How mature is the government contracting market?

A few months ago, I was preparing some course material to address corporate strategy in the government contracting space.  I wanted, as almost all business school professors do, to use a case study or two from any one of the famous business schools that produce them.

(EDITOR’S NOTE – This is the first in a three-part series on the future of the government contracting market. The series is based on a speech John Hillen, former CEO of Sotera Defense Solutions, delivered as part of the Brown & Brown distinguished lecture series at George Mason University’s School of Management. This first essay deals with the maturation of the GovCon market over the past 50 years.)

Out of tens of thousands of case studies, I could hardly find one done about a government contracting firm.  When I asked a former Harvard Business school professor why this was so, he offered that he doubted that many professors producing these case studies thought that government contracting was a “real” market.

The view is more widely held than one might suspect – even in the national capital region.  Many thoughtful members of Congress involved in acquisition policy, senior leaders in the executive branch, members of media, academia, and elsewhere that I’ve spoken with think that the GovCon market is really more of a political process than a “real” market characterized by competition, innovation, and transparency.  Their prevailing view is that if a GovCon firm can figure out the political process and play that game better than the next guy, they win the contract, right? One monolithic buyer served by a few cartels in a closed cottage industry, right?

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When it comes to winning contracts, small businesses need to think strategically

Ask any small-business chief executive competing in the federal market, and he or she will tell you that finding a niche within the competitive spectrum has become increasingly difficult.

 Some small businesses find themselves competing against larger businesses that have ventured into smaller contracts. With the Small Business Administration’s changes to business size standards in 2012, some small businesses also find themselves competing against much larger — but now small, by definition — businesses for set-asides.

Despite these challenges, the current government contracting environment encourages small-business participation. More than $51 billion in 2013 contract obligations went to small business via set-aside contracts, and although the total dollar figure is declining, the percentage of total obligations is increasing.

Small-business contracting continues to be a priority for contracting offices, which are under increasing scrutiny regarding small-business utilization. These offices have the burden of proof and must justify not using a set-aside for certain requirements. The Obama administration and Congress are also helping shape the path with policies that address small-business competition.

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Newly organized concern affiliation: “Key Employee” must influence entire company

Newly organized concern affiliation under the SBA’s affiliation rules did not exist when the alleged former key employee of the affiliate did not exercise influence over the entire company.

In a recent decision, the SBA Office of Hearings and Appeals held that no matter the size of the alleged affiliate, a former “key employee” must have had the ability to influence the entire company in order for the newly organized concern affiliation rule to apply.

SBA OHA’s decision in Size Appeal of Metis Technology Solutions, Inc., SBA No. SIZ-5538 (2014) involved a size determination conducted in connection with Metis Technology Solutions’ application for admission to the 8(a) program.  The SBA Area Office initially found Metis to be affiliated with two large businesses.

Metis subsequently applied for recertification as a small business.  The SBA Area Office found that Metis was no longer affiliated with one of the large businesses.  However, the SBA Area Office found that Metis was still affiliated with the second large business, Booz Allen Hamilton, Inc., under the newly organized concern affiliation rule.

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How one Navy contractor navigated Washington’s choppy waters

Raymond Lopez Jr. spent three decades in the Navy, starting out as a seaman apprentice and retiring with the rank of commander. When Lopez and his wife Carol started Engineering Services Network, a defense services company, in 1997, they built their business on Navy contracts, growing from a small start-up into a $38 million-a-year enterprise. Lopez felt like he had never really retired from the Navy.

But when the clouds of budget cuts gathered in Washington a few years ago, he realized it was time to move out of his comfort zone. The Crystal City company decided to diversify its business — a hot button word in defense contracting circles.

Back in 2004, ESN had worked on a $551,000 Air Force contract. Seven years later, when Lopez was looking to expand outside of Navy work, the connections established on that job helped the company win a crucial five-year, $38 million IT services contract with the Air Force.

The experience cemented Lopez’s decision to enter information technology. More than half of ESN’s business is still generated from providing engineering, operations and technical support services for the Navy, but federal IT jobs — managing tasks in cybersecurity and software development — now account for nearly 30 percent of its revenue. The company has worked with the Air Force, the Department of Veterans Affairs and the Department of Health and Human Services.

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Limitations on subcontracting: 1099 contractor’s work didn’t count

Under the FAR’s limitations on subcontracting clause, the work to be performed by a 1099 independent contractor did not count toward the prime contractor’s performance.

In a recent bid protest decision, the GAO held that a procuring agency properly rejected an offeror’s proposal because the offeror was relying, in part, on an independent contractor to meet its obligations under the limitations on subcontracting clause.

The GAO’s decision in MindPoint Group, LLC, B-409562 (May 8, 2014) involved a Department of Justice solicitation for information technology infrastructure support.  The proposal was issued as a set-aside for Economically Disadvantaged Woman Owned Small Businesses (EDWOSBs), and incorporated FAR 52.219-14, the standard limitation on subcontracting clause.  For a services contract, FAR 52.219-14 requires the EDWOSB to perform at least 50 percent of the cost of contract performance incurred for personnel with its own employees.

MindPoint Group, LLC submitted a proposal.  MindPoint’s proposal stated that MindPoint would self-perform 53.3 percent of the contract effort using seven individuals, including an individual designated as the “Systems Administrator MS.”  However, MindPoint’s proposal included a letter of commitment stating that the Systems Administrator MS would be an “independent consultant,” and MindPoint’s price proposal referred to the individual as a “1099 Consultant.”

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GAO: Emailed proposal in agency’s possession was not “late”

In a victory for common sense, the GAO has held that a proposal that was in the agency’s possession before the due date was not “late,” even though the offeror emailed the proposal to the agency instead of submitting it through an online portal.

The agency’s attempt to reject the proposal was particularly egregious because the agency told the protester that the proposal could be submitted by email — then rejected the proposal when the protester did just that.

The GAO’s decision in ICI Services, Inc., B-409231.2 (Apr. 23, 2014) involved a Navy task order solicitation for engineering support services.  The solicitation stated that offerors were required to submit their proposals through the Navy’s online Seaport-e portal.  However, the solicitation stated that if the Seaport-e portal was inaccessible, offerors were to immediately notify the agency.

After receipt of initial proposals, the agency opened discussions and asked offerors to submit final proposal revisions.  Because the Navy was having difficulty with its own Seaport-e portal, its email notice to offerors stated “[i]f you have any difficulties uploading your response in the Seaport-e portal, please email me the documentation.”

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These are the Georgia companies who won federal contracts in May 2014

Ever wonder who’s winning federal contracts in Georgia?

Wouldn’t this information be helpful if you are looking for subcontracting prospects?  Or when you’re trying to figure out who your competitors are?  Or when considering who might be a good partner on an upcoming bid proposal?

Each month, the Georgia Tech Procurement Assistance Center (GTPAC) publishes a list of federal contracts awarded to Georgia businesses.  The list comes complete with point-of-contact information on the awardees, the name of the awarding agency, the dollar value of the contract, and much more.

Download details on the award winners for May 2014 right here: FEDERAL CONTRACT AWARDS IN GEORGIA – MAY 2014

Winners of federal contracts earlier this year may be found at the links below:

For information on Georgia businesses that won federal contracts in 2013, click here.

Companies seeking government contracts may turn attention to state and local markets

As competition for contracts with U.S. federal government agencies increases, companies that seek to maintain or increase their government sales may set their sights on states instead.

Indeed, this may already be happening: for one thing, more than 500 people attended the “How to Market to State Governments” conference held in March by the National Association of State Procurement Officials (“NASPO”), a record for the event.

While seeking new business opportunities is generally a good thing, contractors accustomed to the way things work at the federal level should understand that state-level procurements can be a very different game. Bid protests at the state level can be especially tricky, not only for disappointed bidders, but for awardees as well. Contractors should take certain proactive measures when participating in state-level procurements to secure their chances for award.

According to a 2012 NASPO survey, only six states had at that time completely adopted the Model Procurement Code developed by the American Bar Association.

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President’s budget request yields clues for contractors to follow

Analysis of the president’s budget request typically yields some interesting clues for anyone willing to go deep enough into the data to reveal them. The numbers reveal shifting agency priorities as well as hints to the sea changes that could affect the potential $608 billion in fiscal 2015 contract spending.

There are a number of areas that contractors should consider as they navigate the remainder of fiscal 2014 and plan for 2015:

1. Put on your game face for recompetes.

2. Keep an eye on the shelf life on IT funding.

3. Take advantage of 2014 to gain footing for 2015.

4. Expect more contractor scrutiny.

5. Follow the (Defense) money.

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The government’s duty of good faith and fair dealing

The long-standing principle that the federal government had the same implied duty of good faith and fair dealing as any commercial buyer was put in jeopardy by a 2010 decision of the U.S. Court of Appeals for the Federal Circuit, Precision Pine & Timber, Inc. v. U.S., 596 F.3d 817 (Fed. Cir. 2010).

There a panel of the court adopted a narrow rule seemingly limiting application of the principle to situations where a government action was “specifically targeted” at the contractor or had the effect of taking away one of the benefits that had been promised to the contractor.

Although the decision concerned a timber sales contract not a procurement contract, when I wrote it up in the May 2010 Nash & Cibinic Report (24 N&CR ¶ 22), I expressed the fear that the reasoning would be subsequently applied to procurement contracts.

My fear was realized in a construction contract case, Metcalf Construction Co. v. U. S., 102 Fed. Cl. 334 (2011). In that decision, the judge described eggregious conduct on the part of the government officials that would have been held to be a breach of the implied duty of good faith and fair dealing under many earlier cases.

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