LPTA contracts stifle innovations, contracting officials say

May 27, 2014 by

Lowest Price, Technically Acceptable (LPTA) contracts might save the government some money, but they deter innovation, a panel of government contracting officials said Monday (May 19, 2014).

“I don’t know a senior leader in government that thinks LPTA is the best,” said Tiffany Hixson, regional commissioner for the General Services Administration. “Contracting and innovation is about risk management.”

But with shrinking budgets, agencies are looking to lower their costs and LPTA contracts do just that, said Robert Coen, acting director of the National Institutes of Health Information Technology Acquisition and Assessment Center.

“There’s way too much LPTA going on,” Coen said at the May 19 ACT-IAC Management of Change Conference. “LPTA should be used for commodity buys, not innovations.”

Keep reading this article at: http://www.fiercegovernment.com/story/lpta-contracts-stifle-innovations-contracting-officials-say/2014-05-20

Nondisclosure of higher profit on fixed price contract does not violate False Claims Act

September 11, 2013 by

Last week, a U.S. District Court judge in Florida held that a government contractor working under a fixed-price contract is not liable under the federal False Claims Act (“FCA”) for higher than expected profits and “failing to notify the Government that the work could be performed less expensively and charged at a lower price” than the contract price.   U.S. ex rel. Prime v. Post, Buckley, Schuh & Jernigan, Inc., and Parsons Corporation, No. 10-cv-1950 (M.D. Fl. Aug. 23, 2013).

The nature of the contract was critical to the outcome of the case. In U.S. ex rel. Prime, two contractors, Post, Buckley, Schuh & Jernigan, Inc. (“PBS&J”) and Parsons, formed a joint venture for the project (the “JV”). The JV entered into a fixed price indefinite delivery/indefinite quantity contract with the Government, under which fixed price task orders would be placed. Prices on the individual task orders were lump-sum, determined in accordance with the agreed-upon labor rates multiplied by the number of days required to complete the work, and included a profit component. The labor rates and lump-sum task order prices were a product of lengthy negotiations between the JV and Government representatives. During those negotiations, which were transcribed, the Government noted the potential for the JV to increase its profit margin by injecting greater efficiency into its performance.

Keep reading this post at http://www.mckennalong.com/publications-advisories-3378.html.

Contractors find that doing business with government is increasingly risky

December 18, 2012 by

Federal contracting is increasingly becoming a high risk business, according to an industry survey scheduled to be released later this month.

The survey from consultant Grant Thornton shows nearly 40 percent of federal contractors achieved lower revenues this year compared to last year while 35 percent made greater revenue, Grant Thornton Principal Lewis Crenshaw said.

In 2011, by comparison, half of government contractors reported increased revenues and about 30 percent reported a decrease, Crenshaw said during a Dec. 14, 2012 event hosted by the Association for Federal Information Resources Management. The consultant plans to release its 18th annual government contractor industry survey later this month.

Keep reading this article at: http://www.nextgov.com/cio-briefing/2012/12/federal-contracting-increasingly-risky/60190/?oref=nextgov_today_nl.

Are contractors at risk of a flame out?

March 14, 2012 by

Retired Vice Adm. Lewis Crenshaw Jr. is a former Navy aviator so you have to forgive his aviation analogy, but in presenting accounting firm Grant Thornton’s annual contractor survey he made a convincing case that many companies in the market are dangerously close to stalling out.

On the surface, some of the numbers look good: 50 percent of the respondents said revenues were up. But that is down from last year’s survey that showed 55 percent reported growth.

Also troubling, is that 29 percent reported a decrease in revenue, compared to 22 percent last year.

Companies also reported profit margins in keeping with previous surveys, but the profits aren’t coming from revenue growth, Crenshaw said, but from controlling costs.

The aviation analogy for Crenshaw, now the national practice leader for Grant Thornton’s aerospace and defense market sector, is that you can only slow your airplane down for so long before it stalls and then you crash and burn.

“Next year’s numbers should be very interesting to look at,” he said.

Another warning sign is the assets to liability ratio, where 60 percent of companies reported a ratio of two or less.

“You’re not in good shape with that and it supports my stall analogy,” he said.

Grant Thornton’s annual survey asks companies about a variety of financial and business factors, including financial statistics, compensation, business strategies and contracting issues such as delays and terminations and issues dealing with government customers.

The accounting and consulting firm uses the survey to present a benchmark of the market and as a platform for discussing trends in the market.

Some of the highlights of its findings include the fact that firm-fixed-price contracts have not grown in use, according to the respondents and remains at about 20 percent of contracts.

“Despite the rhetoric it hasn’t changed year-to-year,” Crenshaw said.

Companies reported that the use of task order contracts rose by 50 percent and that less than 45 percent of revenue came from these contracts.

Another interesting finding was that 81 percent of the companies reported that they were asked to do out-of-scope work on contracts and 84 percent of those did the work. Surprisingly, only 25 percent filed for adjustments to their contracts.

“Out-of-scope work might become a bigger issue if more contracts go to firm-fixed price,” Crenshaw said.

About the Author: Nick Wakeman is the editor-in-chief of Washington Technology.  This article was published on Mar. 7, 2012 at http://washingtontechnology.com/articles/2012/03/07/grant-thornton-contractor-trends.aspx?s=wtdaily_090312.

Should contractors fear sequestration?

January 24, 2012 by

If sequestration of federal funds kicks in, agencies will face making deep cuts to programs and that pain will flow down to contractors, experts say.

A sequestration causes automatic, indiscriminate, across-the-board budget cuts. The failure of the so-called supercommittee to find $1.2 trillion dollars in savings over a decade triggered the cuts. They’re set to take effect Jan. 2, 2013.

As a result, contractors too “are hostages in a showdown between the president and Congress over fundamental decisions on taxing and spending,” said John Cooney, former general counsel at the Office of Management and Budget and now a partner at the Venable law firm.

He spoke Jan. 17 at a panel discussion hosted by the Professional Services Council that looked at sequestration in detail. Cooney broke down the possible routes federal officials may take to deal with the cuts.

Cooney expects agencies to:

  • Try to avoid terminating contracts. Instead, officials will reduce the amount of money obligated under their contracts.
  • Become less willing to extend contracts into their option years.
  • Obligate money for one fiscal year at a time on task order and services contracts.
  • Possibly use the prospect of the sequester’s cuts to renegotiate contracts.

He also said agency officials will more often decide to not award new contracts.

“This will be a common agency practice in year one of a sequester. Procurements that can be put off will be put off,” he said during the discussion.

With available money, agency officials will maximize contracts that meet their agency’s core duties, said Alan Chvotkin, executive vice president and counsel for the Professional Services Council, who spoke on the panel as well.

Meanwhile he expects agencies to look for more flexibility to avoid hard-and-fast commitments, such as fixed-price contracts and minimum revenue guarantees. And on the other hand, officials may use more time-and-materials contracts, which are based on labor hours and materials.

However, Chvotkin said there are some policy constraints as the Obama administration has railed against this type of contract, which places a lot of risk on the government.

IDIQs and the General Services Administration’s Multiple Award Schedules program may become more attractive to agencies. They allow for more negotiations at the task order level, he said.

Cooney had several suggestions for companies in light of what may happen. Advocate for the importance of a program and stay in close contact with a contracting officer. Realize though that the officer may not know the fate of a program until very late in the process.

Businesses should also emphasize what they can do for the agency, including the options the company is willing to agree to that may even decrease its revenue, Chvotkin said.

He recommended checking the Past Performance Information Retrieval System (PPIRS) and the Federal Awardee Performance and Integrity Information System (FAPIIS). The information needs to be correct, and it should reflect as favorably as possible on the company’s performance.

About the Author: Matthew Weigelt is a senior writer covering acquisition and procurement for Federal Computer Week. This article appeared Jan. 19, 2012 at http://washingtontechnology.com/articles/2012/01/18/sequestration-effects-contracts.aspx?s=wtdaily_200112.

New NASA priorities open billions in new opportunities

June 10, 2011 by

NASA might be cutting $1 billion from its space operations budget but a new study claims there are billions in opportunities in science and technology areas.

“As NASA shifts priorities for human spaceflight from shuttle operations to human exploration capabilities and commercial spaceflight, the budget will be redirected to a range of technology development programs,” said Steve Bochinger, president of Euroconsult North America.

The firm and its partner Omnis Inc. have released a new study, NASA Spending Outlook: Trends to 2016, which analyzes NASA’s budget.

As space operations shrink, the science budget will be redistributed among NASA centers, Bochinger said.

Among the findings:

  • The Science Mission Directorate saw an 11 percent bump in 2011 and will have a $5 billion through 2016. Goddard Space Flight Center and Langley Research Center will benefit because of the work on Earth science projects.
  • The Exploration Systems Mission Directorate will hold steady at about $3.9 billion but funds will shift away from human exploration activities.
  • The new Space Technology Directorate will get $1 billion a year from 2012 to 2016. Langley, Glenn and Ames research centers will benefit because of their work on new technologies for exploration and robotic spaceflight.
  • NASA is restructuring the Aeronautics Research Mission Directorate to focus on fundamental aeronautics and development of technologies for the Next Generation Air Transportation System.

The study also predicts that NASA’s business practices will have to change with a shift from cost-plus contracting to more fixed-price contracting.

About the Author: Nick Wakeman is the editor of Washington Technology. Article appeared June 8, 2011 at http://washingtontechnology.com/articles/2011/06/08/nasa-budget-priorities-shift.aspx?s=wtdaily_090611

GAO sustains protest of $25 million Booz Allen Hamilton networking contract

May 4, 2011 by

The Government Accountability Office has recommended pulling a $25 million task order the Defense Information Systems Agency awarded Booz Allen Hamilton to enable the transmission of data between secure Defense Department computer networks.

The major defense and technology contractor fudged the likely cost of its employees’ workspace, artificially lowering its bid when competing for the work, according to an April 6 decision by GAO that was released in a redacted form Friday.

The contract to help DISA develop and manage its secure data transmissions was initially awarded in September to the smaller technology contractor Solers Inc., located in Arlington, Va., GAO said.

But the agency agreed to pull back the contract after Booz Allen asserted that contracting officials hadn’t sufficiently reviewed all the bids, the decision said.

The Defense agency then looked at revised bids and awarded the contract to Booz Allen in December 2010. The Solers bid was still technically superior, the agency said, but not worth a price hike of about 12 percent.

The Solers bid was about $27.4 million compared with the Booz Allen bid of about $24.6 million.

Solers objected to the Booz Allen award, saying the larger company hadn’t abided by a contract provision requiring a stable, fixed-price bid.

Booz Allen said in its bid that it was presuming more of its engineers would be able to use government workspace than the agency’s request for proposal had indicated.

Using government workspace would save money for both the contractor and the government, Booz Allen said. But the contractor noted that, if the agency declined to give the engineers government workspace, that would likely raise the contract price.

Booz Allen and DISA both claimed this quibble didn’t violate the contract’s fixed-price provision. It merely indicated Booz Allen might request an adjustment to its fixed price in the future, they said.

GAO disagreed, saying the “collective effect” of Booz Allen’s statements about government workspace added up to its offered price being “conditional, not firm.”

GAO also upheld Solers’ claims that the contracting officer hadn’t sufficiently evaluated the feasibility of Booz Allen’s proposal or looked closely enough at its past performance.

GAO recommended that DISA reevaluate bids for the project or reopen the bidding entirely. It also recommended that the agency reimburse Solers for the cost of its protest.

– By Joseph Marks – NextGov.com –  04/29/2011 – at http://www.nextgov.com/nextgov/ng_20110429_8693.php?oref=rss?zone=NGtoday

Army skeptical of fixed-price contracts

March 11, 2011 by

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

Congress funds government through winter

December 23, 2010 by

Talk of a federal government shutdown can subside until March 4 now that Congress has passed another temporary spending bill funding federal agencies through that date.

The bill increases federal spending $1.16 billion above fiscal 2010 levels but most federal agencies will see little change. Fiscal 2010 ended Sept. 30; federal fiscal years start Oct. 1.

The temporary spending measure had bipartisan support in the Senate, which voted 79 to 16 for it, but less so in the House, which broke mainly along party lines to approve it 193 to 165.

The bill means fiscal 2011 will be dominated by uncertainty for federal agencies, which find it difficult to make big commitments when funding is tentative. Some agencies use cost reimbursement contracts as a means of dealing with the uncertainty, since unlike fixed price contracts, cost contracts allow agencies to incrementally add funding.

The March 4 deadline also means that Congress likely will be dealing with two fiscal years simultaneously–the fiscal 2012 request submitted by the president on the first Monday of every February, and the remainder of fiscal 2011. Republicans have indicated they want to cut spending further and in particular target funding meant for implementing healthcare reform under the Affordable Care Act.

[Note: This "Continuing Resolution" was signed by the President on 12/22/2010.  See http://thomas.loc.gov/home/approp/app11.html]

– by David Perera – FierceGovernment.com – Created Dec 21 2010 – 11:02pm

New Congress could put the brakes on insourcing

December 21, 2010 by

The 112th Congress is unlikely to let the Obama administration move full-speed ahead on its initiative to bring contractor jobs back in-house, a consultant and a Republican Senate staff member said on Thursday.

Jonathan Etherton, president and owner of the consultancy Etherton and Associates Inc. and a former Senate Armed Services Committee staffer, told an audience of contractors at a Coalition for Government Procurement breakfast he has heard at least three congressional panels plan to look at whether insourcing is being implemented strategically and whether agencies are focusing on critical positions.

Bill Wright, Republican staff director for the Senate Homeland Security and Governmental Affairs Ad Hoc Subcommittee on Contracting Oversight, noted insourcing is on the radar of ranking member Sen. Scott Brown, R-Mass. Brown is concerned the initiative is moving forward too quickly and without enough consideration of its effect on small businesses, Wright said during the breakfast discussion.

More generally, Brown is looking for ways to improve efficiency during times of mounting national debt, Wright said. The senator is developing an acquisition savings plan that could include expanding strategic sourcing, an approach in which agencies analyze purchasing trends and buy common commodities and services in bulk; rewarding high-performing acquisition teams; and promoting a more specialized acquisition workforce by requiring officials to obtain certifications in certain areas of expertise.

New Congress could put the brakes on insourcing  Much of the subcommittee’s oversight work to date has been bipartisan, Wright added, and Brown is working with the administration on the efficiency initiatives.

Etherton noted, however, that Congress’ overall relationship with the executive branch is likely to grow more adversarial in 2011 with Republicans in control of the House and lawmakers aggressively scheduling oversight hearings.

In addition to insourcing, Etherton said, the next Congress is likely to examine implementation of the 2009 Weapons System Acquisition Reform Act; the relationship between the Defense Contract Audit Agency and the Defense Contract Management Agency; the definition of inherently governmental work; how to best ensure adequate contractor controls against waste, fraud and abuse; and how Defense Department savings initiatives will affect the industrial base.

Wright predicted lawmakers also would focus on transparency surrounding contractor profit incentives and subcontractor performance; tracking contract-related earmarks; and enhancing competition and limiting risk through fixed-price arrangements.

– by Amelia Gruber -  Government Executive – December 16, 2010