Congratulations! You have won your first prime federal contract – now what do you do?! Unfortunately, regardless of how many contracts a company has won, the focus seems to be on “the win” and NOT how a company is going to manage and administer the contract. Larger companies’ that have been around for years have figured out through the “school of hard knocks” (i.e. Government audits, ACO cure notices, contract terminations, debarments, system inadequacies, etc…), how to comply with all the federal laws and regulations that are inevitably part of the Federal government contract you were just awarded.
In a recent Federal Circuit ruling, KBR found out that “simple negligence” in its calculations of a reasonable price range for subcontractor’s price proposal resulted in a “Gross Negligence ruling” by the courts. Kellogg Brown & Root Services, Inc. (KBR) v. U.S., No. 203-5030, slip op. (Fed. Cir. Feb, 3, 2014).
Coming as no surprise, President Obama signed the Bi-Partisan (2014) Budget Act on December 26, 2013 including an executive compensation cap of $487K (coincidentally one-half of the most recent statutory cap of $952,308 and significantly lower than an alternate bill with a cap of $625K). This maybe Obama’s “crowning achievement” over his two terms proving that if someone (The President) whines enough and ignores all of the regulatory history and the fundamental principle that commercial prices constitute a reasonable cost, he will achieve his goal of forcing large government contractors to absorb more and more of their executive’s compensation. It should be noted that the prior cap and the methodology was based upon compensation of publicly traded corporations with $50 million or more in revenues; hence, that cap was artificially low considering that a number of large government contractors have revenues in the billions and that executive compensation is correlated to company size/revenues.
With the House of Representatives having passed its version of the FY 2014 National Defense Authorization Act (NDAA), as well as a federal budget agreement, both of which establish new guidelines and annual ceilings on allowable government contractor executive salaries, the question is what will the Senate do with both agreements when they address those specific revised caps. Moreover, because the House-passed federal budget and the NDAA have different annual compensation caps and contractor personnel to which these caps would be applicable, will these differences be reconciled in final versions of both budget and NDAA agreement?
The National Defense Industrial Association’s (NDIA) September Procurement Division Committee meeting provided insights and information that we believe is of interest to our readers. These comments are our own interpretations and opinions based upon our presence at the meeting.
Government contractors who are required to submit certified cost and pricing data as part of a bid proposal face increasingly greater risks of government rejection or award disqualification during pre-award review or even worse, defective pricing allegations after award causing government mandated downward negotiated price adjustments. In today’s government procurement environment where procurement commands and their auditors hold contractors to solicitation and cost analysis provisions with such rigidity, equating to a zero error tolerance during proposal evaluations, contractors must not fail to meet the “certified cost or pricing data” submission or disclosure expectations in the pre-award proposal preparation process as intended within the Truth-in-Negotiations Act (TINA).
Topics: Cost and Pricing and Budgeting
All one has to do is read a recent article written by David Cox, President of the American Federation of Government Employees (AFGE), to derive the answer to this question, and the answer is that contractor employee compensation should be brought in line with the salaries that public sector employees (e.g., federal civilian personnel) are paid.
The Defense Department on February 21 revoked a relatively new payment process that was designed to get cash in the hands of contractors and subcontractors quicker. This revocation of the “Quick Pay” initiative is due to sequestration activities and will cause payments to be delayed by at least 10 days but conceivably even more. Prior to the Quick Pay initiative, which began in 2011, DoD would hold a bill for 30 days to minimize the amount of cash it pays out. The Quick Pay initiative was instituted as a way to get payments to small businesses faster by assuring that small businesses were paid as soon as a bill was verified. The initiative was then expanded in July 2012 to prime contractors as a way to assist those companies’ small business subcontractors. Under the initiative, defense contractors were paid in about 15 to 18 days.