Contractors need to closely watch procurement changes

Obama administration and Congress advocate for new era of contracting

Contractors had better dust off their federal rules books.

With the Obama administration concentrating on increasing transparency and reducing contracting costs through procurement reforms and tougher checks on vendors, contractors have plenty to keep track of.

The tone from the administration is often negative, and in some of his statements, President Barack Obama has described contractors as abusers, intent on lining their pockets with federal money.

But some experts say companies aren’t as alert as they should be about changing rules environment.

“Contractors have to be much more vigilant,” said Robert Burton, former deputy administrator of the Office of Federal Procurement Policy and now partner at Venable law firm. “But lots of people are slow to get the message.”

In late May, federal officials took steps to more closely regulate contractors. On May 22, Obama signed the Weapons System Acquisition Reform Act (S. 454), which includes tighter regulations on contractor conflicts of interest.

Under existing rules, the Defense Department and its subsidiary agencies must determine on a case-by-case basis how they can reduce conflicts of interest. However, Congress said DOD must strengthen those requirements. For instance, the department needs to make sure contractors give objective and unbiased plans to guard against any possible conflict, according to the congressional conference report on the legislation.

At the bill signing ceremony, the president reiterated his view on contractors and why DOD needs to augment its conflict-of-interest restrictions.

“When it comes to purchasing weapons systems and developing defense projects, the choice we face is between investments that are designed to keep the American people safe and those that are simply designed to make a defense company or a contractor rich,” Obama said.


Target: Conflicts of interest

The conflict-of-interest provision in the new law highlights Congress’ push to close the lid on any contractors’ fingers before they reach into the federal cookie jar. But the Federal Acquisition Regulation has few details about conflicts of interest, and last year, Congress ordered OFPP officials to review the FAR to see if it needs more guidance. The subtle undertone in the order, which is in the fiscal 2009 National Defense Authorization Act, reveals that lawmakers believe in tougher regulations on conflicts of interest, but they aren’t sure how to apply them.

The complications of mandatory reporting rules stretch beyond actions on a single contract. Even if there is no clause mentioning ethics guidelines or reporting of overpayment or potential fraud, allegations of wrongdoing in this area can result in damage to a company's reputation that might be hard to shake. For one, there’s a government database that lists companies that have been accused of failing to act or adhere to contracting rules.

It’s a new era of mandates, Burton said. “That’s what’s changing acquisition now.”

However, some contractors are lax because they don’t think this affects them, especially if their contract has no specific clause, Burton said.

These days, with transparency and scrutiny in tandem, contractors need to be aware even of standard rules.

Exec pay draws attention

Beyond requiring a company to have an ethics program, officials are skeptical of excessive executive pay. In March, Obama said the government shouldn’t line the pockets of contractors. But agencies, particularly DOD, must direct tax dollars to fulfill the nation’s priorities.

On May 21, a day before the president signed the acquisition reform act, OFPP updated the maximum amount the government will reimburse companies’ overhead costs included in fiscal 2009 contracts to compensate an executive. In fiscal 2009, a company can charge the government up to $684,181 per contract in those costs to pay their top employees. That’s $72,000 more than in fiscal 2008.

Although it’s a standard annual update, one government contracting expert said companies need to be more aware of the dollar figure and similar requirements.

“I will say that this figure is taking on added importance with the Obama administration taking a hard look at what government contractor executives make,” said Larry Allen, president of the Coalition for Government Procurement.

“Coupled with the transparency mandate and the [stimulus]-related pay disclosures, I think a lot more companies need to be aware of what the government ‘limit’ is,” he said.

The American Recovery and Reinvestment Act, which Obama signed in February, also requires greater disclosure of how a contractor spends the stimulus money. It also forces contractors to offer access to the government overseers, such as inspectors general, while protecting whistle-blowers.

If a contractor doesn’t follow the rules, it will be exposed under the new regulations, said Ray Bjorklund, senior vice president and chief knowledge officer at FedSources, a market research firm.

“The contractor is taking the brunt” of the new rules, he said. “That’s just the way it is.”

Read the story: WashingtonTechnology.com - Contractors need to closely watch procurement changes

Contractors wary of procurement proposals

President Barack Obama’s call for acquisition reform might lack the details needed to succeed

Cliff Thomas, president of ABC Management Technology Solutions Inc., of Chantilly, Va., is skeptical about contracting reform after listening closely to President Barack Obama speak in March about his federal procurement proposals.

The president’s speech offered few details about his plan to solve what he perceives as flaws in the government contracting process, and it left Thomas frustrated.

“He did no more than give a political speech,” Thomas said. “He’s the president. He doesn’t need to give political speeches.”

Thomas and others in industry wanted details about the reforms. For example, Obama said he would “open up the contracting process to small businesses.” But that was the extent of his remarks on small businesses. Thomas pointed out that helping so-called Main Street was a major theme in Obama’s presidential campaign.

From what they heard, many information technology companies contracting with the government didn’t consider Obama’s proposed procurement reforms as anything approaching a sea change. The proposals were unclear, and some were already in place.

For instance, contracting regulations already favor fixed-price contracts as the safe and preferred method instead of cost-reimbursement and especially time-and-materials contracts. Many experts doubted that new guidance would improve on that. Instead, contractors intend to continue to plug away at their business. They say they know their roles as aiding their federal customers in reaching their objectives.

Thomas and other business owners said they also recognize the reality of reform.

“Can he change the way work has been done for the last 30 years?” Thomas asked. “No one person can do it.”

Backing the president

Nevertheless, “it makes the most sense to get behind the reforms,” said Tim Conway, senior vice president and managing director at Affiliated Computer Services' Government Solutions Group. The industry must embrace change, he said.

“The real difference, I think, is that the industry is going to have to invest in solutions that are quickly implemented, configurable and built to evolve," he said. "This will enable true fixed-price contracting to occur.”

Companies such as ACS won’t see significant change, though, Conway said. Most of its federal contracts are fixed-price performance-based agreements.

Similarly, AFL Telecommunications LLC, of Monroe, N.C., won’t see much change as a fiber-optics dealer on NASA’s Solutions for Enterprise-wide Procurements governmentwide acquisition contract, said Randy Murphy, the company’s director of government business development. Its contracts are largely fixed-price already.

However, systems integrators working on a completely new program might see agencies at least considering fixed-price contracts as a possibility. But many experts say agencies likely won’t think long and hard about the possibility.

“For a one-of-a-kind project that has never existed, there are too many parts moving to do a fixed-price contract,” said Dennis Christmas, president of Enterprise Solutions Realized Inc., of Marriottsville, Md., an IT services and software company.

In his March 4 memo about reforms, Obama wants to build stronger barricades against contractors that commit fraud or simply those he believes are working too closely to core contracting decisions. He wants forceful management of contracts so agencies achieve their goals and avoid useless spending. He also expects safeguards to protect the government from noncompetitive contracts. The government needs to get away from contractors as much as it can by keeping work in-house, he said.

The contracting community, former federal officials and people inside government say it takes more than speeches from the White House for reform. It takes cultural shift, changing the way the contracting officers, program managers, chief information officers and inspectors general do their work.

For instance, the Internal Revenue Service IG reported in March that agency program managers were writing their contract proposals angled toward cost-reimbursement contracts. And the contracting officers awarded them as such. The result was cost-reimbursement contracts for general operations and maintenance for the service.

“Obama is now choosing to be more aggressive in getting executive agencies to make the right judgments and choosing the right type of contract,” said Ray Bjorklund, senior vice president and chief knowledge officer at FedSources Inc.

Obama might have hurt his chances for reforms, some business owners and former federal officials said.

Obama said the government must uphold a fundamental public trust. “The American people’s money must be spent to advance their priorities — not to line the pockets of contractors or to maintain projects that don’t work,” he said.

Malik Balil, chief architect and procurement strategist at Computer Systems Center Inc., of Springfield, Va., said the company has built a good reputation as an honest broker to the point of telling a customer agency when it doesn’t need its services.

“We live by that creed,” Balil said.

Thomas, a former Marine who was injured while in the military, echoed that attitude. “We’re not trying to rob the government,” he said. “We’re not out here trying to get rich on the back of the taxpayer.” Instead, his intent as a service-disabled veteran-owned small business with 40 employees is to make a living and give people jobs. It’s the way to keep the economy from falling further, he said.

“The way the government does business frustrates me as a taxpayer — forget being a contractor,” he said.

Targeting fraud

Companies intent on exploiting the government exist, though. In March, the FBI arrested Sushil Bansal, president and chief executive officer of Advanced Integrated Technologies Corp., on charges of bribery and money laundering. The FBI also arrested a former employee of Obama’s new chief information officer, Vivek Kundra, on allegations involving contract kickbacks. The employee worked with Kundra in the District of Columbia’s Office of the Chief Technology Officer.

Furthermore, companies abuse small-business certifications. In 2008, the Government Accountability Office reported that it easily found numerous instances of companies cheating the system to get Historically Underutilized Business Zone contract set-asides. GAO also reported in 2007 that contractors were receiving award fees from performance-based contracts even though the companies didn’t meet the contracts’ objectives.

But Obama painted all contractors with an incredibly broad brush, said Angela Styles, former administrator of the Office of Federal Procurement Policy. “Unfortunately, someone failed to realize that for this initiative to be successful, the administration will need the good contractors to lead the charge. By demonizing contractors that follow the law and successfully perform vital services for the United States, the administration lost a critical opportunity.”

Read the story: Washingtontechnology.com News - Contractors wary of procurement proposals

Woman-owned IT firms seek inclusion

As the Small Business Administration considers which industries can receive set-asides, women business owners hope they won't be overlooked

Katie Sleep is training for the Ironman Triathlon in part to handle the stress of her job as chief executive officer of List Innovative Solutions Inc., a small technology company in Herndon, Va.

“The training has saved my life,” Sleep said. “If you carry that stress every day, you’ve got to get rid of it somehow.”

As part of a seven-day workout routine, Sleep runs on the Washington and Old Dominion Trail at 6:30 a.m. on Mondays and Wednesdays. She swims Tuesdays and Thursdays at 5:45 a.m., and she exercises again in the evenings and on weekends.

“Working out has given me the energy to save this company,” Sleep said.

Women who own small information technology firms, like Sleep, are under a lot of pressure to protect their companies during the current recession. Meanwhile, they are losing out on government business that could help them because there is no program that sets aside contracts for woman-owned small companies.

According to the Small Business Administration, women are underrepresented in some fields, but there are too many woman-owned businesses in the technology industry to warrant set-aside contracts.

In general, the IT field doesn’t have more woman-owned businesses competing for work than other industries, at least not on a per-dollar-spent basis, said Kevin Plexico, senior vice president of operations at Input, a market research firm. The IT industry tends to fall in the middle relative to other major industries. Some segments, such as professional services, tend to have a larger number of woman-owned businesses, but the average contract size tends to be smaller and therefore they attract small firms, he added.

SBA’s Dynamic Small Business Search directory lists 69,000 woman-owned firms. Of those, about 2,800 received prime contracts in fiscal 2008 for IT-related products and services. About 7,700 woman-owned small businesses span several types of technology-related sectors — from data processing to computer system design and computer sales — and they earned nearly $45.8 million in federal contracting in 2008, according to FedMine, a data research firm.

Persistence will pay

But women who own technology companies are not counting themselves out of getting a set-aside program.

“One thing about women is they don’t give up,” Sleep said.

In October 2008, SBA proposed expanding the set-aside program from four obscure industries, which include kitchen-cabinet making, to 31. However, IT was not included on the proposed new list. A women's advocacy organization said SBA is missing the bigger picture.

“The 30-plus [list] currently being considered still does not accurately portray what we believe to be the real situation — namely, that women in most industry sectors are underrepresented” among federal contractors, the Women’s Business Enterprise National Council wrote in November 2008 in response to SBA’s proposed rule.

Women who own small businesses battle for contracts against large incumbent companies that have strong ties to the government. They don’t have as many resources to compete for the work, especially when agencies bundle smaller projects into one large contract. Women also often stand on the outside of an exclusive club of insider companies, several women business owners said.

“Quite frankly, there are no benefits to being a woman-owned small business,” said Alison Brown, president and CEO of Navsys Corp., a Global Positioning System software engineering company in Colorado Springs, Colo. For example, women face serious barriers when they try to break into the defense contracting market, she said. Set-asides would help small businesses, but “I don’t mean to say it’s easy if you have a level playing field,” she added.

Obama raises hope

Many women are hopeful that the new president will bring change. During his campaign, then-Sen. Barack Obama said he wanted to boost contracting opportunities for women and would push to establish a contracting program for woman-owned businesses. In the past few years, Congress has sought to help women by creating such a program, but officials have yet to fully launch it.

Despite years of ignoring the issue and concerns about constitutionality, officials have tried in the past two years to create a framework of regulations for the program, but a recent regulatory proposal crushed any progress by upsetting some members of Congress and small-business advocates. Some lawmakers objected to SBA’s proposed rule that would have opened the set-aside program to only a select few industries. Senators were ready to block the regulation with a single provision in an appropriations bill.

A rule finalized Oct. 1, 2008, authorized contracting officers to restrict competition to eligible woman-owned small businesses for contracts worth less than $3 million in industries in which women were underrepresented. However, any agency seeking the set-aside must show SBA that the arrangement would meet constitutional requirements.

SBA wants better data

Under that rule, SBA must determine in which industries women are underrepresented. Officials are seeking input on what source of information would offer the clearest picture of women in business.

SBA officials are accepting comments until March 13 on whether the agency should use the Central Contractor Registration or the Census Bureau’s Survey of Business Owners. The survey includes information about demographics, type of business and gross receipts. Several experts say CCR and the survey are the only reliable sources with disparity ratio information.

But many business owners don’t approve of using CCR to determine the number of woman-owned small businesses that are ready to handle government contracts. They note that many companies don’t enter their names in the registry until they require payment for contracted work. And many of them are subcontractors that are not paid directly by the government.

“From personal knowledge, the CCR as indicative of truly woman-owned companies is some kind of stupid joke,” wrote an anonymous woman business owner in a comment to SBA about its proposal. The writer said CCR’s data is suspect because companies enter the information themselves. “Bad data is worse than no data,” she said.

However, SBA officials say the Census survey might overestimate the number of companies that are ready for set-aside contracts.

“The glass ceiling is still there,” Sleep said. “The question is how are you going to be creative and get around it.”

Alba Alemán, president of Citizant Inc., a company based in Chantilly, Va., that specializes in enterprise architecture, said women aren’t respected as federal contractors. Nevertheless, she has noticed more women in business these days, increasing the importance of having a set-aside program for IT companies.

“Set-asides support an emerging market,” she said.

Women business owners say they intend to continue fighting for set-asides, even if they only succeed in helping the next generation of entrepreneurs. As Sleep put it, “You always want to make it better for the people who are coming behind you.”

Read the story: Washingtontechnology.com - Woman-owned IT firms seek inclusion

Winners and one possible loser

Small businesses owned by veterans and women could be winners under the Obama administration.

But with a new Congress, Alaska Native Corporations (ANCs) are looking for a key ally and could see some of their advantages diminish.

During Barack Obama’s presidential campaign, the Democratic candidate said he would strengthen federal small-business programs that focus on women, service-disabled veterans and minority business-owners. He wants to offer them more contracting opportunities with the government to help them grow. To help with that, Obama said he would restore SBA’s budget and strengthen its clout in the government. Karen Mills, a principal in the private equity and venture capital industry since 1983, was nominated as SBA’s administrator.

In particular, the president-elect wants to boost opportunities for women business-owners. He said he would stand up the women-owned business contracting program. Despite years of neglect, SBA officials made efforts in the last two years to launch the program, but a recent regulatory proposal crushed any progress by upsetting some members of Congress and small-business advocates. SBA’s rule would have opened the set-aside program to a select few industries. Lawmakers vehemently objected to the rule and were ready to block it statutorily in an appropriations bill. SBA hasn’t implemented the rule.

Small-business observers also expect veterans to benefit more than some other set-aside groups. Warfighters returning from Iraq and Afghanistan will get a lot of attention from the government under Obama. Guy Timberlake, chief visionary and chief executive officer at the American Small Business Coalition, said the support for veterans could lead to the creation of a program on par with companies owned by ANCs.

Timberlake and others in the small-business community said ANCs are a small segment of government contractors yet they have a large advantage over other small businesses. But ANCs are losing a key ally on Capitol Hill as Sen. Ted Stevens (R-Alaska) didn’t return to the Senate this year after being defeated in his re-election bid.

Whatever the set-aside category, many small businesses teeter on the verge of collapse when the economy falters. Thom Rubel, practice director of government programs at Government Insights, said the government must develop ways to incubate businesses to help them grow. If it can do that, the government can expect some valuable savings. But he said it takes more than simply awarding a percentage of contract dollars to help small businesses.

Timberlake said small businesses can offer government much more than in the past because they are more sophisticated today. That leads to greater capacity to handle more work on large, complex contracts, which in the past were geared for large companies.

But some small-business executives are still skeptical about Obama’s promises.

“It’s an easy thing to say, ‘We support small businesses,’ ” said Daniel Carr, chief executive officer of Distributed Solutions. Small-business owners have listened to the importance of small businesses while federal dollars have gone elsewhere.

However, Carr added, “it’s in our nature to be optimistic. The entrepreneurial hat worn by small businesses requires that we see opportunity and hope around every corner.”

So, Carr is waiting to see what comes from Obama.

Read the story: Washington Technology News - Winners and one possible loser