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Tuesday, August 31, 2010

Since when is failure to manage and budget an emergency?

The latest Guam schools drama involves its school buses, which are supposed to be provided, not by the Department of Education, but the Department of Public Works.

Pacific News Center has reported that 60% of DPW 211 buses are inoperable. Only 87 buses in operation. 36 are awaiting repairs. But, it seems, that has been the status quo for some time.

This has resulted in many student's being stuck in bus stops for up to two hours, a condition that clearly raises concerns over their health and safety.

But wasn't that a foreseeable event with less than half the fleet operable?

An emergency is defined in the Guam Procurement Law(§ 5030(x)) as
"a condition posing an imminent threat to public health, welfare, or safety which could not have been foreseen through the use of reasonable and prudent management procedures, and which cannot be addressed by other procurement methods of source selection."
If this bus situation merely reflects the level of service that has been available since last school year, how can it now, suddenly be "imminent".

And since the situation is obviously detrimental, and has been for some time, it is merely the result of a failure of reasonable and prudent management, which disqualifies the situation from being an emergency if it can be addressed by other procurement methods. And this is where it gets a bit tricky, and requires focused procurement, not wholesale budgetary rewriting.

The commentary from the legislature suggests that the full amount of several hundred thousands dollars is required to bring all the buses up to speed. But is that required to alleviate the immediate concern?

If all the money appeared in a magic pudding, would that solve the problem immediately. Assuming all the various required parts could be ordered today, could the government even get them onto the buses immediately, or would it take a fair bit of time to complete the repairs?

The emergency procurement method is not intended to be a budgetary salve or crutch. It is intended only to do such critical amount as will alleviate the immediate crisis.

The Governor's spokesperson indicated an emergency declaration should not be used to rectify long term problems, and in that he was spot on.
See interview with Shawn Guamtaotao at the 2:45 minute mark in this report:



The Guam emergency procurement law (5 GCA § 5215) says
"No emergency procurement or combination of emergency procurements may be made for an amount of goods or supplies greater than the amount of such goods and supplies which is necessary to meet an emergency for the thirty (30) day period immediately following the procurement."
Since emergency procurements preempt the preferred competitive bidding and other forms of bidding, only the minimum amount of goods and services as will alleviate the "imminent" condition should be acquired by emergency, while the goods and services that cannot or need not be applied to the imminent condition should be acquired by other methods.

I would argue that this provision should be construed and applied to be strictly limited, by the policy of planned procurement (5 GCA § 5010) and the express definition of "emergency" set out above in conditions when, in the exercise of reasonable and prudent management procedures, the condition should never have arisen in the first place. Remember, the Procurement Law is intended to be construed and applied to promote its underlying purposes and policies. (5 GCA § 5001(a).)

The government should not be given the easy out to run roughshod over normal procurement safeguards and principles when it fails its essential management functions, or when the legislature fails its essential budgetary functions.

When the emergency procurement law is carefully applied, the truly imminent threat is ameliorated and those who failed us should be made to stand out and account for the failure. Otherwise, those who failed us are bailed out, to fail us again another day. It is a moral hazard to use emergency procurement to fix foreseeable faults; it should only be used for that very, very, very rainy day.

Recall this item along with the thought that emergency procurement should be tailored and proportionate to the imminent threat, not to conditions that can otherwise be addressed in the fullness of an appropriate time:
Buffalo, NY ordered to repay FEMA for improper emergency procurement



FURTHER ON THIS TOPIC: Pacific News Center is now reporting NO EMERGENCY

Governor Will Not Declare Emergency Over School Bus Crisis; Solution Lies With Legislature
Governor's Spokesman Shawn Gumataotao says an Emergency Declaration is not the solution to the school bus crisis.

When asked by PNC News how the Governor would respond to Senator Tom Ada's request for an Emergency Declaration over the issue which has seen up to 2 hours delays, Gumataotao responded, "We are currently working through the situation as it is. Will an emergency bring about the change they are looking for? It does not," he said.
COMMENT: Bravo, Governor.

Sunday, August 29, 2010

Protests: Say it loud and say it proud

The form and substance of procurement protests (This appeared in the Marianas Business Journal August 30, 2010, available by subscription, but is reproduced here by permission of the author -- me.)
One of the things that I found ironic in the recent JFK stand off was that the students were so effective in using their legal right to protest against the companies' legal right to protest. I rationalized away the dichotomy with the thought that the students probably were not so much against the companies’ right to protest as against the perceived bad form of the protests, given the understandable desire of the students to get their school quickly rebuilt.

Which brings me to protests and bad form. What is the proper form of a procurement protest? This is vitally important since you are required to file a “protest” if you have any hope of rectifying a perceived impropriety in a solicitation.

The law requires a protest to contain only a minimal amount of information, almost all of which you would usually by habit put into a standard business letter: your name and address, identification of the subject matter (solicitation number for instance), supporting documentation to substantiate your claim, and a statement of the reasons for your protest.

But there are many kinds of letters you might write to a government agency that contained all of that information yet not rise to the appropriate “tenor” of a protest. You might write, for instance, to request the agency to take another look at the situation. You might write to simply sound off in dissent. You might write to ask for an explanation. And quite often, you might write in a manner that is so polite, so as not to get the government off side, that you don't really get around to saying much of anything other than implying some displeasure.

The problem with letters described above is that they illustrate what the procurement regulations describe as mere “complaint” or a “request for reconsideration” or a “request for reasons”. None of those communications constitutes a protest under procurement regulations.

In one recent OPA appeal, the Hearing Officer took a very lenient view of what constitutes a protest. In that case, the letter to the agency “respectfully request[ed] for consideration for re evaluation of the bid ... due to the fact that we submitted the lowest bid....” That sounds to me like a request for reconsideration, which is not a “protest”. Fortunately for the bidder, the Hearing Officer accepted the letter as a protest.

Other cases have not been so lenient. Under the same ABA Model Code that Guam procurement law follows, the Maryland State Board of Contract Appeals has ruled:

"While no specific words of protest are required, the writing must reach a level of confrontation sufficient to put a reader on reasonable notice it is offered as a complaint.

“Procurement Officers receive many letters and other written material in regards to solicitations. The vast majority of the letters constitute 'puffing', or provide information, comments, criticisms and suggestions. The Procurement Officer must, and does, have the authority to decide how to reasonably manage this material since otherwise every letter would be potentially a protest and the procurement process would cease.

“The protestor should not be timid in his protest but rather make formal accusations or state their displeasure in a manner calculated to clearly reflect an intent that the award should be set aside or altered to correct the error, impropriety or other basis of award. ...

"At first glance the result seems draconian. However, a bid protest effectively stops the procurement process and is not an action taken lightly. ... The Procurement Officer should not have to guess or speculate if a letter is a protest or not. Requiring the protestor to express its protest in language which places a reasonable reader on notice a complaint is intended is not unduly burdensome."


Dictionaries suggest that the difference between protest and dissent is some form of strong objection, not polite disapproval. That nuanced but critical difference is reflected in the requirement of some “level of confrontation”.

The JFK students recognized that difference intuitively.

Thursday, August 26, 2010

"Competition is a cornerstone of our acquisition systems"

GAO studies contract competition
John Hutton, Director of Acquisition and Sourcing Management Issues at the GAO, told Federal News Radio the reason why competition matters. [You can listen to his interview here.]

"(Competition is) a cornerstone of our acquisition systems. It's a tool for achieving, really the best possible return on investment for the taxpayer. As a vehicle it can help improve contractor performance, it might help curb some fraud, it can help promote accountability for results and some of our past work has demonstrated that agencies could take advantage of greater opportunities of competition."
The interview was in response to this US Government Accounting Office:
Federal Contracting: Opportunities Exist to Increase Competition and Assess Reasons When Only One Offer Is Received
Highlights of the report include:
Competition is a critical tool for achieving the best return on the government's investment. While federal agencies are generally required to award contracts on the basis of full and open competition, they are permitted to award noncompetitive contracts in certain situations. Agencies are also required to establish competition advocates to promote competition.

Agencies used a variety of exceptions to competition for the contracts and orders in our sample, with the two most common being "only one responsible source" and sole-source awards under the Small Business Administration's 8(a) business development program.

For services supporting DOD weapons programs, the government's lack of access to proprietary technical data and decades-long reliance on specific contractors for expertise limit--or even preclude the possibility of--competition.

In other cases, program offices may press for contracts to be awarded to the incumbent contractor without competition, largely due to their relationship and the contractor's understanding of program requirements.

For competitive procurements where only one offer is received, factors include a strong incumbent, sometimes coupled with overly restrictive government requirements, or vendors forming large teams to submit one offer for broader government requirements, whereas previously several vendors may have competed.

Contracting approaches for nine contracts reviewed did not reflect sound procurement practices and in some instances sound management practices, in some cases not leveraging the effectiveness of the market place. These approaches included ambiguously written justifications for noncompetitive contracts, very limited documentation of the reasonableness of contractors' proposed prices, instances where the contract's cost grew significantly or where labor categories were improperly authorized, and undefinitized contract actions that did not meet definitization requirements.

United Nations Procurement Capacity Development Centre

I seem to have run out of room to post any additional links for procurement resources, but I do want to make note of this one, the United Nations Procurement Capacity Development Centre.

It contains information about and links to many procurement issues and focus areas, with particular but not exclusive focus on developing economies. It has references to online resources as well as institutions and courses of procurement instruction.

For instance, I have had numerous occasions lately to remark on issues of local social preference provisions, and the PCDC resources includes this pertinent study from the US: STATE AND LOCAL PROCUREMENT PREFERENCES: A SURVEY.

The site should proof useful to any student of procurement or those who want new ideas about how to reshape or improve their own procurement philosophy, practice or regulatory scheme.

Wednesday, August 25, 2010

$201 million is fair and reasonable cost of new JFK High School

New JFK to cost $201M
GovGuam will have to make an annual rent payment of $6.7 million for the next 30 years. That means, when the school is finally paid off, it will have cost local taxpayers about $201 million.

Only a few years ago, Guam built four new schools with less money. Liguan Elementary, Adacao Elementary, Astumbo Middle and Okkodo High schools were all built by the Guam Education Financing Foundation under a single agreement that also used rental payments to pay back investors.

GovGuam must pay the GEFF about $6.1 million annually for 20 years, according to Pacific Daily News files and bond market documents. Payments had started as of 2008, PDN files state. That means, when these four schools are paid off, they will have cost taxpayers -- in total -- about $122 million.

That is $79 million less than the planned price of the new JFK.

When asked yesterday to justify JFK's immense cost, governor's spokesman Shawn Gumataotao said the community demanded a school, and the price was within limits set by lawmakers. "This is an opportunity to finally put our JFK kids back at that upper Tumon campus," Gumataotao said. "The community has gotten behind the effort and we will continue to work with them to build the school and get the kids in it."

It should be pointed out that the decision to obtain financing and conclude the JFK solicitation came only after the Public Auditor sent a letter to the contracting agency saying that much of the cost analysis she had been concerned about had been "clarified" but some cost issues remained, and that she urged the

"key officials [to] continue their discussion with a reminder that each government official has a fiduciary duty to achieve the most reasonable final cost to the government for this project".

COMMENTARY: The JFK rebuild project was solicited under a Request for Proposal source selection method, which is a form of price-negotiated contracting.


Guam procurement regulations for RFPs require that the government must "negotiate a contract with the best qualified offeror for the required services at compensation
determined in writing to be fair and reasonable". (2 GAR § 3114(l)(1).)

A memorandum of the "significant considerations relating to price" must be put in the contract file and made available to the public. (2 GAR § 3114(m).)

Only if fair and reasonable compensation is agreed upon (2 GAR § 3114(l)(2)), together with other requirements of the solicitation, can the contract can be given. (2 GAR § 3114(l)(3).)

In the negotiated contract process, price analysis is used to determine if a price is reasonable and acceptable. (2 GAR § 3118(g).)

Evaluation of cost or pricing data should include comparisons of costs and prices of an offeror's cost estimates with those of other offerors and any independent territorial price and cost estimates. They shall include consideration of whether such costs are reasonable and allocable under [cost principles specified in the regulations]. (2 GAR § 3118(i).)

If the government cannot negotiate a fair and reasonable compensation, it should not conclude any agreement with any of the offerors. (2 GAR § 3114(l)(6).)

Therefore, we now have new a benchmark, significantly higher than it was in 2008, for what is a fair and reasonable price to pay for construction on Guam.

Don't we?

That $201 million is payable over the next 30 years. The current JFK student body will be paying for it most of their working lives. And so will all the other taxpayers who don't go to JFK.

But, assuming 1500 students and a cost of $6.7 million per year for 30 years, that's roughly $4,500 per year per student to have a school built and maintained for them. Is that unreasonable? I'm in no position to judge.



FOLLOW UP: Regardless whether the price is fair and reasonable, it is entirely unlikely that DOE can afford it:
DOE expects to run dry in mid-September
It's a case of history repeating itself. Just a few weeks before the end of the fiscal year and the Department of Education says its coffers are just about dry. In the hopes to avert a complete shutdown of schools, the largest agency in the Government of Guam is taking some rather drastic measures to brace for the shortfall.

The outlook is grim: DOE will run out of cash in the next couple of weeks. Finance Deputy Superintendent Taling Taitano says officials are trying to avert the closure of schools with coffers running dry.

Public auditor: Deficit continues to grow
"We, as a government, continue to spend more than we take in," said Doris Flores Brooks, Guam's elected public auditor. "And we're going to have to do better than that because I don't know how long we'll be able to maintain a high deficit....

She said the cause of the overspending is that the government "consistently overestimates revenues and underestimates expenditures."

One example of expenditures paid every year that historically haven't been included in the GovGuam budget is the interest on tax refunds.

She said payments to contractors for construction of John F. Kennedy High School is another example.

"In this case, the information about payments for the new JFK was only made known last week, so it's not in the budget bill -- but it needs to be added and the source for those payments identified or else we'll end up just scrambling to find money," she said.

Tuesday, August 24, 2010

Procurement reform -- Ireland

Lenihan reforms rules for public contracts
The government has introduced sweeping changes for public bodies and state agencies agreeing work and service contracts with private companies, following a probe of its procurement operations.

A range of reforms to public procurement rules are outlined in a circular, seen by The Sunday Business Post, which was issued by the Minister for Finance, Brian Lenihan, to all departments on August 13.

A range of measures is required to ensure that firms are not hindered in competing for government contracts, which are worth €15 billion, and are a major source of income for small and medium enterprises (SMEs).

Ireland awards 17.7 per cent of all government contracts to non-domestic companies while the EU average is just 1.49 per cent. SMEs have lobbied for government contracts to be unbundled into smaller contracts to allow more Irish companies compete.

These include a prohibition on public bodies entering into special arrangements that require SMEs to pay to access competition for public contracts.

The threshold for supplies and general services contracts on the government’s public procurement website www.etenders.ie has been halved from €50,000 to €25,000.

All advertised contracts up to €250,000 for works and €120,000 for supplies and general services must now be open to all potential tenderers without a prequalification process.

Evidence such as bank statements, audited accounts, and proof of professional indemnity will now be sought only when a tenderer is close to being awarded a contract.

The guidelines outline measures which include "dividing contracts into smaller lots where feasible".

Philippine procurement doesn't compute

Ombudsman stops Marinduque purchase of computers
Ombudsman Merceditas Gutierrez has blocked the Marinduque government's release of P14.7-million for the purchase of allegedly overpriced personal computers.

In a two-page order, Gutierrez told Marinduque Gov. Carmencita Reyes and other local officials "to cease and desist" from paying Pisces Publishing Inc. the amount "while this issue of anomalous procurement is still under investigation."

Citing the initial probe of its Field Investigation Office, the Office of the Ombudsman said that in June 2010, the Marinduque government bought 53 units of computers at P278,000 each, for a total of more than P14.7 million. The computers were for the province's Day Care Center Computer-based Learning Development Package.

However, private citizen Pedrito Nepomuceno filed a complaint before the Ombudsman's FIO claiming the transaction was anomalous.

Following the investigation, FIO Intelligence Bureau acting director Beda Epres said the procurement for the computers "did not conform with the conditions and procedures for Direct Contracting as stipulated in the Manual of Procedures for Procurement of Goods and Services" for local government units and the implementing rules and the regulations of the Government Procurement Reform Act.


Marinduque computers overpriced, say probers
The previous administration of Gov. Antonio Carrion sealed the contract to buy the computers at P278,000 each from Pisces for the benefit of day care centers.

Acting director Beda Epres of the Ombudsman’s field intelligence bureau said that “the procurement process did not conform to procedures and an examination of the procured items, which include workbooks and CDs show that they are overpriced at P278,000 per set considering that the personal computers are free.”

Meanwhile, anti-corruption agencies from China, India, Pakistan, Malaysia, Brunei, Cambodia, Singapore, Thailand, Vietnam, Indonesia will be in the country for the Philippine launching on Thursday (August 25) of the Declaration of Ombudsmanship Principles that will guide all anti-graft institutions in the performance of their mandated functions.

Sunday, August 22, 2010

Does local preference cost an arm or a leg up?

Several local areas in South Carolina, USA, as with many places elsewhere, are debating whether to give "local preferences" to their local businesses.

Contracting on many public jobs is blind to ties
The struggling economy has hit the construction industry particularly hard, and with government contracts making up a significant amount of available work, some local governments are discussing adding local preference rules.

Horry County, Myrtle Beach, North Myrtle Beach, Georgetown and Conway only give preference to a local company when the government receives two identical bids, in which case the local company would be awarded the contract. Georgetown County is the only local government to have a local preference, but Horry County considered it earlier this year, Georgetown discussed the issue this week and Myrtle Beach will discuss it next week.

Columbia last week discussed adding a local preference ordinance that would give companies in Richland and Lexington counties a greater chance of winning contracts worth more than $10,000. If a local bidder is within 5 percent, or $10,000, of the low bid, then the company would have the option to match the low bid.

Bluffton, in Beaufort County, also recently considered a local preference ordinance. The town will reduce the price of the bid submitted by a local contractor - defined as a company that has an office in Beaufort County, has held a town business license for two years and signed a local preference certification statement - by 5 percent, but won't reduce the bid more than $2,500.

Even Myrtle Beach, which hasn't discussed the idea of local preference, has added it to the agenda.

Larry Schilling, procurement officer for the city of Conway, said that every bid must be evaluated carefully, but ultimately the best value is going to determine the winning bid.

"We have to be careful where we have taxpayer money involved here," he said. "We need to get the best value for the dollar. ... It has to be competitive."

Ron Herrmann, the owner and president of Elvis Welding Service Inc., who has worked in the area for more than 20 years, said that he has seen some good contractors who have helped build the Grand Strand go out of business as the government contracts go to companies from out of town.

"I've lost my five best customers. They've all gone out of business. They're out of business because most of the people doing business have gone out of town," he said. "It's just unbelievable."

The County Council asked for a review to determine how Georgetown County's policies compare to others.

"There certainly is value to that to employ local people and have the revenue come through the county," Prufer said. "It's certainly a legitimate consideration, just somebody has to determine how much extra we pay for that."

The city of Georgetown is reviewing its purchasing policies and presented an updated version, which does not include a local preference, to the City Council this week.

"I think it's just a challenge of finding a way to make that work," said Chris Eldridge, the city administrator, adding that even companies outside the city do contribute to the local economy.

Earlier this year Horry County Council members considered adding a local preference to the procurement codes.

"The reason why we didn't include it is because our legal staff said that there could be constitutional implications if you provide a preference," said county spokeswoman Lisa Bourcier. "You have to keep fair and equitable procurement codes ... and that is why it was not included."

Under the current ordinance the county must award the contract to the qualified lowest bidder. With the expansion of the Myrtle Beach International Airport, the largest county project, the projects have been broken down into pieces, which should allow some of the smaller, local companies to submit bids, she said.

"We found we had more response and got better pricing when we were able to do that," Bourcier said.

Rick Ott, a senior executive vice president of M.B. Kahn, which is managing the airport construction, said that he can understand that there is political pressure to keep jobs local but that local preference laws aren't the way to go.

"Generally we're opposed to local preference laws in the construction industry," he said. "Ultimately it increases [the] cost to do business and it removes an opportunity."

Read more: http://www.thesunnews.com/2010/08/22/1647413/no-leg-up-for-local-companies.html#ixzz0xOA1ZhZg
Meanwhile, it is worth noting that local preference provisions can have unexpected consequences, amongst which includes the creation of business critically reliant on local government largess, as this report from the UK suggests:

Companies that supply public sector feel heat of latest wave of cuts
Some 168 companies in the health and social services, education and defence sectors collapsed in the first half of 2010, compared with an overall business failure which has dropped by 5 per cent in the same period.

"Those companies that have become too dependent on the public sector are beginning to feel the pain," said Anthony Cork, a director at Wilkins Kennedy. "It is not just the actual cost cuts that are causing problems but the delay by public-sector bodies making spending decisions."
That kind of economic distress then becomes political distress at a time when politicians are least likely to need to make tough fiscal decisions.

Wednesday, August 18, 2010

Up in the air Hubzone parity shot down -- again

Critical alert: The information in this post has been surpassed by new legislation. See, HUBZones demoted.

The US Federal government has a number of social preference schemes for set-aside contracts. Most, based on personal or racial status, such as women, veteran or Native classifications, are lumped under the so-called Section 8 classification.


And then there's the HUBZone classification, which includes many businesses situated in a geographically described Historically Underutilized Business Zone.

It has been the case that the government viewed all such classifications as on par, or, if not on par, with preference to Section 8 classifications.

But, as reported here previously, that notion was rejected in a US Court of Federal Claims case earlier this year. It was also reported here in another prior post that many government agencies gave short shrift to the Court of Federal Claims decision, and continued to give preference to Section 8 over HUBZone:
The Office of Management and Budget and Justice Department disagree with that decision and have directed agencies to disregard it.

The Air Force recently followed OMB's directive, telling GAO that it was ignoring its ruling in a second HUBZone protest case filed by DGR Associates Inc. "Contracting officers are not to provide a priority to HUBZones," Air Force officials told agency attorneys, according to correspondence Government Executive obtained.

The US Court of Federal Claims is not moved, nor likely amused.

Court rules against government, again, in small business parity
On Friday, the Court of Federal Claims found the Air Force violated the 1953 Small Business Act when it failed to first consider DGR Associates Inc., a HUBZone firm, before awarding a contract to an 8(a) small business.

The Air Force decided under the new contract it would limit competition to companies operating in SBA's 8(a) Business Development program because the service wanted to boost its percentage of awards issued to small disadvantaged businesses, the court said. A contracting officer noted in documents that the Air Force had exceeded its HUBZone goals by more than 600 percent but missed its small disadvantaged business goal -- which includes the 8(a) program -- by 53 percent.

In Friday's case, the Court of Federal Claims issued a permanent injunction requiring the Air Force "to terminate the unlawful contract" awarded to General Trades and Services of Waipahu, Hawaii. The Air Force must issue a new solicitation and will be required to first consider DGR, the Terrell, Texas, firm that had been the incumbent on the contract.

In his decision, Judge Thomas C. Wheeler said the statute was unambiguous.

"The language of the Small Business Act granting priority to the HUBZone program could not be more clear," Wheeler wrote. "By using the phrases 'notwithstanding any other provision of law . . . a contract opportunity shall be awarded on the basis of competition to qualified HUBZone small business concerns,' Congress established a priority for the HUBZone program over other competing small business programs. . . . If Congress intended something different from what it stated, Congress alone must enact an appropriate amendment."
Read the Decision here.

This ruling has significant relevance to Guam contractors. Guam has been determined to be a HUBZone. Billions of dollars of Federal funds are being spent on Guam to upgrade the US military presence in this part of the Pacific. Section 8 preferred Alaska Native Corporations are already here in force, and grabbing preference for much of the work.

This ruling should put Guam HUBZone-qualified contractors in the Catbird seat for social preference set-asides.


MORE ON THIS TOPIC:

I failed to point out something essential to understanding the interests at play in this discussion, which is that Section 8a preferences have different fiscal goals than HUBZone preferences and that there is a substantial difference in the geographical scope and economically disadvantaged character of the contracts available to the different preference set-asides.

Section 8a preferences are pretty much available to qualified socially and economically disadvantaged persons without geographic limitation, as is apparent from the world-wide penetration of Section 8a qualified contractors in Federal Government contracting.

HUBZone preferences, on the other hand, are available only to economically disadvantaged small businesses who are bona fide residents of geographically limited HUBZones.

Many, but not all, HUBZone qualified economically disadvantaged contractors are also Section 8a
qualified as socially disadvantaged. The purpose of the HUBZone qualification is to lift all economically disadvantaged small businesses in a Historically Underutilized Business Zone, regardless of race, gender, clan, Veteran or other socially disadvantaged status.

There seems to have been more than usual ("usual" being, "not much") interest with this particular post, so I have been having a look around the web at other material on the subject. In no particular order and for no particular reason are the following additional readings links:


A very analytical view, made in 2006, from the "Ask A Professor" page on the Defense Acquisition University website (note: Firefox gave several warnings that the certification to this site was unknown, which my experience tells me happens on many military (.mil) sites).

New Complications for SBA Regulations May 2010

These informative posts from "Don's Acquisition Blog" from Nov 2009, in the "go to for Federal acquisition" Wifcon.com website, more formally known as "Where in Federal Contracting.com" and provided as a regular link on this author's blawg, in the sidebar to the right.

This informative post from Bob Antonio's Blog from July 2010 in Wifcom.com.

This post (HUBZone | Fraud Rampant in Billion Dollar Contracting Program ~ Post No. 071808-1) from the "activist" (for lack of a better word) website of The Voice of Small Business in America.
There are and undoubtedly will be many more good discussions and analyses of this issue, and if you run across a particularly useful one, feel free to share it via the Comments utility. I, of course, always reserve the right to vet all comments for tone, civility, pertinence or other rational or arbitrary reasons (and you have the right to start your own blog).

MORE LINKS, etc.: Court rules against government, again, in small business parity
The U.S. Court of Appeals for the Federal Circuit will soon hear Justice’s challenge of the Mission Critical Systems case. And, unlike the Court of Federal Claims, the appeals court’s ruling has precedential effect, meaning its decision would apply to future HUBZone priority cases.
Support for HUBZone government contractors from Timothy Power and Power Law Office

HUBZone Contractors National Council - provides membership in a trade organization of HUBZone contractors and information on the HUBZone program and statistics as well as other reports, information, networking and links.

HUBZone Wikipedia.

HUBZones are designated based on qualifying low income and/or employment. Is your business located in a HUBZone? Check out this map.

SBA online HUBZone site.

What is a Small Business?


Q & A:

Is a HUBZone contractor restricted to contracts to be awarded only in a HUBZone?
No. As the 9th Circuit Court of Appeals said in Contract Management, Inc. v. Rumsfeld (434 F.3d 1145, 1149; January 11, 2006), "there is no indication in the statutory text that HUBZone contracts must be awarded exclusively within HUBZone areas."
Must HUBZone awards be restricted to work to be performed only in HUBZone geographical areas?
No. Again, the Contract Management case above said, "[t]here is no requirement of any sort that the contract be performed in a HUBZone area. Indeed, the very nature of such historically underutilized zones make it unlikely that a significant volume of contracts would be found within them." (Id.; italics in original.)

It is thus a happy coincidence for Guam small business contractors that there is such a significant amount of work to be done on Guam for the buildup because they will not need to go off-island in search of qualifying HUBZone contracts.

Sunday, August 15, 2010

Is the economy of scale tipped against policy of competition?

Beveridge Report failed in its duty to Scotland, say top economists
Two of Scotland’s foremost economists have launched a damning attack on Crawford Beveridge’s Independent Budget Review for failing in its duty to consider Scottish economic development.

Writing in today’s Sunday Herald, they also rejected the logic of the four-year-old McClelland Report, the proposals of which have helped to concentrate Scottish public procurement into larger single contracts.

Geoff Mawdsley, director of think-tank Reform Scotland, broadly agrees with the Cuthberts’ views that local services and facilities would be better served by more dedicated contractors.

“We would like to see the devolution of power to local authorities so that they can decide how they manage their services more generally. Procurement is part of that. We want to see things driven from the bottom up rather than trying to force centralised procurement or efficiency savings from the top down.

“I don’t think that procurement should be restricted to Scottish companies, but this would likely be a natural by-product of a more local focus because you would end up with more competition.

“We have tried to force a one-size-fits-all mentality, assuming there’s one right way to do things. We have gone for a uniform approach where we should be looking for diversity.”

David Watt, director of the Institute of Directors Scotland, has some sympathy with the Cuthberts’ arguments but said there is a danger of oversimplifying the complexity of achieving optimum procurement for the good of the country.

He believes that the McClelland Report “very sensibly” suggested that the country would get better value for money by centralising procurement, but agreed that this tends to disqualify Scottish companies because they don’t have the scale to cope with the size of the contracts.

He said: “The question is, are we as individuals and as businesses prepared to accept some poorer value for money in order to promote economic development in the longer term? I don’t know the answer to that question. The Cuthberts are arguing there’s a case for doing that, but the media would crucify the Scottish Government if it went down that road.”

It might be noted that, on the other end of the spectrum from the disaggregation of contracts in the above case, there is a similar argument as regards the "bundling" of contracts under US Federal procurements. This is an ongoing debate going back, formally, to the late 1990's at least. (See, for instance, this 2002 article, which describes the legislative and regulatory framework.) A recent rendition of the debate is illustrated by the following article:

DOD now required to report bundled contracts, sole-source awards
Acquisition officials in the Defense Department now must post notices about bundled contracts and their benefits, according to a new interim rule.

DOD’s contracting officers are required to publish a notification on FedBizOpps.gov or any similar site at least 30 days before releasing a solicitation for a bundled contract

Contract bundling occurs when an agency combines several smaller procurements into one larger purchase. If a defense agency expects to reap measurably substantial benefits because of bundling, the notification must include the brief description of those benefits, the rule states.

The rule is based on a provision in the fiscal 2010 National Defense Authorization Act, which became law in October.

The interim rule isn’t expected to have a significant effect on companies, particularly small businesses. On the other hand, small companies may benefit in the end.


MORE:

Defense agency seeks 10 percent price reduction from suppliers
the Defense Logistics Agency is looking to its suppliers to help cut costs.

"First, we will pursue price reductions by as much as 10 percent in selected areas by providing greater focus on price reasonableness, incorporating price reduction factors in strategic sourcing opportunities and establishing more long-term contracts," said Vice Adm. Alan Thompson, director of DLA.

"The payoff from our pressure on pricing should be realized near term," he said.

Additionally, the logistics agency will upgrade its enterprise business system to consolidate procurement of depot-level parts and supplies for all the military services into a single contracting instrument. "This will allow us to make larger buys, which will be targeted at reducing costs," Thompson said.

As DLA leverages its buying power by consolidating purchases across the agency, some of its small business contractors might have to build relationships with larger firms, where they can function as subcontractors, Thompson said.

Bulgaria's Financial Inspectors Fine Ex-Minister

Bulgaria's Financial Inspectors Fine Ex-Minister
The Bulgarian Public Financial Inspection Agency has fined the former Minister of State Administration, Nikolay Vasilev, over violations in public procurements.

According to the agency, the former minister had a double standard towards the companies that won the Ministry’s tenders for the installation of flagpoles at border posts and lifting platforms for disabled in public buildings.

Some companies were ordered by Vasilev to pay penalties for delays, and other companies were not.

It is not clear whether the Prosecutor’s Office will decide that there have been enough evidences for raising charges.

Saturday, August 14, 2010

Procurement controversies -- Kenya

IIEC in crisis despite credit for referendum
The Interim Independent Electoral Commission (IIEC) is walking a tight rope, with rivalry between commissioners and the secretariat threatening its credibility days after it won praise for successfully conducting the just-ended referendum and three by-elections.

Investigations by the Standard On Sunday indicate that boardroom wars over control of multi-million shilling procurement deals and jostling by the commissioners to keep their jobs in the looming merger of national commissions have worsened relations between senior staff and commissioners.

Besides procurement wars, senior commission staff are complaining that the commissioners are taking up their jobs and hogging credit for the institution’s successes.

A section of staff interviewed spoke of tension and rivalry between a clique of three commissioners and senior managers over tendering procedures and an alleged plot by some influential politicians to infiltrate and weaken the commission’s secretariat, ahead of the 2012 General Election.

"It is true there is a problem because a clique of commissioners with business and political interests are intimidating us," said a commission official, who did not want to be named because he is not authorised to speak to the Press.

The Public Procurement Oversight Authority (PPOA) had to intervene three months ago to protect senior managers at the commission as the procurement wars raged.

In a reply dated May 24, a Mrs J W Njoroge on behalf of PPOA Acting Director General Maurice Juma, directed that only the commission’s procurement unit be allowed to handle the procurement processes.

Thursday, August 12, 2010

Think global, buy local?

Spot the theme here in this group of stories all grabbed randomly from one quick googlenews search:

THE FEDERATION of Philippine Industries (FPI) urged the government yesterday to patronize locally made construction materials for state mass housing projects.

In attempts to give Santa Fe businesses an edge over out-of-town competitors, Santa Fe’s city officials will consider changing procurement rules so that a 10 percent local-preference discount will apply to companies with the majority of their assets in Santa Fe, according to The Santa Fe New Mexican.

Dundee looks at keeping it local: “If we have local people who can do the work, without it being cost-prohibitive, we should try to bring them in,” he said. “I’d like to make it happen, if it’s feasible — to keep those dollars here in Yamhill County [Oregon].”

The chairman of the Institute of Procurement Professionals in Uganda, Benon Basheka, says there is a need for more participation of the local contractors in public procurement processes.

City Wants to Favor Local Bidders
According to City Manager Steve Gantt, several recent contracts have gone to out-of-state bidders with Columbia (South Carolina) bidders placing a close second. And with the city preparing to bid out at least $200 million in water and sewer projects, City Council wants to do something about it.

Council is considering adding a local preference to the city’s procurement process. That means local companies would get an automatic boost — extra points for being local, as it were.

“This is our own stimulus program,” Gantt told Council.

Many cities have local vendor preferences. But critics of the policies say they can raise project costs and stifle competition.

The details are the tricky part, though. The city plans to contract with a consultant to review and recommend changes to the city’s procurement code

The consultant, whom the city will pay $202,500 over the next two years, is based in Baltimore, M.D.

And now for a bit of real analysis rather than simple minded boosterism.

Buy-local policies growing By: Brendan Reimer
[Winnipeg, Canada] Mayoralty candidate Judy Wasylycia-Leis recently sparked discussion about government-procurement practices when she suggested that locality be a consideration in the City of Winnipeg tendering process.

Commentaries have pitted this as an either-or debate regarding protectionism versus free trade, the higher costs associated with preferring local business over cheaper ones and about the ramifications of us doing something that the rest of the world supposedly is not.

To begin with, this debate is not an all-or-nothing conversation. Trade has its benefits, but it also has its flaws. To pretend that "free trade" and "fair tendering" are really free and fair is naive. Free trade has allowed some local companies to expand and hire more Manitobans, while others have been forced to move, close or sell out, resulting in lost jobs.

Extreme measures either way do not make responsible public policy. Our public institutions are mandated to act in society's best interest, and our best interest is not served by blind adherence to the cheapest bid. This is why tendering policies already consider a host of other criteria. Adding locality to this mix is not in and of itself protectionist; it ensures maximum value for publicly spent dollars.

Some fear that local preference will escalate costs and result in fewer or lower quality service and products. Again, it is not simply one or the other. When weighing competing bids of similar quality and cost, it is possible to add other considerations, such a locality, as tie-breakers.

In looking out for the public good, governments increasingly consider safety, quality as well as life-cycle and ongoing operating and maintenance costs of various tenders in addition to up-front prices. We should also favour businesses that reduce taxpayer costs related to poverty, crime and incarceration, unemployment and health care while increasing government revenues through payroll and income tax revenues and consumption taxes. This is not about charity, this is about efficient use of government funds.

To present this approach as something no one else is doing is also misleading. Integrating economic, social and environmental objectives, also known as a "triple bottom line" approach, is becoming increasingly common and governments and other institutions are getting on board through their procurement policies.

For example, the Vancouver Olympics gave consideration to social enterprises in their procurement process. As a result, social enterprises employing women returning to work, inner-city residents and aboriginal youth working in social enterprises produced the flowers presented to medallists and the podiums that they stood on. The City of Calgary has implemented a sustainable environmental and ethical procurement policy. Ontario's recently released poverty-reduction strategy includes commitments to developing procurement policies that support social enterprise. New Westminster, B.C., recently adopted a living-wage policy, ensuring that work it contracts out is awarded to companies that adhere to wage and benefit standards greater than what is legally required.

The Scottish government is implementing a policy that gives 10 per cent preference for social enterprises in certain procurement fields, including three per cent for subcontracting to social enterprises. In Great Britain, a Conservative MP has brought forward a bill in support of social enterprise procurement preference. Italy has long given extra weighting to purchasing from co-operative businesses, recognizing that their business model of collective ownership creates economic democracy and a more equitable distribution of wealth.

Our neighbours to the south understand the value of balancing free trade with strategic purchasing. More than 140 municipal governments have passed "living wage" ordinances regarding their procurement contracts, including big cities such as San Francisco, Santa Fe, N.M., Washington, D.C., Baltimore, Boston, Los Angeles and St. Louis. The U.S. government has targets of procuring five per cent of contracts from small female-owned businesses, three per cent from service-disabled, veteran-owned businesses and gives small businesses located in "HUBZones" (historically underutilized business zones located in economically distressed communities) a 10 per cent price evaluation preference on tenders and aim for three per cent of all federal contract dollars to be awarded eligible businesses. In Minnesota, targeted small businesses that are located in economically disadvantaged communities or are owned by racial minorities, women or people with disabilities are given up to 6 per cent pricing preference. The U.S. Army has a green procurement strategy.

Leaders around the world are beginning to understand the ripples of procurement. They are seeing how even incremental cost increases in procurement are dwarfed by the direct financial payback that certain enterprises provide, never mind the longer-term financial savings relating to the costs of poverty and poor health. Municipal governments could catch this wave.

This is consistent with what I've previously said about this subject:
Because procurement law is a specie of government, be it municipal, state, national or whatever, matters of community welfare weigh heavier than they would in a strictly commercial context. Some preference may be justifiable as a means of putting money back to work in the community from which the tax dollars came. That argument is supported by need of government to shore up and expand its tax base.

As with many good ideas, though, it can often be abused or lead to more detriment than benefit. Where particular preference is given to particular interests, for instance, favoritism begins to seep in, which begins to feed on itself and spread corruption of the whole system. It can lead to propping up failing ventures that do not really benefit the community at large; that do not expand the tax base but consign it to old technology or the maintenance of inefficient production or outmoded products.

Moreover, there becomes the question as to just what is a local provider? The world is by an large a much more complex and interconnected economy, and the geographic "home" of enterprise often belies its supply lines and production base. This is true at a legal level as much as at a political or economic level. We aren't in Kansas anymore, Toto.

Finally, there comes the big economic-political issues involving trade subsidy and protectionism. We learned from the world wide Great Depression of the early 20th Century that protectionism can horribly exacerbate the economic downside of the business cycle. However popular it may be with the populace, where a little local preference may be a good thing, we find out too late that a lot of it is not such a good thing.


MORE

Local NAACP to make sure disadvantaged, local firms get slice of N.O. recovery pie
The [New Orleans, Louisiana] City Council last year approved a law calling for 50 percent of all public spending to go to locally owned companies and for 35 percent of all public spending to be directed to "socially and economically disadvantaged businesses, particularly of those businesses located in storm damaged areas."

"It's not a black or white thing. It's a New Orleans thing. That's money that's going to circulate and recirculate and recirculate in this city," Local NAACP president Danatus King said. "We're not pushing for anything extra. We're just pushing for the law to be enforced."

If just half of the $640 million slated to be spent on the latest round of projects stays in the local economy, "that will go to increase our tax base, which in turn will improve our public education system and help us repair our streets," he said.

Initially pegged as a $1.5 billion recovery program, Landrieu has scaled back the effort to rebuild public assets destroyed by Hurricane Katrina to $1.2 billion because of budget shortfalls. About 311 projects with a combined value of $367 million have been completed or are under construction.

To make sure the participation goals are met, the NAACP branch plans to recruit volunteers -- ideally, one per project -- to monitor the procurement process, King said. The effort has been dubbed the Citizens' Compliance Campaign.

Inspector General Ed Quatrevaux also raised questions about the whether the 2009 ordinance and an executive order issued in 2006 by former Mayor Ray Nagin conflict with earlier court rulings that prohibit "gender- and race-based criteria for DBEs [disadvantaged business enterprises]," though he stopped short of concluding that current rules may have to be tossed out.

Wednesday, August 11, 2010

I've often been asked ...

Most people's first spoken reaction to seeing the Guam Procurement Process Primer is "why did you write this?".

Yeah. Of all things. And to then just give it away.

After all, as I wrote in the Primer,
The author makes no claim to great authority of the subject. He acknowledges willingly that procurement law has been seen to be impenetrably obtuse, stultifyingly boring, and an aggravation to government and private business alike.
Well, in the first place, it could not and would not have been done had it not been for the encouragement of my boss, mentor and friend for almost three decades, Ken Jones. He basically set me free to "clean up this mess."

But I didn't have an idea in mind for doing so until, after delivering a lecture to the Guam Chamber of Commerce's Small Business Committee on procurement law, I found myself in possession of an outline of sorts, and numerous memoranda I had written for myself to deal with the many topics that come up in a procurement protest, when time is short to organize and research.

And then came the challenge. Hammering out details of a settlement of one such procurement dispute with a sympathetic but hard nosed Assistant Attorney General, he asked why was I being so persevering. And I said, because I hoped to get everyone on the same page as to what the law requires so that we don't have to spend so many protests and appeals challenging procurement lore with procurement law.

And he said, with no malice or antagonism, "good luck".

That's the short, prosaic story. The following is more descriptive.

One man's plan to change public procurement by Janjeera Hail
Guam - With the botched John F. Kennedy High School contract dominating headlines, a huge blow has been dealt to public confidence in the Government of Guam's procurement process. With the release of the 2nd Edition of his Guam Procurement Process Primer, John Brown hopes to bring some clarity to local procurement, a process that, time and again, has cost the local community valuable time and money.

After struggling with it himself and finding that many of his colleagues felt the same, he wanted to do something that would bring everyone on the same page. He was approached by the Guam Chamber of Commerce about delivering a lecture, and the Guam Procurement Process Primer was born. "It would be my goal to get everybody on Guam on the same page so we all understood what the law was or pretty much was. And then we could just argue the facts, which is what lawyers tend to do. And that would cut down on a lot of the unnecessary disputes," he explained.

The first version of the Primer was in the form of the first lecture outline. Those 30 pages have grown to nearly 300 hundred in the most recent version. "There's a lot of 'inside baseball knowledge' that lawyers need to know," Brown quipped. "Unfortunately some of that gets kind of technical, but there's a lot of that spoken to in the latest edition."

In the 1980s, Guam adopted the American Bar Association's Model Procurement Code, but left out two parts Brown believes should have been included. The first was a procurement institute, of which Brown said, "[It's] intended to be a place of learning for both the private and public sector and it's not necessarily a place in the sense of bricks and mortar. It's a curricula that could be combined with a UOG course or a GCC course."

The second would be a council - with no independent authority - but the ability to bring knowledge to bear on a problem and recommend solutions. "The advisory council was to be composed of people who really knew what they were talking about who could assimilate the various viewpoints of private-public sector participants on issues of procurement policy and make recommendations to the policy board," he said.

You can also see the video here. (I hope the link works.)

Tuesday, August 10, 2010

More on the importance of planning, purposes and policies

This is a bit of a knock-on from a post I put up last week regarding the practical effect of procurement purposes and policies.

In my Guam Procurement Process Primer, after explaining where and how to find the laws and rules of Guam procurement, I begin the substantive topics of procurement law with a discussion of procurement policies and purposes. I try to make the point that it is error and folly to overlook these fundamental aspects.
The law and regulations specify certain purposes or policies of procurement law. These are not mere maxims, platitudes and ideals. They are intended to fill in the blanks and provide direction when the law or regulations have holes or are in need of clarification or direction.

This point is illustrated quite aptly in the following article by lawyer George Wheeler-Carmichael of the UK offices of lawfirm Nabarro LLP.

Most of the article is taken up in a discussion of what the author terms the "pre-procurement stages" of procurement under EU and UK law more particularly. The pertinent part, for this post, is this comment, at the beginning of the piece:
There are many things that can (and should) be done to prepare for the procurement, including market testing. But how far can you go?

There is very little law on this. European procurement rules are silent. The only guidance is in the three general principles of procurement law:

* equal treatment
* non-discrimination
* transparency

As long as market testing is carried out in a way which treats all participants equally, does not discriminate (and this includes inviting a wide range of organisations to participate in the first place) and ensures that the same information is given to all, then there should be no problem.

Sunday, August 8, 2010

Procurement reform -- Ukraine

Law on Public Procurement extends Anti-monopoly Committee's remit by lawyer Oleh Malskyy, published by the International Law Office
On July 30 2010 the Law on Public Procurement came into force, introducing new rules to make public procurement procedures non-discriminatory and more transparent. The thresholds for applying the public procurement mechanism remain at the previous levels of UAH100,000 (approximately US$12,500) for goods and services and UAH300,000 for works.

The law sets out new duties for the Anti-monopoly Committee, which is now authorised to review disputes arising out of public procurement procedures - previously, tender participants addressed their appeals to the Ministry of the Economy or to the tender organiser directly. The committee is required to create a new department that will specialise in dispute resolution and has been authorised to recruit up to 35 new staff. Ten new employees have already been delegated from the ministry.

All natural and legal persons can approach the committee if they consider that their rights or interests were violated during a public procurement process. The committee predicts an increase in the number of such disputes in light of the wide range of interested parties with such a right. Within three days of receiving the appeal, the committee must notify the state entity of the time and place of the hearing. The period for considering an appeal has been extended from 20 to 30 business days.

COMMENTARY: I was intrigued that the legislation gave jurisdiction over the procurement review process to an Anti-monopoly office. But it is not quite as curious as it might first appear when it is considered that bid-rigging is, under US antitrust law, a criminal violation, enforceable by the US Department of Justice.

On the importance of planning, policy and purpose

Effective procurement is not a "paint by the numbers" endeavor. While there are many bright lines, any application of procurement law that fails to take into account the over-arching goals of procurement policies and purposes will often reduce to mere paper shuffling and rubber stamping.

That's the message behind the following federaltimes.com piece on US Federal procurement contracting.

How some agencies are cutting contract costs
President Obama took aim at the growth in noncompetitive and cost-reimbursable contracts last year, telling OMB Director Peter Orszag and other top officials in a March 2009 memo to come up with guidelines to "maximize the use of full and open competition."

Figures released in the July 7 report show an overall slowdown in new contracts, increased use of competitively awarded contracts and fixed-price contracts, and decreased use of sole-source contracts.

While the administration has made some headway, its progress is not as impressive as it may seem, said Ray Bjorklund, a federal contracting expert with the market research firm FedSources. It's true that spending via sole-source and cost-plus contracts went up from fiscal 2000 to 2008, but the increases were roughly commensurate with the overall explosion in contract spending during that time. Similarly, the decline in the use of those types of contracts in fiscal 2010 corresponds with a general decrease in spending, Bjorklund said.

"It's a recognition that perhaps the executive branch has not been following all of the principles and the policies that are already documented" in the Federal Acquisition Regulation (FAR), he said.

The FAR encourages increased competition and instructs contracting officers to pick the type of contract that will offer the best results and least risk, Bjorklund said.

"[Obama's] memo says, let's step back and recognize those fundamentals," Bjorklund said. "Agencies are taking that to heart and being more conscientious."

Bjorklund said he thinks the administration's message has by now trickled down to the federal acquisition work force. However, moving to increased competition and fixed-price contracts is difficult and time-consuming for a career field widely acknowledged as understaffed and overworked.

Joseph Waddell, the National Nuclear Security Administration's (NNSA) senior procurement executive, acknowledged that switching gears is a strain on his staff.

"It is more difficult," he said. "It's more work up front. It's easier to just take the existing contract and repackage it and send it out for re-bid."

Stan Soloway, president and CEO of the Professional Services Council trade group, said he supports the administration's push for smarter contracting but worries about unintended consequences for contracting officers.

"I think we have to guard against pushing people to make contract-type decisions based on some overarching policy rather than what's right in the circumstance," he said.

Soloway said his organization has heard from government procurement officials who said they feel they're being pushed to use fixed-price contracts "even where they're not sure it's the right answer."

When the Environmental Protection Agency went to clean up the Tower Chemical Co. site, an abandoned pesticide plant about 25 miles west of Orlando, Fla., it had a fairly good idea what it was getting into.

The agency wanted to remove dirt that was full of hazardous chemicals, to reduce contamination of soil and groundwater at the Superfund site.

"We knew what was in the ground and how much of it was in the ground," said John Bashista, director of EPA's office of acquisition management.

Armed with this information, EPA was able to integrate into the Tower Chemical project a key element of the Obama administration's push for contracting reform: fixed-price contracts. EPA incorporated another administration goal by pushing hard for multiple vendors to bid on the project

Because the agency could clearly define the project's requirements before asking contractors for bids, EPA was able to avoid a "cost reimbursable" contract that left the door open for cost increases down the road. EPA also was able to get more than 20 companies to compete for the cleanup work.

The agency ended up with a $5.2 million contract, 65 percent below its initial estimate for a cost-reimbursable deal.

Obama didn't talk about reverse auctions in his memo, but they appear to be a crucial part of OMB's reforms. Dan Gordon, administrator of OMB's Office of Federal Procurement Policy, mentioned reverse auctions in congressional testimony July 15 when asked about the administration's most important contracting initiatives.

"Agencies are now routinely driving down prices by conducting electronic reverse price auctions," Gordon said.

OMB's report said the Department of Homeland Security alone ran more than 2,500 reverse auctions in fiscal 2009, resulting in savings of more than $40 million.

Wednesday, August 4, 2010

Transparency usually means public access

FAPIIS Coming Soon to a Computer near You
Now, the public will have access to information on a [US Federal] contractor's past performance, specifically if the government has slapped them with any penalties, including non-responsibility determinations, terminations for default, administrative agreements over suspension or debarment, and criminal and civil proceedings.

FAPIIS (Federal Awardee Performance and Integrity Information System) is the government's recently created "one-stop shop" for contractor performance data, compiling information from the many disparate performance databases scattered throughout the federal government.

Now, the looming question is how long will it take GSA to implement the new law.
Feast Your Eyes on FAPIIS
FAPIIS is off-limits to the public, but POGO obtained some screen shots of the database as it appears on the Central Contractor Registration (CCR) government contracting portal. [Read the article to get imagery and other links.]

This is the part of FAPIIS that was modeled on POGO’s Federal Contractor Misconduct Database. Note that the “Disposition” pull-down menu in FAPIIS only has two options—“Conviction/Finding of Fault” and “Other acknowledgement of fault.” In contrast, ours has 13. What’s more, FAPIIS only covers misconduct in connection with the award or performance of a contract or grant. POGO’s database is far more extensive, covering 17 distinct types of misconduct plus an all-inclusive “Other”
.
The Federal Awardee Performance and Integrity Information System
It is one thing for government officials involved with the award of contracts and grants to be aware of the outcome of normal business disputes (they should be aware of the outcomes that are adverse to the government as well). It is quite another for such information to be recorded and released publicly through a database that characterizes these routine business disputes as ethical violations. Unfortunately, if the pending legislation passes, contractors and grantees can expect that even the most routine civil and administrative disagreements and proceedings will be put under a microscope and potentially highlighted as evidence of ethical misbehavior.

Entities that contract with the government or accept federal grant funds must be attuned to this requirement and the likelihood that the information will become public.

FAR Council Issues Final Rule Unveiling A New Measure Designed To Ensure Only Responsible Contractors Obtain Contract Awards
Currently, before the award of any federal government contract, contracting officers are required to make an “affirmative determination of responsibility.” (FAR 9.103(b)). To make this determination, contracting officers are required to “possess or obtain information sufficient to be satisfied that a prospective contractor currently meets the applicable standards . . . .” (FAR 9.105-1).

Contracting officers, in fulfilling their obligation to make a responsibility determination prior to contract award, will be required to review the FAPIIS data pertaining to the contractor. That information will include: contracting officers’ non-responsibility determinations; default terminations; defective pricing determinations; administrative agreements with suspension and debarment officials; contractor criminal convictions, civil liability, and adverse administrative actions involving a finding of fault and liability in connection with the award or performance of a government contract; and certain settlements in criminal, civil, or administrative proceedings.

FAR 9.104-6 will require contracting officers to review the FAPIIS database, located at http://www.ppirs.gov/fapiis.html, prior to any contract award that exceeds the simplified acquisition threshold. The rule is applicable to commercial item and commercial-off-the-shelf (COTS) procurements, and to contracts awarded to small business concerns.

Under FAR 52.209-7, offerors will be required to report information pertaining to legal proceedings in connection with the award or performance of a federal government contract. Specifically, offerors will be required to report whether within the last five years they or a principal were involved in any proceedings that resulted in: (1) a criminal conviction; (2) a finding of fault and liability in a civil proceeding that results in a payment of greater than $5,000; (3) a finding of fault and liability in an administrative proceeding that results in a fine of greater than $5,000, or reimbursement, restitution, or damages greater than $100,000; and (4) a settlement in a criminal, civil, or administrative proceeding where fault is admitted and a decision on the merits could have led to any of the results above.

If the FAPIIS database contains adverse information, contracting officers will be required to give offerors the opportunity to provide additional information to demonstrate their responsibility before making a non-responsibility determination, unless the contractor already has been suspended or debarred. Consistent with the current protections provided to small business concerns, where the contracting officer determines that such a concern is not responsible, the contracting officer is required to refer the concern to the Small Business Administration, which will decide whether to issue a Certificate of Competency. In addition, FAPIIS will notify contractors whenever the government posts new information to the contractor’s record, and the contractor will have an opportunity to post comments and respond.

That last article, provided by law firm McKenna Long & Aldridge LLP, includes a great deal more helpful information, and you are encouraged to refer to it if this issue is on your radar screen.

A couple of perspectives on insourcing vs outsourcing

It is probably fair to say that mankind first organized itself socially, all sharing in the benefits and burdens of group effort. And then, when specialization began, so too did the social structure begin to differentiate. It was probably about that time that arguments first began to surface over whether the group or some differentiated part of the group should perform certain functions.

That argument is alive and well today, as reflected in the ongoing US federal debate over what is a "core" or "governmental" function, amongst other issues.

Some applications of that debate are reflected in the following two articles, one from Ghana and the other from US history. These articles illustrate how the philosophy of procurement hits the road. It can be a rubbery issue.

GIVE THE STX HOUSING CONTRACT TO THE ARMED FORCES
The recent report that the ruling NDC government is seeking to build houses for the country's security forces has got everybody talking. The government according to media reports is contracting STX, a Korean firm, to build 200,000 housing units at the cost of ten billion dollars.

Nobody is saying Ghanaians will not benefit when 200, 000 housing units are built, the issue is about the cost of the contract, the terms of the contract and the fact that the government is sidelining local companies in favour of Koreans.

I am of the opinion that government should give the 1.5 billion dollars contract to the army. Throughout the world the armed forces are engaging in direct business as way to generate funds to help strengthen their tactical and strategic capabilities. Evidence of armed forces directly engaging in direct businesses abound in China, the US and Britain. For example the Defense & Foreign Affairs Journal reported in 1997 that “China's top 100 military enterprises reported profit growth for 1996 of 9.2 percent.

The advantages of the Ghana Armed Forces building its own houses are many fold. One is that any profit that STX Korea is intended to make could go to the Armed Forces which could be used to support the funds provided to them by the government through the budget. Again the armed forces know their housing problems far better than anyone else and therefore it will in order if they are allowed to design and build the houses themselves. I am sure that the Engineering Unit of the Ghana Armed Forces has the engineering capability and technical know-how to adequately and efficiently execute the housing project if given the opportunity.

Federal government once rejected outsourcing defense procurement to save money
The question of whether or not to outsource national defense activities is as old as military itself. The Constitution itself mandates that the government provide for the national defense. Interpreting just what that means has been the subject of innumerable gut-wrenching debates, public and private. What to do, how to do it and who will pay for it have been part and parcel of every defense appropriations debate since the start of the Revolution. After more than two centuries, we still have trouble delineating where the federal defense apparatus should end and the private sector begin.

Proponents of contracting, privatization, outsourcing and the like, seem to have an unshakable belief that for-profit enterprises are vastly more efficient, and therefore, more cost effective than any government-run operation. What's missing from their simplistic assessment is that the key part of any for-profit organization is the "for-profit" part. In defense contracting, profit is effectively defined as the dollar amount of private-sector efficiency that is not passed on to the government.

It's no secret that the wars in Iraq and Afghanistan have created private-sector millionaires. When it comes to national defense, the smaller government the larger the checks it must write to contractors. The only other alternative is for the government i.e. federal employees do the work themselves.

In the early years of our nation, North African pirates, and the warring superpowers of Europe, France and England, preyed upon American shipping with impunity; seizing our cargo and imprisoning our sailors. In early 1794, Congress had finally had enough and authorized outfitting a naval force capable of protecting U.S. commerce on the high seas.

The following excerpt found on the Naval Historical Center's website quotes passages from a letter sent to President George Washington by Secretary of War Henry Knox on April 15, 1794 regarding the procurement of the six frigates authorized by Congress. Knox's mix political and economic pragmatism was "immediately accepted" by the President.
"To keep labor costs down, government employees rather than by private contractors would build the ships, and construction sites would be distributed geographically in order to spread the economic benefit and win popular support. "It is just and wise to proportion . . . benefits as nearly as may be to those places or states which pay the greatest amount to its support," Knox advised. Although it might be cheaper to build the frigates successively in a single place, "a few thousand dollars in expences will be no object compared with the satisfaction a just distribution would afford."

Not only did the federal government build the ships, it built some of the finest naval vessels found anywhere in the world. Among the ships built was the USS Constitution, also known as "Old Ironsides." Over decades of service, "Old Ironsides" would score numerous victories over the British Royal Navy helping to establish the United States as a first-class power on the world's oceans. Not too shabby for a government-built ship.

The federal government and the contractors that support it are neither inherently good nor inherently bad; there are simply mirrors reflecting the cumulative quality of the decisions that create and sustain them.

COMMENT: However much competition is at the heart of procurement philosophy and practice, it is not the entire purpose of effective procurement. If it were, procurement would be simply an economic or commercial exercise. It is more than that. It is part and parcel of the larger ulterior original utility and purposes of the social needs of mankind as manifested in its political organization. And that has not remained static in any time or any place for very long.

A helpful introduction to the US GSA schedule price reduction clause

The "best customer" price requirement has been mentioned before in this blawg, particularly in relation to the Oracle case. This requirement is much more complex than that quick moniker reveals, however. Indeed, it may even be misleading. The following article, which is an interview with Jonathan Aronie, gets me, and hopefully you, much closer to an understanding of what the clause is all about.
Is the GSA schedule price reduction clause necessary?
Jonathan Aronie literally wrote the book on GSA schedule contracts and explains what the price reduction clause is, and why it doesn't always work out to be the lowest price.

He's a partner at Sheppard, Mullin, Richter & Hampton, LLC and author of Multiple Award Schedule Contracting.

He explains what the price reduction clause does.

"It guarantees to the government uniquely favorable pricing treatment, where, at the outset of a GSA schedule contract, the government identifies one or more commercial customers to which [it] will compare the contractors' pricing and, if the government starts not being treated as well as this group of commercial customers, then the government demands better pricing from that date going forward."

He adds that, when it comes to pricing, a lot of misconceptions surround who is offering the lowest.

"The key is, when you negotiate your contract, whatever ratio is established needs to be maintained. For some companies, it's the lowest price. For some companies, the government might get five percent worse than commercial customers. So, it's not necessarily the lowest, but it is an established negotiated relationship that has to be monitored and maintained."

There are, of course, a lot of exceptions to the clause, as well, which can make things even more complicated.

"Not every discount to a commercial entity triggers the clause. Any GSA schedule contractor has to have a system to monitor compliance. It has to be able to look at its commercial customers that are within what's called the 'basis of award,' -- within this tracking category. You have to monitor those sales to know if the pricing is below what it should be. Then, you look to see if an exception applies, and then you look to see if you have an obligation to reduce the government's price."

This monitoring process can be quite daunting, too, because a lot of companies see the GSA schedule as a way to break into the government market. Aronie says, though the agency has gotten better at explaining the schedule, it can still be confusing.

"Previously, they've touted the GSA schedule as no different from a commercial contract, and that has had the unwitting effect of duping some companies into thinking that it doesn't have these unique obligations; whereas, this is is a unique obligation and companies need to go in with their eyes open."

The article goes on to discuss the onerous audit track that must be maintained to participate as a GSA schedule vendor and other matters. It is worth your time to read the whole thing if you have any involvement with GSA schedule contracting.

Hard line taken in Atlanta on procurement violation

It is often disheartening for a bidder on a government contract to experience blatant wrongdoing in a solicitation, and whether they win a protest or lose, find that their remedies are hardly worthwhile. They don't get their legal fees (on Guam and in most of the US), and too often the wrongfully awarded contract is nevertheless affirmed as being in the government's best interest.

But the real salt in the wound is in seeing the procurement officer and staff, who bumbled the award, go off free as a lark, to perpetuate their lackadaisical behavior without any as much as a strong word being placed in their personnel file.

Atlanta, Georgia, did not go down that road.

4 Atlanta watershed workers fired, manager quits over procurement violations
After firing four workers Friday, Peter Aman, Atlanta’s usually calm and mild-mannered chief operating officer, had a stern message for thousands of city employees:

“Don’t [mess] with the procurement procedures of the city of Atlanta. We are serious about people following the city code.”

Immediately after finding out that key members of the Department of Watershed Management’s security division circumvented rules to purchase $2.1 million worth of equipment, Aman fired them.

Aman said the workers wrote 160 invoices to Siemens Building Technologies for security equipment like cameras and access control pads for watershed facilities. The problem was that all of the invoices were for less than $20,000, which requires less rigorous approval standards from department managers, Aman said.

“So this was not an accident,” Aman said. “This was a clear subdivision of invoices.”

“They thought they were doing the right thing, but clearly they were contravening a standing city policy.”

“They would contend they saved months, and it probably was faster,” Aman said of the workers skipping procedures. “But when all is said and done, they didn’t comply to the code.”

“Whatever the rationale was, it doesn’t make a difference,” said Rob Hunter, the commissioner of the watershed department. “With the severity of the penalty, people will get the message that if you do this, you lose your job.”

Aman and Hunter said, there is no evidence that any money was stolen or that there was a criminal relationship with the vendor.

“All of the equipment was installed and it seemed consistent with the master security plan,” Aman said. “This was just a group eager to move forward more rapidly.”

While there has not been any criminal evidence yet, Hunter was unclear what kind of pressure the workers might have been under.

The watershed department is operating under a federal consent decree, which has put in place a series of ladders that the city has to meet before a 2014 deadline. The city is trying to get that extended to 2029.

The workers were ex-military and may have been eager to comply with Homeland Security rules to secure the city’s water supply, officials said.

“I don’t think they felt external pressure to do anything quickly. These were very experienced security professionals,” Hunter said. “The pressure they would have felt was the pressure of identifying a need and wanting to meet that need. But you don’t solve the problem this way.”

COMMENTARY: I am impressed. It must be made very clear that the procurement rules are there to serve ulterior purposes than simple expeditious performance.

It may seem draconian at times, but when people put themselves above the law, whatever the goal, they tend over time to ignore it altogether.

As I have said before, there is no place for the "no harm, no foul" notion in effective procurement regimes.


SUPPLEMENT TO ORIGINAL POST: Following a link to one of the hits to this post led me to some background on Atlanta's commitment to effective procurement. Atlanta has a very proactive Board of Ethics, and it is very public about what it is that the Board does, publishing both quarterly newsletters, such as this current one, as well as periodic annual or other reports, such as this 5 year review in 2009. In addition it publishes its Ethics Opinions online.

I would consider that to be an excellent benchmark for other jurisdictions to emulate.