Friday Flash, 11.02.12

Comment of the Week 

On October 19^th the Government Accountability Office (GAO) issued its decision denying the protest of Herman Miller against the Air Force’s solicitation for commercial office furniture.  Unfortunately, the GAO failed to clearly address the solicitation’s consistency with commercial practice as required by FAR Part 12 and essentially punted on significant issues regarding the overall structure of the two-tier approach and its impact on small business dealers and manufacturers. A copy of the decision can be found here.

The Air Force’s two-tier acquisition strategy and solicitation terms are not only inconsistent with commercial practice; the Air Force strategy is “contract duplication gone wild.”  All the commercial office furniture sought under the Air Force solicitation is currently available via the GSA Multiple Award Schedules (MAS) program.  The Air Force could have saved time and money, and likely avoided a protest, if it had used Blanket Purchase Agreements (BPA) to leverage its requirements under the MAS program.

I will be writing more on the Air Force procurement in the coming weeks but the focus this week is on the implications of a GSA waiver of the Price Reduction Clause (PRC) on MAS contractors and the overall market.   The waiver, which can be viewed here, was central to the GAO’s decision denying the protest.

The Air Force’s two-tier acquisition strategy implicates the PRC and, as a result, its application became an issue in the bid protest. Under the Air Force’s solicitation, awards will be made to at least four furniture manufacturers.  However, no office furniture will ever be ordered under these contracts.  Rather, the pricing and products identified under these manufacturer contracts will form the basis for future limited competition, small business set-aside procurements/solicitations for separate contracts with small business dealers.  Under the Air Force plan, all furniture sales must be made through the designated dealers rather than directly to the agency.  Think of it this way, the Air Force is essentially seeking to award at least four “subcontracts” that will be used by small business dealers for future competitions for independent prime contracts at various Air Force installations around the country.  The Air Force’s two-tier approach is inconsistent with the traditional manner in which the furniture manufacturers and their dealer networks compete in the marketplace.  As a result, questions arose throughout the MAS furniture manufacturer community as to whether a price reduction to a dealer pursuant to a “subcontract” under an Air Force small business prime contract would trigger the pricing disclosure requirements and corresponding price reduction on a manufacturer’s MAS contract.

After the filing of the protest, GSA issued a September 7^th memorandum to all GSA contractors on Schedule 71 waiving the PRC.  The memorandum states in part:

GSA recognizes that under the [Air Force] Enterprise Sourcing Group, there is the potential for some GSA contractors to trigger the Price Reduction Clause 552.238-75 of their Schedule 71 Multiple Award Schedule (MAS) contract.

Therefore, solely for the purposes of the Enterprise Sourcing Group’s solicitation, FA8057-12-R-0001, GSA will forbear enforcement of the Price Reduction Clause at 552.238-75, if the affected MAS vendor has requested and been granted a contract modification concerning its participation in an Air Force contract resulting from this solicitation.

This waiver is both troubling and illuminating.

First, on a fundamental level, the waiver supports contract duplication and further fragmentation of the furniture market. MAS contractors who have invested in their MAS contracts are seeing market share leaving the MAS program. It also sets a significant precedent.  GSA has essentially waived a contract requirement to enable a single customer agency to conduct a series of two-tier open market procurements: How will GSA deal with the next customer agency open market procurement that implicates the PRC?  The federal furniture market has been one where GSA’s MAS program has been the leader.  As such, the GSA furniture schedules provide an array of furniture products and solutions at reasonable prices using streamlined ordering procedures.  It is important that GSA’s actions on an individual acquisition support the underlying integrity of its program.  In that regard, it also sets a precedent for other MAS contracts and markets beyond furniture.

At bottom, fragmentation of the market is not good for customer agencies, taxpayers, GSA and the furniture contractors.  Dividing the market increases procurements costs to everyone; costs that are ultimately borne by the taxpayer.  For example, a growing market leads to lower pricing while a shrinking market will ultimately lead to higher pricing.  Here, hundreds of millions of dollars in work will leave the MAS furniture market as a result of the Air Force procurement, likely leading to higher pricing on the MAS program—which will lead to agencies setting up their own contract vehicles—it is a vicious cycle.

Second, at the same time the waiver facilitates contract duplication, it also illuminates one of several flaws in the PRC.  Here, the Air Force’s acquisition forces the furniture manufacturers to enter into private “transactions” or “subcontracts” with dealers that are inconsistent with standard industry practice. In response to these circumstances, GSA waived the PRC in an effort to ensure the fulsome benefits of competition.  As illustrated through the waiver, the PRC restricts the ability of contractors to offer prices to commercial entities where the ultimate customer is the federal government.

The PRC impacts the MAS contractor’s ability to enter into commercial agreements and can impact the ability of an agency to get a more favorable price.  Here, the waiver was granted for purposes of a single agency’s separate open market procurement. The current situation raises fundamental policy questions:  Why should the PRC be waived to provide a contractor the ability to compete for federal work but not waived for commercial work, or for certain subcontracts under government contracts but not others?  Is one more valued than another?  Being able to fully compete for federal or commercial work means JOBS for manufacturers.   The waiver validated the PRC as an anti-competition, anti-growth provision.   It also raises significant questions regarding the MAS audit process and the fairness for MAS contractors who have previously had to manage their contracts based on the limitations of the PRC.

Third, it is not clear that the waiver actually does what it is intended to do.   The GSA memorandum states that the waiver is “solely for purposes of the Enterprise Sourcing Group’s solicitation FA8057-12-R-001.”  It further refers to “GSA vendors participating in this particular Air Force solicitation.”  The memorandum goes on to state that “This one-time PRC forbearance is available for this unique procurement circumstance and will not affect any other sales to the category of customer that formed the basis of award the MAS contract.”  In the case of the Air Force two-tier acquisition strategy, separate independent contracts will be awarded to small business dealers at at least 70 separate Air Force installations.  These subsequent contracts will be awarded pursuant to new solicitations issued by the Air Force at each installation—which will likely lead to further price reductions to the dealers in response to a specific requirement.  It is a fundamental principle that each procurement/solicitation stands on its own.  As such, the waiver does not specifically reference or refer to those subsequent solicitations and resulting contracts.

Roger Waldron

President

 

GSA Responds to Hurricane Sandy

In a GSA blog posted on Wednesday, Acting Administrator Dan Tangherlini described the agency’s role in the wake of Hurricane Sandy as “more important than ever”.   According to federal emergency plans, GSA is responsible for providing FEMA and other agencies with what they require to meet the needs of the American people during emergencies like Hurricane Sandy.  Administrator Tangherlini explained in his blogpost that the GSA Disaster Relief Program is central to these efforts.  The program provides federal agencies, local and state government with access to disaster and emergency related supplies such as first responder equipment, emergency food supplies, and medicine.

Administrator Tangherlini also said that “during the hurricane, GSA employees have been working tirelessly to ensure that we are meeting the needs of our partner agencies.” Some of the activities they have been involved in are protecting federal facilities, contributing to emergency response operations and meeting the needs of first responders.  In addition, GSA:

• procured 1,000 chainsaws to support Pennsylvania’s recovery efforts at the request of FEMA,
• arranged for 34 shipments of items such as sheeting, generators, pumps, portable toilets and handwashing stations, and
• secured 100,000 square feet of office space for FEMA’s joint field office space in the Northeast.

Administrator Tangherlini emphasized GSA employees’ commitment to the GSA mission, the agencies they support and the American people.  He said, “I want to assure the American people that all of us will be doing everything we can in the days and weeks ahead to assist in the recovery.”

 

Post-Election Membership Forum, Nov 9

The Coalition will host a forum next Friday, November 9^th featuring the Honorable Thomas M. Davis, Former Virginia Congressman and Director of Federal Government Affairs, Deloitte and Jon Etherton, President and Owner of Etherton & Associates, Inc.  Congressman Davis  Jon Etherton will discuss the outlook for the procurement community under the next Administration and the post-election impacts on the Federal budget. The forum is scheduled for November 9^th at 8:00am in the Tysons area.  Registration and more details to be released Monday!  If you have any questions, please contact Athena Oliff at aoliff@thecgp.org or (202) 315-1052.

A Dear Friend

Paul Weiss was a dear friend of the Coalition and its members. His passing will be felt throughout the entire procurement community.  Paul was a longstanding Coalition member with LMI, Chair of the Services Committee for many years, and served with the Federal government at GSA among other agencies.  As said by a colleague, “No matter the situation, he was always the example of grace, kindness, and generosity. His profound moral compass set the standard by which I judge my own conduct. To say I am better for having known him is not enough.”

Paul will be missed greatly by the many lives he touched.  We send our thoughts and prayers to his friends and family on behalf of the entire membership.

 

Coalition Op-Ed in Federal Times

An opinion piece from Coalition President, Roger Waldron was published in Federal Times this week. “Contracting program must keep offering open seasons” is about the recent demand-based model proposed by the General Services Administration. In the article, Roger describes the Multiple Award Schedule program as “the most successful commercial item contracting vehicle in the federal government,” and highlights the importance of “continuous open seasons [as] vital to providing customers with access to the latest commercial innovations and solutions.”  Rather than eliminating continuous open seasons, the Coalition recommends the following to increase opportunities for customer agencies and MAS contractors:

1.      Consolidate program management in a single office within FAS.

2.      Adopt Federal Acquisition Regulation-based contract structures for the acquisition of commercial solutions.

3.    Empower the “consolidated” contracts.

4.    Put “commercial” back into commercial item contracting by removing unique requirements and clauses inconsistent with commercial practice from the MAS program.

The full Coalition opinion piece and description of recommendations to GSA is available here.

 

Study Underscores Importance of GSA Programs

In a recent Government Business Council study sponsored by Deloitte, Federal managers identified acquisition and procurement as the least efficient cost area in the Federal government.  The study, entitled Cutting costs: Inside the effort to improve the efficiency of federal operations, assessed Federal manager opinions of the efficiency of eight major cost areas including payments, oversight and compliance, property management, workforce, and technology.  Of the eight cost categories, acquisition/procurement was ranked last by the 600 survey respondents who represented GS levels 11 through 15 and the Senior Executive Service from defense and civilian agencies.  “Redundancy” also ranked below average in terms of efficiency.

The results of the Government Business Council’s study underscores the role that GSA Schedules, GWACs, MACs and other existing contracts can play in providing a more efficient and effective procurement system.  GSA, in particular, has an excellent opportunity to address the concerns of Federal managers highlighted in the study by modernizing the Schedules program and providing the framework to reduce unnecessary contract duplication.  As the Coalition has suggested in other forums, we recommend that GSA increase efficiencies for customer agencies and MAS contractors by:

1.      Consolidating program management in a single office within FAS.

2.      Adopting Federal Acquisition Regulation-based contract structures for the acquisition of commercial solutions (i.e. implement other direct costs on MAS contracts).

3.    Empowering the “consolidated” contracts.

4.    Putting “commercial” back into commercial item contracting by removing unique requirements and clauses inconsistent with commercial practice from the MAS program.

 

Small Business Forum Set for End of November!

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 November 28, 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 & GSA Keynote:

• A. John Shoraka, Associate Administrator of Government Contracting and Business Development, SBA
• Jiyoung Park, Associate Administrator Office for Small Business Utilization, GSA

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

 

OMB: PortfolioStat is Saving Billions

A recently issued blog post from the Office of Management and Budget (OMB), reports that the newly implemented PortfolioStat is on track to save the government $2.5 billion over the next three years. The post, written by OMB Director Jeffrey Zients, says the savings will be achieved “through consolidating duplicative systems, buying in bulk, and ending or streamlining off-track projects.” Launched in March of this year, PortfolioStat is a face-to-face, evidence-based review of an agency’s IT portfolio. PortfolioStat looks at data on commodity IT investments, potential duplications, investments that do not appear to be well aligned with agency missions, and more. According to a March 2012 memo, the review was led by Agency Chief Operating Officers (COO) and examines the IT portfolio  eliminate areas of duplication and waste.

Under PortfolioStat, “agencies have collected and analyzed baseline data on 13 specific types of commodity IT investments, spanning infrastructure, business systems, and enterprise IT,” which are areas seen to have the most “significant opportunities for reducing waste.” Through an evaluation process that included the reviewing of data and utilizing private sector benchmarks, agencies “identified 98 opportunities to consolidate or eliminate commodity IT areas, ranging from the consolidation of multiple email systems across an agency to the reduction of duplicative mobile or desktop contracts.” Examples of savings cited by OMB include:

• DHS: Saving $376 million over the next three years on their IT infrastructure, including mainframe and server products
• Department of Treasury: Saving $90.3 million by consolidating key financial management systems, and creating a central hub for all vendor payment data for Federal agencies and their vendors.

 

Legal Corner 

Budget Sequestration, the WARN Act and Compliance Costs—Implications for Contractors

Jim Schweiter, Partner, McKenna Long & Aldridge LLP

Last August, Congress passed the Budget Control Act of 2011 (Pub. L. 112-25). This law authorized raising the debt ceiling, established caps on discretionary spending, and put in place a process known as sequestration to implement a total of $1.2 trillion in automatic spending cuts through fiscal year 2021, unless Congress passes a bill which the president signs to avert such a result. Sequestration is a process of automatic, largely across-the-board spending reductions under which budgetary resources are permanently canceled in order to achieve compulsory deficit reduction.

Much has been written about the draconian effects sequestration will have on the programs, projects and activities of executive branch agencies.   Senior executive branch officials, members of Congress and industry leaders all predict catastrophe if sequestration is implemented.  In the case of government contractors, the decline in new government work caused by funding reductions, or the truncation of existing government work through contract terminations, changes, or other mechanisms, may cause employers to consider terminating or laying off employees.  As a result, it is important for employers to understand their rights and obligations under the Worker Adjustment and Retraining Notification (WARN) Act.[1]

Notification Requirements under the WARN Act

The primary purpose of the WARN Act is to require certain employers to provide at least 60 days advance notice to employees who are impacted by a “plant closing” or “mass layoff.” Each of these terms has a lengthy statutory and regulatory definition but, in brief, a “plant closing” refers to a shutdown of a site of employment resulting in an employment loss for at least 50 employees, while a “mass layoff” means a reduction in force at a single site of employment impacting at least (1) 50 employees and 33 percent of the active employees at that site, or (2) 500 employees.

As a general rule, whenever an employer foresees that 50 or more employees could lose employment at a site of employment within a 90-day period, that employer should carefully analyze whether the definition of a “plant closing” or “mass layoff” may have been met, and thus whether WARN notice requirements have been triggered.  If the WARN notice requirements are triggered, the employer must provide written notice of the anticipated employment loss to (1) the affected employees (or to their representative if unionized), (2) a designated state official, and (3) the chief elected official of the unit of local government within which the layoff or plant closing will occur.  If the employer provides less than 60 days’ notice before the employment action, it may be subject to paying wages and benefits to the affected employees for the portion of the 60-day period in which notice was not given, in addition to other potential penalties.

The WARN Act recognizes that plant closings and mass layoffs cannot always be anticipated months in advance, and certain exceptions to the 60-day notice requirement exist.  The “unforeseeable business circumstances” exception is the relevant exception that would be associated with layoffs or plant closings resulting from the January 2, 2013 onset of sequestration.  This exception encompasses a “sudden, dramatic, and unexpected action or condition outside the employer’s control.”[2]  The Labor Department’s interpretive guidance[3] noted that although budget sequestration can be seen months in advance, the actual impact on a particular contractor may be unknown until much later.  Therefore, an abrupt termination of a particular contract might qualify under the “unforeseeable business circumstances” exception.  If contractors must lay off or separate their employees in less than 60 days, such announcements would be sudden and dramatic and therefore consistent with the WARN Act.  According to the Labor Department, in such cases employers would not have to provide the full 60-day notice.

Contractor Costs and the WARN Act

The Office of Management and Budget (OMB) just issued new guidance that certain liability and litigation costs associated with WARN Act compliance will be allowable costs under government contracts.[4]  Under the OMB memorandum, if sequestration occurs and an agency terminates or modifies a contract which causes the contractor to order a plant closing or layoffs subject to the WARN Act’s notification requirements, and that contractor has followed the Labor Department’s guidance, then any resulting court-determined, WARN Act-based employee compensation costs, attorneys fees and other litigation costs would qualify as allowable costs which would be reimbursable by the contracting agency, regardless of the litigation outcome.  Such costs would also have to be both allocable to the contract in question and reasonable in accordance with existing FAR principles.

This new OMB memorandum has prompted several large defense contractors to announce that they will not issue WARN Act notices before January 2, 2013.[5]  However, the guidance has exacerbated partisan tensions.[6]  Senators Charles Grassley (R-IA) and Kelly Ayotte (R-NH) announced jointly that they had sent a letter of inquiry “asking under what authority the administration is using to say it is okay to disregard the law,” and then promise contractors “a taxpayer funded bailout for their legal expenses if they do so.”[7]

Regardless of the seemingly inevitable partisanship that accompanies the run up to a presidential election, there are several points about the most recent OMB memorandum for contractors to bear in mind.  First, the implementation of sequestration alone does not portend layoffs or plant closings triggering WARN Act notice requirements.  There must be some adverse contract action flowing from sequestration’s funding reductions which affects an employer.  In addition, the OMB guidance clearly contemplates a court determination of both employee compensation costs, as well as attorneys fees and other litigation costs.  However, employers may incur substantial costs associated with the publication and dissemination of WARN Act notices or employee negotiations and settlements not resulting in litigation.  Under the OMB guidance, these costs would not seem to be allowable.  Contractors who anticipate potential WARN Act liability should seek guidance from contracting officers about the extent to which their WARN Act-related costs will be allowable.  Awareness of the OMB memorandum by DCAA and DCMA personnel will almost certainly also take time, and ignorance of the OMB guidance could complicate audits.  Finally, before allowable costs may be reimbursed, the Government must have funds available to do so.  If sequestration occurs, agencies may not have sufficient funding to reimburse WARN Act-related costs.  Even if litigation resulted from a WARN Act dispute, the Judgment Fund[8] would not be available for such purposes because the litigation would not involve the United States.

Prudent employers should prepare for various scenarios and have contingency plans in place to provide appropriate notice as soon as it becomes clear that a particular contract action will cause a WARN-triggering employment loss. Some companies are considering “provisional notices,” which communicate to all employees that federal budgetary issues could result in an employment loss.  However, because they do not indicate which specific employees will be impacted and the specific date on which the employment loss will occur, such provisional notices may be “better than nothing” (and may show the employer’s good faith efforts to try to comply with WARN) but are still unlikely to fully satisfy the requirements of WARN.  Finally, employers should be aware that several states have their own plant closing laws (sometimes referred to as “mini-WARN” statutes), and some of these laws have more stringent requirements that the federal law. Employers should thus analyze relevant state laws in states in which a significant employment loss may occur.

 

SBA OIG on Mentor Protégé Program

Last week, the Small Business Administration (SBA) Office of Inspector General (OIG) released a report on its 8(a) Business Development Mentor-Protégé program.  The audit’s objectives were to determine the extent to which the joint venture agreements between a mentor and a protégé resulted in substantial benefit to the 8(a) participant and evaluate the SBA’s oversight of the program.

The OIG found that SBA cannot ensure that the 8(a) Mentor-Protégé program is achieving its intent of helping small disadvantaged businesses. This was due to a lack of performance measures to monitor potential progress and benefit. Additionally, the OIG found that the SBA did not effectively oversee the program. The OIG’s recommendations included developing measurable outcomes, oversight procedures, and an information system to ensure protégés benefited from joint venture agreements.

 

DoD Intelligence Spending Decreases

The Department of Defense issued a press statement this week reporting that its Military Intelligence Budget is $21.5 billion for FY2012. As a whole the Federal Government spent $75.4 billion on intelligence programs which is down from $78.6 billion in 2011. The Office of the Director of National Intelligence said the 2012 budget for the non-Defense National Intelligence Program was $53.9 billion.

 

GSA Green Proving Ground RFI Released

This week, GSA released a Request for Information (RFI) to gather input on new sustainable building technologies in support of the Green Proving Ground (GPG).  The GPG leverages GSA’s real estate portfolio as a “proving ground” to evaluate emerging building technologies and practices that have the potential to improve the environmental performance of GSA’s portfolio while reducing operational costs. The RFI invites industry to submit information which GSA will use in the selection process for technologies to test as part of the FY2013 GPG initiative.  Selected technologies will be tested in GSA federally-owned buildings.  Information about GPG technologies evaluated in past years as well as GSA’s assessments is available at www.gsa.gov/greenprovingground.

 

GSA IT Schedule Training, Nov 7

GSA’s IT Schedule 70 is hosting a webinar at noon on Nov 7 about How to Market Your Products and Services to the Government.  Participants will learn how to identify customers and competitors, analyze current and future information technology trends and needs, and maximize their presence in the Federal market.  For more details and to register, visit www.gsa.gov/portal/content/148223.