Georgia Tech Procurement Assistance Center

President orders clampdown on tax-delinquent contractors

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by Matthew Weigelt-Jan. 20, 2010-President Barack Obama today took some basic steps to hammer government contractors that are delinquent in paying their taxes.

In a memo the president signed this morning, Obama directed the Office of Management and Budget, the Treasury Department and other federal agencies to find ways to block companies that have not paid taxes from receiving new government contracts. He expects recommendations on how the government can do that in three months.

One way to do that is better data-sharing. The president wants a plan to make contractors’ certifications on their taxes available in a governmentwide database, similar to the data exchanges already being done with other information on companies.

“All across this country, there are people who meet their obligations each and every day,” Obama said in a speech today before signing the memo. “And yet, somehow, it’s become standard practice in Washington to give contracts to companies that don’t pay their taxes.”

The president is also directing the IRS to conduct a review of the overall accuracy of companies’ claims about tax delinquency.

“We need to be sure that when a company says it’s paying taxes, that company is in fact paying taxes,” he said.

A regulatory change to the Federal Acquisition Regulation in 2008 requires contractors to certify whether they had delinquent taxes, had failed to pay taxes or had received notice of a tax lien against them. In addition, an agency could suspend or debar the company from government work if a contractor told the government it had had problems with taxes during the previous three years.

In his speech, Obama asked Congress to approve legislation to allow data sharing between the IRS and contracting officials at agencies.

“So the steps I’m directing today and the steps I’m calling on Congress to take are just basic common-sense steps,” Obama said. “They’re not going to eliminate all the waste or all the abuse in government contracting in one fell swoop.”

Defense contractors are confident about fiscal 2011 budget

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By Megan Scully CongressDaily January 20, 2010

The panic pervasive in the defense industry a year ago has largely subsided as officials await an fiscal 2011 Pentagon spending request that most budget watchers expect will not include the program terminations and deep cuts that made fiscal 2010 a major turning point for many firms that do business with the military.

Industry officials and outside analysts will undoubtedly eye the defense budget and the accompanying Quadrennial Defense Review of military priorities and capabilities for any new investment areas or shifting procurement priorities.

But most say they feel they have a read on the administration, now in its sophomore year, and feel confident that top officials are prepared to invest in defense — even if that amounts to more modest annual increases than those enjoyed during the Bush years.

Sources say they view the fiscal 2010 cuts, now a painful memory, as a seismic shift intended to change the Pentagon’s course. A repeat of last year, they said, is neither likely nor necessary.

“It’s probably never over — whether it’s a thousand cuts or one big one, I think one always wonders what’s out there,” one defense industry source recently said.

But the source, who, like many in the defense industry, has been scrambling to learn details of the Obama administration’s closed-door budget negotiations, said the prevailing thought within industry is that Defense Secretary Robert Gates laid out his major programmatic changes and cuts in last year’s request.

The budget request, as well as the QDR, are expected to be an outgrowth of that fiscal 2010 request, which focused on ending problematic or unnecessary programs in favor of funding technologies deemed more critical to operations in Afghanistan and Iraq or essential to providing a hedge against future threats.

Industry sources said they don’t anticipate many major new program starts in the fiscal 2011 request and only a modest uptick in the base defense budget. And much of that increase will likely be spent to pay for rising personnel and healthcare costs instead of buying new weapons systems.

But there are some areas that could see increased investments, including unmanned aerial vehicles — one of Gates’ favorite technologies — as well as directed energy, short- and mid-range missile defenses and cybersecurity programs.

There is “some concrete anticipation that you’ll see investment in those areas,” the industry source said.

One long-suffering sector of the defense industry — shipbuilders, who have faced erratic budgets over the last several years — are hoping for stability and at least a $15 billion investment for next year, said Cindy Brown, president of the American Shipbuilding Association.

The industry, Brown says, hopes the Pentagon maintains the requirement that the Navy field 12 aircraft carriers. They also believe the Navy will commit to investing in research and development of a replacement for Ohio-class submarines, which are set to begin retiring in the late 2020s.

Another industry source closely tracking the budget said battlefield communications technology — down to the level of the individual soldier — could get a heavy investment in the fiscal 2011 budget.

Meanwhile, troop increases in Afghanistan could mean more money spent on vehicles, generators, transport aircraft and helicopters, as well as innovative solutions to key problems such as improvised explosive devices and energy use, according to an analysis released Tuesday by Deloitte’s aerospace and defense sector.

“The bottom line is … are you in a fast current?” the second industry source said. “Do you have the program that’s going to be paying dividends? And if you are, you’re good.”

The QDR, essentially a planning document, could shed some light on which firms will be riding a fast current. Past QDRs have delineated new spending and offered rationales for launching of ambitious long-range programs.

But the much-anticipated quadrennial reviews traditionally include scarcely a mention of defense industry or industrial base concerns — a fact that industry officials believe will change this time.

“At this point, we are cautiously optimistic that this QDR will be different and … will actually take into account to some degree the issue of we must maintain the human capital, the expertise, the facilities and the resources to address future threats,” said Marion Blakey, president of the Aerospace Industries Association. “And as a result, those kinds of factors are going to have to be part of our strategy, not just what we need for the immediate conflicts we are involved in.”

In an unusual move just weeks before the release of the budget and the QDR, Gates and two other senior Pentagon officials met with AIA and leaders from top aerospace firms behind closed doors last week.

Blakey, who attended the meeting but would not discuss the details, said she viewed it as a “positive sign” of the administration’s desire to reach out to industry. “The administration is showing a willingness to approach the defense needs of the country as a real partnership, where we are able to work together in a way really that I don’t think we have seen in recent years, and this is a really encouraging thing,” Blakey said.

(C) 2010 BY NATIONAL JOURNAL GROUP, INC. ALL RIGHTS RESERVED.

Survey: Many federal contractors saw boost despite recession

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According to a new report from consulting firm Grant Thornton LLP, half of federal contractors surveyed experienced revenue boosts from federal business during the past year.

Despite the continued recession, only 20 percent of respondents to the accounting firm’s 15th annual Government Contractor Survey reported a decrease in revenue from federal business in the last 12 months.

“The revenue trends experienced by surveyed companies illustrate the conventional wisdom that government spending never experiences a recession,” said Kerry Hall, head of Grant Thornton’s government contractor practice. “While the commercial sector of the economy has been suffering from major business disruption, financial losses and employee cutbacks, government contracting remains a growth industry.”

About one-third of respondents said they anticipated modest revenue increases from the stimulus package; only 4 percent said they anticipated significant increases from the spending spree. The rest of respondents reported that they didn’t expect to see a measurable change in their business as a result of the stimulus.

The survey’s participants earned approximately 91 percent of their total revenue from government contracts, the same proportion as the 2008 report. The percentage of revenue earned through Defense Department contracts, however, decreased slightly from last year, breaking with recent trends. Revenue from Defense contracts had grown steadily during the past few years, from 56 percent to 65 percent, according to Grant Thornton’s last three surveys.

“It is likely that the small decrease in revenue from DoD contracts in the 15th annual survey may have been caused by the winding down of government contracting operations in Iraq,” the report said.

Despite the relative stability of the federal market, contractors continue to report modest profits. Almost half (45 percent) of surveyed companies said they earned either no profit or profit rates between 1 percent and 5 percent of revenue. This is a notable increase from last year, when 37 percent of respondents reported profits in this low range.

Contractors cited two ongoing issues that might affect business in the upcoming year: changes in the Defense Contract Audit Agency’s management and audit procedures and expanded ethics and compliance requirements.

The majority (86 percent) of contractors reported positive relationships with DCAA auditors, although 11 percent said their relationship with DCAA has worsened during the past year, compared to only 3 percent who said relationships with their agency contracting officers have deteriorated. Grant Thornton noted that DCAA’s response to severe criticism from the Government Accountability Office during the last year likely will increase risk to contractors.

“Given the changes currently taking place within DCAA, we expect the relationship with DCAA to be less positive in next year’s survey,” the report stated.

Defense takes aim at contractor business systems

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The Defense Department is getting tough on contractors that fail to maintain adequate controls against waste, fraud and abuse.

In a draft rule posted Friday in the Federal Register, Defense proposed allowing contracting officers to withhold payments from companies with certain deficiencies in their business systems.

A clause would be added to contracts requiring firms to certify that they have no major defects in their systems for accounting; purchasing; estimating; and property, earned value and material management. The notice outlined the criteria for a sound business system in the six areas.

Contracting officers would have the authority to withhold payments on cost reimbursement, incentive-type, time-and-materials, and labor-hour pacts, according to the proposed rule. They also could do so on contracts that provide progress payments based on costs or on a percentage or stage of completion.

“Weak control systems increase the risk of unallowable and unreasonable costs on government contracts,” the draft rule stated.

The proposal relies on auditors from the Defense Contract Audit Agency or other “functional specialists” to document any business system deficiencies.

If companies fail to fix documented problems, or do not submit a corrective action plan within 45 days, then contracting officers could immediately begin withholding 10 percent of the payments under the contract, the notice stated. If firms submit an acceptable corrective action plan but do not completely remedy the identified deficiencies, then contracting officers could withhold 5 percent of each payment.

For companies with defects in multiple business systems, generally the cumulative percentage of payments withheld could not exceed 50 percent, the rule said.

Penalties would increase significantly if the problems are not addressed. Withholdings could reach 100 percent for deficiencies deemed “highly likely to lead to improper contract payments being made,” or problems representing “an unacceptable risk of loss to the government.”

The contracting officer and the auditor must approve any corrections to business systems, according to the proposal.

The business systems of Defense contractors, particularly those operating in Iraq and Afghanistan, have come under intense scrutiny recently.

Last year, the congressionally chartered Commission on Wartime Contracting examined a selection of reports on contractor business systems associated with $43 billion of work and found auditors had deemed half the systems for billing and compensation “inadequate” and prone to unallowable costs. Panel staffers uncovered somewhat smaller problems with the systems used for accounting, budget, electronic data processing, indirect and overhead costing, labor and purchasing.

During an August hearing, commission members cited a lack of cooperation between the Defense Contract Management Agency and the Defense Contract Audit Agency as one of the biggest impediments to oversight of contractors’ business systems.

The commission noted in its June 10, 2009, interim report to Congress, that “significant deficiencies in contractor systems increase the likelihood that contractors will provide proposal estimates that include unallowable costs or that they will request reimbursement of contract costs to which they are not entitled or which they cannot support.”

Comments on the proposed rule will be accepted until March 16 and can be e-mailed to dfars@osd.mil with DFARS Case 2009-D038 in the subject line.

Transportation IG finds gaps in contractor enforcement

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A new report from the Transportation Department’s inspector general found that millions of dollars in stimulus funds have been awarded to companies that the department could have suspended from doing business with the government.

The audit, which reported that the Commonwealth of Kentucky awarded more than $24 million in Recovery Act contracts, found serious gaps in Transportation’s suspension and debarment procedures, including reviews dragging on for more than a year, unclear guidelines and poor management oversight.

“Not only do these delays put DoT and other federal agencies at risk of awarding contracts or grants to parties who should be suspended or debarred, but they also create funding risks that could impact the effective and efficient use of funds — especially those awarded under [the American Recovery and Reinvestment Act],” the IG said.

Auditors highlighted one case in which taxpayer funds might have gone to an ineligible contractor.

In September 2008, the IG recommended that the Federal Highway Administration (FHWA) suspend several companies and individuals who had been indicted in a bribery case. The company officers, who allegedly bribed state officials to obtain confidential state documents to determine bid estimates, were charged with conspiracy and obstruction of justice.

In July 2009, 10 months after the initial referral, FHWA suspended several individuals, although it did not punish their respective companies. In the meantime, officials in Kentucky had awarded those businesses a pair of multimillion-dollar stimulus contracts.

“With better communication between FHWA and Kentucky’s Transportation cabinet regarding the forthcoming suspensions, the awarding of the ARRA contracts may have been avoided,” the report said.

Linda Washington, Transportation’s assistant secretary for administration, said there was not enough evidence to suspend the companies that won the Recovery awards. The FHWA, however, has asked the IG to provide additional oversight of the two contracts, she said in response to the IG report.

Washington added that many of the problems the IG cited already have been addressed. “[Federal Highway Administration] in particular has substantially ramped up the resources and management attention devoted to suspension and debarment cases and has already completed significant accomplishments in the area,” she said.

The long delays in executing suspensions are not uncommon. Transportation guidelines, established in 2005, set a 45-day deadline for making a suspension and debarment decision. Department officials also have a five-day window for reporting suspensions to the General Services Administration, which manages the Excluded Party Listing System, a governmentwide database of banned companies.

But Transportation has not come close to meeting those deadlines. As of March 31, 2009, the average processing time for executing a suspension at the Federal Highway Administration, Federal Aviation Administration and Federal Transit Administration was 301 days. Only 30 percent of suspensions were executed within 45 days. Processing times for debarments were even worse, averaging 415 days, according to the report.

Department employees told the IG they thought the 45-day period was merely a goal for conducting research and providing recommendations.

One problem the IG cited is Transportation officials have an unnecessarily high evidentiary threshold in suspension cases. While Transportation rules state an indictment or conviction is sufficient, officials often performed extra time-consuming tasks, such as gathering additional information and research not required by department policy, the report said.

The Federal Highway Administration, which processes the majority of Transportation suspension and debarment cases, told the IG that these additional steps allow companies, many of which are small businesses dependant on the government for work, an opportunity to demonstrate why they should not be suspended.

In other instances, IG found that the suspension and debarment workload was considered collateral duty and staff often would be pulled away for other assignments.

Some cases have been pending for several years without action because Transportation officials lack the necessary follow-up procedures to close cases, investigators found.

For example, the Federal Highway Administration waited more than four years to close a case involving a contractor that pleaded guilty in May 2005 to conspiracy, bribery and unlawful storage of hazardous materials. Ultimately, the Environmental Protection Agency — which also employed the firm — debarred the company and its principals in mid-2007.

According to a Federal Highway Administration suspension and debarment official, the case “slipped through the cracks.” In September 2009, 27 months after EPA’s debarment, the FHWA closed the case.

Meanwhile, nearly half the suspension and debarment decisions the IG reviewed were not entered into the Excluded Party Listing System within the required five days. The IG found 14 cases that took more than 100 days to be added to the database and one case that took a whopping 864 days.

In one case, the Federal Transit Administration failed to provide documentation until March 2007 on a business and four individuals it debarred in November 2006. According to FTA officials, staff misplaced paperwork on these decisions. No single office is responsible for managing the agency’s suspension and debarment program.

The IG recommended that Transportation strengthen and revise its internal controls and modify its corresponding data systems. The department agreed with the recommendations.

Concern grows over stalled GSA nomination

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By Robert Brodsky rbrodsky@govexec.com January 11, 2010

For more than eight months, Martha Johnson has been in bureaucratic purgatory.

President Obama nominated Johnson on April 3, 2009, to serve as chief of the General Services Administration, and she easily cleared the Senate Homeland Security and Governmental Affairs Committee in June. But, Johnson’s name has yet to reach the Senate floor for a full vote due to a hold by Sen. Kit Bond, R-Mo., involving a Kansas City building project.

A former GSA chief of staff during the Clinton administration, Johnson now has waited longer than any other Obama nominee to be confirmed. And, some are beginning to suggest that the White House is not doing enough to break the stalemate.

“One has to wonder why the president is not being more aggressive and energetic in his defense of Martha Johnson,” said GSA former Administrator Lurita A. Doan, who held the spot from May 2006 until she resigned in controversy in April 2008 and is now a Federal News Radio commentator. “The GSA administrator is an important position with broad responsibilities. Martha Johnson was President Obama’s nominee. Obama could push Johnson’s confirmation forward if he wanted to, but he seems content to allow her to twist in the wind.”

Doan was forced out of the job after butting heads with Democratic lawmakers, GSA’s inspector general and eventually, the Bush White House. Since then, the agency has been in perpetual transition.

David Bibb served as acting administrator from May 2008 until his retirement three months later. Jim Williams, the commissioner of GSA’s Federal Acquisition Service, filled in until the Obama administration appointed Paul Prouty as acting chief in January 2009. Prouty, whose family is in Denver, opted to return home last month and resume his former job as assistant regional administrator in the Public Buildings Service in GSA’s Rocky Mountain Region. Stephen Leeds, who had been working as a senior counselor to Prouty, was named the fourth acting administrator in 20 months.

The ongoing management upheaval apparently has taken its toll. Last week, Danielle Germain, named GSA’s chief of staff in June, stepped down, citing the lengthy delay in Johnson’s nomination. Meanwhile, Barnaby Brasseux, who served as GSA’s deputy administrator since September 2008, retired in early January.

“Fundamentally, the agency can still function, almost on autopilot,” said a former GSA official who requested anonymity to speak freely about the situation. “But, without a leader there is no one really setting the agenda or laying out their vision of what needs to be done.”

GSA spokeswoman Sahar Wali said the delays have not hurt morale or general operations, but rather kept the agency in a permanent transition period.

“Imagine a business being without a CEO,” Wali said. “Now imagine that for two years.”

An industry source said part of the problem is GSA is not a high-visibility agency and Johnson lacks the political connections to broker a deal. And, while GSA is undergoing its share of personnel upheaval, sources said the situation pales in comparison to the void at the Transportation Security Administration, where, in the midst of several crises, including an attempted terrorist attack on Christmas Day, Erroll Southers’ nomination to serve as administrator has been delayed by a hold from Sen. Jim DeMint, R-S.C.

“I’ve worried all along about nominees that get held up, particularly when it has nothing to do with the nominee or his or her qualifications,” the industry source said. “Given all of the high-priority issues on the table, the need to make all kinds of deals, how much is the White House willing to give for an individual?”

Another well-informed acquisition source said the White House has “hung [Johnson] out to dry.” But, sources told Government Executive the White House is not considering alternatives to Johnson at this point.

The Office of Management and Budget did not respond to a request for comment.

By February, the Senate is expected to invoke cloture on Johnson’s nomination, along with several other appointees currently being bogged down by holds, according to one government source familiar with discussions. Cloture — a process in which debate on a bill or nomination is brought to an end — can be complicated. It requires 60 votes, can take 30 hours of debate and no other legislative matters can be considered until the process is complete.

“They just need to set aside time for debate,” the government source said. “That’s the big issue right now.”

Some lawmakers, however, are getting impatient. Leslie Phillips, a spokeswoman for the Senate Homeland Security and Governmental Affairs Committee, said Chairman Joseph Lieberman, I-Conn., is “frustrated” by the delay in Johnson’s confirmation.

“It is contrary to the public interest to block a qualified nominee based on parochial interests, and irresponsible to block a nominee for this length of time,” Phillips said. “GSA needs strong, focused leadership, and the hold on Martha Johnson’s nomination puts the entire agency at a disadvantage.”

Bond’s hold apparently has little to do with Johnson’s qualifications, which sources indicated are not in doubt. The senator wants GSA to close down the federally owned Bannister Federal Complex outside Kansas City and relocate the 1,200 employees who work there to office space downtown, as part of a major revitalization project.

The original plan, submitted to Congress in 2008, had been for a local developer to build a new office center and lease it back to GSA. Sources said Brad Scott, who served as GSA’s regional administrator in Kansas City during President George W. Bush’s administration, brokered the plan. Scott was Bond’s deputy chief of staff for 12 years.

GSA officials said they still plan to move employees from the Bannister complex but have changed their strategy from leasing the new space to building and buying it. Bond’s office did not respond to a request for comment.

“GSA has done what it can to move forward with this process,” Wali said.

(C) 2010 BY NATIONAL JOURNAL GROUP, INC. ALL RIGHTS RESERVED.

Procurement reform fever to die down in 2010

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By Matthew Weigelt – Jan. 07, 2010 – What a difference a year makes, even if in a wholly unexpected way.

On March 4, 2009, President Barack Obama delivered what had the makings to be a game-changing speech for the federal information technology community. The president outlined his agenda for overhauling federal procurement, promising to end wasteful contracting practices and wean agencies off their reliance on government contractors.

The federal market was soon buzzing about fixed-priced contracts, reinvigorated competition, and a pronounced shift from the outsourcing of government work to the insourcing of contractor work.

“The way government agencies acquire the goods and services needed to carry out their responsibilities will take an abrupt 180-degree turn if President Barack Obama gets his way,” Federal Computer Week reported at the time.

However, the buzz generated by that speech and its accompanying memo has grown quiet, and the market is back to business as usual, or nearly so. What seemed like the start a major reform initiative 10 months ago now appears to have been a new president putting his stamp on issues that previous administrations have also tackled.

Contracting policies “have been fairly consistent throughout the years. It’s just good public policy,” said Robert Burton, former deputy administrator at the Office of Federal Procurement Policy and now a partner at Venable law firm.

That’s not to say the speech was empty rhetoric. The administration followed the March 4 memo with additional guidance and initiatives in the areas of cost-reimbursement and sole-source contracting, the acquisition workforce, and workforce management.

Administration officials also have prodded agencies to identify opportunities for saving money through improved procurement practices. Obama predicted that the memo and the governmentwide guidance could save the government as much as $40 billion. On Dec. 21, Jeffrey Zients, deputy director for management at the Office of Management and Budget, said the administration was nearly halfway there, having identified $19 billion in potential savings.

More agencies are buying in bulk to get volume discounts, Zients said at a press briefing. They’re also using reverse auctions, in which companies compete for work by offering a lower price than another bidder — the opposite of an eBay auction. And NASA, among other agencies, reviewed its contracts and shifted some high-risk programs to fixed-price contracts, making it possible to keep its costs under control.

Zients said he estimates that agencies are on track to save 3.5 percent this fiscal year and 7 percent by the end of fiscal 2011. And of course, the contractor community continues to watch warily as the administration beats the drum for bringing government work in-house.

Still, most of Obama’s procurement agenda is remarkably similar to that of previous administrations. For example, the shift to fixed-price contracting, a central piece of Obama’s agenda, has been a priority of the procurement community for years and was incorporated into the Federal Acquisition Regulation.

“A lot of the guidance was essentially a reinforcement of previously stated preferred procurement practices,” said Larry Allen, president of the Coalition for Government Procurement.

What Obama has done is refocus the procurement community. That is not a trivial matter, but it is not a game changer. “Overall, I think the impact of the guidance issued so far will be like turning the procurement landscape from royal blue to sky blue, not from black to white,” Allen said.

Ray Bjorklund, senior vice president and chief knowledge officer at FedSources, said the focus of the March 4 memo and related guidance is not the contracting principles but the acquisition community, such as the employees and the purchasing process.

“I think the extent to which the memo will affect the policies of the future is in laying the foundation for a fresh look — not at the law and regulation,” he said. “I don’t see any serious intent to correct or change the underlying laws and regulations.”

Burton said the Bush administration tackled many of the same issues on Obama’s agenda.

For example, Bush launched a program called Be America’s Buyer to recruit a new generation of acquisition experts. He also introduced training certifications for contracting officers, their technical representatives and even program managers. The Bush administration’s agenda also included tracking down contracting fraud and abuse, reducing the use of risky contracting approaches, and improving competition for contracts.

Mark Amtower, an industry consultant and founding partner of Amtower and Co., said issues such as limiting contractors’ influence in government decision-making “have been with us to a greater or lesser degree forever. They do not go away.”

Rule would waive Buy American provisions for some Afghanistan support contracts

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By Elizabeth Newell enewell@govexec.com January 6, 2010

A Federal Acquisition Regulation rule change filed on Wednesday would waive certain Buy American restrictions for contracts in support of operations in Afghanistan. The waiver would apply to nine countries in the Afghan region and would exclude some products such as guns and ammunition.

The proposed rule would implement a July 2009 declaration from Deputy Defense Secretary William Lynn to the same effect. Lynn’s waiver, outlined in a memorandum from Shay Assad, director of Defense acquisition and procurement policy, to military and contracting officials, stated that allowing Defense to buy support items from South Caucasus and Central and South Asian countries — specifically Armenia, Azerbaijan, Georgia, Kazakhstan, Kyrgyzstan, Pakistan, Tajikistan, Turkmenistan and Uzbekistan — has a range of potential benefits.

Permitting these acquisitions would improve local market and transportation infrastructure in the Afghan region; reduce the U.S. government’s transportation costs; and facilitate “the free flow of regular, reliable large-scale shipments of products and services through the region in support of the operations in Afghanistan,” Lynn stated. The waiver would lift restrictions “inconsistent with the public interest” and encourage countries in the region to cooperate in expanding supply routes, he added. In turn, a more robust commercial transportation network in the area would help connect Afghanistan to its neighbors, promote regional commerce, diversify existing infrastructure, and generally bolster stability and prosperity, he noted.

The FAR rule, which is open to public comment until March 9, would apply this waiver to Defense Department contracts and those underwritten by the General Services Administration. There is a repeated exemption for arms, ammunition and war materials; the government will continue to be required to buy those products from American firms.

The proposal contains a clause aimed at reciprocity. Foreign companies that sign deals with the U.S. government under this provision would be required to inform their country’s government of its participation in the acquisition and that “it generally will not have such opportunity in the future unless its government provides reciprocal procurement opportunities to U.S. products and services and suppliers of such products and services.”

Comments on the proposal can be sent to dfars@osd.mil.

(C) 2010 BY NATIONAL JOURNAL GROUP, INC. ALL RIGHTS RESERVED.

Defense and State brace for surge in Afghanistan contracting

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Lawmakers on Thursday expressed concern about the Defense and State departments’ ability to handle an influx of contractors in Afghanistan, but agency officials said they have taken steps to strengthen oversight.

During a Senate Homeland Security and Governmental Affairs Subcommittee on Contracting Oversight hearing, Sen. Claire McCaskill, D-Mo., said the degree of waste and fraud seen under contracts performed in Iraq does not bode well for efficiency in Afghanistan, particularly as the number of contractors in the region balloons to support the surge in troops.

According to the Congressional Research Service, if the ratio of contractors to U.S. military personnel remains roughly the same, the deployment of 30,000 more troops to Afghanistan would require 26,000 to 56,000 additional contractors. The number of contractors in Afghanistan already is growing; from June to September, there was a 40 percent increase in Defense contractors alone.

Auditors found “much of [the] waste [in Iraq] stemmed from inadequate contracting management, including contractors overseeing contractors, poor coordination of interagency efforts, continual personnel turnover and the challenges of contracting in a war zone,” McCaskill said.

To avoid similar issues in Afghanistan, the U.S. Agency for International Development has hired more contracting officer technical representatives and regional inspectors general, improved COTR training for quality-control and assurance, and boosted the number and quality of site visits, said Charles North, senior deputy director of the USAID Afghanistan-Pakistan Task Force. The agency also is modifying contracts to include more stringent reporting measures and providing additional guidance for COTRs in ensuring compliance.

“In planning, managing and overseeing assistance in Afghanistan, a high-risk environment in which corruption and extortion pose significant risks, it would be impossible for USAID to guarantee that wrongdoing will never occur,” North said. “However, we have put in place well designed systems and practices to minimize opportunities for misconduct.”

Daniel Feldman, deputy special representative for Afghanistan and Pakistan at the State Department, said the focus is shifting away from large U.S.-based reconstruction contracts to smaller, more flexible contracts with fewer subcontracts and grants.

“The premise behind this flexibility is simple — in a dynamic conflict environment like Afghanistan, we need to be able to adapt our programs as conditions change on the ground,” Feldman said. “These smaller contracts and grants will be managed by U.S. officials in the field, closer to the actual activity implementation, making it easier for those same officials to direct, monitor and oversee projects to ensure the proper use of taxpayers’ funds.”

In most cases, the smaller contracts will be implemented by Afghans, but if the programs are not producing the desired results, State officials have more authority to direct corrective actions, Feldman said.

Army officials also testified to a renewed effort to control overseas contracts, noting they are concentrating on growing the service’s acquisition workforce. But Edward Harrington, deputy assistant secretary of the Army for procurement, and Jeffrey Parsons, executive director of the Army Contracting Command, cautioned the expansion won’t happen overnight.

“The time it takes to grow capable contracting professionals is measured in years, not months,” Harrington said. “The level of experience required to be able to adequately perform the complex contracting functions we demand of our contracting professionals generally is attained after about six to eight years of school training combined with hands-on, work experience.”

Harrington and Parsons said the Joint Contracting Command for Iraq/Afghanistan is “updating mission analysis” and assessing current resources to determine how best to support the additional 30,000 troops headed to Afghanistan.

8 stories to keep watching in 2010

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Each year, there are big important stories, and few would argue with our picks for 2009.

But we highlight these particular stories not only for the immediate impact they had but also for the lasting influence they continue to exercise.

In essence, these stories aren’t over. They will keep people talking and make headlines in 2010 and beyond.

— Nick Wakeman

1. Obama sets sights on procurement reform
The economy and Iraq were at the top of the agenda when the Obama administration took over the White House Jan. 20. But when the Office of Management and Budget released memos outlining the administration’s procurement goals, it was obvious that contracting also was very much a priority.

The memos and guidance that followed have set forth goals that affect outsourcing, picking which type of contract to use, categorizing work as inherently governmental and determining conflicts of interest.

Although industry experts at organizations such as the Professional Services Council have said that the direction coming from the White House is reasonable and reflects good procurement principles, the jury is still out on how individual agencies will apply those principles.

2. Beware of government poachers
The rising number of contractor employees being recruited to work at government agencies has sparked complaints from industry.

There have been reports of agencies having lists of contractor employees they want to hire. In some cases, agencies have used job pitches that incorporate economic fears, such as claiming that there are plans to cancel contracts, leaving the contract employee without a job.

Questions also have been raised about the ethics of hiring contractor employees. The government should follow the same rules industry does when it hires a government person, some say.

3. M&A continues to remake the market
Two major hardware players — Dell Inc. and Xerox — made large deals that involve services companies with significant government business. Dell acquired Perot Systems, picking up an outsourcing and systems integration business. Xerox went after Affiliated Computer Services Inc.

Dell said it already had a large services business that supports its products, but Perot will bring higher-end work in areas such as education and health care.

For Xerox, ACS brings business process outsourcing capabilities on programs such as Medicaid and Medicare. ACS also will gain a broader international footprint.

The third big deal of the year was Northrop Grumman’s decision to sell TASC. They were forced into the deal because of tougher organizational conflict-of-interest rules.

TASC is being bought by equity groups General Atlantic and Kohlberg Kravis Roberts and Co. Because of its size, which limits potential buyers, TASC could be headed toward an initial public offering in the coming years. It could become a long-term independent player in the market.

4. GSA under a leadership vacuum
This was one of the sadder chapters of the past year. Martha Johnson, who sailed through the confirmation process at the committee level, now sits and waits.

Using the Senate’s arcane rules to his advantage, Sen. Kit Bond (R-Mo.) has put a hold on a full Senate vote on Johnson’s nomination. He wants assurances that a federal office building will be built in downtown Kansas City.

The timing is poor because Johnson’s nomination was hailed by many inside and outside GSA as just what the agency needed to continue its comeback as an efficient contracting partner for the rest of government.

In a time when the highest levels of government are pushing a variety of procurement initiatives, the lack of an administrator at GSA works against the best interests of the government.

5. Growing acceptance of cloud computing
As vendors address security concerns, it has become harder for agencies to deny the benefits of cloud computing, such as trimming costs, adding new services and increasing capacity.

No one expects an agency to put everything on the cloud, and a public cloud might not be the answer for many agencies. But the tide has turned in favor of cloud computing.

A big reason is the high-level support of White House officials such as Vivek Kundra, who, with the General Services Administration, opened a cloud computing storefront for agencies to easily purchase cloud services.

Many of the large systems integrators also have begun embracing the cloud as a line of business.

6. Contract protests
During the past few years, contract protests on losing bids have moved from being an unfavorable tactic to a common business tactic.

The huge Alliant contract was delayed nearly a year because of protests. GSA’s solution eventually was to award nearly all bidders a spot on the multiple-award contract.

The current poster child for protests is the Transportation Security Administration’s Information Technology Infrastructure Program. It was hit by protests at the downselect stage, and TSA let all bidders back in. More protests followed when TSA awarded the contract to Computer Sciences Corp.

Work on ITIP is on hold until the dispute is resolved.

One factor that breeds more protests, industry observers say, is that companies face little to no consequences for protesting. So why not protest?

7. Leadership changes
Two of the largest government contractors in the market will see leadership transitions in the coming year.

At General Dynamics Corp., Nicholas Chabraja turned over the chief executive title to Jay Johnson July 1. In May 2010, he will relinquish the chairman’s title.

Ken Dahlberg is following a similar path at Science Applications International Corp. Walter Havenstein became CEO in September, and in June 2010, Dahlberg will turn over the chairman’s role.

Both companies have planned transitions, but new leadership will undoubtedly bring new initiatives and goals for the companies.

8. Farewell, EDS
Hewlett-Packard erased one of the most storied names in the government and commercial markets this year when it dropped the EDS brand in favor of HP Enterprise Services.

EDS, known originally as Electronic Data Systems, was one of the creators of the market for outsourced IT services, particularly data centers. The name survived for 47 years, including a stint of ownership by General Motors.

But there are a lot of reasons for the change, such as creating a single company culture and presenting a single face to the market.

Dropping the name EDS also signaled that integration of the acquisition was over. It’s now time for the billions spent to start paying off.

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