche Bank and others have had monitors. Many smaller companies have monitors as well. Some have even tried to get rid of their monitors, and many of those efforts fail to receive government approval. Stated differently, once you engage a monitor, you’re likely stuck with that monitor. So choose wisely.
What Am I Getting My Company into?
Fair questions. Poorly chosen monitors can do a lot of damage and are often hard to get rid of. So what are the guidelines for a monitor? Few and far between. And monitors can vary greatly. So what should we look for in a monitor?
The purpose of a monitor is to help. A monitor neither works for the corporation nor the government, but provides an independent, neutral, and impartial assessment of the corporation’s improved compliance and corporate culture. A monitor documents what the company is doing to ensure future compliance. It’s about the future, not the past, and rarely the present.
Now this is near and dear to our hearts: A monitor should want the company to succeed. As former federal enforcement officials, part of our duties involved addressing the future integrity of companies with which we dealt. The U.S. Department of Justice handles punishment for past conduct. As an Inspector General and a Suspending and Debarring Official, we also focused on future ethical and compliant conduct. And that is the goal here: following the rules and establishing internal controls that ensure future ethical behavior. Helping the company move forward with a compliance program that really works for that particular business is what really gets us excited and motivated.
That’s the goal. Now how does a monitor achieve it? If the monitor wants the company to succeed, he or she will adopt a collaborative style. How the company reacts will also make a difference here. The company should view the monitorship as an opportunity to tell its story of how it has corrected the problem and put into place safeguards and controls and is building an ethical culture. Assuming the monitor agrees with the assessment, then the monitor’s reports will then document the company’s accomplishments.
The company will improve as well. Many times during our federal tenure companies told us that the enforcement process, and resulting integrity agreement and monitorship, was sometimes difficult (okay, we admit it, they said “always” difficult) but the company emerged better and stronger for it. And we see it now in private practice. Someone from the outside will see things that even your best chief compliance officer may not, simply because the monitor is looking in from the outside.
In terms of self-assessment, a monitor is invaluable. But the company has to be open to the process. It’s hard to let an outsider in and to open up, especially following a period of federal investigation and enforcement defense. The mind-set needs to change. Everyone in a monitoring context should be on the same side working toward the same goal: Mending the relationship with the government/regulator, fixing the problems, and enhancing the ethical corporate culture.
The company should educate the monitor regarding its business. The better the monitor understands the everyday demands and pressures of the business, the more likely the monitor will have realistic expectations and provide realistic advice. In conclusion, here are some tips for hiring the right monitor and avoiding the wrong one:
Things to Avoid
- The monitor is not simply another investigator. DOJ guidance reminds us: “The monitor’s mandate is not to investigate historical misconduct.”
- The monitor should not be overly disruptive. By definition, a monitor will disrupt business by requesting documents, interviewing executives and workers and having meetings. An effective monitor should minimize this disruption by being as flexible as possible and as efficient as possible.
- The monitor should avoid making demands that would force the company to waive its legal privileges and protections. A monitor must be sensitive to the duties and obligations that the general counsel owes the client. The goal is not to put the general counsel in an ethical dilemma. Attorneys who act as monitors may be more sensitive to issues such as client confidences and attorney-client privilege.
- The monitor should not prolong the length of the monitorship and should move for early termination when appropriate, even though contrary to the monitor’s financial interests.
- The monitor should not expand the scope of the monitorship. A key factor for any monitor is following the scope of what is to be monitored, and a monitor should never venture out from what is laid down in the monitoring agreement. Remember, the monitor is not the internal investigator charged with righting every wrong. In fact, a monitor is not charged with righting any wrongs. The monitor reports on what the company has accomplished, and the duties of the monitor are bound by contract in the monitorship engagement letter and monitoring agreement.
- The monitor should communicate regularly with the corporation and with the government. Open communication is essential for an effective monitor. This is not a game of “gotcha.” Quite the opposite. A “no surprises” strategy works well for everyone. But the monitor must have solid communication skills, and the company needs to be open with the monitor.
- The monitor should not try to run the corporation. A monitor is there for a very limited purpose and should leave business decisions and operations to the businesspeople. While there are monitors who, like one of the authors, have business degrees and consulting backgrounds, those skills are better used to understand and relate to the business. The monitor must decline invitations or motivations to do more than what he or she was engaged for. One of the authors, a former federal inspector general, knows that running the agency you are overseeing ends in disaster for everyone. The limitations on the monitor must be strictly observed and respected.
What to Look For
A good choice in a monitor is:
- Someone with an excellent reputation for ethical conduct, within and outside of the government. Obviously, a monitor has to be ethical and command respect. It should be someone with a deep understanding of and commitment to ethics and compliance. A monitor should be someone who is highly qualified and respected and who will instill confidence.
- Someone who knows how the government operates and what the government is looking for. It should be someone known to those in government as well and well-respected.
- Someone who understands corporate culture and can interact easily with corporate executives, but also who can easily interact with employees at every level of the company. A monitor may need to talk with those on the shop floor as well as those in the C-Suite to gauge how well the leader’s vision is being received and acted upon. In other words, the monitor needs to have good listening skills.
- Someone who appreciates business operations. One of the more common complaints we have heard in our federal and private practice careers is that some monitors do not have a good sense of how much compliance costs, or how to recommend steps that align with corporate culture. This is different from a monitor advocating for more resources for legal and compliance efforts, which is a common recommendation. In order to have the monitor’s recommendations stand the test of time and improve the company, they need to be attuned to company operations and fit within the culture. Business understanding helps in this regard.
- Someone who will maintain credibility and objectivity. However tempting, the corporation does not want a monitor that becomes too close to the corporation. A monitor will lose credibility with the regulators if this happens. To be effective, the monitor must walk the thin line of being tough and objective yet understanding and sympathetic.
Time spent planning for the use of a corporate monitor is time well spent. Companies do not expect to need a monitor or be faced with a corporate integrity agreement, and decisions made in a crisis environment can be rushed and cause unintended consequences. Advanced planning can reduce risk and stress, and in many cases lead to a better result.
Health IT is a growing market in the Federal space. Indeed, recently the General Services Administration (GSA) created a new Health IT SIN for Schedule 70 to expand its reach into this market. Consequently, this Federal Market Matters will examine government-wide health IT services spending trends.
Some key findings about the Federal health IT services market include:
- Spending on health IT services has been consistently increasing for the past six years
- Spending on health IT services is increasing at a faster rate than new contractors are entering the market
- More than 70% of health IT services spending goes to Virginia, Maryland, and the District of Columbia
Health IT Services
Identifying health IT services can be difficult, as they are very similar to other IT services. For example, Product Service Codes (PSC) and North American Industrial Classification System (NAICS) do not differentiate between health IT services and other IT services. Further, Coalition members who are active sellers of health IT services have expressed that they do not treat health IT services differently from other IT services.
This analysis will be looking at IT services spending for three government agencies that are active buyers of health IT services—the Department of Health and Human Services (HHS), the Department of Veteran Affairs (VA), and the Defense Health Agency (DHA). Although this analysis will be looking at health IT services spending, the data includes purchases of other IT services by these three agencies and excludes purchases of health IT services made by other agencies. Given the limitations involved in identifying health IT services spending, this analysis will provide a general view at the trends in this market sector.
For this article, health IT services spending will be all IT services spending from the three agencies mentioned above. Other IT services spending will be the IT services spending from all other government agencies. IT services spending will be all spending in PSC’s category D3—IT and Telecommunications Services.
On June 16, The Supreme Court issued a decision in The Kingdomware Technologies, Inc. v. United States case. The decision held that the VA must use the “Rule of Two” when awarding contracts, even when it would otherwise meet its annual minimum contracting goals.
This decision will have far reaching implications for contracting with the VA and the $2.7 billion it spent on health IT services in FY2015. There will likely be an increase in the number of veteran-owned small business entering the market and receiving awards for health IT services as well. The Coalition will be analyzing the impact of Kingdomware in future Federal Market Matters.
The federal market for health IT services is experiencing significant growth when compared to other IT services spending. The five-year Compound Annual Growth Rate (CAGR) for health IT services spending is 17.44%. In comparison, the five-year CAGR for other IT services spending is -1.51%. The chart below depicts spending on health IT services broken down by agency. It demonstrates that HHS has been the largest buyer of health IT services for each of the last six fiscal years.
Health IT services spending is seeing significant and consistent growth—the market has had annual growth between 12.2% and 22.8% over the past five years. During the same period, government-wide spending on other IT services was less impressive, growing between -7.1% and 3.5%. The chart below illustrates the annual growth in spending for health IT services and for other IT services.
Differences between Health IT Services and Other IT Services
Aside from the increasing spending on health IT services, there has also been a steady increase in the number of contractors receiving awards. In FY 2010, there were 1,869 health IT services vendors who received an award. In FY2015, that number rose to 2,273 vendors; a growth of more than 20%. While the number of vendors in the IT services market also grew during the same period, its growth rate was a more modest 7%.
While the spending and number of vendors receiving awards have been rising for health IT services, the spending has been growing at a faster rate than vendors have entered the market, indicating that there is potential for this market to continue its growth. The spending for health IT services has increased so that the average health IT services vendor now has $500,000 more in sales than the average IT services vendor. The chart below describes the average level of spending per vendor in both the health IT services and IT services markets.
During the period that health IT services spending increased, it also became more competitive. The average number of responses per solicitation has increased from 1.80 in FY2010 to 2.99 in FY2015, a growth of 66%. During the same period, the average number of offers for IT services fell from 2.89 to 2.08, a decline of 28%.
Place of Performance
The maps below depict the amount of health IT services spending and other IT services spending distributed by state. For health IT services spending, almost 72% of the spending is concentrated in Virginia, Maryland, and Washington, DC. For other IT services, 66% of the spending is concentrated in the same region. There are some minor differences between the geographic distributions in the markets. For example, Georgia sees a greater level of health IT services spending than other IT services because the Centers for Disease Control and Prevention is located in Atlanta, Georgia.
Listed below are the top vendors by sales for health IT services and other IT services. Fifteen vendors appear on both lists, indicating the similarities between the two sectors. However, there are some vendors, such as Blue Cross Blue Shield and National Government Services (owned by Anthem), that have strong sales for health IT services. Another similarity between the markets is that the top 20 vendors have a similar concentration of spending (about 54% for both markets).
The health IT services market has also been influenced by merger activity. For example, Lockheed Martin (#1 vendor) acquired Systems Made Simple in 2014 and General Dynamics (#4 vendor) acquired Vangent in 2011 (which had acquired Buccaneer Systems in 2010). Both deals were significant for expanding the health IT services offerings from both vendors.
Health IT services is a market that is growing quickly and it has also been experiencing solid growth for the past five fiscal years. More vendors are entering the market and orders are becoming more competitive, but the amount of spending is increasing at a faster rate. A significant portion (70%) of health IT services is being completed in Maryland, Virginia, and Washington DC, but there are other locations that could provide opportunities as well, such as Georgia and Texas. The health IT services market is filled with many companies that are also significant vendors for other IT services, but there are some companies which have specialized in health IT services which have had success as well.
Premier Member Meeting with David Shields, Sept. 14
On Wednesday, September 14th, the Coalition will host a Premier Members meeting with featured speaker David Shields, Managing Director at ASI Government.
Mr. Shields initiated and led the world’s largest and most complex implementation of public sector category management as Managing Director of the United Kingdom’s Government Procurement Service (GPS). Formal invitations will be sent to members soon.
Premier members interested in joining the meeting, please contact Matt Cahill at email@example.com
Coalition to Testify before Section 809 Panel
On September 21, the Coalition’s President, Roger Waldron, will testify before the Section 809 Acquisition Panel. Mr. Waldron will discuss streamlining the acquisition process, with a specific focus on unnecessary regulations that can hamper the process.
Pursuant to Section 809 of the Fiscal Year 2016 National Defense Authorization Act (NDAA), the Section 809 Panel was established to review the Department of Defense’s (DoD) acquisition regulations. The nine-member advisory panel, which consists of experts in acquisition and procurement policy, provide recommendations to DoD on how the department can streamline and optimize the procurement process.
Nominations are open for the Coalition’s 17th annual Excellence in Partnership (EIP) Awards, which will be taking place on the evening of November 16 at The Westin Tysons Corner. This special event honors federal and contractor organizations, individuals, and acquisition officials who have made significant strides in promoting and utilizing multiple award contracting vehicles and supporting the evolving needs of government. In addition to a list of last year’s winners, full category descriptions for 2016 can be seen and nominations made by clicking here. Nominations for the following awards will be accepted through October 14:
- Lifetime Acquisition Excellence Award
- Government Savings Award
- Myth-Busters Award
- Best Veteran Hiring Award
- Green Excellence in Partnership Award