As local governments shrink, private consultants reap rewards

October 25, 2012 by

“I would probably bring in McKinsey,” Mitt Romney once told the Wall Street Journaleditorial board, explaining how he might, should he win in November, hire management consultants to help shape a presidential cabinet.

Romney, a devotee of corporate culture who began his career at the Boston Consulting Group, promises to transfer that technocratic ethos and private-sector reverence to the Oval Office. Indeed, management consulting firms are already marketing themselves to state and municipal governments as professionals with the necessary business savvy to help manage a downsizing austerity state.

“When crisis strikes consultants are called. Consultants thrive on chaos,” says Tom Rodenhauser, managing director at Kennedy Consulting Research & Advisory, which tracks the industry. “When a municipality is facing huge budget issues, and they can’t solve the problem themselves, they’ll call in consultants and make the tough choices that either politically or practically elected officials can’t make.”

Consultants, like Romney, have the appeal of “real-world” experience which, in early 21st-century America, means experience in the hard-nosed competitive marketplace outside of the public sector’s one-time easy comfort. Since August 2008, the number of public employees has already been cut by 662,000 nationwide. Consultants draw on experience from a private sector that has relentlessly slashed employment, broken unions and outsourced work for decades.

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More oversight needed to ensure intended contracts go to disadvantaged firms

October 16, 2012 by

The government has been aggressive in pressing recipients of federal funds to step up their oversight of Disadvantaged Business Enterprise (DBE) programs. DBEs, broadly speaking, are small businesses that are majority-owned by women, minorities or certain military veterans. Many federal contracts require participation by DBEs.

Federal regulations also oblige grant recipients to monitor contractors’ compliance with DBE requirements, including that a DBE to whom work is contractually committed is performing a “commercially useful function” — that is, doing the contracted work with its own personnel and resources.

But mounting examples of wrongdoing in DBE programs have called into question the effectiveness of recipients’ oversight.

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OMB to contractors: Follow Labor guidance on pre-sequester layoff notices

October 2, 2012 by

The Office of Management and Budget Friday reinforced a Labor Department ruling that federal contractors need not issue notices of impending layoffs to employees related to the looming budget sequester. OMB said agencies would cover contractors’ “liability and litigation costs” related to such notices if they follow Labor’s guidelines.

In a memo to senior finance and procurement officials at agencies, Danny Werfel, OMB’s controller, and Joseph Jordan, head of the Office of Federal Procurement Policy, expanded on guidance provided by Labor in July about layoff notices.

In that guidance, Labor officials said contractors should not send warnings of impending layoff notices to their employees in advance of a potential budget sequester in January. Such notices, they said, are not required under the 1988 Worker Adjustment Retraining Notification Act, and in fact are “inconsistent” with the law, according to a policy letter to state workforce agencies issued by Labor officials.

Contractors have expressed concern that the WARN Act, which requires companies to provide 60-day notice to employees of impending mass layoffs, might apply to a budget sequester that could slash federal agencies’ budgets. Labor’s Employment and Training Administration said it does not, largely because it is not clear yet — and may not be clear until the last minute — whether a sequester actually will go into effect.

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SBA increases size standards for 58 industries in three sectors

September 28, 2012 by

The U.S. Small Business Administration (SBA) issued three final rules in the Federal Register, effective Oct. 24, 2012, increasing size standards for firms in three North American Industry Classification System (NAICS) Sectors:  Real Estate and Rental and Leasing; Educational Services; and Health Care and Social Assistance.

Size standards define the maximum size a firm can be and still be considered a small business.  The revised standards reflect changes in marketplace conditions and public comments that SBA received to the proposed rules.

New size standards will enable more businesses in these sectors to obtain or retain small business status; will give federal agencies a larger pool of small businesses from which to choose for their procurement programs; and will make more small businesses eligible for SBA’s loan programs.

SBA increased size standards for businesses in 21 industries in the Real Estate and Rental and Leasing Sector.  More than 13,000 additional firms will qualify as small under these new size standards and become eligible for SBA loan and federal procurement programs.

SBA also increased size standards for nine industries for firms in the Educational Services Sector.  More than 1,500 additional businesses will qualify as small under the new size standards and become eligible for SBA loan and federal procurement programs.

Size standards for 28 industries were also increased for firms in the Health Care and Social Assistance Sector.  More than 4,100 additional firms will qualify as small under these new size standards and become eligible for SBA loan and federal procurement programs.

To review the three rules and public comments, go to  Each has a separate RIN number:

  • Real Estate and Rental and Leasing – (RIN 3245-AG28)
  • Educational Services – (RIN 3245-AG29)
  • Health Care and Social Assistance – (RIN 3245‑AG30)

The SBA is reviewing all size standards, and takes into account the structural characteristics of individual industries, including average firm size, the degree of competition, and federal government contracting trends.  This ensures that small business size definitions reflect current economic conditions in those industries.  Under the Small Business Jobs Act of 2010, SBA will continue its comprehensive review of all size standards for the next several years.

The SBA issued a White Paper entitled “Size Standards Methodology” which explains how SBA establishes, reviews and modifies its receipts-based and employee-based small business size standards.  It is available at  For the latest about SBA’s revisions to small business size standards, click on “What’s New with Size Standards.”

For a chart with the changes for specific business sectors, click here.

Purge of consultants beats goal

September 27, 2012 by

The Obama administration is ahead of schedule on a target it set last year for cutting back on consulting contracts.

Federal awards for consulting, or “management support services,” totaled $13.1 billion in the first half of fiscal 2012, a 28 percent decline from the same period in fiscal 2010, according to procurement data. The administration last year set a goal of reducing such spending by 15 percent in the year ending Sept. 30, compared with 2010 levels.

Federal contracts in 12 targeted consulting areas totaled $43 billion in fiscal 2010, with companies such as Lockheed Martin, Deloitte and Booz Allen Hamilton Holding among the biggest recipients of awards.

“Sometimes agencies are spending money on consultants to write reports that really don’t go anywhere — they sit on the shelf,” Jeff Zients, then-deputy director of the Office of Management and Budget, said when he announced the goal. “Some of these contracts are unnecessary and can be reduced.”

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Small business contracting goal remains elusive

September 21, 2012 by

The Obama administration has pushed agencies to increase contracting opportunities  with small businesses, most notably creating a governmentwide task force to  share  best practices.Yet the federal government, as a whole, has continued to miss its 23  percent small business contracting goal.

In fiscal 2011, federal agencies spent $91.5 billion on small business  contracts but were still $5.4 billion short, reaching 21.7 percent of the 23  percent goal. It was the sixth year in a row  the government missed the mark.

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Contractor suspensions and debarments on the rise, says White House

September 19, 2012 by

Suspensions and debarments of companies that violate federal contracting rules have increased across the government over the past three years, rising from just over 1,900 in fiscal 2009 to more than 3,000 in 2011, according to a new report.

In a blog post scheduled for release on Sept. 18, 2012, White House Administrator of Federal Procurement Policy Joe Jordan wrote,“while the vast majority of government contractors compete fairly to deliver the best value to the American people, it is critical that the government take a hard line against those who would defraud taxpayers. This report shows the Obama administration has made significant progress in cracking down on bad actors. Just as significant as the progress are the management actions that underlie it, and indicate an increased agency commitment to protecting taxpayer resources.”

The report, from a coordinating body called the Interagency Suspension and Debarment Committee, follows up on a November 2011 memorandum from then-Office of Management and Budget director Jack Lew directing 24 departments and agencies to step up efforts to combat waste, fraud and abuse, in part by appointing a senior official to be accountable for progress.

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Federal agency finds misuse of DBE program in Oregon

September 17, 2012 by

A  Federal Highway Administration investigation has determined that three Oregon contracting firms worked together to exploit a federal minority contracting program, and the Oregon Department of Transportation never noticed.

The firms – Bud Construction LLC, Emery and Sons Inc., and Salt and Pepper Construction Co. – “contrived a relationship” to meet Diversity Business Enterprise program requirements for a $35 million ODOT project on Oregon Route 217 that was completed in February, according to FHWA officials.

Emery and Sons used Salt and Pepper’s project involvement, which included supervision of trucking operations, to reach the project’s 6 percent DBE goal. But Bud Construction handled those operations instead, according to the FHWA. As a result, Salt and Pepper’s contribution was nullified, and Emery failed to meet DBE project requirements, the investigation concluded.

“It was pretty obvious what was going on,” FHWA spokesman Doug Hecox said. “Everyone around (the project) was pretty up front about it.”

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Reverse auctions become mandatory for DLA’s competitive, high-cost contracts

September 14, 2012 by

An online negotiation tool that’s proven to reduce material costs is now the Defense Logistics Agency’s preferred method for price negotiations on all competitive contracts valued at more than $150,000.

DLA Director Navy Vice Adm. Mark Harnitchek directed that reverse auctions be used for new procurements in a memorandum sent to the agency’s primary-level field activities in June. DLA recently awarded a new contract for an updated online reverse auction tool provided by Procurex.

The agency has saved more than $34 million through reverse auctions since fiscal 2010, when contracting officers began tracking savings from reverse auctions. Most of the savings stems from about 400 auctions held so far in fiscal 2012, said Charles Howerton, a procurement and systems analyst for the DLA Acquisition Programs and Industrial Capabilities Division.

The tool is one of several expected to drive DLA toward Harnitchek’s goal of saving $8.6 billion in material costs by the end of fiscal 2018.

“The current fiscal environment, where we have to do more with less, forces DLA and a lot of other folks to be very careful with how we spend public funds. A big chunk of the savings we’re expecting to achieve in the next five years will come from reverse auctions,” Howerton said.

Unlike traditional bidding, where suppliers don’t know who is competing for a contract or how much they’re bidding, reverse auctions allow suppliers to see what others are bidding, thereby encouraging them to propose a lower figure. The actual bidding process only takes about 30 minutes to an hour.

Reverse auctions were designed specifically to increase competition and reduce government costs, Howerton said, adding that contractors who say the tool diminishes profits are wrong. Rather, it forces contractors to be more efficient and offer items and services at the best possible price.

“Reverse auctions provide incentive for suppliers who are able to restructure their internal operating procedures and costs,” he said. It can help them make their operations more efficient and cost effective. It’s a win-win.”

Enabling contractors to see the amount others are bidding often leads to tough decisions on the contractor’s end, Howerton continued. For example, a contractor that’s been doing business with DLA for several years and sees another contractor bidding for the same business at a lower cost will have to reconsider everything from production processes to prices.

“That contractor will have to ask, ‘Can I make money selling my product at the same price as the lowest bidder or not?’ If they’re thinking long-term and strategically, they’ll make the best choice to get their internal operations as efficient as possible if it means keeping their business,” he said.

Reverse auctions are better suited for commercial and competitive items such as pens and light bulbs, but also for new long-term contracts because of the economies of scale they produce. Only commanders and directors of primary-level field activities have the authority to make exceptions for not using the tool on procurements above $150,000.

“In those cases, the field activity commander must approve the exception, and documentation will be required to explain why a reverse auction was not used,” Howerton said.

– by Beth Reece, Sept. 11, 2012, Defense Logistics Agency news at

Industry leaders express concern about impacts of Defense sequestration

September 12, 2012 by

U.S. Senator John McCain wrote in a blog post on Sept. 10, 2012 that many defense contractors believe that impending sequestration could lead to serious problems both in national security and employment rates.

(Sequestration is the formal term for mandatory cuts to federal programs – the process of cordoning off money that may have been authorized by Congress but is now prohibited from being spent.   Literally, the money is being “sequestered” – taken away from the federal agencies affected.   As things now stand, a $1.3 trillion sequester will go into effect in January 2013– slashing more than $500 billion from the military alone.)

McCain, together with Senators Joe Lieberman, Jim Inhofe, Saxby Chambliss, Kelly Ayotte, Lindsey Graham, and John Cornyn asked 13 defense contractors to join them in their appeal to stop the automatic budget cuts.

The Arizona Senator said 12 defense contractors replied and said that sequestration could “devastate the readiness of our armed forces to meet current and future threats to our nation’s security, will eliminate high-paying jobs in the industry, and will have a negative and long-lasting impact on the defense industrial base.”

McCain also stated that George Mason University professor Dr. Steven Fuller estimates that sequestration could cost 1.1 million lost jobs.

He added that many contractors are delaying hiring and capital investments.

Companies who responded to the senators’ letter include Northrop Grumman, Boeing, EADS, Lockheed Martin, Raytheon Company, SAIC, and General Dynamics.