Highlights from the NDIA September Procurement Meeting in Washington, DC

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.

At the pre-Contract Finance meeting on September 9th, representatives from Bloomberg Government gave a presentation on “Hagel’s Response to Sequestration and Implications for Contractors”.  The key take away points of this topic included:

• On March 15, Secretary of Defense (DOD) Chuck Hagel directed DOD to conduct a Strategic Choices and Management Review (SCMR)
• Purpose of SCMR was to examine potential changes to strategy and force structure in light of lower caps required by the 2011 Budget Control Act (BCA)
• Hagel released an outline of results of SCMR on July 31, 2013

The SCMR defines critical choices but does not make final decisions.  Three cost reduction scenarios include:

• $150 billion in cuts through FY21 in line with the president’s FY14 budget request
• $250 billion in mostly back-loaded cuts – an “in between” scenario
• $500 billion through FY21 – BCA-level cuts in law

Proposed cuts or other options may include:

• Reduction of 20 percent to headquarters staffing, including OSD, Joint Staff, Combatant Commands
• Compensation changes
• Reduction of 5 fighter squadrons, C-130s, 2-3 carrier battle groups, older bombers, Army and Marine Corps end-strength
• Preserve submarine upgrades, F-35, cyber and special ops

Cuts that meet the President’s 2014 budget proposal include:

• Reduce Army by 40,000-70,000 troops below current plan of 490,000
• Cut 5 fighter squadrons and C-130 fleet

On September 10th during the General Session meeting, Steve Trautwein of DCMA gave a presentation on DCMA’s Contractor Business Analysis Repository (CBAR).   This repository is one in which the Government can keep outdated/stale contractor information for PCOs, ACOs, and COs to use when evaluating a contractor’s compliance status as to whether or not the contractor is eligible to bid on or be awarded a contract.  The primary short coming of the CBAR is ensuring the ACOs regularly update the data in the CBAR.  Key contractor information kept in the CBAR includes:

1. Final and FPRA/FRPP indirect and direct rates
2. Status of Business Systems – Adequate, Inadequate, Not Evaluated, N/A, the last three can disqualify a contractor from bidding if PCO so decides
3. Status of CAS Disclosure Statement
4. Cost Accounting Standards information
5. General Corporate and Business segment information
6. DCMA POCs

Another key short coming in the use of this repository is that while the information represents contractor submitted information, contractors do not and will not have access to the CBAR to ensure that their data is current and accurate.

During the Contracts & Acquisition Management Committee meeting, a number of prominent industry executives addressed the latest efforts of DoD to gain control of and rectify its Counterfeit Parts problem.   It was indicated that DoD is finally issuing proposed regulations pertinent to this issue, but those regulations are limited to IT and Electronic parts.  Information on this issue can be found at “DFARS Case 2012-D055 Detection  and Avoidance of Counterfeit Electronics Part”

It was also noted during this meeting  that the Cost Accounting Standards Board (CASB) will be proposing additional Cost or Pricing regulations and if contractors want to dispute any negative information  put in their Past Performance data base maintained by the Government, the time allotted to dispute such negative comments is being reduced from 30 days to 14 days. This will force contractors to continually monitor what the Government is putting into this data base and react quickly to correct inaccurate data.  Major contractors will therefore be forced to maintain a staff dedicated to this oversight function, raising the cost to taxpayers of government contracts to manage compliance with another layer of regulations.

Another issue covered during the meeting is a proposal by the Office of Federal Contractor Compliance Policy (OFCCP), which will raise the percentage of contractor employees working on government contracts that are disabled to 7% of the work force. If this increase is implemented, it raises several conflicting issues for contractors, such as running afoul of the Americans’ with Disabilities Act, and the employee’s right to privacy.

Several  recent legal cases were discussed during the course of the meeting that include many important litigation lessons learned for contractors.  These include:

1) A bid protest of an award to IAP World Services, Inc. case B-407917.2 slip op. (GAO July 10, 2013) in which IAP learned that if they were going to use the past performance history of its joint venture subsidiary to support its ability to perform under a contract, they must include subsidiary in the proposal as part of the team performing on the contract.  IAP’s JV subsidiary was not part of the performance team in the proposal, the award to IAP was protested on the grounds that the past performance data on the non-performing subsidiary was not relevant to the contract and should not have been used to award the contract to IAP.  GAO agreed.

2) An Offeror protested an agency’s decision that certain past performance information was not relevant to the current proposal from the Offeror.  GAO denied the protest.  The lesson here is that it is incumbent on the Offeror to make sure that it makes clear why past performance data included in a proposal is relevant to the proposal. Maywood Closure Co. B*4083343, slip op (GAO August 23, 2013)

3) An Offeror protested having been excluded from the competitive range due to its submission of teaming agreement with its suppliers.  The RFP required offerors to submit copies of supply agreements with key suppliers. GAO upheld the decision of the awarding agency by indicating that teaming agreements are binding arrangements on matters such as delivery schedules and the offeror did not provide the requisite level of commitment to verify delivery or other supplier commitments. Beretta USA Corp B-406376.2 (GAO July 12, 2013)

4) “Fifth Circuit Court holds that a company can be held vicariously liable under the Anti-kickback Act for civil penalties based on kickbacks received by its employees.  Although liability is only imposed if the conduct is engaged in “knowingly” that is satisfied if the employees acted within their apparent authority. “United States v. Kellogg Brown & Root, Inc.,  No. 12-40447, slip op (5th Cir. July 19, 2013)

The key lesson in this case is that contractors must train their employees in business ethics and standards of conduct, have policies in place addressing the Anti-Kickback Act, and monitor any employee who is in position to potentially receive kickbacks to influence their decisions making powers.