I’m seriously confused these days.

The Alliant Small Business contracts were awarded around the end of the year and there were at least a bazillian of them. (A bazillian is a quantification unique to the pundit community that means “more than six.”) The Large Business contracts were awarded at the end of the first quarter (second quarter if you’re in the Government). There were a gazillian of those. So, where is all the business?

I wrote last year that I saw a lot of pent up demand waiting for the Alliant program to become available. More than a few people agreed and we all thought there would be a rush of solicitations as soon as the contracts were awarded. Didn’t happen. Doesn’t look like it’s going to happen.

And, I think I know why.

In last year’s Defense Authorization bill, Congress made delivery orders subject to protest. Being protest-proof was one of the most attractive things about a delivery order in general and the GSA GWACs in particular.

That’s strike one!

In the same bill, Congress made it mandatory to compete every delivery order (of a certain size) among all contract holders in Multiple Award Contract (MAC) programs. Of course, NOT having to do that was also a very attractive characteristic of using one of the GWAC programs. No one likes to admit it, but if you carefully selected the “subset” of contract holders to solicit for a given requirement, you could be pretty well assured that your “favorite” would be the successful offer. If every requirement has to be competed among all contract holders, who knows who might win?

Strike two!

Then came the Delex (GAO) decision. When GAO said that FAR’s “Rule of Two” applied to delivery orders and not just contracts, and then added that MAC programs with more than one small business contract holder AUTOMATICALLY met the Rule of Two criteria (I’m interpreting here, but that’s the jist of it), the die was cast. I don’t see any way that a requirement contracted through Alliant could possibly be awarded to anyone OTHER THAN a small business. And, I think Agencies with all that pent up demand see the situation the same way I do.

Strike three!

Let’s face it. If you’re a Government program manager with a critical IT requirement (and aren’t they all?), would you turn it over to GSA knowing that it WOULD be awarded to a small business, it WOULD be competed among all (79?) small business contract holders and it WOULD be subject to protest?

And if you did, how long would it take? How long did Alliant take? Three years?

I think the level of confidence among program managers is so low that no one is going to send anything of any substance to GSA for procurement under Alliant. In fact, unless something has snuck through in the last week, the only solicitation even PLANNED for Alliant is GSA’s own revamp of the Recovery.gov web site.

I think this is a major development in acquisition, especially for the Information Technology space. What do you think?

Will most stimulus contracts be fixed price?

Matthew Weigelt at WashingtonTechnology wrote in an article this morning that “contractors are likely to see more fixed-price contracts” for work funded by money from the stimulus bill. The premise is that the law (H.R. 1) requires the money to be spent competitively and on fixed price contracts – “to the maximum extent possible.” And, to provide incentive for the agencies to comply, contracts awarded on a basis other than fixed price AND non-competitively will be posted on the Recovery.gov web site.

Sounds good, but “maximum extent possible” has wiggle room you could drive a truck through. And how much of a deterrent is posting a contract summary on a web site? Please. Even that is only required if the contract is BOTH non-competitive AND not fixed price.

Just four days ago, Elise Castelli at the Federal Times wrote that agencies avoid fixed price contracts for complex work. Her article quotes a just-released study by the Center for Strategic and International Studies that shows the use of cost-type contracts increasing at a much faster rate than fixed price, though both are increasing. And, T&M contracting is on the decline.

That’s no surprise. All the agencies have been under pressure to reduce use of T&M contracts for years. The study Elise reviewed showed clearly that 15 years of anti-T&M pressure has had an effect. But the effect was to shift more contracts to cost-type than to fixed price and there’s a good reason for it.

Fixed price contracts are hard to write. They take more time and more people to evaluate and award. They’re more likely to generate protests during the competition and constructive changes and claims during performance. T&M would be much faster, but they’ve become the “third rail” of the acquisition world. Cost-type contracts are almost as fast and don’t carry the T&M stigma.

I don’t think anyone would argue against the intent of the stimulus bill language. Fixed price contracts would be good. The question is “Do you want it fast or do you want it good?”

The whole point of the stimulus is to do it fast. That being the case, fixed price, competitive contracting is likely to be the last choice of an already over-worked acquisition shop trying to get a contract awarded No one wants to touch the “third rail” of T&M contracting and all that leaves is the cost-type contract.

Sorry, Matthew. Part of the infrastructure money going to the states may be spent on fixed price contracts. That’s normal for construction contracts let by state and local governments anyway. But I think it’s a safe bet that most of the Federal contracts, particularly IT, will be cost-type.

That’s where I’d put my money. And, I’m betting Uncle Sam will, too.

DCAA Changes the Grading Scale

Many companies have been “getting by” for years with systems that are generally OK, but have issues. DCAA would issue a report with a finding that the system was “deficient in part” and make suggestions for improvement. For the most part, as long as the contractor promised to make the suggested improvements they could continue to operate. They may not be able to do that for much longer.

Under the old scale, grades for systems reviews ranged from “A” (we really couldn’t find anything worth writing up) to “F” (completely unacceptable for use on Government contracts). But there were plenty of grades in between. A minor deficiency would get you the equivalent of a “B” or a “C+” and ordinarily you could keep using the system for as long as you kept promising to fix it. If you never really got around to fixing it, nothing much happened. Even a material deficiency only got you a “C-“ or a “D.” Fixing that kind of problem had a little more urgency to it, but you could take a reasonable amount of time to get it done and you could usually rely on the recommended improvement in the audit report.

On December 19th, 2008, the Defense Contract Audit Agency (DCAA) issued new audit guidance to clarify what constitutes a significant deficiency or material weakness and to establish new guidance on reporting audit opinions on contractors systems. DCAA’s new posture is that a system review may ONLY result in a finding of either “wholly adequate” or “inadequate.” And, they will no longer make ANY suggestions for improvement. In addition, the guidance memo directs that all reports with a finding of inadequate should include a recommendation to the Administrative Contracting Officer (ACO) that payments to the contractor be suspended on all cost-type contracts and fixed price contracts with progress payments until the problem is fixed. Click this link for a copy of the letter from the DCAA web site.

It looks to me like DCAA’s grading system just became pass/fail! The only grades now are “A” and “F.” And, if you get an “F,” your cash flow could dry up until you fix the problem. And, of course, under the new ban on suggestions for improvement, how you fix it is up to you.

Of course, fixing the problem really isn’t the issue. Assume you could remedy the problem instantly – despite the fact that DCAA is refusing to make any suggestions. It could still take weeks or even months to get DCAA to conduct a follow-up review, write a new report and then get the ACO to reverse the suspension of payments. And, if that wasn’t enough, an audit report concluding that a contractor’s system is “inadequate” could preclude award of new cost-type contracts until the report is rescinded or superseded.

Being ineligible for new contract awards is a bad thing, but months under a payment suspension could be fatal. With today’s credit constraints, most small and mid-sized firms’ wouldn’t last that long without cash flow. Companies might think they could survive a temporary payment suspension, but many wouldn’t. And, with no receivables to secure additional financing, the banks aren’t likely to be willing to help.

So where did this new attitude come from and what’s a company to do?

The guidance appears to be a knee-jerk reaction to a GAO report from last summer that concluded that some DCAA audit reports did not meet professional standards and, that in some cases DCAA was much too close to the contractors they were auditing. To be fair, it also concluded that DCAA was too close to the Government Program Offices on whose behalf they were conducting the audits! In short, they were just being too cooperative, too collaborative and TOO NICE! Click here for a copy of that report.

I’m sure the Agency saw this new guidance as necessary to address perceived auditor independence and GAGAAS compliance issues, but collaboration and cooperation weren’t the problem. I worked in the industry when the relationship between DCAA and contractors was extremely adversarial and it did NOT produce a better result.

This seems like a return to the bad old days and unnecessary to boot.