Acting Administrator Dan Tangherlini often refers to GSA as the government’s savings agency. He is “right on the money” regarding GSA’s central role in the federal procurement system. GSA’s Federal Acquisition Service and Public Building Service provide a government-wide infrastructure of contracts, acquisition management and logistics support for customer agencies that leverages resources and saves taxpayer money. Given the current fiscal challenges we face, GSA’s role is more vital than ever before and there are significant opportunities for greater program efficiencies and procurement savings for customer agencies and contractors.
In particular, the GSA Multiple Award Schedule (MAS) has unfulfilled potential to deliver best value solutions to customer agencies and drive down the cost of government. And what one fundamental issue is limiting the ability to deliver best value solutions in a cost effective manner?
“Other Direct Costs”
MAS customers and contractors have repeatedly indicated that the inability to include ODCs, materials and indirect costs as part of MAS task orders limits the flexibility and efficiency and effectiveness of the program.
The failure to address ODCs increases procurement transactional costs across government. It leads to contract duplication as customer agencies create their own contract vehicles that fully utilize the flexibilities provided by FAR 52.212-4, Alternate I in order to deliver complete, best value solutions. GSA and Administrator Tangherlini have a wonderful opportunity to reduce contract duplication, increase efficiency, and save taxpayer money. The time for addressing ODCs is now. We are concerned that if GSA does not act quickly to correct this issue, agencies will increasingly turn to creating duplicative open market contracts particularly when they require complex services and solutions.
Fortunately there is an obvious and readily available solution that goes along ways towards allowing ODCs to be acquired as a part of GSA Schedule contracts. The Federal Acquisition Regulations includes a clause that provides an accountable, transparent, flexible and efficient mechanism for the inclusion of materials and ODCs at the task orders level. In fact some GSA Schedule contracts already include the clause; GSA need only make the provision operational by internal instructions to its contracting staff and potentially some guidance to customers to encourage optimum utilization of the FAR provisions.
Federal Acquisition Regulation (FAR) clause 52.212-4, Alternate I, provides for the inclusion of materials and ODCs in task orders issued under indefinite quality, indefinite delivery (IDIQ) contracts. FAR 52.212-4, Alternate I, provides that ODCs identified/listed in the contract clause itself (at the underlying MAS contract level) be reimbursed at actual cost. The clause further instructs contracting officers that “Each order must list separately the elements of other direct charge(s) for the order, or, if no reimbursement for other direct costs will be provided, insert “None”. This approach ensures that ODCs are considered within the scope of the underlying MAS contract and may be included in subsequent task order competitions in accordance with FAR 8.4.
Some may argue that each element of materials and/or ODCs must be specifically listed and priced at the contract level per FAR 8.4. This is an overly restrictive, reading of the scope of MAS contracts. The underlying MAS contracts, incorporating FAR 52.212-4 Alternate I, establish the scope of the contract which allows for the general listing of the elements of ODCs. Nothing in the clause requires that each element of ODCs be a separately priced line item at the contract level. Rather, the FAR 52.121-4, Alternate I, provides that each element of ODCs listed in the clause be reimbursed at actual cost. Actual cost will ultimately be determined on the results of a task order competition and subsequent performance of the work—not some arbitrary price plugged in at the contract level. As such, FAR 52.212-4, Alternate I provides a flexible, accountable approach to ODCs that will save customer agencies, GSA and contractors transactional and administrative costs.
FAR 52.212-4, Alternate I, has already gone through the public ruling making process. FAR 52.212-4, Alternate I, is a commercial clause. FAR 52.212-4, Alternate I, is applicable to commercial item IDIQ contracts. MAS contracts are commercial IDIQ contracts. Accordingly, FAR 52.212-4, Alternate I, is applicable and appropriate for use in MAS contracts. In fact, GSA already includes FAR 52.212-4, Alternate I in most of its MAS contracts. To more effectively and efficiently address customer agency needs, GSA must fully embrace and utilize the FAR clause flexibilities it has already included in its contracts!
GSA is working on an agenda to modernize the Multiple Award Schedule. GSA should make addressing the ODC issue the top priority on that agenda.
This week the Coalition launched its Small Business committee with a forum, New Strategies for a Changing Environment, at the City Club of Washington, DC. An audience of small and large businesses heard a presentation from John Shoraka, Associate Administrator for Government Contracting and Business Development, Small Business Administration (SBA). The presentation outlined SBA program initiatives as well as White House priorities for small business utilization. Mr. Shoraka stated that the overarching objectives of the Administration are to:
- Maximize opportunities for small businesses acquisitions under the simplified acquisition threshold
- Increase opportunities for small businesses under multiple award contracts, and
- Strengthen individual accountability of federal executives for small business goal achievement
Jiyoung Park, Associate Administrator for Small Business Utilization, General Services Administration also participated in a panel with three members of the Coalition,
- Jim Connal, Vice President, Red River Computers
- Joe Hornyak, Partner, Holland & Knight
- Wayne Pizer, Vice President for Small Business Programs, L-3
- Tom Walker, Government Manager, Nucraft Furniture
The Panel, Small and Large Business Collaboration in the Federal Market – What Works and What Could Work Better addressed the go to market strategies of these successful small and large businesses.
We anticipate that small business utilization will continue to be a priority of the Administration. The Small Business committee will be a platform for monitoring regulatory and policy changes that impact the way small businesses and their large business strategic partners sell in the government market. The first meeting of the committee will be on December 18th at 11:00. If you are interested in participating in the committee please send your contact information to Roy Dicharry email@example.com.
House Small Business Committee Chairman Sam Graves issued a letter to GSA Acting Administrator Dan Tangherlini this week expressing his concerns with the demand based model. Chairman Graves also issued public comments to GSA’s Federal Register notice on their proposed change to continuous open seasons in the MAS program. The chairman is concerned that the proposal may limit the ability of small businesses to compete in the federal market. At the same time, the committee is not convinced that the demand based model will result in the desired operational efficiency and cost controls. In his letter, Chairman Graves asks Administrator Tangherlini to directly engage with GSA staff on this issue and consult with the House Small Business Committee before a final decision is made on the DBM.
The Election is over, the results are in! But what does it all mean? Join the Coalition for Government Procurement as we explore the results, the ramifications and the outlook for the new Congress in 2013. The Honorable Tom Davis and a panel of industry experts will analyze the results and share insights on what it all means for procurements in 2013.
The Honorable Thomas M. Davis – former 7 term Virginia Congressman and Chairman of the House Government Reform and Oversight Committee as well as the Chair of the subcommittee on Technology and Procurement Policy. He now serves as the Director of Federal Government Affairs for Deloitte & Touche LLP, where he continues his commitment to effective, common-sense solutions to government. Listen to his perspective on what happened, why it happened and what it means moving forward.
Hear from industry experts how the elections will impact Sequestration, The “Fiscal Cliff,” Business Opportunities, GWAC/MAC Procurements, and other topics.
Jon Etherton, President and owner of Etherton and Associates, Inc., a respected firm that provides services in Federal relations to clients in the defense, intelligence, aerospace and service industries. Jon Etherton has over 25 years of experience working in and with Congress as well as the Executive Branch on national security funding and policy issues.
Robert Levinson, Defense Analyst with Bloomberg Government. He is a retired lieutenant colonel in the U.S. Air Force with more than 20 years of service. Levinson worked for Booz Allen Hamilton as a strategic communications consultant. He has a bachelor’s degree from the U.S. Air Force Academy and a master’s from the University of California, San Diego.
John W. Heath, Counsel at McKennna Long & Aldridge. John is a former counsel with the minority staff of the U.S. Senate Armed Services Committee and on the Republican staff of the House Permanent Select Committee on Intelligence. John has also served as a
commissioned officer in the U.S. Army Judge Advocate General’s Corps. He has joined the government contracts practice of McKenna Long & Aldridge LLP (MLA) as counsel in the firm’s Washington, DC office.
December 6th, 2012
8:30AM – 10:30AM
The Tower Club
8000 Towers Crescent Drive #1700
Vienna, VA 22182
On November 29, Director of the OASIS Program Jim Ghiloni posted to the OASIS Interact Blog a notice concerning the NAICS Code for OASIS. “The NAICS code that OASIS will be using has generated significant interest and recommendations from Industry. In response to the many comments and suggestions on this subject, the OASIS team engaged in additional extensive research,” the blog states. Utilizing FAR Part 19.102, GSA completed their analysis with the aim of finding what NAICS code accounts for the greatest percentage of the expected OASIS contract price. Based on their research, GSA has decided to apply the NAICS code 541330 (Engineering Services) with the size standard of $35.5 million to the OASIS acquisition. The OASIS team is requesting industry feedback and thoughts on this subject through the OASIS Industry Community on Interact.
TASC Inc. issued a report this week highlighting the risks inherent in the increasing use of low price technically acceptable (LPTA) acquisition strategies. According to the report, the risks to the government include budget overruns (once rework and related costs are factored in), delivery delays, and, in the worst cases, mission failure. TASC suggests that solicitations for complex professional services utilize a best-value/cost-technical tradeoff approach rather than the LPTA source selection process. However, when LPTA is used, TASC recommends that the government mitigate risk by 1) setting the values and metrics for the acceptability of services high enough to ensure best value without sacrificing quality, and 2) including stringent past performance requirements. TASC is hopeful that the recommendations in the report will be helpful to the Department of Defense as they seek to define technically acceptable through the Better Buying Power 2.0 initiative.
On Tuesday, GSA launched a new GWAC Dashboard that compiles agencies’ IT spending through governemntwide acquisition contracts. In a press release, GSA describes the tool as an interactive dashboard that aggregates and consolidates all non-classified data on federal IT purchasing activity from 2004 to present through GSA’s Governmentwide Acquisition Contracts. The dashboard is updated daily with publicly available spending data displayed in easily understood lists, graphs, and charts, which are designed to aid GSA’s industry partners’ strategic business decisions and planning. According to GSA, the dashboard also assists federal agencies in monitoring their use of GSA GWACs, responding to data calls, and preparing for executive briefings.
The Department of Veterans Affairs (VA) issued a final rule on Nov 27 requiring contractors to submit payment requests in electronic format. The VA has adopted the proposed rule published on April 18, 2012 with no substantive technical changes. According to the final rule, contractors should submit payment requests through the VA’s Electronic Invoice Presentment and Payment System or a similar ANSI conformant site provided by the VA. The rule goes into effect December 27, 2012.
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.
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.” The Labor Department’s interpretive guidance 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. 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. However, the guidance has exacerbated partisan tensions. 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.”
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 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.
 Pub. L. 100-379, codified at 29 USC 2101 et. seq.
 20 C.F.R. 639.9(b)(1); see also, 29 USC 2102(b)(2).
 Department of Labor, Training and Employment Guidance Letter No. 3-12, July 30, 2012.
 Office of Management and Budget, Guidance on Allowable Contracting Costs Associated with the Worker Adjustment and Retraining Notification (WARN) Act, Memorandum for the Chief Financial Officers and Senior Procurement Executives of Executive Departments and Agencies, Sept. 28, 2012.
 Sara Sorcher, White House Moves to Head Off Sequester Layoffs, National Journal, Sept. 29, 2012, at http://www.nationaljournal.com/nationalsecurity/white-house-moves-to-head-off-sequester-layoffs-20120928.
 Senators John McCain, R-Ariz., and Lindsey Graham, R-S.C., called the guidance “politically motivated” and said they’d block any contractor payments by the Pentagon to cover failure of issuing WARN Act notices. Joyce Tsai, Partisan Debate Deepens over Layoff Notices Before Sequestration, Stars and Stripes, Oct. 5, 2012, at http://www.stripes.com/partisan-debate-deepens-over-layoff-notices-before-sequestration-1.192039.
 Letter from Senators Charles Grassley and Kelly Ayotte to Jeffrey Zients, Acting Director, Office of Management and Budget, (Oct. 1, 2012), at http://www.grassley.senate.gov/about/upload/100220121.pdf.
 31 USC 1304.
OMB Controller Danny Werfel recently wrote an OMBlog on the savings the Administration has achieved through its initiative to combat improper payments by the government. Since the Administration began this project three years ago, it estimates a total of $47 billion in savings. This amount comes close to reaching the President’s goal of saving $50 billion in improper payments by the end of FY 2012. Additionally, the government has far exceeded the President’s goal of recapturing $2 billion in overpayments to contractors by the end of FY 2012. The post states that “Federal agencies recaptured a record $4.4 billion in overpayments to contractors over the last three years, due in large part to the success of the Medicare Fee-for-Service Recovery Audit Contractor program.”
The GSA/VA Schedule is a $50 billion contracting program that all federal agencies use to acquire commercial services and products. These multiple year, government-wide contracts cover professional services, information technology, pharmaceuticals and a vast array of commercial products.
The GSA/VA Schedule offers a huge market opportunity. Thousands of companies including both Fortune 500 companies and a vast number of small businesses have GSA/VA Schedule contracts. All federal agencies, and in some instances state agencies, can place orders against the contracts.
Of particular interest to in-house counsel, GSA/VA schedule contracts have a pricing methodology, and disclosure requirements that are unique in federal government contracting. The contracts provisions must be correctly understood, managed and monitored to assure that your company realizes anticipated profits. Failure to do so can result in significant monetary, administrative, civil and even criminal penalties.
Join the Coalition on December 5th to gain information and tools to help you understand the GSA/VA Schedule contracting program and provide insightful legal advice to your in-house client.
Click here for more information or to register for this very important training opportunity!
PART 2: Cost-based Pricing and Billing – Fundamental Government Contract Accounting and Pricing Principles Every Senior-level Manager Must Understand
This fast-paced webinar distills the Government’s cost accounting and cost- based pricing rules into a handful of key principles that every contractor executive must know. These key concepts, presented in layman’s terms, form an important framework that will help contractors design compliant accounting and pricing practices to avoid significant compliance pitfalls. While this session is not designed to provide “everything you need to know” in the tedious world of government contract cost accounting and contract pricing, it will help responsible executives prevent or detect potential issues that may significantly impact profitability, competitive positioning, and the Company’s reputation.