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May 3, 2011 By AMK

DOD to negotiate prices more aggressively

Defense Department officials have told acquisition employees to fight for lower prices on contracts, even when there’s only one bidder.

In an April 27 memo, DOD officials gave more guidance to their acquisition offices on bargain for lower prices, as the department aims for more competition and lower spending in general. One area to find that savings is by negotiating lower prices from a contractor.

The initiative started last November, when defense officials told contracting officers to cancel a solicitation if it’s been in the market for less than 30 days and only one bid has come in. After the cancellation, they have to send out another solicitation for an additional month. If there’s still only one bidder, the contracting officer has to work to get a lower price than proposed.

Shay Assad, director for defense procurement and acquisition policy, wrote in the new memo that officers should not pay the contractor’s proposed price, even if the cost seems reasonable based on market research and having hosted a fair competition.

Instead, Assad wants officers to make sure the final price, which both sides agree to, is fair and reasonable in and of itself. He tells them to do careful analysis of the price and cost. Then the government needs to bring their analyses to the negotiating table to discuss pricing. Read the Federal Acquisition Regulation on contract pricing.

However, the new order means finalizing contracts will take more time, despite overly busy acquisition offices.

“I recognize that implementation of this policy may have the unintended consequence of increasing the contracting community’s workload, but given today’s scarcity of resources we need to ensure effective competition to the maximum extent possible,” Assad wrote at the end of the memo.

DOD officials have been under heavy pressure to make spending cuts. In 2010, Defense Secretary Robert Gates and Ashton Carter, undersecretary of defense for acquisition, logistics, and technology, issued a 23-point memo on acquisition reforms.

Competition for contracts is one of the key points of Gates and Carter’s reforms, along with controlling growth in costs, improving acquisition workforce’s know-how of buying services, and launching affordable projects.

– About the Author: Matthew Weigelt is acquisition editor for Federal Computer Week – posted at http://fcw.com/Articles/2011/04/28/Defense-Department-contract-competition.aspx?p=1 on Apr. 28, 2011.

March 14, 2011 By AMK

Army skeptical of fixed-price contracts

The Obama administration might be embracing fixed-priced contracts as the preferred method for purchasing goods and services from the private sector, but that strategy is not necessarily being implemented by the Army.

During a speech on Wednesday to service contractors, Malcolm O’Neill, assistant Army secretary for acquisition, logistics and technology, offered a surprisingly frank critique of fixed-price contracts.

“There is risk when you take something fixed-price,” O’Neill told members of the Professional Services Council, an industry trade association. “But my experience has been that when you offer a fixed-price bid, it’s 10 percent to 15 percent more than you need.”

O’Neill’s office often has argued against using fixed-price awards because of the belief that contractors build a cushion into their bids to compensate for the potential risks that occur during the length of a contract.

The Army wants the contractor to share the risk using more cost-plus, incentive-based contracts in which the vendor is rewarded for coming in ahead of schedule and potentially punished, through the loss of award fees, for delays. Cost-type contracts also can be more easily modified if the government’s requirements change, O’Neill said.

The Obama administration has repeatedly classified cost-plus contracts as “high risk,” lumping them in with time-and-materials contracts and sole-source awards. The Office of Federal Procurement Policy has encouraged agencies to cut by 10 percent their use of each of the three contract types.

Recent data, however, suggest that agencies’ use of cost-plus contracts actually has gone up. While agencies have cut their spending on time-and-materials contracts — considered the highest risk to taxpayers because of the potential for escalating costs — most of those contracts were converted to cost-reimbursement vehicles rather than fixed-price contracts, OFPP Administrator Daniel Gordon said last month.

O’Neill said he has received no direction from the Pentagon or the White House to use fixed-price contracting when he thinks it’s inappropriate. In some instances, he has counseled against fixed-price contracts because the Army’s estimated costs were 20 percent less than the lowest offer. He described the dichotomy as “should cost versus would cost.”

In a brief presentation, O’Neill stressed the principles of the Defense Department’s ongoing efficiency initiative to save money through reducing overhead costs, improving business practices — including more contract competition — and eliminating troubled programs.

“We have every reason to do our jobs better,” O’Neill said. “If I can do the job of 10 people with eight people, that makes me feel good.”

The funds saved from the efficiency initiative will largely be reinvested in the warfighter, Defense officials have said. The ultimate goal is a 2 percent-to-3 percent net annual growth in warfighting capability without a commensurate budget increase.

O’Neill said contractors will play a critical role in helping reach that goal. “You have got to play shortstop on our team,” he said.

The Army, for its part, recently completed a study that looked at contract requirements, overall funding and acquisition policies. The resulting plan, which eventually will be made public, now is being reviewed by Pentagon leadership.

– by Robert Brodsky – GovExec.com – March 9, 2011

March 10, 2011 By AMK

DHS awards fewest noncompetitive contracts ever

Reversing a trend that has marked its entire existence, the Homeland Security Department has dramatically reduced the number of noncompetitive contracts it approves and done a better job managing and overseeing those it awards, according to an audit released last week by DHS’ inspector general.

The department agreed to pay roughly $1.3 billion in sole-source contracts in fiscal 2010, the IG reported, down from $3.4 billion in noncompetitive contracts in fiscal 2009 and $3.5 billion in fiscal 2008.

In response to the report, Richard Gunderson, DHS’ deputy chief procurement officer, said the percentage of contracts that have been awarded competitively has increased from 76 percent in fiscal 2009 to 86 percent in fiscal 2010, “by far the highest percentage ever achieved by the department.”

All eight DHS contracting offices beat their fiscal 2010 competition goals, he said.

The IG reviewed 40 contract files for noncompeted contracts with a combined value of more than $100 million. The audit found the department generally improved its oversight of those contracts by providing more thorough documentation showing the justification and approval for those awards.

The department also has completed a number of oversight reviews, issued updated guidance to strengthen its internal controls and performed more market research in planning for an acquisition, the IG found.

For example, in fiscal 2009, 79 percent of contract files that the IG reviewed showed deficiencies in market research. In fiscal 2010, that figure plummeted to 7 percent. One contract, an international agreement, contained an analysis of prices in the commercial marketplace to support market research efforts, the report said.

Despite the progress, the internal watchdog also discovered gaps in DHS’ acquisition management.

“Acquisition personnel did not always document consideration of contractor past performance when performing background research of eligible vendors,” wrote Anne Richards, assistant IG for audits. “As a result, the department cannot be sure that it received the best possible value on the goods and services acquired through these contracts, or that acquisition personnel awarded government contracts to eligible and qualified vendors.”

The IG said Homeland Security must do more to ensure the accuracy and completeness of its contract file documentation — information gathered to support the use of contracts granted using methods other than full and open competition.

Of the 40 contracts the IG examined, 34 required an advance plan showing the efforts of everyone working on the program to obtain the product or service in a timely manner and at a reasonable cost. But, more than 40 percent of those contracts, worth a total of nearly $30 million, did not have documentation in the contract file, the report said.

In addition, 11 of the 40 contracts lacked evidence that the contracting offices considered past performance when making an award determination.

“The department needs to continue its emphasis on better planning and documenting its acquisitions and decision-making processes,” Richards wrote.

Gunderson said DHS is conducting an oversight review on noncompetitive contracting to determine whether procurement offices were following department guidelines and requirements. The final report is expected this spring.

Improving its much-maligned contracting process has been a priority for the department. Testifying before the House Homeland Security Committee last week, Secretary Janet Napolitano said DHS had identified more than $800 million in administrative savings, in part by making the acquisition process more efficient and by reducing professional services contracts.

“We are preserving essential front-line operations and bolstering our operational strength by decreasing administration and overhead,” Napolitano said.

The department has requested $24.2 million in the fiscal 2012 budget to increase its acquisition workforce by 150 positions, including systems engineers, program managers, logisticians and business cost estimators.

– by Robert Brodsky – GovExec.com – March 7, 2011

December 2, 2010 By AMK

More scrutiny for one company solicitation responses at DoD

Single offeror responses to Defense Department solicitations will come under more scrutiny following the Nov. 24 release of a memo from Shay Assad, director of Defense Procurement and Acquisition Policy.

Effective immediately, Assad wrote (.pdf), if a contracting officer receives only one offeror response to a solicitation open for less than 30 days, then the officer must re-advertise the solicitation for an additional 30 days (unless a the head of the contracting shop grants a waiver).

If still just the one offeror responds–or if the original response period was for 30 days to begin with–then contracting officers are no longer allowed to make a fair and reasonable pricing finding based on a reasonable expectation that single offeror’ s price was made in the genuine belief of competition. Assad’s memo also prevents contracting officers from making a fair and reasonable pricing finding based on a comparison of the single offeror’s price to federal prices recently paid for similar items.

In technical terms, that means that Federal Acquisition Regulation Part 15.403-1(c)(1)(ii) or (iii) are inoperative for the Defense Department.

Instead, contracting officers must open negotiations with the single offeror on the basis of cost or pricing data, (whether certified or not), regardless of contract type. Contractors generally dislike allowing contracting officers to comb through their cost or pricing data, since the outcome generally means that contracting officers decide for themselves what the company’s profit rate should be.

Assad’s memo is a follow up to an earlier memo from Ashton Carter, undersecretary of defense for acquisition, technology, and logistics, that first introduced the requirement for price negotiations in the case of a single offeror. Carter introduced the memo in the context of a Defense Department efficiency drive whose goal it is to find $100 billion of cost savings in overhead over the next five years.

For more:
– download the Nov. 24, 2010 memo on “Improving Competition in Defense Procurements”

— by David Perera – December 1, 2010 — Fierce Government IT

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August 31, 2010 By AMK

FAR Council considers justifying sole-source awards

The Federal Acquisition Regulatory Council will host meetings in October to discuss rule changes on justifying large sole-source contracts to small businesses, including Alaska Native Corporations.

Because lawmakers ultimately want sole-source contracts to be beneficial for the government, the fiscal 2010 National Defense Authorization Act passed by Congress last year said an agency must have good reasons for awarding a contract worth $20 million or more without hosting a competition for the work.

The law mandates that an agency describe the contract and why it’s circumventing the competitive process. Members of Congress said they want to know that a company is offering a reasonable price and stressed the need for justification that the sole-source award is worthwhile for the government.

In addition, the law states that an agency must make the justification public within two weeks.

Agencies can award the large contracts through the Small Business Administration’s 8(a) business development program. Regulations enable contract awards to be made to socially and economically disadvantaged small businesses, even businesses owned by Indian tribes and ANCs.

In the notice, FAR Council members said they believe talking with Indian and native Alaskan tribal leaders will be valuable as they debate how to institute the new law.

Acquisition rules that allow set-aside contracts for ANCs and similar unique set-asides are a point of contention in the contractor community, and even Congress has questioned their unique status.

Many contractors say ANCs get more than their share of contracts while the ANCs say the government is obligated to help them, especially economically.

The FAR council has not set specific dates for the meetings, which will be held in Washington, D.C.; Albuquerque, N.M.; and Fairbanks, Alaska.

— by Matthew Weigelt – Aug. 31, 2010 – Federal Computer Week.

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