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Wednesday, October 30, 2013

Bid protests: business as usual

DHS official: Bid protests no cause for alarm
Bid protests are far more common than they used to be. But federal procurement staffs should not become alarmed over them, said Rafael Borras, the Homeland Security Department’s undersecretary for management.

Borras said bid protests make up only a tiny fraction of total procurements and they should be viewed as a normal part of business.

Borras said bid protests help ensure agencies craft good procurement programs.

“It’s good for us. It keeps us sharp, and it keeps us honest,” Borras said at the Executive Leadership Conference in Williamsburg, Va., Monday.

Skinning the cat

Non-Protestable Task Order Procurement Decision Shuts Out Incumbent Contractor
 

A recent decision by the U.S. Court of Federal Claims (“COFC”) serves as a reminder on the limits a contractor faces in protesting task and delivery order awards. In MORI Associates, Inc. v. United States, No. 13-671C (2013), the COFC dismissed the pre-award bid protest by MORI, the incumbent contractor, for lack of jurisdiction because the protest challenged the Government’s decision to obtain services through a task order competition under an Indefinite Delivery/Indefinite Quantity (“IDIQ”) Government-Wide Acquisition Contract (“GWAC”) rather than through a General Services Administration (“GSA”) Schedule contract.

MORI was awarded a 5-year contract for help desk support, as well as other IT services, in 2002. A follow-on procurement was attempted by soliciting quotations from firms that held a GSA Federal Supply Schedule (“FSS”) IT Schedule 70 contract, which included MORI. MORI continued to perform help desk services pending a series of protests it brought at the Government Accountability Office (“GAO”) and at the COFC challenging the agency’s attempts to procure the services from other contractors.

After two cancellations of the solicitation, the agency elected to procure the services instead by way of a task order competition under the Chief Information Officer-Solutions and Partners 3 (“CIO-SP3”) GWAC, a 10 year IDIQ contract awarded to 54 contractors in May 2012. Most importantly, MORI had competed for but was unsuccessful in obtaining a CIO-SP3 contract and, therefore, could not submit a proposal for the task order solicitation, which the agency issued in August 2013.

MORI, believing the decision to use the CIO-SP3 vehicle to be both arbitrary and made in bad faith, protested the issuance of the task order solicitation at the GAO. The GAO granted the Government’s motion to dismiss the protest on the ground that it was barred by the Federal Acquisition Streamlining Act of 1994 (“FASA”), 41 U.S.C. § 4106(f), which in its current form states in part:
(f) Protests.—
(1) Protest not authorized.— A protest is not authorized in connection with the issuance or proposed issuance of a task or delivery order except for—
(A) a protest on the ground that the order increases the scope, period, or maximum value of the contract under which the order is issued; or
(B) a protest of an order valued in excess of $10,000,000.
(2) Jurisdiction over protests.— Notwithstanding section 3556 of title 31, the Comptroller General shall have exclusive jurisdiction of a protest authorized under paragraph (1)(B).
MORI then filed a complaint at the COFC. The COFC held that when a protest challenges the decision to obtain services by requesting proposals from IDIQ task order contract holders, the FASA prohibition on protests clearly applies. Therefore, the COFC granted the Government’s motion to dismiss the protest.

However, the COFC did note that procurement decisions made both before and after the selection of a task order vehicle could be subject to protest, notwithstanding the FASA prohibition. For example, the choice of particular brand name products has been found to be distinct from the use of a task order solicitation to obtain those products. Savantage Fin. Servs., Inc. v. United States, 81 Fed. Cl. 300, 305, 308 (2008). Procurement decisions made after the issuance of task orders that are not subject to the FASA prohibition include the assignment of new work to an existing task order through a modification, Global Computer Enters., Inc. v. United States, 88 Fed. Cl. 350, 410-15 (2009), or the use of an already-issued task order to obtain products and services through subcontracts,Distributed Solutions, Inc. v. United States, 104 Fed. Cl. 368, 371 n.5, 372, 380, 385 n.24 (2012).

This case is a reminder of the limitations contractors face when protesting solicitations or awards involving a task or delivery order for an IDIQ contract. Unless a protestor’s challenge is distinct from the decision to use the task order vehicle or challenges an increase in the scope, period, or maximum value of the contract, the COFC could lack jurisdiction to decide the protest. If the value of the order is less than $10,000,000, the GAO might also lack jurisdiction under the FASA prohibition, unless one of the other exceptions applies. These limitations combined could leave a disappointed contractor out in the cold.

Finding value in local preference

Ontario beefing up procurement rules to favour local construction bids
Since 2006, Ontario has received generally positive reviews for managing public-private partnerships with a focus on value for money, rather than other policy or political goals. In recent years, that approach led to controversial decisions to award projects to foreign bidders, including for Hamilton’s football stadium and Windsor’s $1.4-billion parkway.

Under pressure from the Ontario General Contractors Association and organized-labour allies, Mr. McGuinty brought “local knowledge” into the process at the end of 2012. Bidders are now required to provide “narratives” about experience meeting those standards, navigating permit processes with municipalities and working with the province’s labour force and suppliers. Those considerations are then cumulatively given 10-per-cent weight during requests for quotation (RFQs), the procurement stage that narrows competition down to a few finalists.

Ms. Wynne is now looking for ways to bolster the new criterion. Those could include making “local knowledge” a factor not just in RFQs but also in Requests for Proposals (RFPs), in which Infrastructure Ontario chooses from among the finalists. It is also possible that it could be made to count for more than 10 per cent in RFQs, RFPs or both.

The government also appears to be responding to criticism that “bundling” large quantities of work on the LRT and other projects into one procurement process prevents smaller Ontario companies from competing. Future projects could be broken up into multiple contracts, or winning bidders required to subcontract a minimum share of the work.
New EU procurement rules will ‘rebalance the markets towards social enterprises’

Tuesday, October 29, 2013

Outsourcing: public service motive vs profit motive?

The following article doesn't provide as many answers, or analysis, as questions and opinion, but the questions are good ones to ponder. It is important because over the last few decades there has been an historic shift from a predominant shift from procurement of things to procurement of services, and the best model for procurement of services is far from conclusive. Read the article at the link; I've only cut and pasted and rearranged parts here.

Why Private Contractors Are Lousy at Public Services
Excluding military personnel, the percentage of all employed people who are U.S. government employees has fallen from 4.3 percent in 1966 to 2 percent today (add in the military, and that would drop from more than 8 percent to about 3 percent). That’s not because the government is a smaller part of the economy. For every federal employee, there are [now] two people working on government contracts.

Private, competitive provision can be considerably more effective than monopoly public provision. In theory, competitive contracting should introduce private sector efficiencies to bloated, public-owned enterprises. Cross-country experience suggests that, on average, performance under private management is a little better than under public management; private provision is associated with bigger networks that lose less power and collect more bills. A look at outsourcing’s track record around the world backs what the [ObamaCare] website’s snafus suggest: Turning over the delivery of government services to private contractors can cause as many problems as when governments provide those services themselves.

The difference, however, is small compared with the efficiency gap between poor and rich countries. The choice can be ugly: Bureaucrats with limited incentive to deliver and sclerotic ability to reform on the one side; weak regulation of private companies that know more about winning a contract than delivering services on the other. Since private and public provision both have weaknesses, surely the worst model is to attempt some mutant hybrid of the two: Private sector providers operating under layers of labyrinthine government regulatory and procurement processes. That, in a nutshell, describes the U.S. health-care system.

Friday, October 25, 2013

Debarring contractors takes root in UK

No procurement regime will ever be fully effective if it does not ride herd on wayward contractors.

In the US, there is a quaint notion that contractors will be suspended or debarred from government contracting work if they get caught engaging in contract fraud or rendering unsatisfactory performance.

 It is quaint because that penalty is most often applied to small contractors, and way too often ignored when it comes to the "too big to flail" naughty big boys of government contractors.

If they will not be suspended or debarred, there must be some other penalty applied to deter wayward performance to prevent government contracting from being a mockery of procurement principles.

Boss of Serco resigns in desperate bid to help group secure lucrative government work in the future
The security firm has been rocked by fraud allegations over a number of its contracts with the Ministry of Justice. A probe into its entire portfolio of government work is due to finish next month. Ministers said they would not give any fresh contracts to Serco until the review was completed.
Serco chief's exit shows companies need to think before they boast
Nobody should doubt Hyman's intention to run a decent company. The question is whether, when you've got 120,000 employees, any services business can hope to avoid regular catastrophes.
At Serco, of course, there have been more than a few recently. Allegations of overcharging on a tagging contract and dodgy record-keeping when escorting prisoners are the biggest issues. But there was also a damning official report on the state of Serco-operated Thameside prison. And "substandard" was the public accounts committee verdict on the company's operation of out-of-hours GP services in Cornwall.

Thursday, October 24, 2013

Rolling out the (pork?) barrel

As a long time PC user, I forever wonder when the Windows operating system will finally be rolled out. Not to entirely blame the software writers, of course, because the platforms and end-uses are constantly changing but built on that first DOS code. The world of IT is not even planned obsolescence: it is intrinsic obsolescence. 

Yet, our expectations as users are based in now out-dated notions that we can make one production run of a uniform product from assembly line to market to consumer, like flooding the market with Hula-Hoops in time for the 1961 Christmas season sales.  

IT is just not that simple. Beta is now often marketed, but not market ready. As we find out with the roll out of the Affordable Care Act online market scheme.

The problem with IT in general, with my PC as much as with large institutions and new age weaponry, is that we rely on it too much. Given the cost and the proprietary nature of most of the software and hardware, IT "solutions" become mission critical to whatever the mission is.  IT "solutions", as we mostly know them now, hold a monopoly tollbooth on processes that just a generation or two ago were more decentralized, across many desks.

The whole internet, on which most IT solutions are reliant, is designed to spread out the flow, storage and delivery of information, across all platforms and all delivery systems.  But, once that information hits one of those IT monopoly tollbooths, it stops.  

As we look to the limitations of rolling out mass IT solutions, we might consider if our acquisition plans should be modified, to allow more open sourcing cross-platform arrangements that can be farmed out to more competitors, so that if there is a failure at any given point in the web of information delivery, the whole web process does not fail, and we do not pay a monopolist's price at the information tollbooth.

The risk of the mission, and the cost of the monopoly, seem to be unquestioned givens in IT solution acquisitions. Why?

Those are just random thoughts as I read about the political tut-tutting and point scoring surrounding the ACA "Obamacare" online roll-out, such as the following linked articles (please read the article at the link; I have only included bits without context).

Good enough for government work**? The contractors building Obamacare
as head-scratching continues about how a famously web-savvy administration could have flubbed its Internet homework so badly, an examination by the Sunlight Foundation shows the administration turned the task of building its futuristic new health care technology planning and programming over to legacy contractors with deep political pockets. Health and Human Services Department will not release a list of the estimated dozen or more companies tasked with building the site. But Sunlight reviewed contract award information from USASpending.gov and FedBizOpps.gov, and found 47 organizations that won contracts from Health and Human Services or the Treasury Department to manage, support or service the implementation of the Affordable Care Act. Among them were top contractors like Northrop Grumman, Deloitte LLP, SAIC Inc. General Dynamics and Booz Allen Hamilton. All five of those companies provided information technology services to either the Centers for Medicare and Medicaid Services or the Internal Revenue Service, the two agencies tasked with building back components of the health insurance exchanges.

Because the government provides brief, partial descriptions of contracts in USASpending.gov, it is not possible to say which of the contractors with information technology contracts or project management contacts were involved in building the 36 federally run health insurance marketplaces, a responsibility tasked to the Centers for Medicare and Medicaid Services, known by the acronym CMS, or those assigned to develop the federal data hub, which would allow applicants to have their income and family size immediately verified by the Internal Revenue Service. Sunlight's survey does not include awards to contractors that built the 14 state exchanges. For example, Xerox Corp. won a $72 million contract to help build Nevada’s exchange and one for $68 million to do the same in Florida. Not only is Xerox building the online marketplaces for some states, it's also offering insurers the means to “fully take advantage of the nearly 30 million new members that will be shopping for health care on these exchanges.”
Obamacare glitches: Gov't contract for troubled site has swelled; GOP targets Sebelius
The government contract for the company that built the glitch-prone website for Obamacare has ballooned to three times its original cost, and some Republicans are demanding the resignation of the cabinet secretary who oversees it. USA Today, citing technology experts, reported that the site was built using 10-year-old technology and may require constant fixes for the next six months and eventually an overhaul of the whole system. But Gail Wilensky, a former director of Medicare and Medicaid who is now a health care analyst, said that CGI was forced to deal with last-minute design changes ordered by the government, hampering CGI’s ability to test the site. Last June, a GAO report foreshadowed those problems, warning that the website might not be ready to go live, in part because of all the last-minute design changes.
Red Flags? Company behind ObamaCare site has checkered past
While the company behind the dysfunctional HealthCare.gov was virtually unknown to the American public until this month, critics say the Obama administration should have known this multibillion-dollar firm had a checkered history with other government contracts. In projects stretching from Canada to Hawaii, parent company CGI Group and its subsidiaries ran into complaints about its performance.
Meet CGI Federal, the company behind the botched launch of HealthCare.gov
Over the past few weeks, if you've been paying attention at all to the unfolding disaster of people trying and failing to sign up for Obamacare online, one name keeps coming up: CGI Federal, the IT contractor that has orchestrated most of the Healthcare.gov Web site. By most accounts, it's been a complete train wreck, for reasons both technical and bureaucratic. Here's what you need to know about the company at the center of it all.

CGI Federal is a wholly owned subsidiary of the Canadian firm CGI Group. Growing through scores of acquisitions, and providing outsourced IT services to massive companies such as Bell Canada and Quebec's provincial pension plan, CGI's business model depends on embedding itself deeply within an institution. CGI Federal is a relative newbie on the U.S. government IT contracting scene. It bought the U.S. contractor American Management Systems in 2004, but only started ramping up business after 2008, and accelerated in 2010 with the $1.1 billion acquisition of U.S.-based military IT contractor Stanley Inc. That sent its contracting work through the roof.

Back in 2009, the White House's Recovery Board retained CGI Federal to adapt a well-functioning system it had built for the U.S. Environmental Protection Agency into FederalReporting.gov, another very complex, public-facing and high-volume site that would handle all contracts granted under federal stimulus legislation. This one got built in six weeks, for much less money, and won accolades for its flexibility and reliability.

How did CGI land the Healthcare.gov contract? CGI Federal's winning bid stretches back to 2007, when it was one of 16 companies to get certified on a $4 billion "indefinite delivery, indefinite quantity" contract for upgrading Medicare and Medicaid's systems. Government-Wide Acquisition Contracts — GWACs, as they're affectionately known — allow agencies to issue task orders to pre-vetted companies without going through the full procurement process, but also tend to lock out companies that didn't get on the bandwagon originally. According to USASpending.gov, CGI Federal got a total of $678 million for various services under the contract — including the $93.7 million Healthcare.gov job, which CGI Federal won over three other companies in late 2011.

CGI is only the 29th largest federal IT contractor, with about $950 million in contracts in 2012, compared to number one Lockheed Martin's $14.9 billion. They also don't make high-profile weapons systems, but rather the guts of government Web sites that rarely bear their names.

That said, they've learned quickly, and see the U.S. federal government as their area of biggest growth.
CGI Federal landed the Healthcare.gov contract. Here’s how it fights for the ones it loses.
For CGI, the business of handling the low-income housing program started back in 1999, when the Department of Housing and Urban Development -- under pressure to downsize its in-house operations -- started outsourcing the job to public housing authorities around the country. The housing authorities would subcontract with IT providers like CGI Federal, which mopped up more than 25 percent of the $200-300 million or so in fees that came from HUD every year. CGI, the biggest of all the subcontractors, provides the infrastructure and support to route housing subsidies to landlords and monitor for compliance with HUD rules.

The relationship between contractor and subcontractor is very close. At the Assisted Housing Services Corporation of Ohio, California Affordable Housing Initiatives, and North Tampa Housing Development Corporation, many staff actually list themselves on LinkedIn as CGI employees. The Ohio group's state director, for example, identifies himself as a "Manager of Consulting Services in CGI Federal's Healthcare Compliance Group, focused on business process outsourcing for the Department of Housing and Urban Development." The California group's state director calls himself the same thing, adding that he has "quickly adapted staffing strategies to changing industry conditions in order to maintain and improve competitive position," and has experience "analyzing and interpreting Federal policy and managing the impacts on operations." The Columbus Metropolitan Housing Authority executive named as the Ohio group's contract administrator was a CGI director of consulting services until 2011. So while the "instrumentality" set up by the housing authority is a separate legal actor, it effectively functions as a joint venture with CGI.

In 2007 and 2009, however, HUD's inspector general found that contract administrators had been allowed to overbill the program by tens of millions of dollars. In 2011, HUD decided to rebid the contracts, setting a lower standard for the profit margin that recipients would be allowed to take and a cap on the number of units any one contractor could administer. When the new contracts were awarded -- with a savings of about $100 million, or one third over the previous set, -- many of CGI's partners lost out.

Instead of letting the awards stand, the losers complained en masse to the Government Accountability Office, prompting HUD to back off those awards and offer another solicitation. This time around, HUD got rid of the cap on the number of units a subcontractor could administer, but precluded out-of-state entities from landing a Section 8 contracts if there was a qualified local bidder, which cut into CGI's business model -- GAO ruled that the new process was a no-no. HUD decided to ignore the GAO. So the housing authority-affiliated entities appealed again, this time to the Federal Court of Claims. In April, HUD won. But the companies kicked it up yet another notch, to the Federal Court of Appeals, where arguments were held last week.
(Side note: Lydia DePillis, who authored the two prior articles, has become my favored jounalist du jour, with well researched, easily presented and understood writing in this complex and, well, boring, body of work.)

How federal cronies built -- and botched -- Healthcare.gov
It also doesn't help that many of the organizations involved are now distancing themselves from the whole project, which seems wise given the scale of this disaster. Compare that attitude with the pride many of them exhibited before Healthcare.gov went online, which was being trumpeted as a marvel of cutting-edge Web engineering. Now it's shaping up to be more an example of the efficacy of political connectedness.
CGI Federal: The Company Behind HealthCare.gov and the Insuing Blame Game

Contractors Assign Blame, but Admit No Faults of Their Own, in Health Site

Insight: As Obamacare tech woes mounted, contractor payments soared
The work on Healthcare.gov grew out of a contract for open-ended technology services first issued in 2007 with a place-holder value of $1,000. There were 31 bidders. An extension, awarded in September 2011 specifically to build Healthcare.gov, drew four bidders, the documents show, including CGI Federal.

That 2011 extension is called a "delivery order" rather than a contract because it fell under the original 2007 agreement for CGI Federal to provide IT services to the Centers for Medicare & Medicaid Services, the lead Obamacare agency. CGI Federal reported at the time of the extension that it had received $55.7 million for the first year's work to build Healthcare.gov.

CGI's original 2007 contract was of a type called Indefinite Delivery/Indefinite Quantity, federal records show. ID/IQ contracts allow the government "to write a laundry list of things they can order from the contractor," said Sarah Gleich, an attorney and government procurement expert at Gibson, Dunn & Crutcher. "They'll write incredibly broad descriptions of the work, like 'telecom services,' so you can't tell what they're ordering."

The advantage of an ID/IQ contract, said experts, is that it can be expanded almost indefinitely, without the government having to solicit new bids for additional work. Because "there are very strict regulations on sole-source contracts," an Indefinite Delivery/Indefinite Quantity agreement makes it easier for the government to avoid running afoul of those requirements, said Sajeev Malaveetil, a director at the Berkeley Research Group, a procurement consultant.

IT work is particularly suited to imprecise, open-ended contracts. "Agencies know that at some point they'll need IT services or system implementation," Malaveetil said. "ID/IQ contracts can often be for five or 10 years: the agency just keeps issuing delivery task orders, which fall under the base language of the contract."

CGI spokeswoman Linda Odorisio, there were three one-year options, bringing the total potential value of the contract to $93.7 million. By August 2012, spending on the contract was already close to that limit. This year, the bills skyrocketed. The government spent $27.7 million more in April, an additional $58 million in May and, in its latest outlay, $18.2 million in mid-September. According to the government records, that brought the total spending for CGI's work on Healthcare.gov to $196 million. Adding in potential options, the contract is now valued at $292 million.

"Why this went from a ceiling of $93.7 million to $292 million is hard to fathom," said Scott Amey, general counsel at the Project on Government Oversight, a Washington, D.C.-based watchdog group that analyzes government contracting. "Something changed. It suggests they ran into problems and knew last spring that they couldn't do it for $93.7 million. They just blew through the original ceiling. Where was the contract oversight?"

Obamacare website woes: another sign of out-of-control private contractors
Government outsourcing to private contractors has exploded in the past few decades. Taxpayers funnel hundreds of billions of dollars a year into the chosen companies' pockets, about $80bn of which goes to tech companies.

While the stereotype is that government workers are incompetent, time-wasters drooling over their Texas Instruments keyboards as they amass outsized pensions, studies show that keeping government services in house saves money. In fact, contractor billing rates average an astonishing 83% more than what it would cost to do the work in-house. Hiring workers directly also keeps jobs here in the US, while contractors, especially in the IT space, can ship taxpayer-funded work overseas.

The revelation here is that an overdependence on outsourcing isn't just risky in terms of national security, extortionate at wartime, or harmful because it expands the ranks of low-wage workers; it's also messing with our ability to carry out basic government functions at a reasonable cost.

If we're not going to insource work – presumably because anti-government types successfully peddle the useless bureaucrat stereotype – we should at least have a better process for picking contractors that benefit from taxpayer largesse to carry out public projects. It may be hard to believe in light of the Healthcare.gov experience, but there are examples of successful government outsourcing arrangements in IT. One key to their success, a Government Accountability Office study pointed out, is consistent communication with, and monitoring of, contractors. Penalties for cost overruns, failing to deliver by agreed-upon deadlines and other forms of mismanagement would help, too.


**  Good enough for government work?

James F. Nagle writes in his book, History of Government Contracting, that this pejorative term did not mean what you think it means.

In the early days of the US government, the federal government became dissatisfied with the products they were buying and decided to build them itself, and adopted and implemented strict  standards.  As Professor Nagle put it (p 114 of second edition):

"The rigorous inspection standards gave way to a saying still in use today but with vastly different meaning.  The saying was "close enough for government work."  Originally the saying was a boast by contractors to would-be commercial customers, that their products were so well manufactured that the government would accept them even with its known high standards."
Another government contracting feature of the day noted by Prof. Nagle (on the same page) was,
"an implicit understanding with all arms contractors that they had to share their inventions with the national armories on a royalty-free basis if they wished to continue receiving government contracts. This procedure, exemplifying the public service orientation of the Ordnance Department, allowed novel metal and woodworking techniques [i.e., "information technology"] that had originated in private armories to become part of the public domain."




Monday, October 7, 2013

Fair and Reasonable gross profit margins in war vs peace procurement

Supreme Owner Made a Billionaire Feeding U.S. War Machine
Chemical warfare and car bombings are just a few of the hazards working in war-torn countries such as Iraq and Syria. For Supreme Group BV, it’s the cost of doing business. The perilous business, where contractors dodge bullets fired by the Taliban and explosives set by insurgents, has made the company’s majority owner, Stephen Orenstein, a billionaire. Since the start of the war in Afghanistan in 2001, Supreme’s revenue has increased more than 50-fold to $5.5 billion in 2011.

The company’s largest contract -- an exclusive deal to distribute food to U.S. military personnel in Afghanistan -- has been riddled with lawsuits and accusations, including the Department of Defense’s assertion that Supreme overcharged it by $757 million. The U.S. military food contract has paid it $9.1 billion to date, according to data compiled by the DLA.

Orenstein disputes the U.S. overpaid for Supreme’s services. The company said it’s owed an additional $1.8 billion. “The Pentagon used the word overcharging and it’s not justified,” said Orenstein. “We agreed on preliminary rates. They decided to unilaterally apply new rates based on the costs as they see them, and tried to recoup the difference between the two.”

“By keeping the money flowing to Supreme through noncompetitive contract extensions, the Defense Department unwisely and unnecessarily put U.S. taxpayers on the hook”, said U.S. Representative John Tierney, the ranking Democratic member on the House Government Reform & Oversight Subcommittee on National Security, in a statement to Bloomberg News.

Accusations of Supreme overcharging the DLA first surfaced in a March 2011 audit report by then-Pentagon Inspector General Gordon Heddell. According to the report, the DLA overpaid Supreme $124.3 million for transportation and corrugated-packing boxes. In addition, Pentagon personnel had no assurance that billings for another $103 million in boxes were accurate or “even chargeable to the contract,” the report said. The company was also paid about $455 million for airlifting fresh fruits and vegetables from storage areas in the U.A.E. to Afghanistan, without the DLA ensuring the prices were “fair and reasonable,” according to the audit. Supreme was further said to be overpaid $98.4 million from 2005 to 2008 for transportation costs, in part because reimbursement rates “were significantly higher than the rates needed to reimburse the vendor for costs and associated profits,” the report said.

“The discrepancy in the amount Supreme and DLA claim to be owed is based on a contract modification regarding delivery to additional customer locations,” DLA spokeswoman Mimi said in an e-mail. “DLA and Supreme utilized different methodologies to calculate the appropriate price for transportation to these additional locations.”
I won't go into it in any detail, because I'm not qualified to do so, but there are many instances in federal contracting, including the making of contract changes and the awarding of non-competitive contracts, when the government is limited to making payments that are described, if not well defined, by the term "fair and reasonable". See generally FAR Subpart 15.4 and Selling To The Government: What 'Fair And Reasonable Pricing' Means, by Steve Charles, for a beginner's guide to the topic.

The takeaway in this post's context is that the determination of the fair and reasonable price is ultimately the government's, but the government must follow procedural and substantive rules to make that determination; it is thus a contestable determination. And Supreme is well staffed to bring it on. As the article states,
Orenstein confirmed that he and his family control 75 percent of the company. His partner, Michael Gans, holds the rest with his wife. Their first contract provided logistics services to the United Nations peacekeeping operation in Mozambique in 1993. “My strength has always been the execution and procurement, and Michael’s strength is in writing,” said Orenstein. Gans, who is a citizen of Luxembourg and lives in Baech, Switzerland, received a bachelor’s degree in political science from Vassar College in Poughkeepsie, New York, and a law degree from George Washington University in Washington.
GW is the home of the US' foremost procurement law education program.

There is another aspect to this article that I want to bring out:
According to its latest annual report, the company had earnings before interest, taxes, depreciation and amortization of $953 million in 2011 on revenue of $5.5 billion. According to its annual reports, Supreme had net income margins that ranged from 15 percent to 23 percent between 2008 and 2011.

“That’s a fairly large profit margin when it comes to federal government contracts,” said Scott Amey, general counsel for the Washington-based Project on Government Oversight. “Most contractors claim that their profit margins are zero to 5 percent.”

Orenstein confirmed that Supreme’s food distribution fee to the U.S. military in 2010 was “in the range of 18 to 21 percent” and could go as high as 50 percent, according to a transcript of testimony he gave in a 2010 lawsuit. He also testified that it was “very common that the percentage of total revenue, the service fee percentage, exceeded 75 percent,” when the distribution of food and other supplies flown into Afghanistan by airplanes and helicopters accelerated in 2006.

Including almost $1 billion in dividends he has collected since 2008, Orenstein has a fortune valued at least $1.1 billion, according to the Bloomberg Billionaires Index.
Normally, the higher the risk, the greater return that is demanded from market players. Conversely, the lower the risk, the lower the expectation of profits. Regular peacetime government contracting attracts contractors, especially in economically tight times, because governments are more likely to pay than stressed private buyers. The certainty of payment reduces the risk of buyer default, and profits are generally lower. 

But in times of war or disaster, operational risks tend to increase, which increases costs, and the expectation of profits. Even "fair and reasonable" costs may have an inelastic element that justifies higher contract payment, and profit margins. Canny contractors become attracted to war and disaster margins, and can make a motza.

Friday, October 4, 2013

The (procurement) problem with services

Without vouching for the accuracy of the data, there is a provocative view of the amount of money spent on goods vs services in the US government in the recent fiscal year, compared to the numbers of contracts awarded to spend the money. It is posted on/at The Federal Government Spent Hundreds of Billions on Contractors in 2013 [INFOGRAPHICS].


I'll take that at face value for this post.

With 3 out of every 4 awards being made going to goods, we are only spending 1 out of every 3 dollars on goods. Conversely, 1 out of 4 awards spent on services consumes 2 out of 3 dollars spent. This is consistent with the trend of recent decades, from a "things" requisitioning system to a "people" hiring system. During this time, we have found that the more objectively simple means of acquiring things just does not work as well as the subjectively complicated means to hire people skills. And the means of hiring people skills through the procurement system is made all the more competitively adversarial by the big money at stake in people skill contracts.

In the early days of US government contracting, the US made a lot of the things it needed, and did so quite effectively. Indeed, the phrase "good enough for government work" was coined in that time to refer to the gold standard of the product. But investment in manufacture of things, as the private sector knows too well, is fickle, and a government, lumbered with political influence, is not limber enough to move with times and new needs and ways and means of meeting those needs. So, the government gradually moved to outsourcing the manufacture of (most) things.

The same would not be true of hiring people skills if the civil service system, which creates jobs for life, were more facile. Bringing people skills inside would avoid a lot of the procurement headaches associated with the acquisition of services.

Tuesday, October 1, 2013

Procurement reforms du jour

Scotland.  Local preference and training.

Scottish procurement reform bill sent to Parliament
Changes to public procurement rules in Scotland that will make it easier for small businesses to bid for public contracts have moved closer, as a reform bill goes to Parliament. The Procurement Reform Bill sets out how European legislation will be interpreted and put into practice in Scotland.

First minister Alex Salmond said the bill would generate new training and employment opportunities. The Bill will require public bodies to consider how procurement activity can improve the economic, social and environmental wellbeing of local communities.

“Our Bill here in Scotland will give Parliament the opportunity to go further than Wales, by taking the power to regulate how companies are selected to bid and how their suitability should be assessed,” he said. “These regulations will address blacklisting, working within the framework of EU law.”
Namibia.  Centralization and effective review.

Namibia introduces legislation as part of procurement reform
The country seeks to streamline large public sector procurement, help SMEs and reduce loopholes.
Namibian procurement reform edges closer
The Public Procurement Bill would create a Central Procurement Board to centralise the management of high-value contracts across the public sector, while a review panel would give aggrieved bidders a route for redress without having to go to the courts.

Minister of finance Saara Kuugongelwa-Amadhila said as she tabled the bill: “The intention is to provide for the speedy resolution of such complaints, which will minimise the frequency of bidders’ recourse to court actions.”

The bill also seeks to stimulate economic growth by giving preference to local businesses and socially disadvantaged groups, according to the state-owned New Era newspaper.

The new law also repeals the Tender Board Act of 1996, which is described as “no longer sufficient or adequate to achieve the country’s developmental objectives”.

Unlike the tender board, which dealt with almost all public sector contracts, the new board would only deal with contracts over a certain threshold value, with lower value contracts dealt with by the public body concerned.
Singapore.  Integrity enhanced.

Trust in public service crucial to success of govt policies: PM Lee
Singapore Prime Minister Lee Hsien Loong has emphasised that a major determinant of success in implementing government policies that improve the lives of people is trust in the government, and in particular, the public service. He said it is important that Singaporeans trust that the government understands their needs, is committed to the people, and will remain a steward of the public good.

He said: "Ultimately, integrity is not about systems and processes but values. The government must have a culture that doesn't tolerate any wrongdoing or dishonesty and the public officers must have the right values -- service, integrity, excellence -- and each officer and the service as a whole must take pride in being clean, incorrupt. "This is your command responsibility, you cannot devolve it to your subordinates, you cannot leave it to your procurement or financial officers. You are the boss, you are in charge."

Mr Lee also stressed that critical to maintaining public trust is upholding the highest standards of integrity -- something which has been painstakingly built up over many years. Mr Lee said because there is integrity, businesses can compete fairly instead of relying on improper influence. And because there is integrity, public officers can be given the discretion to exercise judgement when managing multi-million dollar projects.

The Prime Minister emphasised that one reason why Singapore has been able to maintain a clean system is that it pays public servants properly in line with the quality of the officers and the value of their contributions. He stressed that this policy will continue. In return he said, Singapore insists on the high standards of performance and integrity, and if an officer is discovered to have been dishonest, he will be punished to the full extent of the law.

Mr Lee said this principle will be maintained even when it may be embarrassing to the government. Mr Lee acknowledged that the past year has seen a string of high-profile cases involving public officers, including some senior ones in sex for favours scandals, procurement lapses and fraud cases.

He said beyond these individual cases, the public service must strengthen its systems to uphold reputation for integrity and incorruptibility, and dispel any doubts that standards have fallen. Head of Civil Service, Peter Ong, said Mr Lee's presence at the annual seminar was a clear demonstration of the type of leadership he is encouraging public sector leaders to show - that is to lead by example and model the right values for staff.
Singapore officials to declare casino trips after graft scandal
Singapore civil servants must declare casino visits starting Tuesday, authorities said, months after a senior anti-graft official was charged with embezzling state money to fund his gambling habit. Civil servants must declare within seven days if they have visited the city-state's two casinos more than four times a month, or if they purchase an annual pass that allows unlimited access, the government's Public Service Division (PSD) said.

Government officials in certain positions where "misconduct will have significant reputational risk to the Public Service" must declare every visit within seven days, it said in a statement. Singapore pays its civil servants some of the highest government salaries globally in what it says is a deterrent to corruption.

Civil servants involved in gaming enforcement as well as others who represent the government in business dealings with the two casino operators will remain barred from visiting the casinos unless in an official capacity.

The agency said it was also bringing in compulsory job rotations and block leave for some officials holding positions that "are more susceptible to being suborned and exploited if the incumbent were to remain in the same job for too long". "Officers are expected to maintain the highest standards of personal conduct and integrity, and their actions must not bring the Public Service into disrepute or call into question its impartiality," PSD said.

The move follows a string of high-profile corruption cases in the city-state, including one involving Edwin Yeo Seow Hiang, an assistant director at the Corrupt Practices Investigation Bureau (CPIB), the country's graft-busting agency. Large-scale graft cases remain rare in Singapore, a thriving business hub and financial centre, and the government has jealously guarded its reputation as among the least corrupt in the world.
New Zealand.  Uniformity.

New government procurement rules come into effect
The new rules replace 44 different pieces of legislation, Cabinet directives and miscellaneous guidance released by a multitude of government agencies over many years. The emphasis will shift from who can deliver the lowest upfront costs to who can deliver the best value for money and other direct financial benefits over the life of a contract.

“By... making the tendering process consistent across the public service, we expect to make our procurement business more accessible to smaller local firms who previously may have been discouraged by the process,” Economic Development Minister Stephen Joyce said in April when announcing the changes.

The new procurement rules will apply to all Public Service departments, the New Zealand Police and the Defence Force. Other State Sector agencies and the broader Public Service will also be encouraged to adopt them.