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January 28, 2020 By cs

The contracting pendulum

Contracting methods have evolved over time, from three-page, performance-based contracts to specification-based contracts hundreds of pages in length, and now appear set to shift back to shorter contracts.
Maj. Don Lee and Sgt. 1st Class Rechelle Collins of the 639th Contracting Team discuss training on blanket purchase agreements conducted recently at Fort Bragg, NC. Knowing when a contracting tool like blanket purchase agreements is a good fit is a key contributor to contracting speed. (Photo by Sgt. 1st Class Terry Ann Lewis, graphic by U.S. Army Acquisition Support Center)

The implementation of statutes, regulations and policies designed to ensure fair and equitable treatment for industry became burdensome and increased the time and complexity of the acquisition process. This resulted in an ineffective procurement process that influenced mission readiness. Since that time, the contracting pendulum has swung to agile, streamlined initiatives.

These initiatives have been spearheaded by several important laws and regulations, including the National Defense Authorization Act (NDAA) for Fiscal Year 2016, which was implemented by the Section 809 Panel, secretary of the Army initiatives and strategic reforms from the Office of the Deputy Assistant Secretary of the Army for Procurement. One streamlining initiative embraced by Stuart A. Hazlett, deputy assistant secretary of the Army for procurement, is “data-driven contracting.” Data-driven contracting will facilitate analytics on raw data that can influence factors such as requirements, money spent, talent management and procurement acquisition lead time.

SIGNIFICANT CONTRACTING CHANGES

Historically, there have been significant regulatory changes that have influenced DoD contracting processes. These regulatory changes are the springboard to many contracting initiatives used today. In 1962, Congress passed Public Law 87-653, the Truth in Negotiations Act. That law specifies that when dealing in a sole-source environment, each procurement-contracting officer must certify cost as accurate, completed and current for all cost and pricing data. The Truth in Negotiations Act has been a cornerstone for ensuring that prices paid by the government are considered “fair and reasonable.”

In 1974, Congress passed legislation to establish the Office of Federal Procurement Policy (OFPP) within the Office of Management and Budget. OFPP provides direction for government-wide procurement policies, regulations and procedures; it also promotes economy, efficiency and effectiveness in the acquisition process. One way in which OFPP provides this direction is through the Federal Acquisition Regulation (FAR).

The FAR, implemented in 1984, provides uniform policies and procedures governing federal government contracts. Accompanied by the Defense Federal Acquisition Regulation Supplement (DFARS), these regulatory policies inundate contracting professionals and industry partners. In 1984, Congress also passed the Competition in Contracting Act. That act requires competition for award of all government contracts. The theory is that more competition for procurements reduces costs and allows more small businesses to win federal government contracts. It also established that if a protest is submitted to the U.S. Government Accountability Office (GAO) before contract award, the awarding of the contract will be suspended until GAO rules on the protest.

In 1994, Congress passed the Federal Acquisition Streamlining Act. That legislation established a preference for the use of commercial products and exempted commercial products from various statutory and regulatory requirements. It raised the ceiling for the use of “simplified purchase procedures” and raised the threshold for issuance synopsis. It exempted the micro-purchase from virtually all statutory requirements, and it required that paper-based contracting systems be replaced with an electronic contracting system within five years.

CONTRACTING REFORM INITIATIVES

Acquisition reform is important and provides a check and a balance between regulatory accountability and agile acquisition. Because of recent reform initiatives, the contracting pendulum has swung from complex to streamlined contracting processes, providing for efficient and rapid acquisition in support of the warfighter.

In 2005, OMB asked the OFPP to identify goods and services the government can purchase more effectively and efficiently through strategic sourcing. Strategic sourcing is an approach to supply chain management that formalizes the way information is gathered and used so that an organization can leverage its consolidated purchasing power to find the best possible values in the marketplace. As a result, the U.S. General Services Administration and Department of the Treasury established the Federal Strategic Sourcing Initiative to address government-wide opportunities to strategically source commonly purchased goods and services and eliminate duplication of efforts across agencies. An example of strategic sourcing for the Army is in the procurement of commercial hardware and software purchases under the CHESS (Computer Hardware, Enterprise Software and Solutions) program.

Then, in December 2014, OFPP issued a memorandum that directed agencies to take specific actions to implement category management, an approach based on industry leading practices, to further streamline and manage entire categories of spending across government more like a single enterprise. This approach includes strategic sourcing along with a broader set of strategies, such as developing common standards in practices and contracts, and improving data analysis and information sharing to better leverage the government’s buying power and reduce unnecessary contract duplication.

The NDAA passed in 2016 streamlined the acquisition process and eliminated redundant and duplicative requirements. Section 809 of the NDAA required that the secretary of defense establish a nine-member advisory panel consisting of experts in acquisition and procurement policy. The objective of the panel is to review DOD’s acquisition regulations and provide recommendations for streamlining procurement.

Some of the significant recommendations made by the panel include expanding and clarifying the use of other-transaction authority for production. Other-transaction authority is the term commonly used to refer to DOD’s authority to carry out “certain prototype, research and production projects” other than contracts. Such authority gives DOD the flexibility necessary to adopt and incorporate business practices that reflect commercial industry standards into its award instruments. DOD currently has permanent authority to award other-transaction agreements for research, prototype and production purposes. This kind of agreement allows nontraditional vendors a pathway for doing business with the government and introducing new and innovative ideas. In fiscal year 2019, the Army awarded 854 other-transaction agreements valued at roughly $4.9 billion.

FAR and DFARS contract clauses that are required to “flow down” from prime contractors to subcontractors, especially commercial subcontractors, are excessive and create additional burdens on DOD’s supply chain. In response, the Section 809 panel updated the FAR and DFARS to reduce burdens on DOD’s commercial supply chain, to decrease cost, prevent delays, remove barriers and encourage innovation in the military services.

The panel recommended minimizing the number of government-unique terms in commercial buying. The panel noted that when the Federal Acquisition Streamlining Act was established in 1994, there were only 57 FAR and DFARS clauses applicable to commercial buying. Today there are 165, according to the panel. The proliferation of clauses applicable to commercial buying at the prime contract level directly affects the number of government-unique clauses to subcontractors offering commercial products and services.

The 2018 NDAA amended the Truth in Negotiations Act to increase the threshold for contractors submitting certified cost and pricing data from $750,000 to $2 million. Contracting officers may still require cost or pricing data without certification, as they are tasked with ensuring that the cost or pricing data is fair and reasonable. However, this change is widely embraced by contractors doing business with the government.

Finally, the 2018 NDAA made changes to the bid and protest procedures relative to the Competition in Contracting Act and allows for enhanced post-award debriefing rights for DOD. What that means for DOD acquisitions is that, when a protest is filed, the “five-day period” to file a bid protest to trigger an automatic stay of award does not start until after the government delivers a written response to the offeror. Per the NDAA, a disappointed offeror may submit, “within two business days after receiving a post-award debriefing, additional questions related to the debriefing.” The law requires that “ … [t]he agency shall respond in writing to any additional question … within five business days” and that “the agency shall not consider the debriefing to be concluded until the agency delivers its written responses.”

ARMY CONTRACTING REFORM

The Army awards thousands of contracts yearly to support military forces worldwide. In FY19, the Army awarded 212,094 contract actions estimated at $94.59 billion. This does not include grants, government purchase-card buys, cooperative agreements or other authorized transactions that increased the estimate to $104.89 billion.

In 2017, the secretary of the Army directed initiatives to reform Army contracting, issuing “Army Directive 2017-32 (Acquisition Reform Initiative #6: Streamlining the Contracting Process),” which mandated streamlining practices within Army contracting to reduce the time it takes to develop and award a contract.

In accordance with this reform initiative, the deputy assistant secretary of the Army for procurement (DASA(P)) embarked on extensive reformation initiatives. They include:

1. Developed a centralized policy to standardize contracting policies across the Army.

2. Created policies and procedures that will facilitate the efficient implementation of category management. One policy, currently in coordination, aligns contracting activities to categories. This policy will promote habitual relationships among the contracting centers, category managers and customers. The draft policy stipulates that customers shall only submit their requirement to the designated contracting office. Aligning contracting activities with categories will assist in enforcing standard levels of services, limit standard levels of service end-run actions, and limit contract-action shopping among contracting centers.

3. Of 312 authorities identified in the FAR and DFARS, the Army delegated 159 authorities to a level lower than the assistant secretary of the Army for acquisition, logistics and technology (ASA(ALT)). This increased efficiency and eliminated the requirement to staff packages to ASA(ALT) for signature and approval, thereby saving time, money and resources.

4. Established “reform managers” to lead changes to contracting processes and develop new streamlined procedures, e.g., source selection, pricing cell, etc.

5. DASA(P) is also embracing “data-driven decision-making in contracting.” This type of contracting involves making decisions based on actual raw data derived from the automated contract systems. Data-driven decision-making improves how requirements are communicated between major stakeholders such as financial managers, program managers, requirements activities and industry partners. The bottom line is that everybody wins through increased productivity in procuring goods and services for the warfighter.

CONCLUSION

On Sept. 30, 2019, in a message to the Army force, Secretary of the Army Ryan D. McCarthy said, “We must maintain a sustainable level of readiness to meet current demands while executing an aggressive modernization strategy to ensure the total Army remains the most lethal ground combat force in the world.”

To achieve that end, the contracting pendulum must swing toward less restrictive acquisition policies and procedures.

For more information, go to https://spcs3.kc.army.mil/asaalt/procurement/SitePages/PAMHome.aspx#&panel1-3 

This article was published in the 2020 Winter issue of Army AL&T Magazine.  See: https://www.dvidshub.net/news/357393/contracting-pendulum

Filed Under: Government Contracting News Tagged With: acquisition methods, acquisition reform, acquisition workforce, Army, DFARS, DoD, FAR, innovation, NDAA, OFPP, OMB, procurement reform, simplified acquisition, TINA

August 5, 2019 By AMK

New DoD policy aims to crack down on alleged price gouging by TransDigm

Defense procurement officials have taken a step toward cracking down on what they have called price gouging within the military spare parts market. They issued a new edict that requires DoD contracting officers to gather cost and pricing data when they enter into agreements with TransDigm Group.

The memo, signed on Friday by Kim Herrington, DoD’s acting director for Defense Pricing and Contracting, tells contracting officers they must “require” that TransDigm turn over uncertified cost data to support the prices the company is charging the government. The mandate applies to situations where TransDigm or its subsidiaries are the only makers of a particular part, a scenario that applies to the vast majority of the company’s business.

The order also tells contracting officers to treat many of their contracts for parts the company makes as non-competitive — even when two or more resellers are bidding to supply the same item.

“The definition of adequate price competition does not address the fact that a sole manufacturer (such as TransDigm) participating in a competition can effectively control the competition by its ability to establish the material pricing for all other offerors,” Herrington wrote. “In these situations, the department does not consider such rigged competitions to be adequate price competition, based on independently submitted offers.”

The memo is highly unusual in that it targets one particular company, rather than laying out a broadly-applicable policy.

It was prompted by a February 2019 DoD inspector general report which found that TransDigm was routinely earning “excess profits” in its Defense contracts. For 17 of the 47 parts in a sample auditors examined, they calculated the company’s profit margins at 1,000% or more, and deemed all but one of the parts to have been marked up to unreasonable levels.

Keep reading article at: https://federalnewsnetwork.com/defense-main/2019/06/new-dod-policy-aims-to-crack-down-on-alleged-price-gouging-by-transdigm/

Filed Under: Government Contracting News Tagged With: adequate price competition, cost and pricing data, Defense Pricing and Contracting, DoD, policy, price gouging, spare parts, TINA, TransDigm

July 3, 2019 By AMK

Why OMB is ushering us into the second golden age of acquisition

Welcome to the second golden age of federal acquisition reform.

The frustration and the technology are aligning for the Trump administration, the Congress and industry to come together to make the first set of significant, almost seismic changes since the 1990s.

“We are in that rare moment when we have the combination of factors, the customer demand for speed and agility, the congressional receptiveness for acquisition reform legislation, the strong push from OFPP on the importance of  innovation such as their creation of acquisition innovation councils, category management memos and the myth busters four memo and strong actions from a number of agencies really propelling acquisition innovation,” said Jeff Koses, the senior procurement executive at the General Services Administration, at the Coalition for Government Procurement’s spring conference in Falls Church, Virginia. “Across GSA we have a number of things that I regard as innovation plays in contracting and policy domain, in the communication domain and in the technology domain.”

To that end, the Office of Federal Procurement Policy sent six legislative proposals to Congress at the end of April to clean up a few things, but more importantly to ask for permission to test and spread innovative acquisition concepts across government.

Keep reading article at: https://federalnewsnetwork.com/reporters-notebook-jason-miller/2019/05/why-omb-is-ushering-us-into-the-second-golden-age-of-acquisition-reform/

Filed Under: Government Contracting News Tagged With: acquisition modernization, Acquisition Modernization Test Board, acquisition reform, business process, Congress, GSA, IT, OFPP, OMB, Section 809 Panel, TINA, Veterans Affairs

April 8, 2019 By AMK

OIG seeks voluntary refund despite contractor’s adherence to TINA requirements

DoD’s Office of Inspector General (OIG) for the Department of Defense (DoD) has recommended that a contractor be requested to provide a refund based on “excessive profits.”

On February 25, 2019, the Office of Inspector General (OIG) for the Department of Defense (DoD) issued an audit report analyzing the prices of spare aviation parts purchased by the Defense Logistics Agency (DLA) and the Army from TransDigm Group, Inc.

The audit was conducted in response to letters from certain Members of Congress, who had inquired whether the spare parts were sold at fair and reasonable prices and in compliance with the Truthful Cost or Pricing Data Act (formerly known as the Truth in Negotiations Act or TINA).

The OIG’s audit confirmed that both TransDigm and the responsible DoD contracting officers fully complied with the Act and related regulations governing the price negotiations, but the OIG nonetheless concluded that the contractor earned excess profit on the majority of parts sold.  In a highly unusual move, the OIG recommended that DoD request a “voluntary refund” from TransDigm of its allegedly “excessive” profits, and the OIG also recommended a number of changes to statutory, regulatory, and administrative policies governing the provision of cost or pricing data.

The OIG’s Findings

At the request of U.S. Representatives Ro Khanna and Tim Ryan and Senator Elizabeth Warren, the OIG reviewed the price reasonableness of 47 spare aircraft parts DoD procured from TransDigm between January 2015 and January 2017.  Using uncertified cost or pricing data that it collected during the audit, the OIG calculated the apparent profit realized by the contractor on the sale of each part, and concluded that the contractor realized “unreasonable” profits (defined as profits of greater than 15% in the report) on all but one of the parts.  (The OIG arrived at the 15 percent profit percentage, in part, by looking at maximum profit percentages allowed in the FAR for three different types of contracts, none of which were fixed price.)  The OIG applied this finding to a broader sampling of contracts held by TransDigm, and concluded that the contractor had earned $16.1 million in “excess profit” (i.e., profit over 15 percent) for the parts at issue.

The OIG concluded that a number of factors contributed to these supposedly “excessive” profits.

Keep reading this article at: https://www.insidegovernmentcontracts.com/2019/03/when-compliance-is-not-enough-oig-seeks-voluntary-refund-despite-contractors-adherence-to-tina-requirements/

Filed Under: Government Contracting News Tagged With: cost analysis, DLA, DoD, excessive profit, IG, NDAA, OIG, profit, refund, TINA, Truth in Negotiations Act, Truthful Cost or Pricing Data Act, unreasonable profit

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