Sequestration specter already is making its mark on contractors

April 9, 2012 by

Neither the government nor the aerospace industry can afford to sit and wait for the sequestration required under budget law to kick in on Jan. 2, 2013, an industry chief said Wednesday (3/21/2012). The mere threat of across-the-board spending cuts already has had a “chilling effect” on companies that are vital both to the economy and to U.S. national security, said Robert Stevens, chairman and chief executive officer of Lockheed Martin Corp.

Stevens told a Capitol Hill luncheon gathering sponsored by the Aerospace Industries Association that his industry has responded to the budget situation’s “huge disruption” by reducing overhead and cutting investments in training and research and development, as well as imposing “painful” reductions in force.

“We understand the need to address our nation’s fiscal challenges,” he said. “But the prospect of sequestration is another matter entirely,” given the $500 billion in reductions the Pentagon would absorb over 10 years, including $53 billion in fiscal 2013 alone. Such changes would be “divorced from any national strategy and from operational needs,” he said, resulting in “the smallest ground forces since 1940, the fewest ships since 1950, and the smallest Air Force in history.” The country needs a “strategy to preserve the industrial base, not dismantle it,” he added.

Lockheed Martin is part of the association’s ongoing “Second to None” campaign against defense and aerospace industry budget cuts. Near Stevens’ podium the group mounted a large digital clock, a version of which was recently up in New York City’s Times Square, noting the exact number of days, hours, minutes and seconds until the Jan. 2 sequestration. It warns that its industry will lose a million jobs if Congress makes drastic cuts in such areas as defense, the NextGen air traffic management system and the space program.

The association also released a report by Deloitte detailing the financial and economic impact the industry has on the nation, with state-by-state job numbers both direct and indirect. It noted that 19,150 aerospace jobs were eliminated in 2010 and 34,759 in 2011.

Stevens described his industry’s “critical contribution to the economic engine of America” — $324 billion in sales in 2010, adding 2.3 percent to gross domestic product, and $89.6 billion in exports. He called it a “wellspring of innovation and creativity in technological advancement,” citing development of day-to-day essential products in air safety, weather forecasting and communications connectivity, along with weapons systems that “define a generation.”

But he said the modern industry is by necessity “smaller and leaner” and “fragile in the shadow of sequestration.” He said he “can’t begin to judge the impact of a bow wave of $53 billion” in fiscal 2013 on suppliers, partners and contractors, to whom companies are obligated to provide 60 to 90 days’ notice if workers are to lose jobs.

He expects many equity adjustment requests. “To ask us to react instantly in the year of execution would be massively complicated, and we have no real response,” he said. “It’s all yet to be determined.”

To avoid sequestration, Stevens said, Congress should consider three elements to address the nation’s $15 trillion debt: spending cuts in both defense and nondefense areas, an examination of tax policy, and entitlement reform.

Sen. Saxby Chambliss, R-Ga., co-chairman of the Senate Aerospace Caucus, also urged Congress to act soon. “If we think we’re going to wait until a lame-duck session, we’re kidding ourselves,” he told the group. He highlighted the industry’s importance both to national security and to a healthy export economy, noting he represents the Port of Savannah. “We need to make purchases by other countries easier, though we do need to get the most out of each defense dollar,” he said.

Sen. Patty Murray, D-Wash., the other leader of the caucus, praised Lockheed Martin as an important symbol of American corporate leadership, adding it is celebrating the 100th anniversary of the founding of its namesake companies. She stressed the need for the government to invest in the education and training of scientists, mathematicians and engineers. She asked the industry for support for a current amendment to reauthorize the Export-Import Bank of the United States, and implored aerospace companies to hire and train veterans.

– by Charles S. Clark, Government Executive, March 14, 2012, http://www.govexec.com/contracting/2012/03/sequestration-specter-already-making-its-mark-contractors/41468/?oref=dropdown.

Congress backs off calling contractors lobbyists

April 5, 2012 by

Senators voted March 22, 2012 to side with the House and request a report on the ins and outs of political intelligence activities before defining them in its congressional insider trading bill.

The Senate passed the Stop Trading on Congressional Knowledge (STOCK) Act (S. 2038) by unanimous consent last Thursday. The bill’s aim is to stop insider trading by senior government officials. However, unlike the Senate’s original, this bill didn’t include a provision that would have required analysts to register as lobbyists even if they communicate with the executive or legislative branch officials to inform business investment decisions for government suppliers. For example, companies talking with contracting officers or program managers about upcoming contracts.

The House’s version of the STOCK Act would have the Government Accountability Office assess the use of “political intelligence” first and then make recommendations on narrowing the definitions.

The change pleased industry groups that were concerned private-sector business analysts might be deemed lobbyists. The Acquisition Reform Working Group, a conglomeration of eight industry groups, sent letters Feb. 16 to members of Congress, urging them to rework a broad definition of “political intelligence consultants.”

“Congress clearly heard our warnings of the potential negative implications,” said Trey Hodgkins, senior vice president of national security and federal procurement policy at the TechAmerica, a member of the Acquisition Reform Working Group.

Based on the earlier version of the Senate’s bill, a political intelligence contact would be any communication to or from certain officials that is intended for use in informing investment decisions.

Hodgkins said in a previous interview that congressional staff members had analysts at hedge funds in mind, not business analysts.

Sen. Charles Grassley (R-Iowa), ranking member of the Finance Committee, said during a floor speech March 22 he  disagreed with removing the provision.

“They took a common sense provision supported by a majority of both houses of Congress, and they simply erased it,” he said.

He spoke about claims that “an unnamed House Republican” forced the Senate into passing the STOCK Act without the definition by threatening to object to a conference regarding the bill.

When both chambers pass similar legislation, they use a conference committee to iron out the differences in order to send the president one bill.

The bill has passed through Congress. Now, it will go to the White House for President Barack Obama’ signature. In January, the Obama administration showed support for the bill.

About the Author: Matthew Weigelt is a senior writer covering acquisition and procurement for Federal Computer Week.  This article was published Mar. 26, 2012 at http://washingtontechnology.com/articles/2012/03/26/stock-act-business-analyst-lobbyst.aspx.

Panel: Small businesses to feel crunch as spending declines

April 2, 2012 by

A panel of lawmakers has recommended increasing the 23 percent contracting goal because of the foreseen decline in government spending.

“There is a fear that the decrease will be disproportionately borne by small businesses,” according a report from the House Armed Services Committee’s Panel on Business Challenges Within the Defense Industry.

The panel wrote that less spending will affect the health of the defense industrial base and pose challenge to the economy as a whole.

Each year, the government, as whole, aims to award 23 percent of its spending from prime contracts to small businesses. The government continuously comes up short of the goal.

As the panel recommends the increase, it’s already being considered.

The House Small Business Committee approved a contracting bill that would raise the goal to 25 percent. The Government Efficiency through Small Business Contracting Act (H.R. 3850) would also hold agency executives accountable for meeting the goal. Senior officials would not get their bonuses if their agency misses small business goals. The House has not passed the bill yet.

In its report, the Armed Services Committee’s panel recommended that Congress and defense officials review DOD’s contracting procedures and assess its performance. Their intent should be making it easier for small businesses to win contracts.

The panel suggested developing a preferred-supplier program at DOD. It would reward small firms that have “a history of superior contract performance.”

“Such a program could incentivize small companies to compete for and perform on government contracts by holding out the opportunity for locking in long-term contracts based on performance,” the panel wrote. This could mean small businesses might commit more of their limited resources to DOD’s projects for a long-term payoff.

The panel also suggested beefing up DOD’s small business office.

The director of the office should join senior-level decision forums, such as the Defense Acquisition Board and the Information Technology Advisory Board. The director should also get invitations to the Deputy Secretary’s Management Action Group when it’s dealing with procurement issues, the panel said.

The small business officials need better coordination with senior procurement officials when planning acquisitions, according to the report. Finally, DOD needs more training for its workforce regarding small business contracting, it said.

The panel also recognized the complexities of defense contracting rules and procedures. The process is often bureaucratic and rigid, with little flexibility for managing and monitoring small businesses.

“Across the country, we heard the same thing from businesses, academics and researchers: navigating the defense acquisitions process is difficult for all businesses, but is particularly difficult for small businesses,” Rep. Bill Shuster (R-Penn.), the panel’s chairman, said March 20.

The panel released the report after six months of researching and discussing acquisition issues with more than 150 experts.

Despite its emphasis on supporting small businesses, the group also made recognized mid-size companies. These companies are caught between a growing percent of dollars going to large firms and to small firms. Citing the Center for Strategic and International Studies’ figures, the share of DOD contracts awarded to firms categorized as small businesses increased from 17 percent to 17.4 percent from 1999 to 2009. Meanwhile, the share of contracts going to large companies increased from 47 percent to 53.7 percent over the same period.

About the Author: Matthew Weigelt is a senior writer covering acquisition and procurement for Federal Computer Week. Published Mar. 22, 2012 at http://washingtontechnology.com/articles/2012/03/22/small-business-defense-department-report.aspx?s=wtdaily_230312.

DOD needs simpler contracting processes, lawmakers told

March 30, 2012 by

Congress and the Defense Department need to simplify the department’s confusing and burdensome acquisition regulations in order to make the jobs of the acquisition workforce and contractors easier, the House Armed Services Committee recommended in a new report.

In one recommendation, the report says DOD and Congress should embark on a comprehensive review of laws and regulations related to procurement. They then should attempt to amend or even repeal outdated regulations. In doing so, officials should consider whether a rule has had unintended consequences that outweigh its original purpose.

“This effort should be undertaken with an eye to simplifying and streamlining all aspects of the acquisition process and reducing the negative cost and schedule impacts,” according to the report released March 20.

The House committee’s Panel on Business Challenges Within the Defense Industry released the report after discussing acquisition issues with more than 150 people from government, industry, think tanks and academia.

The panel learned in those discussions that the acquisition rules are constantly changing and are extremely complicated. The result is unnecessary complexity, confusion, and poor execution, which only furthers challenges for the acquisition workforce, according to the report.

The Office of Management and Budget urged agencies on March 20 to take similar steps in an effort to avoid duplication among regulations. It even urged agency officials to talk to contractors and other experts before they issue a proposed rule.

DOD’s acquisition rules are off-putting to some companies, the panel wrote in its report.

“The plethora of regulations specific to government and defense contracting dissuades many companies from competing for government contracts,” the panel found.

The complexities also make it tough for the department’s acquisition workforce, which is going through a slow rebuilding process. Employees need a lot of training to understand the ins and outs of the acquisitions regulations and manage complex procurements, the panel wrote.

The workforce took a hit in the 1990s with a major reduction in its numbers. Nowadays, defense officials are attempting to rebuild it. They have hired a lot of new employees, dubbed by the panel as a “new-hire bulge.” Meanwhile many senior members are eligible for retirement.

“These parallel bulges constitute a ‘bathtub effect’ as mid-career personnel are not abundant enough to adequately replace the retirement bulge, nor provide for enough on-hands mentorship to the new-hire bulge,” the panel wrote.

DOD’s training now is very important, the panel added. Maturity in the job and higher education are keys to a strong workforce. It’s more than numbers.

Higher education equips acquisition workers with complex skill sets in finance, systems engineering, logistics, and operations management needed to administer large contracts and manage long-term technology projects.

In President Barack Obama’s fiscal 2013 budget proposal, DOD requested $374 million in its acquisition workforce development fund for recruiting and hiring acquisition and only $120 million, or less than a third, for training and development of the workforce, the panel points out.

“Just as it takes many years to develop a military leader capable of commanding at the senior ranks of the operational force, it takes a similar amount of time to develop an acquisition professional with the knowledge, skills, and experience needed to manage large defense acquisition efforts,” the panel wrote.

About the Author: Matthew Weigelt is a senior writer covering acquisition and procurement for Federal Computer Week.  This article appeared Mar. 22, 2012 at http://washingtontechnology.com/articles/2012/03/22/regulatory-reform-dod-acquisition.aspx?s=wtdaily_230312.

House passes JOBS Act, sends bill to Obama

March 29, 2012 by

The House overwhelmingly approved a measure Tuesday (3/27/2012) designed to make it easier for growing companies to attract investors and comply with securities laws. The bipartisan measure, strongly backed by both parties and the White House, passed 380 to 41.

The Jumpstart Our Business Startups Act, or JOBS Act, first passed the House earlier this month with wide bipartisan margins and the Senate approved it last week after adding amendments that provide additional safeguards on “crowdfunding” to prevent credit scams. The House needed to approve the changes before sending it to the White House for President Obama’s signature.

The legislation lifts Securities and Exchange Commission restrictions on running advertisements soliciting new investors and permits “crowdfunding” so that entrepreneurs can raise equity capital from larger pools of small investors. Small private companies also would be able to sell up to $50 million in shares as part of a public offering before having to register with the SEC, and could have as many as 1,000 shareholders, up from the current cap of 500.

House Majority Leader Eric Cantor (R-Va.) said passage of the bill was “an increasingly rare legislative victory in Washington where both sides seized the opportunity to work together, improved the bill and passed it with strong bipartisan support.”

But critics say that the changes would allow firms to avoid disclosing crucial financial information and elude government oversight, opening the door to fraud and investor abuse.

Obama’s support for the bill has put him at odds with frequent allies, including labor unions and consumer and regulatory groups. And though the Senate approved the measure, half of the chamber’s Democrats voted against passage. Congressional aides said some Democratic senators felt boxed in by the Obama’s enthusiasm for the measure.

As The Post’s Zachary A. Goldfarb reported Tuesday, the White House has worked hard since the fall to reconcile with liberal groups, adopting tougher rhetoric toward Republicans and advancing a series of policy proposals embraced by allies. But when liberals revolted over this recent legislation, the White House responded with what critics complain was only a token acknowledgment of their concerns.

Lawmakers are expected to move next to competing proposals that would provide further tax cuts to growing companies — part of a GOP strategy and Democratic counteroffensive to introduce less ambitious, but politically popular economic-themed legislation.

Cantor and House Republicans plan to vote next month on a measure that would grant 20 percent tax cuts to growing companies; a Senate Democratic proposal introduced this week would provide $26 billion in tax credits to smaller companies that either hire new workers or increase the overall size of their payroll.

— by Ed O’Keefe, The Washington Post, March 27, 2012 at http://www.washingtonpost.com/blogs/2chambers/post/house-passes-jobs-act-sends-bill-to-obama/2012/03/27/gIQA9DfZeS_blog.html.

Schedule 70 chief lays out management goals

March 28, 2012 by

Contractors on the General Services Administration’s major Multiple Award IT Schedule 70 should watch for changes.

Kay Ely, director of the Schedule since September, laid out her top management priorities March 15 to make operations run better and more smoothly, according to Allen Federal Business Partners’ The Week Ahead newsletter.

Ely wants to:

  • Digitize all contract files.
  • Expand the use of electronic contracting for end-to-end contract management.
  • Shorten the time it takes modify a contract. This should make the schedule more competitive.
  • Make Schedule 70 consistent across its components, so IT contracting officials give their customers and contractors consistent and correct answers.
  • Enhance the skills of the IT Schedule’s acquisition workforce.

Ely believes that achieving just some of the goals “would go a long way to restoring the luster of the IT Schedule, and most likely help increase business conducted through it,” according to the report.

— by Matthew Weigelt, Federal Computer Week, Mar 19, 2012 at http://fcw.com/blogs/acquisitive-mind/2012/03/gsa-schedule-70-priorities.aspx.

House Small Business panel prepares to mark up contractor bills

March 27, 2012 by

Adding to a series of House Republican bills aimed at reforming small business contracting, Rep. Mike Coffman, R-Colo., on Monday introduced legislation to reduce fraud by improving procurement training and referring more cases to the Small Business Administration’s inspector general.

The House Small Business Committee earlier this month approved six bills designed to help small businesses win more federal contracts. On Thursday, the panel plans to mark up several more, including the one from Coffman, who chairs the Subcommittee on Investigations, Oversight and Regulations.

The Contracting Oversight for Small Business Jobs Act (H.R. 4206) would amend the Small Business Act to boost penalties for fraud “so that the cost of litigation will no longer outweigh the government’s recovery,” Coffman’s staffer said .

The legislation also would raise penalties for companies that misrepresent their size and eligibility for small business contracts, while helping firms comply with related rules. According to an email from Coffman’s staff, the bill would provide a “safe harbor” for small businesses that make a “good faith effort” to comply while providing a new statutory framework for the SBA’s Office of Hearings and Appeals, which decides which businesses qualify.

The bill also would add new requirements for using the suspension and debarment process to pursue cases of fraud, making greater use of the SBA’s inspector general.

— by  Charles S. Clark, Government Executive, March 20, 2012, http://www.govexec.com/contracting/2012/03/house-small-business-panel-prepares-mark-contractor-bills/41516/#disqus_thread.

Government to increase contractor notifications for GSA Schedules

March 26, 2012 by

The government will increase the amount of notifications it gives to contractors who hold spots on General Services Administration schedules, the Washington Post reports.  (The article appears at http://www.washingtonpost.com/business/capitalbusiness/government-adds-rule-for-acquisitions/2012/03/08/gIQAYiHeLS_story.html)

As of March 19, 2012, new acquisition rules require agencies to notify companies on a given schedule of all opportunities ranging from $3,000 to $150,000.

Agencies must allow the company to make an offer and contracting officers must consider the offer.

Agencies who follow the schedule but do not notify contractors must receive at least three proposals before awarding a purchase.

If an agency does not receive three proposals, it must give a written justification of why it did not.

Purchases valued at more than $150,000 are covered under these type of acquisition regulations.

— reported by ExecutiveGov, March 19, 2012 at http://www.executivegov.com/2012/03/govt-to-increase-contractor-notifications-for-gsa-schedules/?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+execgov+%28Executive+Gov%29.

Contractors: Cautious optimism for 2012

March 21, 2012 by

Deltek’s annual Clarity government contractor study reveals an industry that is cautiously optimistic but braced for some tough times.

The optimism mostly comes from more than 400 respondents saying their revenue growth was cut in half when comparing 2011 to 2010. The average growth rate in 2011 was reported as 7.3 percent, compared to 14.7 percent the year before. But their expectation for 2012 is a return to double digit growth of 19.6 percent.

There are plenty of reasons for the drop in 2011, particularly with the delayed budget, said Warren Linscott, vice president of GovCon product strategy and management.

“Growth rates just plummeted,” he said as he presented the findings of the Clarity survey.

The survey was taken by 429 organizations that answered questions covering, business development, project management, financial metrics and compliance and risk management.

Among the business development questions, most respondents said that the restrictive spending environment was their biggest challenge, followed by increased competition and limited business development resources.

Program managers said that inexperience project managers were their biggest challenge, followed by issues with collaboration and communications, and accurate project cost forecasting.

The Clarity survey found that companies are taking longer to issue invoices but the average of days sales outstanding dropped by 10 days to 42.8 days.

Linscott said the most likely reason for the longer invoice cycle is that companies are trying to head off challenges to invoices by scrutinizing them more closely before they are sent to customers.

The result is quicker payment because the invoices are of a higher quality and have fewer problems flagged by customers, he said.

“They are taking more time on the invoices to make sure they get paid the first time they are sent out,” Linscott said.

Compliance continues to be an issue for companies with more than 60 percent reporting that government oversight of their company increased in 2011. That compares to 42 percent reporting more oversight in 2010.

Top audit issues were unchanged from 2010 with labor and time-keeping topping the list of issues auditors targeted, followed by indirect rates and internal control systems.

About the Author: Nick Wakeman is the editor-in-chief of Washington Technology.  This article appeared Mar. 14, 2012 at http://washingtontechnology.com/articles/2012/03/14/deltek-clarity-contractor-survey.aspx?s=wtdaily_160312.

New suppliers to U.S. government fall 14 percent

March 20, 2012 by

The number of new suppliers to the U.S. government fell 14 percent last year even as the Obama administration sought to increase competition in contracting.

Contract awards in the year that ended Sept. 30 went to about 29,800 companies that hadn’t done business with the government in seven years, compared with 34,800 in fiscal 2010, according to procurement data.

The decline may be partly due to businesses avoiding the federal market because agencies are cutting budgets. Without new competition, taxpayers might end up with higher costs, said Dan Gordon, who stepped down in December as President Obama’s top procurement official.

“The result is that the government gets less competition than it wants, it may get higher prices than it wants, and you risk having government procurement be completely an insider’s game,” said Gordon, associate dean for government procurement law at George Washington University Law School.

New contractors won $10.9 billion in orders in fiscal 2011, a 17 percent drop from $13.1 billion the prior year. First-time small businesses experienced a steeper decline, tumbling 34 percent to $3.64 billion from $5.5 billion in the same period.

Smaller firms, defined as having fewer than 500 employees or less than $7 million in average annual sales, may be more likely to bypass the government market because of diminishing opportunities, said Michael Golden, who formerly led the Government Accountability Office’s procurement law unit.

“When you see bigger companies closing plants in anticipation of a shrinking budget, what is a new company supposed to do?” said Golden, a Washington-based partner for the law firm Pepper Hamilton.

Working with the government presents challenges for small businesses not accustomed to the process, said Jake Ross, a retired Navy captain and partner at Maritime Security Strategies in Tampa, Fla. His company, a service-disabled veteran-owned firm, last year won its first federal contract, a $29 million deal to build a patrol boat for the Navy.

“I kick myself every day,” Ross said in an interview. “You think you’ve crossed one challenge and, by golly, you’ve got a new one the next day. The rules and regulations for government contractors do create significant barriers.”

The Office of Management and Budget looks at federal procurement data to gauge how it’s doing on competition and new entrants, said Moira Mack, a spokeswoman for the agency.

“We are committed to getting the highest quality products, for the lowest possible prices for America’s taxpayers, from an innovative and diverse set of contractors,” she said in an e-mail.

Bloomberg’s estimates on first-time vendors are based on an analysis of federal procurement data that looked at companies with new Dun & Bradstreet identification numbers that also hadn’t received awards in the previous seven years. The totals include contracts won by company and by joint ventures.

—by Danielle Ivory, Washington Post, published Mar. 11, 2012. Paul Murphy in Washington contributed to this report. This appears at http://www.washingtonpost.com/business/economy/new-suppliers-to-us-government-fall-14-percent/2012/03/08.