DOD drives deeper wedge between feds and contractors

Defense contractors worry about maintaining the delicate balance of the federal workforce

Federal employees probably wouldn't be surprised to see a contractor arrive at the office in an orange jumpsuit. Nor would a contractor blink if feds were to show up in Tommy Bahama shirts from the new Tropical Temptation collection.

The outfits would match the image that each holds of the other: Contractors are greedy enough to shoot their mother for a dollar, and feds treat work like a day at the beach.

As funny as those old stereotypes might sound, they reflect the often-bitter cultural divide between contractors and feds that, depending on whom you ask, is about to get wider.

Under a Defense Department rule that went into effect in September, contractor employees are required to identify themselves as such in all forms of communications, whether in person, on the phone or in e-mail messages.

At a time when contractors outnumber feds in some offices, the rule is intended to ensure that DOD managers do not inadvertently involve contractors in sensitive work that should be set aside for feds. The rule, in short, will show who’s on which side.

But some contractors fear that the rule could undermine the teamwork that's essential in a blended workforce, in which feds and contractors must work side by side on a daily basis. “How do you maintain unity of community when segregation is forced?” a reader named Skully asked in a comment posted at FCW.com.

It’s a tough question, especially given the existing distrust between feds and contractors in many government offices.

Bob Woods, a retired federal official and now president of Topside Consulting, said the rule only exacerbates the situation. Worse yet, it’s not even necessary, because feds know who the contractors are. If not, they’re not being diligent, he said. “The rule creates an awkward situation for everybody,” he said.

Another reader commenting on the story pointed out that the pink badges contractors wear are already pretty conspicuous. The lack of identification is not the problem — it is the “cries of ‘unclean!’ when the contractors pass through federal workspace that is distracting.”

As some contractors see it, DOD might just as well post a scarlet letter on their foreheads, marking them as people whose loyalties are not to the customer or the mission but to the bottom line.

But as touchy as the issue might be, contract employees know who is writing their checks.

“Some people would be very offended by that statement,” but it’s true, said Peter Tuttle, a former Army contracting officer and now senior procurement policy analyst at Distributed Solutions. He also said federal employees need that “healthy bit of skepticism.”

The rule isn’t bad, said Kevin Carroll, retired program executive officer of DOD’s Enterprise Information Systems office and now president of the Kevin Carroll Group, a consulting company. It will let other contractors and officials know whom they’re talking to.

The identity question is especially a problem outside federal offices — where badges are not required —in e-mail, and on the phone.

The lack of identification by contractors “clouds the water on a daily basis and causes delays and delivery of substandard technology and products to the DOD,” a federal employee wrote, adding: “Anyone not seeing this as a problem with the current procurement system is a victim of ‘.mil’ envy.”

There are ways to curtail segregation.

When Carroll worked in government, he included contractors in all of his office’s work and even invited them to social events. Overall, he tried to make them teammates. Over time, contractors usually became more loyal to the office than their companies, he said.

“It is just a matter of leadership and inclusion, with a careful eye on preventing conflicts within the workplace,” Carroll said.

Likewise, the mutual stereotypes need not be a problem.

Many people are good workers, and managers need to attend first to the motivated people in the office, Woods said. Then managers should deal separately with the select few who match the contractor and federal employee stereotypes. They'll soon find their motivated employees will want the unproductive people out of the office.

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Experts: Value beats price to avoid fake IT

As government regulators consider tougher ways to block counterfeit information technology products from entering the federal marketplace, they’re restarting an old debate about whether to award contracts based on the lowest bid or the best value.

At a meeting Dec. 11 regarding newly proposed rules on counterfeit IT, Laura Auletta, a procurement policy analyst at the Office of Federal Procurement Policy, said she was surprised to hear that contracting officers believe they should award a contract to the lowest bidder to save money instead of finding the best value.

Contracting officers and acquisition officials often interpret the Federal Acquisition Regulation to mean that the lowest bid should get the award, said James Bockman, a former NASA official who worked closely with the agency’s procurement employees.

“They see that as saving the government money,” said Bockman, who is now a special projects engineer at Aerospace Corp.

The FAR gives civilian agencies broad discretion in making decisions based on price or other best-value parameters, such as the company’s experience and management capabilities. But government and industry experts say acquisition workers are concerned about making a mistake and paying for it with a career-ending embarrassment. With today’s emphasis on curbing waste and abuse, they say contracting officers often choose the vendor with the lowest price.

However, federal officials agree that the government should strive for quality and ensure that agencies don’t buy products that are tainted with malware or poorly made.

The prevalence of counterfeit IT and electronic parts has exploded in the past five years after roughly 20 years of level numbers, officials say.

“The whole supply chain is infected with counterfeit parts,” said Brian Hughitt, manager of quality assurance at NASA’s Safety and Assurance Requirements Division.

The sudden increase has led regulators to add tougher checks to the FAR. Counterfeit IT products lead to financial losses for government agencies and companies, and they pose a threat to national security, the Civilian Agency Acquisition Council and the Defense Acquisition Regulations Council wrote in a Nov. 18 Federal Register notice.

The new rules’ draft language would require agencies to buy all IT products from original equipment manufacturers, software developers, or authorized distributors or resellers. In addition, agencies would have to require companies to offer proof in contract proposals that their products are authentic.

Edward Chambers, a procurement analyst at the General Services Administration who is leading the regulatory proposal, tried to allay initial concerns from industry and government officials by saying the language is preliminary.

At the meeting, government officials disagreed about who’s to blame if an agency buys fake IT or electronic parts. Hughitt said a federal employee should take no blame if an agency buys a phony product because the contractor should know what it’s selling to the government.

However, the government does not use rigorous scrutiny when evaluating products, said Brad Botwin, director of industrial studies at the Commerce Department.

“The sloppiest processes are on this side of the house,” he said, referring to the government, particularly the Defense Logistics Agency. The liability for counterfeit parts rests on contractors and the government.

As the debate continues, officials say they need to find a way to increase scrutiny without putting companies out of business. But the checks are necessary because counterfeit products will continue to be a problem, Botwin said.

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Watchdogs make industry leery

Federal contractors must report evidence of crimes to inspectors general under new requirements

Contracting officers and government contractors will soon have someone new in their relationship: a watchdog.

Starting Dec. 12, contractors will be required to tell government officials if they find evidence of criminal activities related to a federal contract or if the government overpays them. The new rules allow federal officials to suspend or even debar a company from government work if the company knowingly fails to inform officials.

Experts say contractors are most concerned about the requirement that they inform two parties: the appropriate contracting officer and the agency’s inspector general.

Most contractors’ mistakes, including accidental overpayments, are minor administrative errors that contracting officers can easily fix, government and industry experts say. But because IGs have different responsibilities from contracting officers, the mandate makes contractors anxious about sharing even minor infractions with IGs.

“The rule goes too far,” said David Drabkin, deputy chief acquisition officer at the General Services Administration, adding that it won’t help relationships among contractors, agencies and IGs.

However, regulators say they wrote the rules with contractors in mind. They offer flexibility and allow companies to find credible evidence of a crime before reporting it. For agencies, reporting requirements will encourage relationships between IGs and contracting officers as they work together to root out fraud, regulators say.

The rules will have “contractors turning square corners and everybody walking with that halo over their head,” said Ernest Woodson, a procurement analyst at GSA who was instrumental in writing the regulations.

The sea change
The revision to the Federal Acquisition Regulation stands as a reversal from long-standing policies of voluntary disclosure.

“There is no doubt that mandatory disclosure is a sea change and major departure,” the Civilian Agency Acquisition Council and the Defense Acquisition Regulations Council wrote in a Federal Register notice outlining the rule.

But the councils said contractors have largely ignored voluntary disclosure policies for the past decade, as the Justice Department and the National Procurement Fraud Task Force have also charged. In May 2007, the department and task force proposed the FAR changes to Robert Burton, then deputy administrator of the Office of Federal Procurement Policy and now a partner at the Venable law firm.

“We believe that if the FAR were more explicit in requiring such notification, it would serve to emphasize the critical importance of integrity in contracting,” they wrote. The new mandates stemmed from that letter.

Burton said the rules will encourage contractors to institute vigorous processes for reporting internal criminal allegations and quickly reviewing the merits of those claims.

“The rule will add weight to the arguments inside a corporation that good business practices in the long run favor compliance and disclosure,” the councils wrote.

Lesley Field, acting OFPP administrator, said mandatory reporting is a sound business ethic and should already be part of companies’ standards.

Contractors might be more comfortable leaving the IG out of the process, but regulators say disclosing a crime to the contracting officer isn’t enough because he or she is in no position to evaluate criminal actions.

“Contracting officers truly wouldn’t know what to do,” Woodson said. “We don’t want the contracting officer interfering with an investigation that the IG or the Department of Justice may have to get involved with.”

Essentially, regulators want those crimes referred immediately to people with badges.

In a speech in November, James Graham, a trial lawyer in the Justice's Criminal Division, said the proposal should improve procurement oversight when mistakes or criminal activities happen. Graham later told reporters that notifying the IG would make the contracting officer and IG work more closely together.

Graham, who also helped craft the regulations, said that although most contractors are honest, fraud is always possible, and the tendency toward corruption is constant.

“It’s the human condition,” he said.

Altering relationships
In public comments on the rule, many people disagreed with the mandate. One wrote that in 1986 a proposal from the Defense Department to make fraud disclosures mandatory foundered. In 1989, then-Defense Secretary Dick Cheney withdrew a proposed mandatory reporting rule on the grounds that “to be meaningful, corporate codes of conduct must be adopted by contractors voluntarily, not mandated in procurement regulations.”

Similarly, Elliott Branch, executive director of contracts at the Naval Sea Systems Command, said there must be a cultural shift in contractors’ thinking or the rules could be meaningless.

Many observers also say the new rules would likely keep the parties at a distance so they can avoid the appearance of wrongdoing.

“It could have a chilling effect on relationships between the contracting officer and the contractor,” Burton said.

Contracting officers and IGs view contractors through different lenses, said Michael Mason, a partner at the Hogan and Hartson law firm. For instance, contracting officers see companies as business partners that are trying to accomplish a contractual job for the agency. But IGs are the government’s watchdogs. They’re trained to sniff out fraud, waste and abuse and expose it. Experts say that focus will strain government/industry relations.

In public comments to the Federal Register, some industry representatives said reporting activities to the IG would take the ability to settle and resolve issues away from the contracting officer and agency. It undercuts the contracting officer’s right to handle a contract, they argued.

Furthermore, IGs have limited resources and staff, and disclosures will slow the procurement process, some commenters said.

Flexibilities
Regulators say they realized that the rules would place more burdens on contractors. Therefore, they granted contractors flexibilities within the rules in an attempt to strike a balance.

“We want disclosure,” said a Bush administration official who requested anonymity. “On the other hand, we want to show some semblance of fairness where there’s uncertainty.”

When learning of an alleged crime, contractors can investigate the credibility of the allegation before telling the government, the official said, adding that “rumors are not enough to trigger the disclosure requirement.”

Until the contractor has determined the allegation’s credibility, federal officials can’t charge the contractor with knowingly failing to inform government officials. Regulators also declined to set specific timelines, saying they would be arbitrary and cause more problems than they would solve.

Despite regulators’ efforts to ease the burden on contractors, the industry remains unenthusiastic, said Richard Bednar, senior counsel at the Washington office of law firm Crowell and Moring and coordinator of the Defense Industry Initiative on Business Ethics and Conduct. In the end, contractors might focus on the rule’s loopholes and report fewer incidents.

But Bednar said the councils clarified many of the uncertainties when they published the final version of the proposed rule. Contractors can respond to the rules by “pulling up their socks and being responsible contractors,” he said.

"I do think it’s digestible,” he added.

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Ruling clouds future for buyers

Experts debate the potential impact of a GAO decision on small-business contracting

The Government Accountability Office’s recent ruling that agencies must set aside some task orders for small businesses could give those firms a new advantage, some observers say. But others say it remains unclear how much the ruling will change how agencies do business.

GAO sustained a protest by Delex Systems, which argued that the Navy should have limited competition for an aviation training products delivery order to small businesses because at least two small firms could have offered bids.

The Navy solicited bids through its Training Systems Contract II, a multiple-award, indefinite-delivery, indefinite-quantity (IDIQ) contract, which features two small businesses and six large businesses.

Under the rule of two, the Federal Acquisition Regulation requires agencies to set aside any order of more than $100,000 if the agency finds that at least two qualified small businesses could enter bids. In the Delex case, the Navy argued that the rule applies to contracts, not task orders. GAO’s ruling marks the first time the rule of two has been interpreted to apply to task and delivery orders.

“GAO tipped the playing field in favor of small-business contract holders,” said Alan Chvotkin, executive vice president and counsel at the Professional Services Council. The ruling significantly changes the landscape for agencies’ and contractors’ acquisition strategies, especially for multiple-award contracts with a mix of small and large companies, he added.

As a result of GAO’s decision, program managers and contracting officers will likely give more weight to small-business set-asides in their initial acquisition strategies, said Ray Bjorklund, senior vice president and chief knowledge officer at FedSources.

“Small businesses should capitalize on this opportunity,” said Andy McCann, vice president and geographic sales leader for EDS’ U.S. Government and Public Sector business.

A mixed verdict
However, at this point, many companies are trying to understand how the ruling will affect them. An executive at a major systems integrator said large companies were not happy with the ruling, but the outcome depends heavily on how a contracting officer interprets GAO’s decision. Integrators might need to adopt new bidding and partnership strategies, especially on multiple-award contracts that feature large and small businesses.

Likewise, the ruling could cause small companies to seek new strategies for working with integrators, McCann said.

“This ruling creates an incentive for small businesses to strive to be selected on IDIQ contract vehicles or to team with a large integrator on an IDIQ contract,” McCann said. It might also encourage companies to put a greater emphasis on their mentor/protégé programs.

“Through our small-business program, EDS has established and maintained strong relationships with small businesses and has introduced them to new business opportunities with EDS,” he said.

Other experts say GAO’s decision will not give small companies any new advantages. “On the surface, this may seem to be a benefit to small businesses, but the price may be too high,” said Guy Timberlake, chief visionary and chief executive officer at the American Small Business Coalition. Timberlake said the decision might strain the already tense relationship between agencies and small businesses.

John Howell, a partner at law firm Sullivan and Worcester, said any time GAO or Congress institutes a new requirement, agencies push back, straining their relationships with small businesses.

Officials and experts agree that the ruling could widen the rift between government and industry. Already, agencies and firms are slow to trust one another. Some experts speculated that agencies now might assume that contractors plan to protest losses and even factor the costs of pursuing those protests into their bids, raising the costs to government.

The cost of doing business
Lee Harvey, the Army’s deputy program executive officer for enterprise information systems,, said fewer companies protested award decisions a decade ago because they wanted to avoid making a fuss and preferred to maintain good relationships with the government. However, today’s larger orders make people want to protest, he said. Companies have more at stake.

Companies that don’t file frequent protests might still be tarnished by agencies’ perception that contractors in general do so, Timberlake said.

“The business of doing business with the government today is so overwhelmingly out of focus that, in my opinion, we’re no longer looking at the true picture of industry and government partnering,” Timberlake said.

Earlier this year, Congress gave GAO the authority to hear task-order protests because they have become so complex and widely used that they are now the equivalent of what full contracts are, experts say. Agencies have been using task orders for more than half of their procurements in recent years, compared with 14 percent in 1990. In the 1990s, the government viewed task orders as distinct from contracts and put those orders outside GAO’s jurisdiction.

GAO will keep its new authority to review task-order protests for three years. Legislators plan to evaluate the effects before then and make any necessary changes.

In the meantime, GAO’s recent ruling could change how agencies view orders and contracts.

“More of these multiple-award opportunities might be issued as full-and-open [competitions] with no set-aside components, creating a more prohibitive competition environment for the average small business,” Timberlake said.

Harvey recently predicted that agencies would take that course in the near future. He said agencies, particularly those under pressure to buy what they need quickly, might resort to the Big Bang theory of procurement: one competition for one big contract.

Bjorklund agreed that agencies will likely reassess the use of multiple-award contracts in light of GAO’s Delex ruling. They will probably ask themselves why they should go through the hassle of awarding an IDIQ and then go through another competition for task orders, he said.

However, some experts say GAO’s decision won’t affect multiple-award contracts that separate small and large businesses.

The ruling will have little effect on NASA’s Solutions for Enterprisewide Procurement, a governmentwide acquisition contract, said Joanne Woytek, NASA’s SEWP program manager. SEWP is organized into four groups of multiple-award contracts. Two are for small businesses, with one of the two set-asides for small companies owned by service-disabled veterans. The other two are primarily for large businesses, though a few small businesses are in the mix.

Woytek said the ruling might affect a few orders in the groups that lack set-asides, but the small companies in those groups are generally winning orders when they submit a reasonable bid.

“We have always encouraged contracting officers to provide a small-business preference, and now it will be more targeted if two of the small companies in the open groups can and want to provide a reasonable quote,” she said.

Whether or not the ruling offers an advantage to small businesses, it has left the contracting community in limbo.

“The decision changes the rules of engagement” and leaves new questions unanswered, Chvotkin said. “It changes procurements midstream.”

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Acquisition official: DOD, industry must communicate

Defense Department contracting officers need to talk more often to industry to improve the process of awarding contracts, a new memo states.

Shay Assad, DOD’s director of Defense procurement and acquisition, wrote in the memo that contract awards made without discussions should be rare. DOD officials need to encourage the various parties involved in source selections “to fully engage with industry at all stages of the competitive process.”

In the memo, he recommended DOD use industry days, requests for information and draft requests for proposals to exchange information and start dialogues with industry.

“Communication is a key element,” Assad wrote in the Jan. 2 memo.

After presolicitation, officers should continue talking with companies after they’ve submitted their proposals so the officers can understand the company’s exact intent when aspects of their proposal are blurry, Assad wrote.

“Such dialogue can only lead to more efficient, effective and improved source selections,” he wrote.

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Sun pulls out of GSA schedules contract

Sun Microsystems, mired for months in a battle with the General Services Administration and the agency's inspector general over pricing policies and audit practices, announced Friday it would cancel its Multiple Award Schedule contract as of Oct. 12.

“We took this step reluctantly,” Sun officials said in a statement.

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GSA cuts 197 small businesses from GWAC

The General Services Administration did not renew option years for nearly half of the businesses on a GSA governmentwide acquisition contract set aside solely for 8(a) firms, an agency official confirmed today.

Of the original 416 companies, 197 businesses on the 8(a) Streamlined Technology Acquisition Resources for Services (STARS) GWAC are no longer on the contract, said Mary Parks, GSA’s director of small-business GWACs.

A clause in the contract required companies to reach $100,000 in sales in the contract’s three base years. If a firm missed that mark, GSA would not exercise the contract’s option years, which is what happened with those 197 companies.

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Clinton assails outsourcing

Presidential candidate Sen. Hillary Clinton (D-N.Y.) said she favors reducing the government’s reliance on the private sector by cutting 500,000 government contracting jobs and creating more public-sector jobs. Her proposal could save as much as $18 billion a year and would create a more accountable and competent workforce, she said in a speech April 13.

“Over the past six years, this administration has steadily outsourced critical government functions to private companies, adding more than 2.4 million private contractors to the federal payroll,” Clinton said. “These contractors, it turns out, are often more expensive than doing the work in the government.… They’re often less accountable and less competent.”

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Trust issues inhibit spectrum sharing, DISA official says

The stakes for radio frequency spectrum are high, and industry and government, particularly the Defense Department, don’t trust each other, a DOD official said today.

Speaking at the Wireless Technology and Security 2007 conference in Washington, D.C., Paige Atkins, director of the Defense Information Systems Agency’s Defense Spectrum Organization, said the tensions between industry and DOD hinder them from working for the greater good of a well-organized and well-managed spectrum system.

Because spectrum is finite, someone has to give up space so another can gain it, Atkins said. “Somebody’s winning, somebody’s losing.”

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