Friday Flash, 10.05.12

Comment of the Week: Urban Myths Regarding Small Business

This week’s comment continues the series on “Urban Myths” associated with the General Services Administration’s (GSA’s) Multiple Award Schedule (MAS) program.   There is some belief that the best way to help small business on the GSA schedules is to apply small business set-aside rules to the program.   Historically, that has not been the case.  Over the last decade the GSA schedules program has out-performed open market procurements in providing opportunities for small business with over one-third of the dollar value of MAS orders going to small business concerns.  While set-asides can be an effective tool, the historical performance of the GSA schedules demonstrates the right agency incentives combined with streamlined, flexible ordering procedures leads to greater opportunity for small businesses.   In our view, imposing set-asides or otherwise limiting the flexibility of agencies using the GSA Schedules program could result in the unintended consequence of hurting small business.

Until recently, the Federal Acquisition Regulation (FAR) did not incorporate formal small business set asides into GSA Schedule ordering procedures.  Instead, the FAR offered more general guidance that enabled agencies to structure preferences for small businesses.  Specifically, FAR 8.4 provided only that-

1.  Ordering activities could consider socio-economic status when identifying contractors for competition for an order or BPA and should consider, at least one small business when   available on contract

2.  Over the micro-purchase threshold, ordering activities should give preference to the items of small business concerns when two or more items at the same delivered price will satisfy the requirement and

3. Orders placed against schedule contracts may be credited toward the ordering activity’s small business goals.

Using these guidelines, federal agencies  issued task and delivery orders to small business concerns that equate to more than 30% (or about $15 billion in sales) of  the GSA/VA Schedule revenue.

In November 2011 the FAR Council issued an interim rule implementing Section 1331 of the Small Business Jobs Act of 2010.  As a result, consistent with the statutory language, FAR 8.4 was revised to provide that agencies, at their discretion, could set-aside orders for small business under the GSA Schedules program.   In May of this year SBA published a more detailed rule that provides additional procedures and requirements for set-asides on all multiple award contracts including the GSA Schedules program.  The SBA’s proposed rule applies new complex procedures to the GSA Schedules including definitions and processes that previously applied only on formal set-aside programs. For example, in order to qualify as a “small” on a set-aside a concern must meet the size standard and must perform more than 50% of the work.   A small concern on a very large requirement that performs only 45% of the work on a task order would no longer be eligible for award if the Schedule order were set-aside.  These complex new procedures may actually make it more difficult to use small businesses via the GSA Schedules.  Another unintended consequence will likely be a division of the marketplace as customer agencies find it easier to use contracts that are exclusively one type of contractor (e.g. small, medium or large) which will hurt small businesses under the GSA Schedules over the long term .   The GSA Schedule is a commercial item program that empowers market forces to incentivize behavior.  There are market forces that encourage collaboration between small, medium and large businesses. Small businesses are nimble.  Small businesses are innovators. Small businesses are the first adopters of our economy, flexible enough to bring the workforce to the table as needed and leaders in many vital niche markets.   Large businesses provide resources and infrastructure needed for successful major government projects.   Medium sized businesses bridge the gap between bringing characteristics of both small and large business concerns to the federal marketplace.   The current system of preferences does not adequately marshal these forces.

The Coalition for Government Procurement believes that there has never been a better time for government and industry to look for new and creative models to drive positive change for small business contractors and simplify preference programs for government.  On October 30, the Coalition will host a Small Business forum entitled New Strategies for a Changing Environment.   The event will feature a presentation by John Shoraka, Associate Administrator for Government Contracting and Business Development at the SBA.  There will also be a panel of successful small businesses to include a small business reseller, a small business manufacturer and a large business that makes utilization of small business a corporate priority.  The panel will be moderated by Joseph Hornyak, Partner, Holland and Knight whose practice includes a focus on small business.   The panel will address the topic Small and Large Business Collaboration in the Federal Market – What Works and What Needs to Work Better.  The Coalition hopes this panel will serve to jumpstart discussion of new models for utilizing small business concerns with the ultimate objective of  an acquisition system that quickly and efficiently responds to agency needs and works well for businesses of all sizes.   Click here for information about the forum.

Roger Waldron

President

 

OMB to Industry: No Layoff Notices due to Sequestration

In a recently released memo, Danny Werfel, OMB’s controller, and Joseph Jordan, head of the Office of Federal Procurement supported an earlier Labor Department ruling that federal contractors need not issue notices of future layoffs to employees concerning sequestration. They also stated that under certain circumstances, “liability and litigation costs associated with WARN Act compliance” would be covered by federal agencies. Two conditions would have to be met in order for these costs to be covered, “(1) sequestration occurs and an agency terminates or modifies a contract that necessitates that the contractor order a plant closing or mass layoff of a type subject to WARN Act requirements, and (2) the contractor has followed a course of action consistent with DOL guidance.” OMB wrote that in those cases,  “any resulting employee compensation costs for WARN Act liability as determined by a court, as well as attorneys’ fees and other litigation costs … would qualify as allowable costs and  be covered by the contracting agency, if otherwise reasonable and allocable.”

 

DoD: Managers Should Not Plan for Sequester

Deputy Defense Secretary Ashton Carter has told military leaders to not plan for the impending sequestration cuts, set to take effect on January 2, 2013. The Washington Times reported that it had obtained a copy of a memo from Mr. Carter to high-level Defense officials. In the memo, Mr. Carter states that all commanders and managers in the Department of Defense continue the defense mission under current laws and policies, without taking any steps that assume sequestration will occur.” The memo, also explains that “commanders should not, for example, curtail planned training, maintenance, health care or family programs…  We do not want our programs, personnel and activities to begin to suffer the harmful effects of sequestration while there is still a chance it can be avoided.”

 

DPAP: Sequestration’s Impact on Existing Contracts

A letter from DPAP Director, Richard Ginman, to the National Defense Industry Association on the subject of WARN Act compliance was released by Federal News Radio this week.  In the letter, Ginman speaks to the impact of sequestration on existing contracts:

“The Department does not anticipate having to terminate or significantly modify any contracts on or about January 2, 2013, as a result of sequestration.  As you know, sequestration reduces budget authority for the Department’s unobligated funds for fiscal year (FY) 2012 and prior years and for all non-exempt appropriated funds for FY 2013.  Most department contracts are fully funded; because they are obligated from FY 2012 and prior year funding, they would not be affected by sequestration.  For contracts in place that are incrementally funded, any action to adjust funding levels would likely occur, if it occurred at all, several months after sequestration.  Further, contracting officers will have some latitude to determine reduced funding requirements, and the Department will have the ability to reprogram dollars if warranted.”

 

GAO Recommends More Targeted Strategic Sourcing

In a recent report to members of Congress, the GAO suggests that like the private sector, the Government should take advantage of strategic sourcing more in Federal procurement— including for the acquisition of services.  According to GAO’s research, leading companies strategically manage about 90 percent of their procurements resulting in approximately 10 to 20 percent savings.  In contrast, Federal agencies report less than one-half of one percent of procurement spending through strategic sourcing.  The GAO suggests that if Federal agencies could achieve the same percentage of strategic sourcing savings as the private sector, the government could save more than $50 billion.  Federal agencies included in GAO’s study, however, expressed reluctance to applying strategic sourcing to all types of procurements.  For example, officials from the Department of Energy consider less than one third of the department’s total procurement spending to be addressable through strategic sourcing.

One area that GAO recommends the Federal government strategically manage more is the procurement of services, including professional services.  According to GAO, more than half of the procurement spending at the four agencies reviewed (Department of Defense, Veterans Affairs, Deparment of Homeland Security, and Department of Energy) was used to acquire services.  However, officials at these agencies were hesitant to strategically source services for a variety of reasons, including the difficulty in standardizing requirements.  The GAO reports that the private sector has had success in strategically sourcing services over the past 5 to 7 years and that leading private practices suggest that it is critical to analyze all procurement spending with equal rigor and with no categories off limits.  In addition, the GAO cited an industry report that “companies have successfully strategically sourced categories of spending that have been off limits or controversial for most procurement organizations, like information technology, professional services, technical services, and facilities management.”

GSA’s Federal Strategic Sourcing Initiative has established some services-based BPAs, with the following performance achieved.

The GAO report also covers the status of strategic sourcing policies governmentwide.  The Federal government is encouraging agencies to increase their use of strategic sourcing.  Agencies can mandate use of the Federal Strategic Sourcing Initiative (FSSI) BPAs agencywide.  The Air Force, Navy, DHS, and VA have issued policies making at least the consideration of FSSI BPAs mandatory.  In addition, GSA has indicated to GAO that they are revisiting whether mandatory use policies would benefit FSSI initiatives. The President’s Management Advisory Board is considering making strategic sourcing mandatory where appropriate.  Finally, the Office of Management and Budget has issued guidance this year tasking agencies with identifying commodities and services that can be strategically sourced, with a focus on IT commodities and services.  Agencies must submit strategic sourcing plans and 5-year savings targets to OMB as part of their FY 2014 budgets.  As these initiatives and the GAO report suggest, strategic sourcing is likely to increase in FY 2013 with more consideration to services than before.

 

GSA OIG Reports on Cloud Migration

The GSA Office of Inspector General (OIG) released a report on GSA’s cloud migration efforts. The objective of the report entitled, “Audit of GSA’s Transition From Lotus Notes to the Cloud” was to evaluate GSA’s efforts to transition from the Lotus Notes environment to determine whether the transition 1) incorporated adequate performance measures and sufficient cost justifications to realize its goals, and 2) incorporated project management controls necessary to complete the migration in a timely manner. The report highlights three findings. The report identifies certain deficiencies in GSA’s cloud migration efforts. These include an inability to project and properly assess cost savings due to outdated cost analysis and an unclear goal tracking program. Recommendations for improving GSA’s cloud migration efforts include:

Prepare an updated analysis/justification regarding project savings using actual figures and implement procedures for updating documentation related to the project savings analysis on a regular basis.

Develop and implement a comprehensive performance measurement program to effectively monitor the progress of the program.

Conduct an assessment of the current cloud environment to identify duplicate applications and take necessary actions to consolidate or eliminate any redundancies.

 

Join Sustainability Discussion with GSA’s Nancy Gillis

How does the Federal Government plan to make the services and products they purchase more sustainable? The dialogue about these challenges is on-going and Coalition members can contribute.

Join the discussion with Nancy Gillis, Director of GSA’s Federal Supply Chain Emissions program and the Green Committee next Friday, Oct. 12.  Nancy will introduce a new government-industry community on this topic and will share with members how their companies can get involved.  The Sustainable Supply Chain Community of Practice is focused on the professional services, information technology, building materials, apparel, food concessions, and waste management sectors.

If you or a representative from your environmental team would like to join the meeting with Nancy Gillis, contact Aubrey Woolley at awoolley@thecgp.org for more details.

 

OASIS Requests Feedback on Labor Categories

On Monday, GSA’s Jim Ghiloni posted a request for feedback to the OASIS Industry Community on Interact.  GSA is interested in receiving input on the most effective mix of labor categories to cover the OASIS contract scope and facilitate standard pricing.  For more information, visit the blogpost on Interact.  Send suggestions to oasis@gsa.gov.

 

Legal Corner 

The Budget Control Act of 2011, Sequestration, and Government Contractors

Jim Schweiter, Partner, McKenna Long & Aldridge LLP

Last August, Congress passed the Budget Control Act of 2011 (“BCA”)(Pub. L. 112-25).  This law authorized raising the debt ceiling, established caps on discretionary spending, and put a process in place to reduce the federal deficit.  The provisions to raise the debt ceiling have been triggered, so that the federal borrowing limit now stands at $16.4 trillion.  In brief, the BCA:

  • Imposed caps on discretionary spending beginning in October 2011 that will generate $917 billion in savings over the next ten years.  The Department of Defense (“DOD”) portion of these savings is approximately $487 billion.
  • Created a bipartisan, bicameral committee to identify up to $1.5 trillion of additional deficit reduction (the Joint Select Committee on Deficit Reduction).  This “Super Committee” failed to reach agreement.
  • Required Congress to vote on a Balanced Budget Amendment to the Constitution.  The amendment failed in both houses.
  • Imposed a budgetary process known as sequestration to implement a total of $1.2 trillion in automatic spending cuts through fiscal year 2021 which will begin January 2, 2013, unless Congress passes a bill which the president signs to avert such a result.

Senior Executive Branch officials, members of Congress and industry leaders all predict catastrophe if sequestration is implemented.  For companies doing business with the federal Government, it is therefore important to understand what sequestration is and how it would operate.  Congress recently passed and President Obama signed the Sequestration Transparency Act of 2012.[1]  Although this law requires the Administration to report to Congress within 30 days about how sequestration would be implemented by federal agencies, few expect this report to provide much useful detail.

Budget Sequestration

Sequestration is a process of automatic, largely across-the-board spending reductions under which budgetary resources are permanently canceled to enforce certain budget policy goals.[2]  This process was first established in the Balanced Budget and Emergency Deficit Control Act of 1985 (BBEDCA).[3]  Sequestration involves the permanent cancellation of budgetary resources by a uniform percentage, which is applied to all non-exempt programs, projects and activities within a budget account[4] in order to achieve required savings.

Under the BCA, there are two situations in which sequestration could occur—

  • If Congress appropriates more money in any year than is allowed under the annual discretionary spending limits established in the BCA, the automatic process of sequestration would result in the cancellation of the excess amount.  The President would issue an order canceling any excess budget authority.
  • Because Congress failed to enact legislation developed by the Joint Select Committee on Deficit Reduction to reduce the deficit by at least $1.2 trillion by January 15, 2012, the BCA provides for a series of automatic spending reductions in both discretionary and direct (mandatory) spending[5] to make up for the shortfall in savings.

Sequestration is thus a budget enforcement mechanism that is intended to prevent enactment of legislation that would increase the federal deficit.  Under the BCA, the automatic sequestration procedures will affect both mandatory and discretionary spending programs, and the reductions will affect defense and non-defense spending categories equally in each of fiscal years 2013 through 2021.

Under the BCA, the Department of Defense (DoD) would have to absorb half the cuts required by sequestration, a total of $492 billion.  Non-defense accounts would absorb an equal share. Because the cut would be spread over nine years (2013-2021), both the defense and non-defense portions of the federal budget would be subject to annual reductions of about $54.7 billion.[6]

Implementation of Sequestration

The process by which sequestration would be implemented is different in 2013 than in 2014 and the out years.  In 2013, there would be across-the-board, proportional reductions in programs, projects and activities funded by annual appropriations and in non-exempt mandatory programs.[7]  In 2014 through 2021, the required sequestration cuts would be achieved by reducing the statutory spending limit specified in the law for each year.  How this “top line” cut would be implemented at the agency level would be governed by the appropriations process.   The Office of Management and Budget would direct agencies to implement cuts to available appropriations based on apportionment guidance issued pursuant to OMB Circular A-11.[8]

Sequestration would not begin until January 2, 2013, so the funding reductions would be spread over only three quarters of that fiscal year.  Appropriated funds that have been obligated to contracts are not subject to the sequestration process.  Appropriated fund balances that remain unobligated as of January 2, 2013 may be subject to sequestration.  If, as now appears likely, the federal government will be funded by continuing appropriations resolution (a “CR”)[9] during the first half of fiscal year 2013,[10] the ability of agencies to enter into new contracts, issue new task orders on existing multiple award contracts or exercise contract options that would obligate funds before sequestration begins will be constrained.  Guidance from OMB also could limit agency spending in advance of sequestration.  Because the baseline for fiscal year 2013 funding has not been established, and because there are so many variables that may affect how sequestration would be implemented, contractors of all stripes must closely examine their contracts and funding status in making judgments about how to prepare for sequestration.

Conclusion

“The president [and] the secretary of Defense said it would be catastrophic to our national defense, but we still haven’t found a way through it,”  Arizona Senator John McCain said recently about sequestration. “Everybody says it’s not going to happen, but so far, it’s going to happen.”[11]  If the worst occurs, it is imperative to understand the magnitude of the funding cuts that would occur if sequestration as provided in the Budget Control Act is implemented and for contractors to plan accordingly.

 


[1] H.R. 5872 was signed into law by President Obama on August 7, 2012.

[2] OMB Circular A-11, sec. 20, at 8 (Aug. 2011); see also 2 USC 900(c)(2).

[3] Title II of Pub. L. 99-177, sometimes referred to as the Gramm, Rudman, Hollings Act.

[4] See 2 USC 906(k)(2); Under the BCA, many mandatory spending programs would be exempt from sequestration cuts, including Social Security, other federal retirement programs, Medicaid, and other programs benefiting low-income people.  Medicare cuts would be limited to no more than two percent.  See sections 255 and 256 of the BBEDCA (codified at 2 USC 905, 906).

[5] “Discretionary spending” refers to outlays from budget authority that is provided and controlled

by appropriation acts. “Mandatory spending” refers to outlays from budget authority that is provided

by laws other than appropriation acts.  Congressional Budget Office, Estimated Impact of Automatic Budget Enforcement Procedures Specified in the Budget Control Act, n. 2, at 1 (Sept. 12, 2011).

[6] For the mechanics of the calculations, see BBEDCA sec. 251A(3), as added by BCA, Pub. L. 112-25, sec. 302(a), (Aug. 2, 2011).

[7] The Budget Control Act provides that certain programs are exempt from sequestration funding cuts.  These include Social Security, Medicaid, certain Medicare payments, federal retired pay, and VA programs.  In addition, the White House recently announced that the President has decided to exempt the military personnel accounts from sequestration, although this will mean a proportional increase in the size of the cuts to other non-exempt defense accounts in order to achieve the required level of deficit reduction.

[8] See OMB Circular A-11, Part 4, sec. 120.1 et. seq. (Nov. 2011).  As of this writing, OMB has not yet issued apportionment guidance to federal agencies regarding sequestration.

[9] A continuing resolution is “an appropriation act that provides budget authority for federal agencies to continue in operation when Congress and the President have not completed action on regular appropriation acts by the beginning of the fiscal year.”  Government Accountability Office (GAO), A Glossary of Terms Used in the Federal Budget Process, GAO-05-734SP, September 2005, pp. 35-36.

[10]  See, Rosalind S. Helderman, John Boehner, Harry Reid Reach Early Deal to Avert Shutdown,  Wash. Post, July 31, 2012, at http://www.washingtonpost.com/boehner-reid-reach-early-deal-to-avert-shutdown/2012/07/31/gJQAKVLENX_story.html.

[11] Nancy Cook, High Anxiety, National Journal, June 30, 2012.

 

Small Minority-Owned Businesses Face Challenges in Federal Market

On September 28, GAO published the results of its study of agency efforts to help small minority-owned business obtain government contracts. As part of the review, GAO contacted federal agency officials, including the Departments of Defense, Health and Human Services, and Homeland Security, and the General Services Administration, as well as other advocacy groups who identified a number of challenges that small, minority-owned businesses face.  Officials pointed to a lack of performance history and knowledge of the federal contracting process as significant barriers. Advocacy groups cited challenges, such as difficulty gaining access to contracting officials and decreased contracting opportunities resulting from contract bundling. To address these challenges, agencies told GAO that they conducted outreach to help small, minority-owned businesses. Their outreach efforts include one-on-one interviews between contracting office staff and businesses seeking federal contracts. More details on the findings of this study are available here.

 

President Signs CR Into Law

Last Friday, President Obama signed a continuing resolution (HR 117) which provides six months of funding for the Federal government.  The CR funds Federal agencies at FY2012 levels, with some exceptions, through March 27, 2013.  Total appropriations under the CR are approximately $1.047 trillion.

 

Registration is Now Open for the 2012 Fall Training Conference!

2012 Fall Training Conference – Continuing the Dialogue

Join The Coalition on October 24 and 25 for its two day Fall Training Conference, Continuing the Dialogue.  This training conference will address acquisition policy, the federal market and Excellence in Partnership.  Thought leaders from government, industry and academia will give us their perspectives on changes that have occurred and are expected in the federal government’s $200 billion multiple awards contracting program.  Well recognized federal contracting attorneys will cover major cases affecting government contractors.  Contracting officials from all Government-wide Acquisition Contracts (GWACs) and the General Services Administration/Department of Veterans Affairs Multiple Awards Schedules programs will be present to explain their latest initiatives and to participate in break out session to discuss the specifics of their programs.  Hear how sequestration, declining budgets and strategic sourcing may affect what the government buys and how they buy it.   This training conference represents the best in communications between government and industry to improve the delivery of services to the U.S. taxpayer.  A unique aspect the conference will be the presentation of Excellence in Partnership recognitions to individuals and organizations from government and industry that have achieved significant cost savings while providing superior service or that has provided outstanding support to returning veterans.  You do not want to miss this training opportunity.

 

Thank you Fall Conference Sponsors

Thank you to our Continuing the Dialogue Sponsors

The Excellence in Partnership Awards and Continuing the Dialogue – our 2012 Fall Training Conference – could not be possible without the support of our Sponsors.  The Fall Training conference, Continuing the Dialogue, addresses acquisition policy, the federal market and constructive dialogue between government and industry.  Sponsorship of this event demonstrates your support for quality training of acquisition professionals and robust communication between government and industry with the goal of acquisition excellence.

Join your industry peers with this heightened exposure by becoming a sponsor!  If you would like to reserve one of our sponsorship opportunities, please contact Athena Oliff at aoliff@thecgp.org or 202-315-1052.

 


Small Business Forum & New CGP Committee

Increased small business utilization is a high a priority for the Federal Government.  As a result, regulatory, legislative and agency level changes that  -impact the Federal market are all possible.

On October 30, the Coalition will host a small business forum to gain insight into significant changes to the small business rules and how they will impact sales to federal agencies.

SBA Keynote:

Small Business Administration – Looking Ahead at Federal Acquisition  Priorities and Changes

A. John Shoraka, Associate Administrator of Government Contracting and Business Development, SBA

Industry Panel:

Small and Large Business Collaboration in the Federal Market – What Works and What Needs to Work Better.

Panel Moderator – Joseph Hornyak, Partner, Holland and Knight

James Connal, Vice President, Red River Computer

Tom Walker, Government Manager, Nucraft Furniture

Wayne Pizer, Vice President, L-3 National Security Solutions

Who Should Attend:

Industry                                                                                                       Government

Small Businesses that sell to Federal  Agencies                                                     Federal OSDBU Directors

Large businesses that subcontract to, team with,                                                Federal Buying Officials

or sells indirectly through small businesses

 

Upcoming Regulatory Comments

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.

Federal Acquisition Regulation; Basic Safeguarding of Contractor Information Systems

Proposed Rule       

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.

Federal Acquisition Regulation; Prioritizing Sources of Supplies and Services for Use by the Government

Proposed Rule

Summary: On September 6, a proposed rule was published to the Federal Register that corrects the preamble to a proposed rule published in the Federal Register of June 14, 2011, regarding Prioritizing Sources of Supplies and Services for Use by the Government.This document adds an Initial Regulatory Flexibility Analysis which has been determined to be necessary since the initial publication of the proposed rule. As first published, the rule amends FAR part 8, which requires Federal agencies to satisfy their requirements for supplies and services from or through a list of sources in order of priority.

Due October 9, 2012. If you have any comments regarding this proposed rule, please contact Aubrey Woolley.

Revision of Department of Homeland Security Acquisition Regulation; Contractor Billing and Subcontractor Labor Hour Rates Under Time and Materials Contracts

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.

Department of Treasury Acquisition Regulations; Contract Clause on Minority and Women Inclusion in Contractor Workforce

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.