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March 9, 2012 By AMK

Signs of friction in contractor-government relations

Contractor relationships with federal auditors and contracting officers deteriorated somewhat during the past year as government agencies scaled back programs in an effort to reduce the budget deficit, according to a recent survey.

A separate study released Thursday found that large companies were securing a high percentage of federal contracts set aside for small businesses. In the 17th Annual Government Contractor Industry Survey released Monday by Grant Thornton LLP, contractor relationships with auditors were rated either fair or poor by 19 percent of surveyed companies, up from 11 percent the previous year. Relationships with contracting officers were rated fair or poor by 10 percent of respondents, double the previous year’s total.

Only 22 percent of respondents said the government resolved contract disputes efficiently, a drop from previous surveys.

Revenue from government contracts during the past year grew for 50 percent of the companies, was flat for 21 percent and declined for 29 percent, the survey found. “The fact that the highest percentage of companies experienced revenue growth continues a long-term trend reported in previous surveys, indicating that government contractors are far less vulnerable than commercial companies to recessions or slow growth in the overall economy,” Grant Thornton analysts said.

“However, the 29 percent of companies experiencing revenue reductions is the highest percentage reported in several surveys, indicating that government efforts to reduce deficits are adversely impacting government contractor revenue.”

The survey went out to an unspecified number of companies, in 24 states, that depend primarily on federal contracts; most of them are for-profit and two-thirds provide services to the Defense Department. Forty-six percent are small businesses.

The survey also found that profits improved slightly from the previous year. The biggest cost factor within these firms was executive compensation, and survey analysts said they disagreed with the methods the Defense Contract Audit Agency uses in determining whether to allow such costs.

“While government contracting has never been a model of efficiency, it is our view that the decline in efficiency and business relationships during the past few years can be traced directly to changes in DCAA policy adopted after [Government Accountability Office] reports were issued in July 2008 and September 2009,” they wrote.

“Unfortunately, the GAO criticized the DCAA for having a management and agency culture that focused on a production-oriented mission, emphasizing the need for timeliness in supporting the needs of contracting officers in the procurement process,” the survey said.

Regarding the average time for contractors to collect accounts receivable from the government, results showed the period was less than 30 days for 21 percent of survey participants, while 60 percent reported receivables were collected within 30 to 60 days. The remaining 19 percent reported waiting more than 60 days.

The average win rate on proposals submitted in a competitive environment was 30 percent.

On the topic of revenue by type of contract, the companies said, on average, 45 percent of revenue was from cost-reimbursable contracts and 35 percent was from time-and-materials contracts. The remaining 20 percent was from firm fixed-price contracts.

When asked how often they were required to perform out-of-scope work without a contract modification, 81 percent said frequently or occasionally. Only 16 percent said they refused such requests.

A separate contracting study by the Petaluma, Calif.-based American Small Business League found that of the top 100 companies receiving federal small business contracts, 72 were large companies that “significantly exceed” the Small Business Administration’s small business size standards; only 24 were “legitimate small business,” the league said.

The large companies — among them Lockheed Martin Corp., Rolls-Royce, Boeing Co., General Dynamics and Blue Cross Blue Shield — accounted for $16 billion of the $21 billion total for the top 100, the study found.

— by Charles S. Clark, Government Executive, February 23, 2012 at http://www.govexec.com/contracting/2012/02/signs-friction-contractor-government-relations/41283

October 6, 2011 By AMK

Experts: Workforce investment today saves dollars tomorrow

Agency officials must invest in their workforce, even in these times of shriveling budgets, to ultimately save money down the road, said several federal procurement experts at a Congressional committee hearing.

An organic government employee base with adequate skills is the alternative to over-reliance on contractors, and could be the key to reducing fraud and waste in contingency operations, the members of the Commission on Wartime Contracting in Iraq and Afghanistan told the House Oversight and Government Reform Committee on Oct. 4. But it requires investment now, despite tight budgets.

“There has to be some spending to save money,” said Dov Zakheim, a commissioner and former Defense Department comptroller and chief financial officer.

In the same vein, Rep. Gerry Connolly (D-Va.), a member of the House committee, said the government could have saved the at least a portion of the money wasted because of poor contracting in the decade-old contingency operations in Iraq and Afghanistan.

The Government Accountability Office too blames DOD’s lack of planning for workforce shortfalls—including the number of employees at the Defense Contract Audit Agency—along with contractor accounting problems. The two problems are costing DOD money due to delayed audits of the contractors’ incurred costs.

Zakheim told the House committee that DCAA needs auditors, and without them, the government is bearing the cost of delayed audits and contracts that are not properly closed.

“If you don’t have auditors, you don’t have audits. It’s as simple as that,” he said.

However, procurement experts say officials opt to cut training and other resource investments in the workforce during tough financial times. Some agencies have already halted hiring new workers to survive these times, just as senior Obama administration officials say the acquisition workforce is in dire need of some support troops. A new policy from the Office of Federal Procurement Policy tells agencies to improve their in-house skills to do work that is suited for government workers.

“I’d like to think the acquisition workforce will be better trained and that the role of acquisition professionals will evolve to that of a business adviser, rather than a buyer,” said Larry Allen, president of Allen Federal Business Partners. “We’ve been saying that, though, for at least a dozen years now.”

But the budget crisis hopefully will make federal officials think of savings further out, rather than immediately, if they allocate resources to their employees, said Katherine Schinasi, commissioner and former GAO managing director for acquisition and sourcing management.

“It’s a perfect time to make an investment,” since the dividend pays off in the end with savings, she said.

About the Author: Matthew Weigelt is a senior writer covering acquisition and procurement for Federal Computer Week. Published Oct. 4, 2011 at http://fcw.com/articles/2011/10/04/workforce-investment-budget-crisis.aspx.

November 1, 2010 By AMK

Defense agency raises bar for reviewing contractor cost proposals

The Defense Contract Audit Agency has agreed to dramatically reduce its oversight of Pentagon procurements, according to an internal memorandum.

Effective immediately, DCAA will accept contracting officers’ requests for audit assistance only for fixed-price proposals of more than $10 million and cost-type proposals worth more than $100 million, according to a memo the Project on Government Oversight, a federal watchdog group, obtained last week. Assistance entails a review of the contractor’s cost proposals to the government. The order does not apply to requests by another DCAA office and includes a waiver for “exceptional circumstances.”

“One of the priorities undertaken by DCAA this year was to better align workload requirements with available resources,” wrote Kenneth J. Saccoccia, DCAA’s assistant director of policy and plans, in the Oct. 18 memo. “Coordination within DoD resulted in agreement that DCAA should target its resources on high-risk proposals to best serve our stakeholders.”

But, critics suggested the plan is short-sighted and could expose the government to massive overcharges by prime contractors.

“POGO has long feared contractors and their government allies would block DCAA from exposing contractor rip-offs,” said Nick Schwellenbach, POGO’s director of investigations. “Why are billions of dollars being put at risk when [Defense] Secretary [Robert] Gates is demanding cost savings?”

In a statement, a Defense Department spokeswoman said the change will allow DCAA to focus on the highest-risk areas, and “actually increase savings to the department and warfighter.”

In the past, there was no dollar threshold for reviews on fixed-price contract proposals, but requests for audit assistance generally were limited to proposals in excess of $700,000, according to POGO. The previous threshold for DCAA to review a cost-type proposal was $10 million, although the agency made exceptions if the prime contractor had systemic problems estimating costs.

POGO reviewed federal contracting data and found $92 billion in Defense contracts fell between the previous thresholds and the new ones.

Audits below the new threshold will now be referred to the Defense Contract Management Agency for field pricing assistance, Saccoccia wrote.

Schwellenbach argued DCMA does not specialize in reviewing and verifying cost and pricing data. The congressionally chartered Commission on Wartime Contracting has criticized DCMA for a lack of thoroughness.

The redistribution of audit assistance work came as no surprise to observers who have tracked DCAA’s response to a stinging 2008 Government Accountability Office report. The watchdog found DCAA auditors often failed to comply with generally accepted government auditing standards, documented their audit opinions improperly and submitted sloppy working papers.

But, some auditors suggested DCAA managers overreacted to the report, and they now have embraced the time-consuming GAGAS process for all audits and reviews of cost data in contractor proposals. The result has been that reports take longer and require a field office manager’s approval. Often contracts are issued before the DCAA reviews are complete.

In fiscal 2008, the average time to complete a contractor pricing review was 28 days, compared with 72 days in fiscal 2010, agency officials said. The number of DCAA reports produced annually also has plunged from about 30,000 in fiscal 2008 to 21,000 in fiscal 2009.

“Some of our audits take longer because we are doing a more comprehensive job,” DCAA Director Patrick Fitzgerald told Government Executive in July. “If there are other factors that are causing us to take longer, we need to do a deep dive on those and try to figure out how mitigate or to alleviate them.”

The agency has hired 500 new auditors since the GAO report and will add 1,000 more by fiscal 2015, a 37 percent staffing increase. DCAA also is planning to shed several low-priority services and place more emphasis on high-risk contracts.

– by Robert Brodsky – GovExec.com – November 1, 2010

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