How DIUx Works With Non-Traditional Innovators

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In a recent blog post we described a procurement method known as other transaction agreements (OTA) that has become increasingly popular to access valuable war-fighting technologies, especially from non-traditional defense companies.

We highlight a structure used by Army Contracting Command – New Jersey (ACC-NJ) that leverages a consortia of companies that agree to participate under a common ruleset to submit white papers in response to the government’s interest in emerging technologies.

10 USC 2371b (Other Transaction Authority for Prototype Projects) provides significant flexibility in how DoD can use OTAs for prototype projects. Another methodology in use by DoD’s Defense Innovation Unit Experimental (DIUx) bypasses the use of consortia and solicits ideas directly from industry with a focus on non-traditional defense companies.

DIUx was stood up in 2016 to “develop new partnerships with the private sector in communities in Silicon Valley and America’s many other great innovation hubs” to “put commercial-based innovation in the hands of America’s soldiers, sailors, airmen and marines.” That same year DIUx initiated a first-of-its-kind acquisition framework called the Commercial Solutions Opening (CSO) by which DIUx solicits solutions to problems that our warfighters are facing.

To effectively work with non-traditional innovators DIUx divided the CSO into several phases: Solicitation, Phase 1 Evaluation, Pitch, Phase II Evaluation, Kick-offs, Proposal, Negotiation and Awards, and OT Modifications as applicable.

In the solicitation phase, DIUx posts areas of interest (AOIs) on its website. Instead of complex requirements and specifications, AOIs describe problems to be solved or particular technologies DoD is interested in. In response to solicitations posted on the DIUx website, companies submit either a short 5-page white paper or a presentation not to exceed 15 slides. In their submission they simply describe their technology and their company.

In Evaluation Phase I, DIUx uses four factors for evaluation:

  1. Relevance: Is the company’s solution relevant to the AOI?
  2. Technical merit: Does the proposed solution feasibly address the AOI?
  3. Business viability: Is the company viable enough to perform the work?
  4. Innovation: Does the solution represent a truly unique and innovative approach?

If the company receives a favorable evaluation they will be asked to pitch their idea either in person or through video conference. During the pitch phase the company and DIUx discuss the technology and potential use cases in more detail as well as a rough order of magnitude (ROM) of the costs involved.

After the pitch DIUx re-evaluates the technology based on the Phase 1 factors and three additional Phase II factors: cost, schedule, and data rights. Based on a positive evaluation the agreements officer (AO) will issue a Request for Prototype Proposal (RPP).

Once the RPP is issued DIUx schedules a kickoff meeting with the company, the DoD customer and the AO. At the kickoff meeting, the DoD team will explain the proposal process, which is a collaborative process wherein the contractor will develop the statement of work in collaboration with the government. During this process the government team and contractor discuss different ideas and send drafts of the proposal back and forth.

In the proposal process a final statement of work has been collaboratively developed, accordingly the technical aspects of the proposal have already been evaluated and the government performs a final cost/price evaluation based upon non-traditional government methods which might include return on investment.

After evaluation the agreements officer will negotiate the terms and conditions of the OT with the company. Since the government and the company have worked collaboratively, this is usually a relatively quick process. Often the company is willing to sign the baseline OT without any modifications.

Once the project is underway the government may want to modify the scope of the OT based upon requirements changes or even because of emerging technology. As long as the scope changes are within the original AOI, the government and the contractor work together to update the project scope and modify the OT.

The CSO process outlined above and OTs have allowed DIUx to effectively access innovative technologies from non-traditional defense companies. It offers another way to do this without the use of consortia by reaching out directly to the technology companies and leveraging the OT authorities recently given to the Department of Defense.


Intellectual Property and the NDAA 2018

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Early in 2018, Edmund Amorisi of Smith Pachter McWhorter PLC and and Bill Walters of Dixon Hughes Goodman LLP presented a comprehensive summary of the key provisions of the FY 2018 NDAA. As they explained, Sec. 802 emphasizes DoD’s ongoing interest in intellectual property issues.

It directs DoD establish a “cadre of intellectual property experts” to “ensure a consistent, strategic, and highly knowledgeable approach to acquiring or licensing [IP] by providing expert advice” to the acquisition workforce. Sec. 802 also authorizes DoD to contract with a private-sector entity for “specialized expertise” to support the cadre.

Currently there are FAR and DFAR provisions to protect intellectual property, both the portion that the government should own after something new is developed, and the portion that the contractor brings to the table. However, this expertise does not exist in the regular contracting workforce. So this provision really goes into detail about intellectual property and directs the DoD to establish some intellectual property expertise that they can use.

Any company with an innovation will have a real issue about bringing their innovation into the contracting community because they may not be properly protected to keep their IP. Too often contractors don’t pursue their innovative ideas because they don’t want their innovation to become the property of the government.

So this provision is really about allowing innovation to play a part, and that’s a very good thing.


Commercial Item Contracting Changes in NDAA 2018

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While we at TAPE provide services, other companies provide products, or a combination of the two. In terms of federal contracting, commercial items are all the things that are stuff, for example office supplies like pencils and paper clips.

What Sec. 846 of NDAA 2018 is trying to do is establish Amazon-like online portals where contracting officers and authorized people can simply go online and order their products and commercial items.

That would replace the current process, which in many cases is ordering these supplies off GSA schedules, and will make it easier and more efficient for government buyers to do their job. The problem is whether this takes away opportunities for competition. How do you regulate all of these things?

There is still work to be done to determine who is included in the portal, how search results are delivered, what kind of e-commerce portal do you create, and how this relates to the Federal Acquisition Regulation (FAR) and the Defense Federal Acquisition Regulation Supplement (DFARS).

Until we figure out these things, I don’t think this portal will happen immediately. There doesn’t seem to be a rush to implement this, and this might be partially because GSA sees this as a competitor to their own portal. But I also don’t think we’ll be waiting too long.


Bid Protest Changes in NDAA 2018

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We’ve been taking a closer look at some of the most relevant changes to the 2018 National Defense Authorization Act (NDAA), which includes several provisions designed to reduce the number of protests.

According to the U.S. Government Accountability Office (GAO), “federal agencies are required to award government contracts in accordance with numerous acquisition laws and regulations. If a party interested in a government contract believes that an agency has violated procurement law or regulation in a solicitation for goods or services, or in the award of a contract, it may file a bid protest with our Office.”

With contracting dollars being so tight over the last 10 years, every loss was a big deal, and large losses in particular resulted in long and involved protests. This led to us seeing more and more contracts being protested, which is creating a lot of problems.

So there are a number of things that this provision attempts to do, including to increase the amount of information flow in the debriefing (see: how to take full advantage of a debriefing).

That’s a double-edged sword for both the government and the contractor. On the one hand, it will help bidders better understand the decisions and help them shape future proposals for more success.

For example, they will now allow businesses pursuing contracts of $100 million or greater to see a redacted version of the source selection decision document. This is the recommendation document that goes to the source selection authority (SSA) – the panel that decides who to select among the bids – and is an incredible source of information. Small businesses may request the same disclosure for contracts valued at $10 million or more.

On the other side, these changes will produce a lot more documentation and paper trails, and sometimes when a contractor learns more about a decision, it actually increases the possibility of protest.

Another potential down side is a potential pilot program of charging protesters if they’re unsuccessful when a protest is made and denied. This compensates for the fact that the government has to spend money to defend the protest.

That means you’ll have to really think twice because there is the potential to incur hard costs (where before it was just your legal fees).

The hope in all of this is to get rid of frivolous protests that are only meant to extend existing contracts. Unfortunately, some incumbents who are about to be replaced start a protest knowing that for the 4-6 months while it’s in process, they can still be performing and collecting their money. While the protest is going on the government is prohibited to hire the new company. This is an unfair practice and definitely needs to stop. Time will tell if these changes are successful in doing that.


Acquisition Threshold Changes in NDAA 2018

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Simplified acquisition is “a contracting method which seeks to reduce the amount of work the government must undertake to evaluate an offer. Because source selection is less arduous under simplified acquisition, the dollar value of contracts allowable under simplified acquisition …is capped.” (Georgia Tech Contracting Education Academy.)

In the NDAA 2018, this simplified acquisition threshold increased from $100,000 to $250,000, in order to expand opportunities and increase participation of small and disadvantaged businesses – service-disabled, women-owned, small, and small disadvantaged (what used to be known as 8(a)).

What that means is that contracts valued up to $250,000 – a pretty fair amount to most small businesses – don’t have a justification and authorization requirement (known as a J&A). The government contracting officer can just issue a purchase order to the small business.

The Truthful Cost or Pricing Act (TINA) (previously known as the Truth in Negotiations Act) was instituted to protect government agencies from unfair pricing practices by contractors. NDAA 2018 also bumps up the threshold for which contracts need this particular oversight – from $750,000 to $2 million. From a government standpoint, this means fewer regulations associated with a larger pool of contract dollars.

As we head into the year-end federal purchasing blitz, everybody just got their budgets and they have to spend all of their money by September 30th. These changes give small business contractors important opportunities to get bigger amounts of money in sole sourcing.


So You Won a Multiple-Award IDIQ, Now What Do You Do?

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Winning a multiple-award IDIQ contract does not give you any new work; in fact it causes work, because you’re going to have to go figure out who can use this contract from amongst your customers, and help show them why moving things over to this contract you’ve won is the right step for them (because it’s also the way for you to get more work!).

Look at it this way: If we have a contract with a customer, and that contract is going to be eligible for renewal, would we rather have it competed in its current open scenario, let’s say through FedBizOpps, or would we prefer it to be a more limited competition under one of these multiple award IDIQ vehicles?

Assuming for the moment that we think it’s to our advantage as a small business, we now need to convince the government program office and contracting office that this new vehicle is easier to use and meets their needs better.

In the case of the GSA vehicles, GSA also wants to help you do that. This is not specifically about any particular piece of business, but that the more you actually bring over business or bring over an old customer doing a new function to this new vehicle where they can get to you, the more likely you are to win that work.

You’re trying to convince your existing customer that some piece of work should be put on this vehicle because you can respond to it as a prime. It doesn’t mean you’re going to win over your competitors within the contract, but it does mean that you’re at least going to be in the game as long as you have the capacity to respond.

Multiple-award IDIQs are a tempting source of revenue for small business federal contractors, particularly because the numbers are usually very big. Our VETS 2 contract, for example, has a ceiling of $2 billion! But only if you’re prepared, first to be able to write the proposals, and second to bring in the work where you have the knowledge, background or information. Otherwise it’s going to be like shooting in the dark.

Stay tuned for a later post when we’ll talk about how to pick and choose targets that you didn’t bring to the table.


What is a Multiple-Award IDIQ Contract?

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Many federal contracts are issued as IDIQ – indefinite delivery, indefinite quantity. What an IDIQ means is that although the government may award you a contract with a ceiling value of let’s say $25 million, nothing is guaranteed. It’s all issued in the form of task orders.

That’s what makes this an indefinite quantity, because although there’s a ceiling, there is no actual guaranteed contract. In contrast, you may have an annual contract for $25 million, but it’s what’s called a level-of-effort (LOE) contract. Every year for five years you get an option or agreement for $5 million, one-fifth of your 25 million. That is a definite quantity.

The indefinite delivery refers to the fact that the task orders can be for differing durations – you could get a task order for one month, six months, or longer. They’re not for a specified time frame. Your LOE contract, on the other hand, has a set delivery schedule of one year, repeated four times.

The next distinction we have to make is between single award and multiple award. Obviously if you win a single-award contract you’re the only awardee. Everything that’s done under that contract is done by you. You may have sub-contractors, but in essence you’re the prime; all the revenue comes through you.

In a multiple-award, not only are the projects issued as task orders, but you have competitors who may also be able to bid on and win those items. For example, with the GSA’s IT Schedule 70, you don’t have to compete to get your contract, but every task order is competed. So you don’t actually get any work or any revenue unless you win a task order under the contract.

While a lot of this is changing (we won’t go into that here) the reality is that almost every agency uses some form of multiple-award IDIQ to focus portions of their effort. It may be something central to their mission, or it may be a service that contributes to the mission, like information technology or something of that nature.

There are several GSA multiple-award IDIQs in the information technology and engineering areas, such as Alliant, the Veterans Technology Services 2 (VETS 2) program, which is limited to service-disabled veteran-owned small businesses), STARS, which is limited to companies designated 8(a) or small disadvantaged businesses, and OASIS, that’s limited to engineering and related companies in various size standards.

Most of thee contracts will have a small business set-aside component, as well as an unrestricted or large business component. Think a multiple-award IDIQ is for you? Stay tuned for the next post, where we’ll discuss what to do once you’ve actually won one.


Preparing for a DCAA Audit

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The Defense Contract Audit Agency (DCAA) provides audit and financial advisory services to Department of Defense (DoD) and other federal entities responsible for acquisition and contract administration. They serve as dedicated stewards of taxpayer dollars to ensure that agencies get what they need at fair and reasonable prices.

In an audit, the DCAA aims to establish that your indirect rates are properly allocated. These include fringe benefits (costs related to employing your labor force), overhead (indirect costs of carrying out your contracts) and general and administrative costs (G&A) (the residual costs necessary to run a business, regardless of whether you have government contracts). (See this post for more details.)

Why does this matter? If these costs are not allowable, allocatable to one of the areas in the indirect cost matrix, they won’t count towards your reimbursement. You can’t claim them and use them to build up your rates. If you’ve spent $100,000 but only $50,000 is allowable, that other $50,00 is unrecovered in your rate schedule.

What I’m going to give you in this blog post is the most common things the DCAA looks for. I’m not necessarily going into all the details, rules or regulations. You always have to consult with a knowledgeable contracts person, accountant, or legal expert.

The first issue is consultants and consulting costs, where you need to get outside advice. There are many things that a consultant can do for you, but some of these are not allowable costs under the DCAA rules.

Let’s say I want to bill the government for an analyst at $100 an hour. From the government’s perspective the DCAA comes out and says a certain amount is salary, some are fringe benefits, some is overhead, some is general administrative, and finally the rest is profit. What goes into those buckets can only be allowable costs.

If you have unallowable costs, you may be forced to reduce your rates and that’s what we’re trying to avoid. Of course their goal is to find as many unallowed costs as they can in order to save the government money.

Next there is compensation. We’ve got two areas there – executive compensation and incentive compensation. Executive compensation was capped in the Obama administration, so you need to look into those details. Incentive compensation is very stringently regulated. You can give business development and executive incentive compensation but you have to understand the basis on which you’re calculating and paying those incentives.

Again, I’m not a DCAA accountant; I’m just trying to guide you towards what questions to ask so you don’t get in trouble.

Then we have base labor costs (salaries), and while it seems logical that salaries are covered, you have to be careful because there are lots of things that go into salaries, such as bonuses and gift cards – are they allowable?

For example, at our company TAPE, when you get a “kudo letter” from a customer you get a gift card. That would be a labor charge under employee morale, but you have to work that out with your professional advisor. All of the aspects of how you pay your employees, including health insurance benefits, sick leave, etc., must be addressed.

As for legal costs, the ones that are associated with your projects in government work are allowable, but legal costs for organizational issues, e.g., issuing stock to members of your LLC or owners of your corporation, may not be allowed.

Employee morale is distinct from traditional benefits like life insurance – e.g., you buy soft drinks and put them in the fridge and anyone can take them. That may or may not be an allowable cost. It is an employee morale cost, but you must check that this cost is allowable.

These are some of the many things the DCAA will evaluate when they come out, so make sure you are ready for them!


OFPP Wants Agencies to Set Goals for Using Best-in-Class Contracts

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This is a guest post by Jason Miller of Federal News Radio.

It’s been a year since the Office of Federal Procurement Policy released and accepted comments on its draft circular around category management.

With little-to-no activity on the draft circular over the past year, it seems OFPP is taking a less permanent route to further institutionalize this approach to buying.

Federal News Radio has learned OFPP sent a draft memo out for comment across the agencies earlier this summer, focusing on demand management and “best-in-class contracts.”

Several sources confirmed agencies submitted comments and OFPP is reviewing them.

Government sources familiar with the draft memo say OFPP wants agencies to set goals for using “best-in-class contracts,” and implement demand management by analyzing procurement data and making decisions on who to buy from and how to buy from those vendors.

One source said the draft memo would require agencies to negotiate with OFPP a percentage of work that would have to go through some of the currently 29 governmentwide, multiple-award contracts that have been designated “best-in-class.” These include several General Services Administration contracts, such as OASIS for professional services and Alliant for IT services, as well as the governmentwide acquisition contracts run by NASA and the National Institutes of Health.

“Each agency’s goal would be different because it would be based on what you buy and what you think you should be buying,” said the source, who requested anonymity in order to speak about the pre-decisional memo. “OFPP will look at what you bought in the past and determine what percentage should be bought through these contracts. You will then negotiate with OFPP, much the same way we do with small business goals.”

Multiple government sources say they have real concerns about the memo and have expressed them to OFPP.

Another government source familiar with the memo said they are not a fan of the “best-in-class” designation because it’s based too much on labor rates or categories, and not based on whether the vendor can do the work the agency needs.

“To be ‘best-in-class,’ you have to demonstrate that the vendor is best in class,” the source said. “I understand using it for some things, like delivery services, but for anything mission-related or more complicated, I’m not sure you can just look at the basic information and decide a contract is ‘best-in-class.’”

Lesley Field, the acting OFPP administrator — who, by the way, has been acting for more than a year— said at the Professional Services Council’s Vision Forecast Conference on Nov. 2 that agencies use rigorous criteria to determine “best-in-class.”

“We developed the requirements with a lot of government agencies in mind. It’s not just one agency, but there were customers at the table helping with the requirements,” Field said. “We want to take advantage of volume pricing. We want to have benchmarks for what industry is driving toward. We want to make sure is there data-driven demand and we have to validate our savings methodologies.”

But the criteria for “best-in-class,” according to GSA’s website, are much less rigorous than what Field described.

GSA says to be “best-in-class” a contract must:

  • Allow acquisition experts to take advantage of pre-vetted, governmentwide contract solutions;
  • Support a governmentwide migration to solutions that are mature and market-proven;
  • Assist in the optimization of spend, within the governmentwide category management framework;
  • Increase the transactional data available for agency level and governmentwide analysis of buying behavior.

Field said OFPP, GSA and other agencies look at those contracts to make sure they meet all these criteria as well as others, such as ensuring they support contracting with small businesses.

Roger Waldron, president of the Coalition for Government Procurement, said his members and others in the federal community are concerned about the impact the “best-in-class” designation could have on the marketplace.

“To the extent that ‘best-in-class’ contracts are selected, it’s like picking winners and losers. It could lead to less competition and higher prices in the long run,” Waldron said. “Industry also is scratching their collective heads about what criteria should be used, and even if it’s the right idea. Best-in-class predisposes that it’s the right way to go, but what if it’s a platform or new idea instead of just a contract?”

Waldron said the Federal Acquisition Regulations already tell agencies there are priority sources of supply, so if OFPP wants to hold agencies accountable for using these “best-in-class” contracts, what does it mean for the small business community?

“Is best-in-class establishing a different framework for priorities?” he said. “We don’t understand why OFPP isn’t going through a typical rulemaking process. The Obama administration put out the circular and asked for some comment on it. We submitted a series of comments and questions, and to date, we’ve received no response from the executive branch. I’m not sure how OFPP can implement category management and best-in-class without addressing industry questions and concerns. It doesn’t demonstrate a real partnership.”

Industry isn’t the only place where collaboration may be falling short.

The second government source said OFPP has talked — but not to the acquisition community — about category management and the use of “best-in-class” contracts.

“I’ve been told our comments will be addressed,” the source said. “This is a leftover initiative from the last administration and they are just keeping it going without taking a new look at the effort.”

Sources said OFPP should bring the Chief Acquisition Officer’s Council together to discuss category management and what “best-in-class” really means before creating what some may view as a mandate to use these designated contracts.

Government and industry experts say OFPP should reconsider what “best-in-class” really means.

The government source said maybe it’s around acquisition practices and not contracts.

Waldron said maybe OFPP should consider identifying key characteristics of contracts to drive the best value.

“The only thing we have is criteria that were identified in the draft circular that are all process-driven, not outcome-driven,” he said. “Plus, the definition of best-in-class in government seems to be different than best-in-class in the private sector.”

Sources say one problem with the entire category management effort is it’s being driven by GSA and they stand to gain from the effort.

The first government source said OFPP needs to be more flexible in how it requires agencies to use these contracts. The source said they can’t understand how the GSA Schedules are considered “best-in-class,” given how many vendors there are and the fact that the prices aren’t great to start.

“The way GSA negotiates them means you are not getting the best price, because anyone can get on it as long as you are a legitimate company, you don’t have any failed past performance and can offer a decent price,” the source said. “To me, ‘best-in-class’ means you negotiated and are getting a good deal. Best-in-class should minimize my work and Schedule 70 doesn’t do that, and that’s where I get a little nervous because OFPP is going to an extreme. Best-in-class should be contracts that are products or services that are proven, efficient and cost-effective. You are after quality, timely delivery and cost-effective buying. Right now, the criteria is too loosely written.”

This post originally appeared on the Federal News Radio site at  https://federalnewsradio.com/reporters-notebook-jason-miller/2017/11/ofpp-drafts-memo-to-replace-category-management-circular/ and was reprinted with permission. You can also click here to listen to Jason Miller discuss the topic on the Federal Drive podcast with Tom Temin.


The OTA Consortium Model for Prototype Development

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In preparing this blog post we benefitted from support from the Army Contracting Command-New Jersey to make sure the descriptions were correct.

Other transaction agreements (OTAs) and their underlying authorities allow for more flexible, commercial–like, and novel business solutions than the Federal Acquisition Regulation. In fact, Office of the Secretary of Defense (OSD) guidance states that contracting officers should not use specific templates for designing such structures. The intent, rather, is for the government to structure business arrangements that are most appropriate for each specific scenario.

However, there are OTA structures that have been effectively demonstrated and can be replicated. One such structure was implemented by Army Contracting Command-New Jersey (ACC-NJ) and involves the use of a consortia of companies interested in working with the Army within a given subject area.

The OTA consortium model has existed for more than a decade and has cumulatively resulted in the award of over $1B for prototype development. While there are several variants between OTA consortia, the general premise is that ACC-NJ executes an OTA not with a single entity but an organized group of entities that agree to participate under a common rule set.

The consortia typically employ a management organization to address administrative needs and manage the flow of information between the Army to the consortia. Typically, these consortia are designed to minimize barriers for new companies to participate.

In several cases, the application to become a consortium member is a one-page form that can be completed online with a $500 annual consortium membership fee. Prospective members must agree to the terms of the consortium and the OTA, but these terms are much more flexible than standard FAR-based contracts (e.g., intellectual property issues may be negotiated on a case-by-case basis).

Once the consortium self-forms the Government may negotiate and award a base OTA. Once the base OTA is awarded, the Government may issue calls for white papers to the consortium in lieu of full-up proposals, thereby cost effectively separating good ideas from those that are less desirable.

The Government may then select a small number of companies to submit a more formal proposal based on the evaluation of the white papers. Ultimately, the Government selects one or more awardees and delivers funding to the selected consortium member(s) – typically through the consortium management organization.

In any instance, OTA provides for flexibility to alter the solicitation, evaluation and award process. However, once the process is established, government compliance is extremely important to maintain fairness in determining contract awards.

The OTA consortium model provides tremendous flexibility, streamlined processes and procedures, and access to the broadest possible pool of prospective vendors.


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