A Look at the Next Two Weeks…And Beyond

Steve Charles_headshot _7-23-2013_65x85by Steve Charles, Co-founder and Executive Vice President

With the Washington Nationals now eliminated for sure from this season’s baseball playoffs, Washington the city and the market can focus fully on handicapping the possibility of a government shutdown next week.

Just in case, the White House issued a memo this month on agency operations during a “potential lapse in appropriations,” the proper word for shutdown. It’s two pages, followed by a 12-page attachment on details of contracting, grants administration, and payment processing during a lapse. In essence, for the government to spend anything, it would have to be for “excepted” activities, mainly essential and emergency requirements, lest an agency fall out of compliance with the Antideficiency Act.

But let’s presume Congress will find some way of avoiding a shutdown. For sales planning purposes, how else can you think? A shutdown wouldn’t likely last more than a few days anyhow. Less clear is how much spending authority your federal customers will actually have in terms of both dollars and the authority itself.

If you have a scholarly bent, the Government Accountability Office has long tomes (GAO Red Book) online covering appropriation law, dating back to the Civil War era. But for more immediate practical purposes, pay attention to the term of a continuing resolution. In theory they could do it a couple of days at a time. In practice, the term will revolve around the Obamacare defunding gambit and the debt ceiling deadline around October 17.

Regardless, agencies only have spending authority at the yearly rate, prorated for the months approved. So an agency with an annual budget of $1 million in an account would have authority to spend only $250,000 during a three-month CR.

But like your Swiss wind-up watch, this year has complications. Namely, sequestration, which at this writing is still in effect. Will the CR live within the 2014 Budget Caps of the Budget Control Act (Sequestration levels) or will it ignore them and apply the sequestration holdbacks later in the year?  Expect some agencies to remain cautious, others will try and spend what they can early and worry about holdbacks later.

When approaching government customers, remember any spending under a continuing resolution, aggressive or conservative, must be mappable back to an authorized program funded by appropriated dollars in the previous year. Agencies can’t initiate new programs under a CR, but they can engage better ways to do what is already under way. That’s the smartest way to position your offerings now.

Beyond the current budget vicissitudes, here are a few of the long-term trends we’ll be staying on top of in the next year:

  • How  to sell products in a services-oriented environment. Infrastructure as a Service, utility-based computing, application sharing ⎯ these are all changing how the government looks at IT. Perhaps this by-the-month mode of buying is at some level driven by unpredictable spending authority.
  • Extreme price sensitivity, seen in the growing use of lowest-cost, technically acceptable procurements, shared services, and in the growing practice of analyzing competing contract vehicle prices. Keep an eye open for the “prices paid database” promised by OFPP.
  • Development of rules and practices to fill out the policies designed to ensure a safe electronics supply chain. Our big concern is whether the government is prepared to pay what it costs for tested, certified parts through bonafide channels.
  • Expect  more pressure to participate in strategic sourcing programs. The government wants to pay less and we need to show them how we’re lowering our costs of sales.

Salesmen Need To Be Coaches At Fiscal Year-End

Steve Charles_headshot _7-23-2013_65x85by Steve Charles, Co-founder and Executive Vice President

Your customers need your help. Not just your products and the requirements those will fulfill, but your personal help to get fully justified purchase requests to contracting shops who can issue the order before the end of the fiscal year.

I spoke on a panel discussion last week put on by the Digital Government Institute. The conference was called 930Gov ⎯ a reference to Sept. 30, the end of the federal fiscal, now five weeks away. During typical years, the feds spend about a third of the budget in the last quarter. While sales for complex deals and engagements are off, sales for easy to buy commercial items are likely to stay strong.

This year’s weird budget situation forced caution on all government buyers, so as we head into the last month, they are making sure they obligate all the funds they legitimately have to spend. Program managers are looking for “gap-fillers” as they strive to end the year with a zero-balance in their many accounts.

One of my federal co-panelists noted that many customers using governmentwide acquisition contracts need help in preparing their procurement packages so contractual obligations can actually occur. Michelle Street, an NIH procurement analyst with the CIO-SP3, CIO-SP3 Small Business, and ECS III GWACs, noted that some requirements come through with a plea for a contracting officer to get the buy done.

We at immixGroup also hear this. I find it surprising that government buyers are asking sellers to help them find a contracting shop, but they do. I’m not sure if this is because their shop is simply too busy, or if their purchase request was rejected because it lacked a market survey, clear requirements, a brand name justification, or an independent government cost estimate.

So to secure year-end sales and increase your odds of making your numbers, ask questions to make sure the program and tech people you’re dealing with have done what they need to do to make their purchase requests actionable by a contracting officer. In fact, your knowledge of all the items required and the length of time they take is especially crucial at year-end.

A couple years ago, the Army published this year-end close-out guidance including their [procurement data package] requirements and summarized it in 2011 with the Army’s Procurement Administrative Lead Time, or PALT memo, both of which provide a clear recitation of what it takes to get a procurement over the line. Or, if you prefer, check out the Navy’s Fiscal Year Close-out and Start-up Guidance.

Obviously your government customers don’t have 90 or 180 days to do year-end buys at this late date. Some steps must be completed in parallel. Others can be compressed. Many of the GWACs, including those operated by the NIH and NASA, have online environments in which an agency with a requirement can complete market research and other steps very quickly by leveraging the small group of contractors that hold that particular contract turning an RFI into an RFQ, and a Quote into an Order in a matter of days. This can buy you and your customer more time to get both funding approval and the procurement done before time runs out.

Mary Davie, an executive in GSA’s Federal Acquisition Service, also pointed out in the panel discussion that GSA’s and other agencies’ Blanket Purchasing Agreements offer ways to buy services quickly. She named managed print, satellite and ground-based wireless, and telecom expense management, all of which can be purchased in days if the preliminary work has been done properly.

In short, there is time left for significant sales. But sales people will need to be fast on their feet, shifting from product emphasis to counseling customers on how to get purchase requests routed through the fund certifying official and on to a procurement path with a contracting shop that can execute.

If your team is hazy on any of this process, get them tuned up for next year with one of our Selling IT to the Federal Government classes. In the meantime, here’s to a busy September!

Learn to Present Finance and Payment Options Early in the Sales Cycle to Avoid Roadblocks

Steve Charles_65x85by Steve Charles, Co-founder and Executive Vice President

Congress is concerned that agencies are not doing the required lease versus buy trade-off analysis before starting procurements as required by FAR 7.4 and asked its watchdog, the Government Accountability Office (GAO), to study the matter. GAO 12-281R found problems within the two departments sampled (Air Force and Interior).

When GAO identifies problems and makes recommendations to Congress it’s a good idea for the Executive Branch to do something. In this case update the rules as recommended. The FAR Council is seeking input from government and industry before proposing changes and this request was published in the Federal Register July 16 with responses requested by September 16. Interestingly, it appears the Council is going beyond the concerns raised in the GAO report to questions about lease versus rentals in addition to lease versus purchase.

Stemming from the Boeing Tanker lease scandal, the oversight community remains concerned that agencies are not doing adequate lease vs. purchase total life-cycle cost analysis before making procurement decisions. Today we are seeing an uptick in lease-to-own procurements, structured with annual options, as a way for the government to get what it wants while living within its increasingly constrained annual appropriation authority. Further, we are seeing agencies wanting to transition from a model of owning assets to buying the production of those assets as a service, with leasing seen as an interim transition phase between those two financial models.

The GAO report recommended agencies redouble their efforts to train the acquisition workforce to do the trade-off exercise and defend the recommended approach before conducting procurements involving leases because, as the report states:

The 24 contract files we reviewed where lease versus purchase analyses were not conducted did not contain sufficient information to allow the contracting official to perform an analysis. Specifically, in most cases, neither the request from the activity in need of the equipment nor other supporting documents, such as market research information, contained sufficient details that would enable contracting officials to perform a lease versus purchase analysis.

DoD responded to the report and is addressing the concern with updates to the Defense Acquisition University curriculum, so we can expect more total life-cycle cost questions from our government customers during the sales cycle as they will increasingly be asked to include the data necessary to justify a lease to the contracting shop.

Finally, the FAR Council is using this as an opportunity to look at rental, and whether short-term usage situations should also be analyzed during this phase of acquisition planning. This piqued my interest. As the government moves to a consumption model akin to renting, I suppose it’s just a matter of time before the rules will need to be updated to require buyers to analyze the long-term economics of buying a capability as a service versus buying the assets to deliver the service.

What does this mean for people selling to government? Learn to automatically present lease vs. buy trade-off options early in the sales cycle so no matter what fiscal hurdles come up, your customer has what they need to make the argument they need to make in the purchase request file. Otherwise your deal has a high probability of hitting insurmountable roadblocks. Your customers are going to be learning how to do a lease vs. purchase trade off. Maybe you should too.

Glad To Have A Competitive GSA, But Let the Best Vehicles Win

photo_Steve-Charles_65x85by Steve Charles, Co-founder and Executive Vice President

I’m glad to note the General Services Administration (GSA) has gotten past its rough patch and has a new leadership team in place, including a long-awaited confirmed administrator, Dan Tangherlini. While some in industry continue to think GSA will never recover, I’m seeing signs of new life and would recommend sales organizations take a fresh look at what is going on.

Tom Sharpe, the new commissioner of the Federal Acquisition Service, is laying out his vision of GSA as the government’s centralized buyer. At the AFFIRM meeting last week, he said he would like to get the White House to work with him on reducing the number of procurement shops across government for the purpose of lowering acquisition administration costs by reducing redundancy increasing GSA’s “market share” of the government’s annual spend from about 12 percent to 17 percent next year. Administrator Tangherlini has said he thinks GSA’s share should be 90 percent in ten years. Sharpe and Administrator Tangherlini, along with Chief Acquisition Officer Anne Rung, are reportedly making the rounds to cabinet under secretaries trying to get commitments from them to use GSA contracts rather than setting up their own vehicles.

It’s good to see the government’s contract vehicle owners strive to become more competitive. What better way to help ensure government buyers get the best deals on a daily basis? I am a little skeptical, though, that GSA could garner 90 percent of the government spend given the fact it neither owns requirements nor controls money appropriated by Congress. Seems to me such a change would have to come from Congress. Perhaps this is in the works (see the July 15th strategic sourcing hearing convened by the Senate Committee on Homeland Security and Governmental Affairs).

In the meantime, program managers with budget authority and requirements will send their purchase requests to contracting shops where they believe they get the best results with the least friction. Mr. Sharpe says that the only reason for GSA to market its contracts and buying services to other agencies is if it can save them time and money.

We all agree!

I’ve listened carefully to Mr. Sharpe’s recent speeches and I think he realizes that GSA will fundamentally need to change its existing contracting processes in order to provide easy-to-use contract vehicles with current, competitive pricing across all product and service categories as a prerequisite to capturing more market share. In my opinion, GSA’s first order of business should be to do whatever it takes to keep its schedule contracts–and by extension its BPAs–current to within a few days of commercial price list effective dates. GSA’s moonshot would be real-time contract catalog updates.

So how realistic is this idea that GSA can significantly increase its market share of the $520 billion obligated annually? It all depends on what it actually does. Customers vote with their feet. GSA’s public pronouncements of its aggressive growth goals through contracting excellence, summed up in the mantra, “Done Once, Done Well” must be predicated with the foundational changes needed to actually deliver clean contractual plumbing. Pedestrian as it may sound, government catalogs with current commercial products, at current commercial prices under current commercial terms of use consistent with federal law across all product categories, would change everything.

With respect to Sharpe’s idea of closing procurement shops, I don’t know any program and contracting people who prefer having another agency obligate their funds. Indeed, GSA’s assisted acquisition service, while having its share of successful projects, by no means needs to strengthen its doors against the onslaught of demand. Simply give agencies what they: contract vehicles with current products that allow them to buy easily from the suppliers they trust without having to write justifications, determinations, and findings.

GSA has shown that for commonly used services provided by a handful of companies, like domestic delivery and wireless plans, GSA can add value government-wide with a one-size-fits-all vehicle. But most industries are made up of many providers, each continuously striving to become different in some unique way. And on the buy-side, all departments will continue to think they are unique. Could it be that GSA’s ultimate value would be in providing the widest possible range of always-current schedule contracts for each commercial product category across all industries as the foundation upon which departments could then build BPAs most strategically valuable to their own enterprise?

2014 House NDAA Continues Procurement Tinkering

photo_Steve-Charles_65x85by Steve Charles, Co-founder and Executive Vice President

As it does every year, Congress passes procurement law changes in the National Defense Authorization Act (NDAA). This year is no different.

So what’s in store for 2014? It’s too early to say with certainty, because while the House has passed its version, the Senate is still cogitating. One thing we do know: The Senate, House, and White House all agree, within a billion dollars or so, on the level of Defense spending next year. Strangely, none of them take into account sequestration, which is still the law of the land under the Budget Control Act. It’s likely your customers are scratching their heads too, and that means extra sales resistance in store for 2014 until buyers know exactly what their spending authority will be. In the meantime, provide your customers with the information they need to complete perfect purchase requests so when the money drops, orders flow.

When it comes to procurement, we don’t see the sweeping changes of the last couple of NDAAs, but the 2014 bill is not absent of them, either.

Here are key highlights from the House Armed Service Committee’s bill, H.R. 1960, that would affect proposals and dealings with DOD customers:

  • The bill would exclude the salaries of some contractors’ top five earners as allowable expenses on DOD cost-reimbursement contracts, but not lower the rest of them nor cap them at $400 thousand, as the White House would like to do. The bill leaves the current cap of $763,029 (inflation adjusted) in place and changes the list of possible exceptions just from scientists and engineers to “narrowly targeted” ones “in the science, technology, engineering, mathematics, medical and manufacturing fields.” Significantly, the provision now covers contractors who received more than $500 million during the previous fiscal year. (Imagine the cost accounting challenges for contractors at the edges of this proposed threshold!)
  • Section 816 revamps bid evaluation by requiring that prices receive importance at least equal to technical (or other) criteria when evaluating proposals. This is a subtle but important change deep in the language of the U.S. Code Title 10 ((a)(3)(A)(ii) to be precise). The bill would require the head of the buying agency to sign off on any deviation from the increased emphasis on price, and issue a report on the allowed exceptions every year.
  • Sections 811 and 812 amends Section 818 of the 2012 NDAA written to prevent counterfeit electronic parts from entering the DoD supply chain. The proposed Section 811 emphasizes “electronics” seemingly broadening the scope of counterfeit concerns beyond “electronic parts” while Section 812 would limit contractor liability when government requirements include obsolete parts no longer available from the Original Equipment Manufacturer (OEM) or its authorized       distributors.

Detection and Avoidance of counterfeit electronic parts, while the law since 2012, has yet to be implemented in regulation. What would a DoD-approved system for this purpose look like? Proposed DFARS Case 2012-D055 attempts to tackle this and comments are due July 15. One of the key elements requires that DoD and its contractors purchase from an OEM or an OEM authorized distributor/reseller. Check out our new Trusted Supplier program to help minimize the risks from potentially counterfeit or tainted commercial products.

There’s a long way to go before the proposed NDAA provisions become law, and then even more time until they get implemented in regulation. We encourage you to be aware of and track procurement-related statutes and implementing regulations as even small changes can warrant significant changes in go-to-market tactics.

This Cyber Working Group Packs a Punch

Photo of Steve Charlesby Steve Charles, Co-founder and Executive Vice President

It may sound dull ⎯ Executive Order 13636 DOD-GSA Section 8(e) Working Group ⎯ but it’s a group with a lot of leverage. It could dramatically change the complexion of federal IT procurement.

The Working Group is drafting a request for information from industry for how to eventually bake cybersecurity standards into federal acquisitions. Using the authority of the February executive order, the administration wants to get increased cyber protection any way it can, whether Congress acts or not.

Any company selling electronic products, software, or IT services to the federal government should read it. And get involved with your association. The initial RFI was drafted by a team of people not only from GSA and Defense, but also Homeland Security, NIST, and the Office of Federal Procurement Policy. A final draft is due any day now, and you’ll have until May 15 to comment.

The heart of the RFI consists of 37 questions grouped around three themes:

  • Is it feasible to incorporate cybersecurity standards into federal buys in the first place?
  • What are commercial procurement practices when it comes to cyber?
  • Would cyber-soaked acquisitions conflict with existing laws, regulations, or even common practices, and if so, what should we do about it?

No single company, much less any individual, can likely answer all 37 questions. It’s important to read them all, though, to get a thorough sense of where the administration might be going with this. For one thing, the working group points out a provision in the companion to the executive order (EO), namely Presidential Policy Directive 21. For governmentwide contracts for critical infrastructure systems, PPD-21 calls for GSA, DOD, and DHS to “ensure that such contracts include audit rights for the security and resilience of critical infrastructures.”

And, to insure governmentwide “consistency”, the workgroup is joining with another interagency task force led by DHS to implement the EO and PPD-21. To paraphrase the Chevrolet ads, this runs deep. And wide.

Consistency requires common language, and the federal parties involved want a “broad meaning” for the word cybersecurity “that includes…supply chain risk management, information assurance, and software assurance.”

It’s vital to future sales that your company helps shape whatever rules eventually emerge and that they don’t put all of the burden and liability for cybersecurity on industry–or freeze standards in contracting language when we are trying to address a threat that is evolving at light speed. To return to my first point ⎯ download the draft RFI, get your sales and business development teams together, and start penning some answers.

Sequestration. It’s Here, So Now What?

photo_Steve-Charles_65x85by Steve Charles, Co-founder and Executive Vice President

Like so many of our clients and partners, I’m scanning the news almost hourly to see what will happen with sequestration. As I’ve advised earlier, it’s important to filter out the politics ⎯ admittedly that are getting more heated and unreal-sounding ⎯ from the underlying reality.

That reality centers on two points worth repeating.

First, the math. For the civilian side of the government, cuts of $42.5 billion represent 6 percent or so of overall spending, but the effect is magnified by the fact that the fiscal year is nearly half over. The cuts aren’t horrible, but they are real. On the Defense side, it’s more like 9 percent, and this on top of budget limitations worth hundreds of billions over 10 years agreed to last year.

Remember, Sequestration is a “hold-back” of a specified percentage on all accounts of a similar type. For instance, the hold-back percentage on Discretionary accounts is higher than Mandatory accounts, and some accounts are exempt. But all “sequesterable” accounts of the same type have the same hold-back percentage applied, so an agency can’t completely cut a program, rather, all programs, theoretically, are subject to equal pain and suffering. The Sequester Order expected March 1 should include all these details.

This requires a careful, tactical approach by your sales teams to focus on the real opportunities, analyzing each by understanding which budget line item is potentially funding each individual opportunity. February 27 guidance to agencies from Comptroller’s office (M-13-05) emphasizes use of furloughs, hiring freezes, travel bans and so on to meet the hold-back percentages on sequesterable accounts without damaging mission performance. The memo does not mention freezing planned expenditures on technology purchases.

So opportunities to continually improve government performance and cybersecurity are still out there. Understandably, program managers are being very careful about allocating funds until there is more certainty that the fund-certifying official can sign off on the disbursement–all of which must happen before Contracts can work on the procurement.

Second, go back and review those areas most likely to keep going during the sequester. These are spelled out in guidance from the Congressional Research Service issued in January. It’s called Budget Sequestration and Selected Exemptions and Special Rules. Note that word: exemptions.

Among the areas the White House has the discretion to exempt:

  • Military payroll accounts for uniformed members, which of course pulls along all of the support products and services related to troops.
  • Veterans medical benefits, which also pull through supplies and services.

These two have already been “rescued” by the administration. Other possible exemptions that relate to the sales of products and services:

  • Unobligated balances carried over from prior years from nondefense programs.
  • A dozen direct benefits programs. Normally the administrative expenses related to these programs would be subject to sequester. But here’s a crucial point. CRS reports that OMB has decided that discretionary administrative expenses for exempt programs would not be sequestered. The reasoning is convoluted, but that exemption from the sequester could be your ticket to continued sales.

Bottom line? It’s no longer enough to ask whether the customer has money. Now we need to get into the details at the budget line item level and find out how sequestration applies to that account. This is a big job. There are many thousands of accounts.

And don’t forget, there’s a continuing resolution behind the sequester. It expires March 27. So far no plan has emerged from Congress on how to avoid a government shutdown. In their caution, your customers are thinking about how to avoid stumbling into an Antideficiency Act violation. Will the CR simply be extended, or will Congress us it kill some programs and plus-up others? Anything could happen as Congress and the President wrangle over finalizing the way the amounts cut by the sequester actually happen over the longer term.

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