How to Destroy Afghanistan: Establish a Private Contractor Army

Image: Desertpeace.wordpress.com

“THE NATIONAL INTEREST” By Molly Dunigan

” The Department of Defense already has a relatively large number of operational contractors working in Afghanistan (23,525 in total as of July 2017).

In recent weeks, two major players in the private security industry proposed that Trump administration officials privatize U.S. military operations in Afghanistan to an unprecedented degree.

Erik Prince, former owner of the now-defunct firm Blackwater Worldwide, proposed a scheme that would entail the appointment of a viceroy to oversee operations in Afghanistan, and the use of “private military units” to fill in gaps left by departing U.S. troops. Meanwhile, Stephen Feinberg—owner of DynCorp International, which holds numerous major U.S. government security contracts at present—similarly proposed that the Trump administration privatize the military force in Afghanistan, though his conceptualization of such a force calls for it to be placed under CIA control.

Luckily, Defense Secretary Mattis reportedly has so far declined both offers. Research overwhelmingly indicates that replacing U.S. military personnel with contractors is not likely to be a militarily effective solution for the Afghanistan problem.

First, research has shown that security contractors tend to decrease military effectiveness when working alongside regular military units in large numbers, primarily due to coordination issues fed by convoluted command-and-control systems and resentment and misperception between the two types of forces. Coordination problems between the military and contractor forces lead contractors to have a negative impact on the military’s integration, responsiveness, and skill when the two groups are co-deployed in the field.

Second, while security contractors operating on their own—free from any alliance with an extensive force of friendly military troops—have been shown in some instances to increase operational effectiveness and achieve tactical and strategic goals, this has primarily occurred when they have been sent into an area without clear state support. In such cases, they can operate covertly and with “plausible deniability” for the state actor supporting them, which may allow for looser interpretations of the norms of international humanitarian law. In other words, contractors can be effective, but it may not always be pretty. Notably, current Department of Defense policy mandates compliance with standards of behavior may preclude such activities—but may also explicitly preclude some of what Prince is proposing.

Perhaps more relevant in this case is the fact that the tactical and strategic effectiveness of contractors who are operating without longer-term military support typically lasts only as long as the contract is in place. In Sierra Leone, in the late 1990s, paramilitary firm Executive Outcomes was successful in securing enough of the country to hold the first free elections in thirty years, but the peacefully-elected president was then ousted in a coup within eighty-nine days of the contract expiration.

Third, in a counterinsurgency effort such as Afghanistan, U.S. military policy focuses on establishing legitimacy with local civilians. The use of armed contractors has been shown to be risky in this regard: a survey of 152 U.S. troops showed in 2007 that 20 percent of them had at times witnessed armed contractors performing unnecessarily threatening, arrogant or belligerent actions in Iraq. Similarly, nearly 50 percent of a sample of 782 surveyed State Department personnel who had experience working alongside armed contractors in Iraq showed in 2008 that armed contractors did not display an understanding of—or sensitivity to—Iraqi people and their culture.

Both recruitment and retention are critical here. At key points during the contracting surge in the early years of the Iraq War, private security company vetting and hiring standards varied and were at times relaxed in order to hire a large number of contractors quickly. A company’s recruitment policy could therefore affect the quality of the force.

Moreover, the labor pool for highly skilled contractors is limited, and both retention of such skilled personnel and their overall effectiveness could be hindered by deployment-related health effects: a 2013 study indicated that 25 percent of a large, multinational sample of contractors screened positive for post-traumatic stress disorder (PTSD), a rate higher than among civilians (6 percent have PTSD) or even U.S. service members (8–20 percent). Even more troubling, 23 percent of those who were deployed overseas at the time of the 2013 survey had probable PTSD, and most were not being treated for it. In contrast to the numerous mental-health resources available to members of the U.S. military, very few (if any) resources are available to help private contractors struggling with deployment-related mental health problems, and seeking help is highly stigmatized across this population. Research has found that untreated mental-health problems reduce productivity and attentiveness—setting the stage for decreased effectiveness and even the potential for harm in an operational environment if left untreated.

None of these research findings bode well for the long-term stability and security of Afghanistan if contractors are used to replace U.S. troops in the country. While operational contractors are now an entrenched part of the Department of Defense’s “total force” and are here to stay, large-scale privatization of the U.S. force in Afghanistan is unlikely to be effective.”

Molly Dunigan is a senior political scientist and associate director of the Defense and Political Sciences Department at the nonprofit, nonpartisan RAND Corporation and a lecturer in Carnegie Mellon University’s Institute for Politics and Strategy.

http://nationalinterest.org/feature/how-destroy-afghanistan-establish-private-contractor-army-21886

 

 

Pricing Small Business Federal Government Service Contracts

Integrate Long-term Company Strategy With Short Term Proposal Pricing Objectives

INTRODUCTION

Small businesses entering or growing into federal contacting often struggle with developing a pricing approach. They must design a pricing structure to pass an audit and win competitively. A winning strategy for federal services contracting must involve a view of the horizon as well as the instant bid on the table.

If you are a small enterprise selling off-the-shelf commercial items under FAR Part 12 or marketing commercial products on a GSA schedule, you may be initially challenged by the government contracting venue. With persistence you will establish selling relationships through agencies and prime contractors. Your pricing challenge is minimal. A service contractor faces a far greater challenge in understanding the nature of government contact pricing and winning at it.

Strategic thinking must therefore be applied to structuring a government service contracting cost center in your company. It must involve long term planning and designing a business system as well as establishing rates and factors to bid new work.

LONG TERM COMPANY STRATEGY

Build a Business System With Pricing in Mind:

We have previously discussed the basics of small business government contracting business system design: Job Cost Accounting Basics

The structure or your pricing approach from the cost element level through burdens must use the same template as your job cost accounting and billing. The parallel mapping provides the consistency required to pass audits or get your billings approved on a service contract.

Please read the above article and its related references. Then design your processes recognizing the guidance there and applying it to your company organization, and the way you produce your supplies and services:

Sculpt the DCAA Auditor

As you begin submitting government contracting proposals you will encounter your local DCAA audit office. They learn about your company by auditing your cost proposal rates, job cost processes and systems, billings and contract closeouts.

Keep in mind that you are shaping opinions in these encounters on the part of these government personnel that will influence your future and be passed on in reports to contracting officers. Your unique company business system structure must be carefully explained to them against what they know best; their DCAA Audit manual and FAR Cost Accounting Standards:

DCAA Audits and Job Cost Accounting Systems

Protect Rate Information

Your fully loaded rates will appear on your GSA schedule in the public domain, in subcontracts from prime contractors and in data acquired under the Freedom of Information Act (FOIA) by competitors.

It is generally recognized by all industries participating in federal government contracting that internal overhead and G&A rates and the data that support them are proprietary data. The reason for the proprietary nature of rate data between companies is that in government work firms are teaming with each other exclusively on one project and competing against each other on additional contracts or projects at the same time.

Companies do not disclose the details of their rates to other companies and they do not expect to see another company’s proprietary rate information. So companies view each others rate information on a fully loaded basis, meaning the total of the base cost, any proprietary indirect cost and an agreed upon profit percent.

If a prime contractor requests that subcontractor proprietary rate information be supplied with a proposal the detail should be double wrapped and the package stamped, ‘Government Eyes Only’. The prime will then hand the package off to DCAA without opening it and receive only the fully loaded result of the burdened rate pricing.

For further information on intellectual property protection and protective markings on government contract proposals please see the following article:

Protecting Intellectual Property

Recognize Overhead and G&A Rates Are Critical

Assuming your competition pays a generally similar labor rate to their employees as you do and that fringe costs about the same for everyone, then overhead and G&A are what wins and loses contracts.

Please read the following articles carefully with regard to long range planning and setting your overhead and G&A rates:

FAR and CAS Compliant Systems

Provisional Indirect Rates

Keep in mind that if you are performing work inside a government facility the government will expect to be charged a lower overhead rate than if you were paying the space and occupancy costs and the light bill. This is normally achieved by establishing a separate cost center for “On site” (Internal to government quarters) work with lower overhead expenses applied to project direct labor dollars in that cost center.

Price Set Aside Contracts the Same as Full and Open Competitions

If you are a small business lucky enough to receive a sole source set aside contract under an 8(a) or Hub Zone award, or if you are participating in limited competition under a small business set aside designation, use the same sharp pencil you use on the full and open market. Your goal is to compete for the long haul and inflating estimates on particular jobs due to limited competition has an inflationary effect on your business as a whole.

Your company past performance is being constantly evaluated by the government and prime contractor community. Consistency attains and retains new business. You will eventually grow to the point where set asides and sole sourcing will no longer be available; prepare early.

Know the True Value of Your Proposal

Develop risk thresholds (ceiling and floor) for your bids. The ceiling is the price for which you can bid a job, perform to meet specifications and win. A floor is the lowest possible price for which you can accept a contract and survive.

Do not bid or be negotiated out of these thresholds. “Buying In” does not work and sacrificing the future of your company by “Low Balling” cost proposals and hoping to get well on scope changes later is dangerous.

In government contracting the only worse scenario than losing a contract is winning it, performing poorly (cost, schedule or technical) and getting a black eye on your company past performance record that takes a long time to go away.

Understand a Proposal is the Opening Chapter a Baseline for Your Contract

Your proposal represents an initial offer to a government agency or a prime contractor. Please read the following articles on how this baseline is initially set and controlled through the negotiation process and ultimately through careful contract management.

Project Baseline Managment

Contract Negotiation

SHORT TERM PROPOSAL OBJECTIVES

Make Bid/No Bid Decisions Wisely

Conduct your bid/no bid decisions effectively. Please see the bid/no bid analysis process at the beginning of the following article:

Contract Negotiation

Be Conservative in Rough Order of Magnitude Pricing

A common government planning technique in the early phases of marketing is to ask questions and review and approve a concept paper by a company then informally request for “Planning Purposes”, a rough order of magnitude cost estimate (ROM).

If you provide a ROM be very careful. It tends to get cast in concrete in the customer’s mind, even though it is not the final, formal proposal. Make it conservative in cost content and schedule duration, then plan to beat it with your formal proposal.

Make sure you caveat the ROM if you are asked for it with the statement in your cover letter that it is for planning purposes only and is not a commitment on the part of your company. State that you will be happy to make a full formal proposal/commitment upon receipt of a formal RFP from an authorized contracting officer. Keep in mind that contracting officers are the only people who can commit the government:

Customer Relations

The government usually goes forward with the concept paper and the ROM for approval of the funding necessary for the job. The “Agency Higher Ups” either give the project personnel the approval to do a set aside or they require a competitive procurement.

You may want to read the following article on Statements of Work:

Contract Statement of Work and Technical Specifications

Know the Difference Between Firm, Fixed Price, Time and Materials and Cost Plus Contracting

During the solicitation and proposal process the contract type is specified.

Firm, Fixed Price (FFP) is the riskiest type of contracting and should be undertaken only when you have a definitive grasp of a precise statement of work with known variables and end products. You should have achieved similar work scope in the past or be delivering follow-on products and services that are mature in nature to undertake a firm, fixed price contract.

FFP is particularly risky in software development contracts or high technology program pressing the state of the art. You will receive no more in the form of funding than your bid price on a firm, fixed price contract.

Time and Materials (T&M) contracting places the risk on the government and is suited to long term service contracts of a development nature. T&M may be contracted with fixed labor rates, making the hours and pass through materials and other direct costs the only variables.

Cost Plus (CP) contracting is the least risky of all contract types and you are assured of receiving every dollar of cost incurred under this type of contract.

The lower the risk to the contractor the lower the expected negotiated profit rate you can expect, since the government considers risk the principal factor in profit negotiation.

For further explanation of contract types in more detail, please see the following article:

Government Contract Types

Develop a Price Profile of the Competition

Use a copy of your own forward pricing long range plan (LRP) to model your strongest competitors. Profile your best intelligence regarding their size, location, contract base and estimated overhead and G&A expenses. Then interpolate, from your knowledge of the market, their labor and fringe costs, as well as other direct costs as you prepare your proposal. Incorporate any unique approaches you estimate your competition may offer that impact cost.

Modeling Your Competition

Adjust your competitor cost model to perform “What If Analysis” during your risk assessment and proposal review process. For an example of an LRP cost model please see the Box Net Cube in the left margin of this site: Small Business Federal Government Contracting It is Appendix B to the book, “Small Business Federal Government Contracting” and is available as a free download in Adobe format from the BOX in the right margin of the site.

Understand “Best Value” Source Selection

When the government declares a “Best Value” proposal award process the agency will perform a weighted trade study of cost verses technical and management factors in reviewing proposals. They will announce the weight of each factor in relative terms within the solicitation so contractors can focus on the most important elements.

What best value means quite simply is that if you are the low price bidder you may not win. If a competitor proposes a superior technical and management approach, a higher weighted rating in those factors may offset an otherwise non-competitive bid price, resulting in an award. This is a fact you must keep in mind when preparing your own proposal. In short you must perform your own trade study on your own bid.

Past performance has also become a significant weight factor in proposal evaluations in recent years. To address this challenge, please see the following article:

Past Performance Challenge

A balanced proposal, with specific, heavy emphasis on government-designated weight factors and an economical, yet realistic cost/price usually wins. Offsetting weaknesses in any designated government weighted area by proposing excellence in other weighted areas is vital.

Beware of Unallowable Costs

Over the years the federal government has determined that certain costs cannot be allowed in prices, cost reimbursements or settlements under contracts with the US Government. The government is unwilling to pay for these costs as direct charges to federal government contracts or through indirect expense pools applied to federal government contracts.

A company is not prohibited from incurring unallowable costs, but they cannot be recovered either directly or indirectly under federal government contracts. To manage unallowable costs, separate accounts must be established for these type expenses and they must not be priced directly into federal government contracts during the proposal process.

Such costs cannot be made a part of the expense pools which are applied to federal government contracts through an overhead, material handling or G&A cost allocation at accounting period close or during forward pricing rate planning. For more detail on unallowable costs please see the following article:

Unallowable Costs

Integrate Pricing With Technical and Management Approaches

Establish price targets as soon as possible for major tasks, evolve a program plan, or if you are bidding a T&M, IDIQ type program develop a sample work order for a typical representative effort.

As the technical and management proposal move toward completion, use established checkpoints to evaluate the efficiency of your cost estimate, escalation factors, labor, material and other direct costs. Then apply your indirect rates and subject your total proposal to a credibility check with regard to a believable cost estimate considering your solution and its time frame.

Run your competition price model and bring in some outside experts to review the end product proposal “Cold” before it is submitted.

Manage Best and Final Offers (BAFO) Carefullly

Most government solicitations require a format and terms and conditions with submission that permit contract award without further discussion. However, many involve a down-select process, briefings by those selected in the “Competitive Range”, a call for best and final offer (BAFO) or negotiation to achieve a final price.

The best and final offer period is a sensitive time. Most contracting agencies that call for a BAFO will cite weaknesses or concerns in the selected contractor proposals. They wish to hear about solutions to those weaknesses during BAFO briefings and require a re-submitted offer to correct them. The price may be adjusted as well and that is a key consideration. Pay particular attention to the way the BAFO instructions and concerns, specific to your down-selection, are worded. Look for hints that indicate critical opinion about your pricing, and then adjust your costs.

Consider the cost, schedule, technical and past performance implications of the BAFO request letter from the government and revise your proposal by the required submission date. Close the loop on all matters with your suppliers, subcontractors and prime contractors, and then conduct your briefing to the customer when it is scheduled. Present a united front to win. Your price should be your best. You will not be offered a chance to bid another competitively on that program.

On some procurements you may be asked to undertake additional discussions to determine final contract pricing. Please see the negotiation template at the following article for guidance on that process:

Government Contract Negotiation

SUMMARY

This discussion has conveyed how pricing should be a natural outgrowth of the organization structure, market strategy, competitive analysis, business system design and long range planning.

We have further explained how your long and short term pricing factors should be integrated with the management and technical elements of any given proposal. Take the long and the short view of your business by integrating long-term company strategy with short term proposal objectives

Senate Attempt to Reduce Contract Protests Ignores Root Cause

Sour Grapes Image:  Myislandcity.net

“WASHINGTON TECHNOLOGY” By Stan Soloway

“There are things that can be done to reduce the negative effects and frequency of protests. And they start with enhanced transparency—before, during and after award.

The current Senate proposal fails to consider protests in the context of the broader procurement regime and its innumerable government-unique requirements.”

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“When it comes to federal procurement, the frequency and expectation of protests has had a palpable, costly, and sometimes deleterious effect on the process and those competing in it. Most companies now add an extra six to 12 months to their revenue projections in order to account for possible protests.

There is good reason to believe (including surveys) that “low price/technically acceptable” (LPTA) procurement strategies are, with some frequency, driven by a desire to avoid protests, since protesting such procurements is near impossible.

And, of course, there have been cases where incumbents, having lost a re-competition, submit a protest and, as a result, effectively get a contract extension while the protest is decided.

All of these represent unintended and undesirable impacts of the protest process. As a result, many have believed for some time that significant remedial action is needed. This includes the Senate Armed Services Committee, which, for the second year in a row, has included provisions in the defense authorization bill that would require losing protestors to reimburse the government for the costs of a protest when none of the plaintiff’s allegations are sustained.

The legislation would also require the withholding of all profits from incumbent contractors who lose a recompetition and file a protest. The funds would only then be released if some portion of the protest is sustained. If it is fully rejected, the money would be paid to the company that won the competition over which the protest was filed.

Some, including my friend and former federal procurement administrator Steve Kelman would go even further. He has at times argued we should consider doing away with protests altogether since no such equivalent exists in the commercial sector. Unfortunately, sympathetic as I am to the issues driving these views, we are putting the cart before the horse.

First and foremost, we have to remember that protests exist principally to ensure that the outcome of a procurement is in the best interests of the taxpayer. Hence, when mistakes are made, it is in the government’s, and taxpayer’s, interest to take corrective action.

Second, the federal acquisition regulation makes clear that all bidders on a federal procurement must be treated fairly. To the extent the government fails to follow its own rules or stated procurement strategy, remediation is required. There is no such requirement in the commercial world.

Third, even if a protest is dismissed in its entirety one cannot make the leap to assuming nefarious intent on the part of the protestor. That’s like saying everyone who loses a lawsuit was being frivolous in filing it. Obviously that’s not always the case.

For these reasons, and more, the Senate language is the wrong answer. But that does not mean a problem doesn’t exist and that some meaningful action is not possible. Quite the contrary.

Ironically, the proposed legislation includes a crucial part of the answer. In addition to the provisions cited above, it would also mandate quality, detailed debriefings for all significant procurements.

We learned in the 1990s that good debriefings result in far fewer protests. In fact, the data is clear that many companies use the protest process as a means of discovery; of trying to understand why they lost a given competition. In the years immediately following the added emphasis on debriefings, the number of protests dropped significantly.

As but one good example, the IRS had a policy of sharing in a debriefing all information that might otherwise be released during a formal protest (with appropriate redactions). And they executed numerous, significant procurements without a single protest. To its credit, the Senate committee would require that the IRS’s debriefing policy become the norm.

The bill would also require release of the government’s internal, written source selection criteria, which could and should be done anyway. Taken together, these two important steps toward greater transparency could have a very substantial effect. It should also be noted that the IRS was also particularly good in its pre-award communications to bidders, which undoubtedly also facilitated effective and credible competitions. Yet, such communications remain all too inconsistent.

Assigning motive is always a slippery slope. And much of what we think we know remains based on presumption rather than good data. Thus, it would also be helpful if there were better data on the frequency and nature of incumbent protests. How often are they actually sustained, in whole or in part? Is it possible to measure the frequency with which incumbents file protests focused on issues that, while valid, are so minor they would not result in a changed outcome?

Yes, it could reduce the number of protests. But it might well do so for the wrong reasons and based on the wrong assumptions.”

https://washingtontechnology.com/articles/2017/07/25/insights-soloway-bid-protests.aspx

About the Author:

Stan Soloway is a former deputy undersecretary of Defense and former president and chief executive officer of the Professional Services Council. He is now the CEO of Celero Strategies.

$9.29 Billion In F-35 Fighter Contract Awards to Lockheed in July 2017

F-35As at Luke Air Force Base

“BREAKING DEFENSE”

” [Friday, July 27 2017] – A $3.69 billion contract was awarded Lockheed Martin for 50 foreign F-35s and work on the Lot 11 LRIP.

Separately, Lockheed won an interim payment of $5.6 billion in early July to help pay for the 91 American F-35s jets in LRIP 11.”

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“After the markets closed on a sleepy and rainy summer Friday afternoon, White House Chief of Staff Reince Priebus was ousted and DHS Secretary John Kelly named to take his place, and, oh, by the way, a $3.69 billion contract was awarded Lockheed Martin for 50 foreign F-35s and work on the Lot 11 LRIP.

What’s in play here?

Most of the money, $2.2 billion, goes to buy one British F-35B, one Italian F-35A, eight Australian F-35As, eight Dutch F-35As, four Turkish F-35As, six Norwegian F-35As aircraft, and 22 F-35As for Foreign Military Sales customers.

The F-35 Joint Program Office said the Pentagon would continue to negotiate the 11th low rate initial production contract with Lockheed Martin and expected an agreement by the end of 2017. The full contract should be finished by the end of the year, the JPO said in a statement. At the same time, they said they are negotiating a separate deal with Pratt & Whitney for the F135 engines, which should be done about the same time.”

http://breakingdefense.com/2017/07/one-big-f-35-contract-2-8b-of-3-7b-for-foreign-planes/

NASA Seeks Certified 8(a) Minority-Owned Contractors for $100M Headquarters IT Contract

“WASHINGTON TECHNOLOGY”

“NASA has kicked off the bidding on a potential five-year, $100 million contract for IT services at the agency’s headquarters in Washington.

Only small businesses with the 8(a) designation are eligible to compete for the the Headquarters Information Technology Support Services III contract. The agency posted a request for proposals on July 18 and responses are due Aug. 18.

A selected contractor will provide integrated IT, systems engineering, operations and IT-related management support services mission directorates and mission support offices at NASA’s headquarters. The solicitation also calls for management of a cloud infrastructure program in a managed computing environment at headquarters.

HITSS III has one base year with four one-year options and is the successor contract to HITSS II won by Digital Management Inc. in 2012. Media Fusion Inc. also is an incumbent contractor through a task order awarded against a GSA Schedule contract, according to Deltek.

HITSS II expires on Sept. 30 and has a potential five-year value of $177 million. Deltek estimates NASA has spent approximately $145 million over that contract’s lifespan.”

https://washingtontechnology.com/articles/2017/07/25/nasa-8a-it-hq-rfp.aspx

 

U.S. Government Writing Over $33 Billion in Blank Checks to Pentagon and Lockheed

“BREAKING DEFENSE”

“In a sign of how strange the budget process has become, the House Appropriations Committee has approved a defense spending bill that basically gives Secretary Jim Mattis a $28.6 billion blank check.

Scattered across seven different accounts in the base and Overseas Contingency Operationsbudgets, it’s called the National Defense Restoration Fund, and it makes up 4.3 percent of the bill’s $658.1 billion Pentagon budget.

That percentage may seem small, but it’s more than any previous SecDef has had at his discretion. The only requirement? To “notify” Congress 15 days before dedicating the funds to a specific purpose. In theory, that gives legislators time to stop a transfer they dislike, but it would require new legislation, and the Hill just isn’t set up to pass bills on a two-week turnaround. That is, of course, why, historically, almost everything has to go through the annual budget process.”

http://breakingdefense.com/2017/07/house-appropriators-give-secdef-blank-check-for-28-6b/

“DOD BUZZ”

“The Defense Department has awarded Lockheed Martin Corp. a $4.49 billion undefinitized contract action to continue production on the latest batch of F-35 Joint Strike Fighters even as it continues to negotiate a firm price for the fifth-generation jets.

The UCA — a type of contract in which bottom-line terms or prices have not been agreed upon before performance is begun — stipulates a max price of $5.6 billion for Lockheed to continue working on the Low Rate Initial Production, or LRIP, lot 11 jets, according to the F-35 Joint Program Office.”

https://www.dodbuzz.com/2017/07/07/pentagon-gives-lockheed-billions-to-keep-working-on-f-35s/

 

 

 

 

The Federal Government Annual Spending Spree

Image: “Static Politico.com”

“FEDERAL TIMES” By Michael P. Fischetti, Executive Director of the National Contract Management Association.  

“Rapid actions at the end of the fiscal year, with contract managers working feverishly as the clock winds down, is never a recipe for prudent acquisition, not to mention management.

In recent years, the rush starts almost immediately once the budget is finally passed, with less than half of the year remaining before funds expire.

Near the end of each and every fiscal year, government agencies, for one reason or another, that were unable to fully obligate their budgeted funding completely and according to plan, find themselves going on “spending sprees” to ensure they completely exhaust those ever-more-scarce dollars available.

Every contract manager is well aware of the implications of the end of a fiscal year. Taking time off for annual leave is often prohibited during August and September while this heavy deluge of procurement requests from the many project managers rolls into the contracting offices — up to 80 percent of annual contracting obligations are often made in the last two months of each fiscal year. While “poor planning” on the part of requirements officials is no excuse for a crisis on the part of the contracting officer, the fact remains that contracting professionals are the final step in a process that starts with agency requirements and project managers determining their mission resource needs, including those to be fulfilled by contract.

This activity has become more pronounced in recent years, given the result of congressional appropriations dysfunction, whereby appropriations are generally not authorized in a timely manner, such as reasonably close to the start of a fiscal year in which they must be contractually obligated. Thus, agencies have ever fewer months in a fiscal year in which to execute their budgets. Instead of managing a 12-month budget beginning at month one, they may not know what their budget is until month three, four, six, etc. Agency priorities are compressed into fewer and fewer months and weeks and “the end of the year fiscal rush” becomes even more “rushed.”

Government agencies have long learned to adapt priorities (or “wish lists”) to move forward when funding may soon expire. These have historically included personal computers, furniture, carpeting, and other forms of housekeeping items. However, as the unknown dates of full annual funding become pushed further and further back into the fiscal year, the end-of-year rush starts to incorporate many basic agency mission activities, dependent upon contractor support. As many agencies are heavily reliant on obtaining products and services by contract, the reality of how this can occur without the required funding up front, with adequate time to buy smartly, and using agile practices, becomes increasingly at issue. Funding not filtering down to program managers until as late as the third or fourth quarter is no longer unusual.

Stop-gap funding mitigates this issue somewhat, but obviously the best response is program execution that occurs on time — after proper planning and before the fiscal year begins. The costs of today’s late budget to the taxpayer (who pays for it), or the citizens and constituencies thereby underserved, leaving aside the frustration and dismay of acquisition officials, is readily measured.

While contract managers — as well as finance, program, and indeed contractors — have all learned to muddle through (such as contractors willing to work “at their own risk” without a contract or guarantee of payment), they shouldn’t have to. This situation often includes the uncertainty of funding to maintain even their own employment. However, through their ingenuity, perseverance, and especially creativity, along with other government career professionals, they keep the trains running, despite the obstacles created by our current political polarization.”
http://www.federaltimes.com/articles/the-annual-spending-spree-commentary

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For More on this subject please see:  https://rosecoveredglasses.wordpress.com/2017/04/26/the-one-year-budget-cycle-must-go/

 

Critical Questions To Ask in Acquiring Help with Government Contracting

 

Image: Brown Smith Wallace LLC

 

“WASHINGTON TECHNOLOGY” By Mark Amtower

“In the government contracting world there are service providers for virtually anything.

Not all outside service providers are created equal, and size is not an indicator of talent.  Caveat emptor!

There are service providers that are excellent in their respective niches, then there are generic service providers that claim expertise in B2G predicated on knowing a few acronyms, then there are scam artists preying on those thinking Gov Con market entry is simple.

……………there are service providers for outsourced business development, marketing, sales, capture and proposal development, bid services, headhunters, obtaining a GSA Schedule, market intel, back office support, lobbying for your contract, events and event producers, human resources, legal, accounting, insurance, finance and so much more. There are service providers that are excellent in their respective niches, then there are generic service providers that claim expertise in B2G predicated on knowing a few acronyms, then there are scam artists preying on those thinking GovCon market entry is simple.

Here are a few questions you might want to ask any outside service provider:

• Tell me about yourself and your business.
• What is your approach in working with your clients?
• What is your preferred way to communicate with clients?
• What additional support or services do you provide?
• What are your company’s strengths?
• Who is my main point of contact and who else will I be working with?
• Tell me about a particular client project (without divulging confidentiality) and the outcomes achieved.

When it comes to selecting outside services, how do you make the choice? What are your criteria?

First and foremost, if you have a decent personal GovCon network, ask around. If a company is good, you should be able to find out. If a company is not so good, you should be able to find out faster. But you will never know until you ask around.

After asking around, here are a few thoughts to help your selection process.

Look at the people and company on LinkedIn. Are the key people at the company experienced in this market? I have looked at the profiles of some alleged GSA Schedule advisors only to find they were either selling real estate or burgers six months back. Have they been out of the market for several years and just now coming back in? Endorsements and recommendations on their profiles will help, as will the number of connections you share. I heard one PR firm claim to be the leading PR firm in B2G, only to find they were not connected to any reporters or editors at any of the trade publications.

Referrals from past customers is another way to vet outside services. Admittedly you will only get people to contact who are likely to be positive, but ask hard questions when you speak to them. When did the work occur? What were tangible results? How long did it take? Was it within budget? Ask for references. References have their own reputations to worry about as well, so most won’t be misleading.

Have some basic (or detailed) criteria for any outside service.

Comparison shopping is always good. Have a team on your side review at least three outside services, then brainstorm your results. A white board brainstorm session with your team discussing the pros and cons for each provider is a good way to make the final cut. But don’t be afraid to toss all three of the companies reviewed and look for new ones if there is not a solid fit.”

“About the Author

Mark Amtower advises government contractors on all facets of business-to-government (B2G) marketing and leveraging LinkedIn. Find Mark on LinkedIn at http://www.linkedin.com/in/markamtower.”

https://washingtontechnology.com/articles/2017/06/08/insights-amtower-picking-outside-help.aspx

 

 

Marketing to Achieve a Small Business Set-aside Government Contract

Image: Storedge.com

INTRODUCTION

Marketing is one of the greatest challenges for the small business federal government contractor. We have previously discussed the federal government marketing process at the following articles:

Insights to Succeed

Small Business Government Contract Marketing

Customer Relations

Techniques for Product Development

This posting will address sculpting a government contracting business opportunity to the point where it becomes a sole source or small business group-designated set aside procurement.

GENERAL CONSIDERATIONS

Small business group-designated procurements are far more frequent than sole source contract awards.  Agencies must prepare special justifications for sole sourcing and those most frequently approved are for Hub Zone and Small, Disadvantaged [8(a)] firms (see table below).

Small business group designations are beneficial to firms who hold them by enhancing the probability of an award through agency restrictions on prime contractor bidding to only those who hold the group designation. Others may bid as subcontractors to the prime but the prime small business contractor must be capable of performing at least 51% of the total effort in terms of work scope, hours and dollars.

In either sole source or group-designated marketing, an agency making the buy must be convinced that sufficient capability exists in a single company or in the small business designated group community to set a contract aside. The agency must be convinced early – before a formal procurement announcement is published on FEDBIZOPPS.

Marketing to achieve a limited competition under a small business group designation or eliminate competition under a sole source contract assumes the marketing enterprise has one or more of the following federal government set-aside designations:

DESIGNATION                                                         TARGET

Small Business                                           (Group Set Aside Potential)

Small Woman-Owned Business                 (Group Set Aside Potential)

Small Veteran-Owned Business                 (Group Set Aside Potential)

Small Disabled Veteran-Owned Business  (Group Designation Set Aside Potential)

Small Hub Zone Business                          (Sole Source and Group Set Aside Potential)

Small Disadvantaged Business 8(a)          (Sole Source and Group Set Aside Potential)

Federal government procurements are further classified under the SBA Small Business Size Standards in terms of North American Industrial Classification System (NAICS) Code, number of personnel and/or annual sales. To determine whether a firm qualifies for a given bid, note the NAICS for a given solicitation and download the SBA Small Business Size Standards the Box Net “References” Cube in the right margin of this site:

Small Business Federal Government Contracting

Part of the sole source or designated group set aside marketing task is to suggest to the agency the NAICS Code (hence the size standard) for a prospective procurement.

Registering to bid government contacts and establish sole source and group designations may be achieved using guidance in the below articles:
Small Business Set-aside Designations

Registering Your Business For Government Contracting

Hub Zone and Small Disadvantaged Business 8(a) designations are lengthy certification processes. The remaining designations in the above table are self-certifying at the above government contract registration web site, and are verified by site surveys and bid vetting for each solicitation prior to contract award.

EARLY REQUIREMENT TARGETING IS THE KEY TO SUCCESS IN SET ASIDE MARKETING
Effective set aside marketing reaches the agency decision makers with technical, budget and schedule authority before a synopsis of the requirement is posted on FEDBIZOPPS.

The objective of this form of targeted marketing is to get concurrence from the government to set the program aside sole source if the company has an 8(a), or Hub Zone Certification or reserve it by one of the above group designation classes to eliminate the prospect of full and open competition involving large business.

• Become known to targeted agency personnel by visiting their program offices and meeting the decision makers.  Bring a capability statement:

Your Capability Statement for Government Contracting

• Present your qualifications openly, objectively and specific to their needs.  You must determine what those needs are through market research, trade magazines, research on what they are buying on FEDBIZOPPS, as well as postings on their web site that are future-program oriented.

• Subscribe to periodicals like “Washington Technology” and other trade magazines.  Observe agency trends and analysis that impact your market segment.  There have been set aside programs marketed by small companies through acquainting agency management and technical personnel with capabilities they were not aware existed in the small business community or fulfillment of needs they in fact did not know they had.

• Pay particular attention to FEDBIZOPPS “Sources Sought” or “Requests for draft RFP Comment”  on programs that have yet to be formally solicited. Obtain an appointment to present your capabilities to the decision makers (not the gate keepers).  Be courteous to contracting officers but understand they are not the individuals who make source selections. Understand that once the requirement is formally published on FEDBIZOPPS the gate closes on informal visits to the customer and the competition begins in the form of proposals by competitors.  It is too late at that point to set the program aside for a sole source or a small business designation if it has not occurred by the publication stage.

• Cultivate teaming relationships with other firms in your industry and look for early opportunities in agencies, not only to prime a program but to bring a team of qualified contractors in lesser roles to fulfill them with you or join a team being led by a more experienced firm:

Small Business Government Contract Teaming

• Understand the small business start up past performance challenge and work to meet it:

Understanding the Past Performance Challenge

• Attend small business outreach events by agencies and prime contractors.  Stay attuned to who is attending and research their needs and requirements.

• Make a point to be present at bidders’ conferences for existing solicitations that you may not choose to bid but which may lend insight into the agency needs and prime contractor relationships in the future.

SUMMARY

As a small business becomes known in the federal government contracting community, successful marketing of sole source or group-designated business becomes easier, but it is always a challenge due to the need for taking early action in windows of opportunity.  Find those windows and communicate capabilities to the decision makers and industry team members who can help you.

If you are eligible for any of the designations discussed in this article, make small business set asides or sole source procurements key elements in your marketing plan.

Letting Government Contractors Pick Their Own Auditors is a Bad Idea

Image: istock photo by Getty

“THE PROJECT ON GOVERNMENT OVERSIGHT”

“The law in question is the 2017 National Defense Authorization Act (NDAA) passed late last year.

When it comes to contract auditing, giving audit responsibilities to a company working directly for a contractor hampers the government’s ability to negotiate good deals for taxpayers.

Section 820 of the law states that “contractors with the Department of Defense may present, and the Defense Contract Audit Agency shall accept without performing additional audits, a summary of audit findings prepared by a commercial auditor” of contractors’ indirect costs (with some exceptions). This section is scheduled to go into effect on October 1, 2018.

Last year, in annual legislation setting defense policy, Congress gave military contractors the authority to hire their own auditors to review the bills those contractors send to the government. For decades, the Pentagon’s own Defense Contract Audit Agency (DCAA) has helped government contracting officials negotiate better deals by examining a contractor’s charges. But last year’s legislation, which goes into effect next year, diminishes the DCAA’s oversight authority to the detriment of taxpayers.

The topic was broached in an important, but under-the-radar Congressional oversight hearing in April.

Most of the hearing centered on the cost of government versus private auditors, with two conflicting tales being told. But a bigger issue went largely unaddressed: whether allowing contractors to pick their own auditors creates inherent conflicts of interest since the auditors would be in the position of serving contractors—their client—rather than taxpayers. There is a reasonable fear that these private sector auditors, in an effort to keep their client happy and win repeat business, would be reluctant to disclose to the government that the contractor is overcharging taxpayers.

New legislation pending before Congress would rescind Section 820, but it would also allow “contractors to engage commercial auditors to perform incurred cost audits,” according to a Department of Defense (DoD) analysis. The analysis also states that the new provision creates “several unintended consequences that will negatively impact the Department and industry.” The DoD opposes both Section 820 and the new Congressional language. The DoD’s proposed alternative keeps the power to conduct these audits in DCAA’s hands with an option allowing the government (rather than the contractors) to hire private sector auditors on a case-by-case basis. After analyzing the issue, POGO supports the Department’s proposed alternative.

DCAA’s Role

DCAA is responsible for auditing the financial side of certain defense contracts to “ensure that warfighters get what they need at fair and reasonable prices,” according to  its website. DCAA looks for whether contractor costs are “allowable, allocable, and reasonable,” and it performs other audits to ensure contractors have adequate business and accounting systems and adhere to federal cost and accounting principles. DCAA’s report for fiscal year 2016 notes that it audited $287 billion in contract costs that year. These audits are not usually intended to uncover fraud, although DCAA sometimes finds indicators of criminal activity and participates in law enforcement investigations.

What Are “Indirect Costs” and Why Do They Matter?

Contractors charge the government for two types of costs: direct costs that specifically relate to the contract, such as labor and materials, and indirect costs that exist apart from specific work on the contract, such as the rent a contractor pays for its office or fringe benefits for employees.

But there’s nothing fringe about these costs. Within incurred cost audits, indirect costs make up the majority of all questioned costs, according to DCAA Director Anita Bales. Because they are less clear-cut than direct audits, audits of indirect costs can be contentious—especially when auditors want more access to contractor information than the contractor is willing to provide—and quite technical. For instance, contractors are allowed to charge the government for indirect costs associated with litigation under some circumstances, but not in other situations. Contractors can easily pad their profits at taxpayers’ expense if these costs are not carefully examined.

An example of indirect cost overbilling made the news in February 2016 when the Justice Department announced that Centerra Services International (formerly known as Wackenhut Services LLC) agreed to pay $7.4 million to resolve a whistleblower lawsuit alleging the company had defrauded taxpayers. According to the Justice Department, Centerra double billed its labor costs while providing firefighting services on a military base in Iraq. The government alleged Centerra “inflated its labor costs by billing the salaries of certain managers as direct costs under the subcontract, when those salaries had already been charged as indirect costs.”

The Centerra case isn’t a one-off. In 2015, a DCAA audit questioned $14.6 million in costs that a contractor charged the government, according to a DoD Inspector General report to Congress. The vast majority—$14 million—involved wrongly billed indirect costs.

Lessons from the Recent Past

We don’t have to look very far back in history to see that allowing profit-motivated companies to hire their own profit-motivated auditors can lead to problems.

The Enron scandal showed that accountants and auditors aren’t immune from conflicts of interest. “Obviously the history of Enron and the financial crisis suggest we have to be very careful in this situation,” Representative Seth Moulton (D-MA), Ranking Member of the House Armed Services Oversight and Investigations Subcommittee said during his opening statement at the April hearing. Arthur Andersen, Enron’s auditor, had conflicts of interest. It was simultaneously employed as internal and external auditor, meaning that the supposedly independent external auditor could cover up the inaccuracies of the internal audit team.

More recently, during the fallout of the Great Recession, the government required banks to conduct mortgage foreclosure reviews. Banks were allowed to hire for those reviews their own “independent consultants” who proved to be not so independent. The New York Department of Financial Services (NYDFS) punished several of these consultants, including Promontory Financial Group, Deloitte, and PricewaterhouseCoopers, for “misconduct, violations of law, and lack of autonomy.” Settlements generally included multi-million dollar fines and temporary bans from consulting.

“A consultant’s allegiance too often goes to the client that pays the bills,” former NYDFS General Counsel Daniel Alter wrote in a 2015 piece for American Banker. Laws like Sarbanes-Oxley, which create criminal liability for misrepresenting financial statements, have helped to prevent future Enrons by balancing that pressure. However, criminal liability doesn’t apply to other types of financial reporting, such as the consulting work done in the aftermath of the housing crisis and the proposed contract audits.

Counting the Costs  

At the April Congressional hearing, DCAA Director Anita Bales testified that third-party auditors would cost an estimated 30 percent more than DCAA auditors. David Berteau, President and CEO of the Professional Services Council, a contractor lobbying group, countered in his testimony that when civilian agencies have used private auditors, they have in some cases paid significantly less than they used to pay DCAA.

Bales’ claim that DCAA auditors were 30 percent cheaper was based on a comparison of hourly billing rates, according to emails provided to POGO through the Freedom Of Information Act (FOIA). Berteau and other employees of the Professional Services Council did not respond to emails requesting evidence supporting their claims.

Other members of the federal auditing community have told POGO that the comparison of auditing costs is not clear cut. DCAA has more specialized experience and might charge lower costs per auditor hour, but they may also take longer to conduct audits (which may be a good thing in the long run, as more thorough audits may save even more money). Pricing for private auditors can also vary widely from company to company and even year to year, making a comprehensive analysis difficult.

And although cost was the most-discussed factor at the hearing, it isn’t the only factor that needs to be examined. A federal source, not authorized to speak on the record, who is familiar with both DCAA and private contract audits for civilian agencies said the work of private auditors still has to be closely checked, even when they are hired directly by the government. Both last year’s NDAA and a recent proposal for this year’s NDAA prohibit DCAA from examining the work of private auditors before accepting the results.

There is also concern over how the records generated by private auditors would be handled: Will they be subject to FOIA? How would the discovery of potential fraud be handled? Would private sector audits be incorporated into the DCAA’s “Management Information System” that tracks audit data so that auditors can spot trends and look at the bigger picture?

What About Incurred Costs?

New Congressional language would rescind Section 820 but would allow contractors to hire auditors to audit incurred costs. The argument for this is DCAA’s lower rate of return when it audits incurred costs. However, DCAA’s other auditing work with the same contractor and on the same contracts benefits from its incurred cost audits, and vice-versa. For instance, DCAA conducts audits of contractors’ billing, accounts, and internal control systems. The insights DCAA gains from those audits assists DCAA when it audits a contractor’s incurred costs. According to a DoD analysis of the impacts of the recently proposed legislation, keeping incurred cost audits in the hands of DCAA:

…allows for the continuation of many initiatives that DCAA has put in place to more efficiently and effectively perform audits (e.g., the use of the low risk sampling process, the coordination of subcontract assist audits, and the process for obtaining and determining adequacy of incurred cost proposals). Without one group coordinating the need for commercial auditors, the Department will lose many of these efficiencies and will lose adequate oversight over the complete incurred cost audit process. [emphasis added]

One of the primary motivations for the new Congressional language on incurred cost audits is DCAA’s incurred cost audit backlog, which was relatively large until a few years ago and has recently become more manageable according to DCAA’s most recent annual report. The agency said it was on track to eliminate the backlog by next year, although with the hiring freeze it may have to re-evaluate that goal. Regardless of whether the backlog is eliminated one or three or even five years from now, Congress is proposing a rather drastic solution to a problem that is no longer drastic itself.

(Source: “Report to Congress on FY 2016 Activities Defense Contract Audit Agency, page 13.)

This is not a backyard experiment with few consequences for failure. Billions of taxpayer dollars are on the line every year. While DCAA has room for improvement, privatizing the agency’s work would most likely make it harder to crack down on contractor overbilling.

Given the large risks and the unclear benefits or privatizing contract audits, Section 820 should be repealed. If DCAA needs a temporary boost, it should be given authority to hire more staff on a temporary basis, or perhaps even hire private sector auditors on a short-term basis. The Defense Department proposes the latter, calling it “much more effective” while ensuring “that a function that is inherently governmental in nature continues to be performed by Government auditors when feasible, but allows for the use of commercial auditors when necessary to address incurred cost backlog.”

POGO does not often agree with the Defense Department, but its proposal makes sense. Let’s learn from our past mistakes rather than repeat them.”

http://www.pogo.org/blog/2017/06/letting-contractors-pick-own-auditors-bad-idea.html