Federal Acquisition Service (FAS) Commissioner Tom Sharpe’s goal is to increase FAS’s share of the federal procurement market. At the heart of this effort is ensuring FAS provides sound, effective and efficient solutions to meet customer needs. As market share is an objective measure of success as compared to competing contracting programs, FAS’s contracting processes and administrative procedures must be best in class in terms of streamlining, competition and access to the commercial marketplace. Streamlining the policies and procedures governing the award and administration of the Multiple Award Schedule (MAS) program provides the central opportunity for FAS to deliver best value to customer agencies and increase market share.
The Coalition also fundamentally supports FAS’s IT GWACs and OASIS as part of a portfolio of contracting vehicles (along with the MAS program) delivering best value solutions to customer agencies. Indeed, last year the Coalition established its GWAC, MAC and Enterprise Contracting Committee to focus on the IT GWACs and MACs across government—with an emphasis on reducing unnecessary contract duplication. Our recent comments to Defense Procurement and Acquisition Policy regarding DoD’s policies and procedures governing interagency contracting reflect the Coalition’s support for these programs and the need to reduce contract duplication.
At the same time the central role of the MAS program within GSA and FAS cannot be denied! At current levels, without any additional growth, the MAS program (GSA at $40 billion a year and VA at $10 billion a year) will account for half a trillion dollars in procurement spend over a 10 year period. As such, FAS has a strategic opportunity (imperative!!) to enhance competition, deliver best value and increase government innovation by streamlining access to the commercial marketplace through the MAS program. It is time to update the pricing policies to reflect changes in the commercial marketplace and the statutory and regulatory requirements for competition at the task order level. It is time to increase investments in its e-systems to facilitate transparency and competition at the order level. It is time to embrace a robust, dynamic MAS program that leverages access to the commercial marketplace. A vibrate, dynamic MAS program, complemented by the IT GWACs and OASIS will significantly reduce costly contract duplication, deliver best value solutions and save customer agencies taxpayer dollars.
One low-hanging opportunity to enhance competition, increase innovation and efficiency is streamlining the MAS modification process. Too often we hear reports of contractor proposed price reductions for items on their Multiple Award Schedule (MAS) contracts are being delayed by weeks and even months due to the cumbersome contract modification process. This costs customer agencies and taxpayers. There are many areas where the modification process can be improved. For example, there are many administrative changes that are accomplished through modifications (e.g. address, fax and telephone number changes) that currently require review and approval by contracting officers. These administrative changes take time away from more substantive work. Here FAS has an opportunity to reform/eliminate the review process for purely administrative changes thereby saving time and money for all.
Over the years there have been periodic efforts to streamline the modification process—at one point during the last decade the FAS goal was process MAS modifications within 24 hours. It is a laudable goal worth setting and achieving for customer agencies, contractors and the American taxpayer! The Coalition will be engaging in a Myth-buster discussion with GSA policy to address Commissioner Tom Sharpe’s vision to find ways for GSA FAS to be “better tomorrow”!
The Congressional Research Service (CRS) issued a report this week on Operations of the Department of Defense during a Lapse in Appropriations. The report describes DoD activities that will continue during the shutdown based on the Department’s original contingency plan released by Deputy Secretary of Defense Ashton Carter on September 25, 2013, and the Pay Our Military Act (POMA) signed by the President on September 30, 2013. POMA prompted the return of most furloughed defense civilian personnel last week. According to the CRS October 7 report, the Department is still reviewing POMA to determine whether the number of contractor personnel will also be increased. CRS suggests that expanding the number of contractors could be problematic due to the complexity involved in determining the amount of funds for pay under POMA.
The CRS report states that during a government shutdown, DoD has the authority to obligate funds for services and products necessary to sustain continuing operations. DoD can sign contracts that include a commitment to pay providers for activities deemed essential to support military operations. However, the Antideficiency Act prohibits funds from being disbursed in advance of appropriations. As a result, contracts for these activities could be signed, but reimbursements would not be provided until appropriations for FY2014 are passed into law.
Defense funds remaining from prior years, however, can continue to be distributed. The CRS report sites four examples—research and development which is available for obligation for two years, procurement for three years, shipbuilding for five years, and stocking material for inventories which is not limited by fiscal year. Payments for operation and maintenance are less likely because they are funded on an annual basis. Therefore, the CRS estimates that most funding for day-to-day operations of the department would lapse and could continue only under the Antideficiency Act exceptions. In short, CRS advises that “whether vendors are paid, therefore, depends on which pot of money obligations are made from, and money for immediate, readiness-related activities would generally not be used to make prompt payments.” For the full report, visit www.fas.org/sgp/crs/natsec/R41745.pdf.
While no agreement has been reached yet to end the shutdown, the President and House Republicans met on Thursday to discuss the current impasse. The discussion focused on a potential deal to extend federal borrowing authority through Nov. 22, conditioned on the President’s agreeing to negotiate over spending cuts and the government shutdown, according to Federal News Radio. Although the current environment looks as though Congress will seek to solve the debt ceiling stalemate before opening the government, sources say that the discussion has expanded to ways to quickly end the shutdown.
This week Coalition President, Roger Waldron, noted in Federal News Radio article that small businesses could be the most negatively affected by the shutdown. “They don’t have the cash reserves,” explained Roger. “Their margins are much slimmer. If the economy sneezes or procurement shuts down, small businesses are much more affected from a fiscal perspective.” Contract delays caused by the shutdown will also result in a backlog once the government reopens. “The longer the shutdown goes on, the greater the pain folks across the procurement community will be feeling,” Waldron said.
Defense Procurement and Acquisition Policy (DPAP) issued a class deviation on October 9 so that the Department of Defense (DoD) may continue to obtain services and products necessary to carry out excepted activities in advance of FY2014 funding. Contracting officers are to insert the following clause when entering into contracts or modifications to existing contracts, issuing task and delivery orders, or exercising options.
Obligations in Advance of Fiscal Year 2014 Funding
(Deviation 2014-00001) (October 2013)
The Department of Defense has the authority to enter into this contractual action and to obligate the Government in advance of appropriations; however, appropriated funds are not currently available to make payments under this contract to liquidate this obligation. When appropriated funds become available, the Government will make payment in accordance with the terms of this contract, including the payment of interest where applicable under the Prompt Payment Act. This clause supersedes conflicting terms of any other provision in this contract dealing with contract payment or financing until funds are made available to the Contracting Officer for this contractual action.
This class deviation, now in effect, is posted on the DPAP website at www.acq.osd.mil/dpap/policy/policyvault/USA005738-13-DPAP.pdf
October 30, 2013
How has the federal market changed in the wake of the government shutdown and budget cuts?
What business intelligence is needed to succeed in FY 2014?
How do actions from The Hill affect your business strategy?
How will changing Agency Budget Priorities impact your business?
Learn the answers to these questions from Federal Acquisition Leaders, Agency CFOs and Government Officials at The Coalition’s 2013 Fall Training Conference – The New Federal Market.
Breakout sessions will address new developments in government-wide acquisition programs including Strategic Sourcing, GSA Acquisition Center Initiatives, Veterans Affairs, GSA e-marketing, Professional Services and more.
Confirmed Speakers include
- Frank Kendall, Under Secretary of Defense for Acquisition, Technology and Logistics – Department of Defense
- Major General Wendy M. Masiello, Director of Contracting—Air Force
- Peggy Sherry, Chief Financial Officer, Dept. of Homeland Security
- Emily Murphy, Senior Counsel, House Committee on Small Business
- Norman Dong, Deputy Controller— Office of Management and Budget
- Kathleen Turco, Chief Financial Officer—Veterans Health Administration
- Anne Rung, Chief Acquisition Officer—General Services Association
- Michael Smith, Director of Strategic Sourcing —Department of Homeland Security
On October 8, GSA released the final Request for Quotations (RFQs) for janitorial and sanitation (JanSan) supplies and maintenance, repair and operations (MRO) equipment and products. Both contracts are being developed under GSA’s Federal Strategic Sourcing Initiative (FSSI). According to a GSA press release, the Federal government spends approximately $1.7 billion annually on JanSan and MRO products. GSA estimates that in the first year alone, the government can save $24 million through these FSSI contracts and $50 million in future years. The RFQs have been posted on eBuy and GSA Interact under the FSSI JanSan and FSSI MRO communities. The deadline for submissions is November 12, 2013.
The US Defense Department will not publicly announce contract awards during the shutdown, reports Defense News. In an email, Lt. Cmdr. Nate Christensen wrote that the Pentagon will make “one big announcement” of the contracts awarded during this period when the shutdown ends. During the lapse in FY 2013 appropriations, members should note that the Department will continue to make contract awards that are funded by prior year appropriations.
Some in the government are concerned that the prolonged government shutdown places networks at great risk for cyber attacks and malicious activity, reports Federal Times. “The longer this goes on, the more the likelihood that the government becomes a target, a target of opportunity,” said an unnamed federal chief information security officer. He and his staff have been furloughed since the partial government shutdown began on Oct. 1.
Many more federal employees charged to look out for and monitor cyber attacks/intrusions have been furloughed, as agencies are operating at a reduced capacity to respond to major events, such as restoring essential online services that may have been knocked offline. DHS’ National Protection and Programs Directorate (NPPD), housing many of the department’s cybersecurity personnel, is operating with nearly half of its staff furloughed according to the DHS shutdown plan.
Another Possible Blow for Contractors – -Implications of the Failure to Raise the Debt Ceiling
By: Elizabeth Ferrell, Partner, McKenna Long & Aldridge LLP, Thomas Lemmer, Partner, McKenna Long & Aldridge LLP, and Tyson Bareis, Associate, McKenna Long & Aldridge LLP
With the recent shutdown caused by failure to enact a Continuing Resolution funding the government for the start of FY2014, contractors are understandably wary of Congress’ ability to reach an agreement on raising the debt ceiling. If the debt ceiling is not raised, and the US Treasury cannot meet all of the United States’ financial obligations when they become due, government contractors are likely to be among those adversely affected. This Client Alert focuses on what could happen if the Government does not raise the debt ceiling and how contractors can prepare for this possible circumstance.
The Federal Debt Ceiling
The national debt is the total amount of money borrowed by the Government to fulfill the financial obligations imposed by past Congresses and past Administrations. A statutory debt limit (presently codified at 31 USC 3101) has restricted the total federal debt since 1917. Most recently, the federal debt ceiling has been raised to $16.699 trillion (Pub. L. 113-3 (February 4, 2013)). In the history of the United States, Congress has never failed to raise the debt limit when necessary. As a result of various fiscal measures implemented by Treasury Secretary Jacob J. Lew, Treasury’s ability to meet all US financial obligations will continue through October 17, 2013.
The ability to borrow and issue new debt instruments is central to the Treasury Department’s cash management systems and ability to handle the daily fluctuations between revenue flowing into the Treasury and outlays from it. When the debt limit is reached, Treasury’s borrowing authority ends, so the Department cannot issue new debt to manage cash flow or to pay interest on the federal deficit. As a result, the Government cannot pay its bills or invest surpluses which may accumulate in various trust funds as required by law.
A Government default on financial obligations resulting from a failure to raise the debt ceiling is different from a Government shutdown that results from the failure of Congress to pass appropriations legislation. A shutdown occurs because the Government may not incur new financial obligations in the absence of appropriations without violating the Anti-Deficiency Act. A default means that the Government cannot pay financial obligations that have already been incurred. Raising the debt ceiling is not about the availability of funds; it is about managing cash flow.
If the debt ceiling is not raised and default occurs, the Department of the Treasury will prioritize and decide which outstanding financial obligations are paid and in what order. The Treasury Department has no legal requirement to pay obligations in the order in which they were received and may choose to make payments “in any order it finds will best serve the interests of the United States.” Comp. Gen. B-138524 (Oct. 9, 1985). Most experts believe that in this event, Treasury will use available funds to first pay interest on outstanding debt and entitlement obligations, although Secretary Lew has not said what he will do and has cautioned that “any plan to prioritize some payments over others is simply default by another name.”
Impact on Government Contractors
If the Treasury lacks funds to meet all the United States’ financial commitments, it is likely that some payments to government contractors will be delayed or deferred, including payments for invoices for work that has been completed or for delivered goods, progress payments, contract financing payments, and other payments, such as those for lease or settlement agreements. Contractors should anticipate a disruption in cash flow.
It is important to note that the failure to raise the debt ceiling does not affect the ability of the Government to obligate funds for a contract so long as sufficient appropriations exist. Generally, contractors should continue to perform within the limits of obligated funding, with the expectation that payment will be delayed. Under the standard Limitation of Funds, Limitation of Costs and Limitation of Government Obligation clauses (FAR 52.232-20-22), the Government is not required to pay more than the funded amount, and the contractor is not obligated to incur costs or continue performance in excess of funding.
In certain circumstances, the Government’s failure to pay can amount to a material breach of contract which would entitle the contractor to stop work. Whether or not a contractor has a duty to proceed with performance under the contract or may stop work upon a material breach by the Government often depends upon which of two alternative disputes clauses is in the contract. SeeFAR 52.233-1; 52.233-1, Alt. 1. Any decision to stop work for nonpayment by the Government should only be undertaken after close review of the materiality of the breach and the pertinent FAR clauses in the contract. Contractors should expect that the Government will challenge any decision to stop work and may decide that a termination for default is appropriate. It is important to note that in extreme cases, inadequate or late payments may put a contractor in a position in which it simply cannot continue performance. In such circumstances, a default may be excused if the contractor can show a nexus between the failure to perform and the Government’s failure to pay.
The good news is that contractors may be entitled to interest for delayed payments under the Prompt Payment Act (Pub. L. 97-177; FAR Subpart 32.9; 5 CFR 1315)(“PPA”). The PPA applies to invoice payments so long as contract performance is satisfactory, and the invoice contains certain required information. The PPA does not apply to contract financing payments. If payment is late, FAR 32.907(f) specifically provides that “[t]he temporary unavailability of funds to make timely payment does not relieve an agency from the obligation to pay interest penalties.” The PPA interest rate is set by the Treasury Department, and the current rate is 1.75 percent per annum (78 Fed. Reg. 38811, 39063 (June 28, 2013)) .
A prime contractor’s obligation to pay subcontractors depends on the terms of the subcontract. In the case of a Government default in making payment, it is important for contractors to determine whether the subcontract contains a “pay-when-paid” clause and whether subcontractors may stop work in the absence of payment. Contractors may also have to consider whether the ability of small subcontractors to continue to perform may be jeopardized by cash flow disruption and whether to finance continued performance until payments resume.
In anticipation of delayed contract payments resulting from a failure to raise the debt ceiling, it is most important for contractors to take stock of existing contracts: Contractors should begin to assess the status of invoicing and contract payments. Contractors also should analyze their prime contract disputes clauses. Contractors should expect disruption of cash flow and begin now to dialogue with contracting officers and subcontractors to ensure the fewest adverse impacts from contract payment delays.
Don’t miss this week’s discussion on the Global Defense Industry on Off the Shelf, available here. Jack Midgley, a director in Deloitte’s Global Defense Consulting Practice, discusses Deloitte’s recent report “Global Defense Outlook 2013/Balancing security and prosperity.” The report examines current policies, practices and trends impacting defense planning and profiles of the top 50 nations who account for 97% of global defense spending. Midgley discusses some the key trends highlighted in the report including growth of special operations forces, drones and cyber-warfare capabilities. He also provides an overview of the Top 50 defense spenders and the relative standing of the United States.
Off the Shelf airs on Federal News Radio 1500 AM during the following times: Tuesdays at 10am, Thursdays at 9am and Fridays at 3pm. Past programs are also available to listen to online here, shortly after their initial air date.
Shutdown and Debt Ceiling Debate, What’s Next?
What do the shutdown and the failure to raise the debt ceiling mean for contractors and the U.S. economy? Listen to an in depth analysis from Cameron Leuthy and Christopher Payne of Bloomberg Government on these questions and more on Off the Shelf, airing next week on Federal News Radio 1500 AM. Be sure to tune in during any of these times: Tuesday at 10am, Thursday at 9am and Friday at 3pm EST. The program will also be available to listen to online here, shortly after its initial air date.
DoD Launches Defense Health Agency
Despite the government shutdown, the Department of Defense (DoD) officially launched the new Defense Health Agency (DHA) on October 1. The new agency is designed to streamline health care at the Army, Navy and Air Force medical departments. DHA will develop common business and clinical practices across the services and integrate functions such as purchasing medical supplies and equipment. Tricare Management Activity is now part of DHA. The new agency is led by Air Force Lt. Gen. Douglas Robb.
DHA is currently establishing a “shared services” model for managing health information technology, medical logistics, pharmacy operations and facilities planning for the Army, Navy and Air Force. Shared services will also include contracting, medical education and training, public health, resource management, and medical research and development. Defense health officials estimate that DHA’s shared services will deliver $3.4 billion in cost savings in the first five years. More details will be provided in a report to Congress by the end of the month.
IT Professionals: Tight Budgets are Big Threat
A recent survey conducted by Cisco and Clarus Research Group reports that federal IT professionals find budget constraints to be the biggest threat to maintaining the government’s IT infrastructure. 35% of 400 professionals surveyed at all levels of government view budget shortfalls as the main threat, ranked higher than cyber attacks, mobile security or any other metric. In Federal Times Larry Payne, vice president of Cisco’s U.S. federal market, said the study confirmed once again that cost rules the day in federal IT. Members should note that 59% of respondents said they were likely to increase investment in cybersecurity in fiscal 2014, ahead of spending on cloud computing and IT networking.
VA’s FSS State of the Union
The Veterans Affairs (VA) Federal Supply Schedule Service held its first ever “FSS State of the Union” training this week. The online event was kicked off by Craig Robinson, Associate Deputy Assistant Secretary for National Healthcare Acquisitions (NAC). The FSS Management team also provided a program update on the FSS Service over the past year. The training covered staffing, organizational, and trends updates. VA’s FSS is particularly focused on open and effective communications with its stakeholders. The Coalition’s Healthcare Committee is one resource that VA FSS is utilizing to reach out to the vendor community. For more details on the content of the training, watch the VA FSS website (www.fss.va.gov) for a white paper summarizing the discussion points and program updates within the next week.
Boot Camp for VA Schedules Contracting
Like GSA Schedule contracts, the VA Schedules are IDIQ type contracts awarded to pre-approved vendors using full and open competition; however, there are subtle differences between the GSA and VA Schedules that can make a significant impact on negotiating and administering a VA Schedule contract. Take advantage of Centre’s extensive experience with the VA FSS Program by registering for the VA Schedules Contracting class.