Comparing Commercial and DoD/Federal Market Sector Business Environments

© IzelPhotography – depositphotos.com

This is a guest post by R.J. Kolton, SVP of Data Systems Analysts (DSA), Inc. and VP of Mid-Tier Advocacy, Inc.

The 17-person 809 panel was tasked with finding ways to streamline and improve the defense acquisition process. I met with the 809 Panel in February 2017 and I found it important to speak about the challenges facing mid-tier companies.

Another question the panel asked me to address was what are the differences between contracting with the Department of Defense and a commercial sector.

New entrants, such as “Silicon Valley” companies, entering via OTAs and other mechanisms will eventually confront the same challenges as traditional players in the defense sector. This is particularly the case as they achieve success, become established, and play by the same rules as traditional government contractors.

These new entrants must prepare to operate in a defense contracting business environment. Described below are key differences between the commercial and DoD business environments, which impact directly on the business models companies operating in those environments adopt:

1) Commercial Environment:

  • Customer/company commercial contractual practices reflect the need to adhere to general legal contractual requirements as defined by local, State, and federal government and are far less complex and formal than the practices encountered when working with DoD and to comply with the FAR/DFAR.
  • Commercial marketplace involves rapid customer decision making and compressed timelines.
  • Commercial marketplace includes flexible contractual arrangements that foster rapid business deals.
  • In general, there is no requirement to meet specific socio-economic/small business targets in contracting.
  • Customers have more flexibility to develop and establish criteria for selecting venders.
  • Awarded work often involves rapid delivery of products and services.
  • Companies focus on rapidly closing deals, maintaining continuous cash flow, and minimizing peaks and valleys in revenue/profit streams.
  • Companies maintain robust sales and marketing capacity to continuously sustain and grow business.
  • Commercial companies offering products/services relevant to DoD market sector stress continuous R&D and product scaling and improvement in order to sustain competitive position.
  • Losing companies in commercial transactions have little recourse to protest customer’s decision.

2) DoD Contracting Environment:

  • Contractual practices are guided by FAR and DFAR, unless waived, such as OTAs; procedures are formal and time intensive.
  • Customer procurement strategies, criteria, and practices reflect guidelines provided by Executive Branch, Congress, DoD, and DoD agencies, which leads to complex customer requirements.
  • Customer decision making involves multiple layers of leaders; all must adhere to specified procedures, which is time intensive.
  • Contractual arrangements promote adherence to intent and letter of the law rather than focusing on rapid award of contracts.
  • DoD agencies must stress adherence to socio-economic/small business targets.
  • DoD agencies allocate significant time and resources to develop criteria, specifications, and requirements for contractual competitions; companies operating in the defense market space establish business model that are influenced by those government characteristics.
  • Companies focus on obtaining access to contract vehicles, winning task orders or full & open competitions, and protecting incumbent work.
  • Awarded work often involves multi-year contracts; this reduces the challenges associated with short duration commercial work.
  • Companies address continuous cash flow and minimizing peaks and valleys in revenue/profit streams by sustaining numerous concurrent contracts.
  • Successful defense-oriented companies maintain BD teams that focus on account management/business intelligence, capture, and proposal development.
  • While many defense companies by their nature focus on R&D and building new capacity to remain competitive, they are influenced in their investments by the need to invest in activities required to meet DoD certifications and requirements (e.g.,  financial and security compliance, ISO-standards, CMMI-standards, etc.).
  • DoD is generally unwilling to compensate companies for being innovative; viewed as a value-added trait.
  • Companies operating in the defense market sector must obtain and sustain key certifications to remain competitive, such as ISO 9001:2008/2015, ISO 20000, ISO 27001, CMMI-3 & 4, NIST compliance, etc. This involves major internal investments.
  • Losing companies in DoD transactions can protest large procurements; this impacts government procurement strategies and timelines.

Companies must design their organizations to optimize performance relative to the customers they serve, and as I’ve shown, the commercial market is very different form the Government market.

Given this, the DoD will be challenged in enticing non-traditional companies to enter the DoD market sector. While the DoD can offer short-term relief to the various barriers to entry, non-traditional players in that market sector will eventually have to adapt business models that support congressional and DoD policy requirements.

Randy J. (“RJ”) Kolton is VP of Mid-Tier Advocacy Group, and Senior Vice President (SVP), Business Development for Data Systems Analysts (DSA), Inc., a mid-sized, employee-owned company that is a leader in delivering business driven information technology and consulting solutions and services to the Federal Government and industry. Building on experience spanning more than five decades, DSA has deep expertise and comprehensive understanding of the operational, security, collaboration, and identity management challenges our customers must address.


7 Ways that Mid-Tier Companies Are Being Squeezed Out of DoD Contracts

© londondeposit – depositphotos.com

This is a guest post by R.J. Kolton, SVP of Data Systems Analysts (DSA), Inc. and VP of Mid-Tier Advocacy, Inc.

The 17-person 809 panel, created in Section 809 of the FY 2016 National Defense Authorization Act (NDAA), was tasked with finding ways to streamline and improve the defense acquisition process. The panel had two years to develop recommendations for changes in the regulation and associated statute to achieve those ends.

As part of its review, the Section 809 Panel reviewed the DoD small business program. The panel ultimately developed several specific recommendations designed to improve how the DoD small business program supports DoD initiatives. One of the major areas of interest was determining how to promote the entry of non-traditional DoD companies who offered advanced technology and innovative solutions to DoD challenges.

I met with the 809 Panel in February 2017. I found it important to note that mid-tier companies performing in the DoD market sector play a major role in generating jobs and enhancing overall economic growth for the Nation and that mid-tier companies, defined as companies earning $25M-$500M annually, are being squeezed by small businesses on one side and by large businesses on the other.

In that context, I offered seven points, which also generally apply to small businesses, innovating companies developing new technologies, and companies that are new entrants into the defense market space.

  1. First, mid-tier companies cannot grow effectively if they are primarily subcontractors to large businesses since subcontractors are unable to obtain significant workshare.  Large businesses have little motivation to offer mid-tier companies significant work since DoD acquisition policies encourage them to award subcontracts to small businesses. 
  2. Second, the primary pathway for growth for mid-tier companies is to win large multiple award, indefinite delivery/indefinite quantity (IDIQ) contracts as primes so they can compete for agency task orders. However, to win these IDIQs, mid-tier companies must surmount major challenges:
    • Mid-tiers are often locked out of large multiple award IDIQs owing to significant past performance criteria.
    • The tendency of DoD agencies to consolidate contracts to reduce administrative burdens and costs, which favors large businesses. Such IDIQ consolidation reduces opportunities for mid-tier companies to penetrate and support customer agencies, which constrains future growth. Consolidation also poses risk to growth owing to long period of performance of awarded IDIQs; mid-tier companies often have to wait a decade before they can compete again as an IDIQ prime if they miss out on the near-term opportunity.
  3. Third, mid-tier companies must contend with ever rising costs that increase their indirect rates and make it more difficult to compete against large businesses. These cost increases are the result of several factors, chief among them are supporting employee benefits under newly enacted national healthcare polices, responding to current and emerging cyber security requirements, maintaining sophisticated auditable financial systems, and obtaining certifications and appraisals, such as ISO-9001:2008/20015, ISO 20000, ISO 27001 and CMMI-3/4, which DoD agencies increasingly require of companies seeking to pursue and perform work.
  4. Fourth, while mid-tier companies are capable of providing the same or better level of service and customer relations as large businesses, their competiveness is hampered by higher overhead costs relative to large businesses because they lack the scale to absorb those indirect costs. These higher costs, combined with the lowest price technically acceptable and low price competition environment we are experiencing in the defense sector, hinder mid-tier companies in achieving success as they compete against large business on full and open competitions. 
  5. Fifth, North American Industry Classification System (NAICS) codes used to classify DoD work and define company size standards offer little support for mid-tier companies. While some NAICS codes, such as 541712/5, Research and Development, reflect a size standard of 1000 employees, up from 500 employees in Feb 2016, DoD agency contracting officials tend to strictly interpret the type of work performed and the size standard offers little benefit to mid-tier companies. Hence, there are no contracting tools to benefit or promote mid-tier company growth.
  6. Sixth, graduating small businesses confront major challenges as they evolve into mid-tier companies and must compete as newly minted large businesses. While seeking a merger or acquisition may represent a potential exit strategy, in many cases, successful small businesses owe their growth to small business contract awards, which are of little value to large business acquirers. Hence, the businesses are at great risk of failing shortly after graduating from small business status: they are too big to be small and too small to be effective as large businesses. While the Congress and DoD have done an excellent job in establishing policies that promote small business growth, particularly for socio-economic challenged groups, they have failed to establish an effective strategy to promote business health and growth across the total business life cycle, from start-up/small business through mid-tier to large business.
  7. Seventh, and my final point, small business officials in DoD agencies generally sympathize with the challenges mid-tier companies confront, however they state they can do little to help without congressional and/or department involvement and legislation. Their focus is on accomplishing their duties by promoting the various small business classifications.

The US lacks a strategic approach to promoting growth of US businesses supporting the DoD. The current government programs that promote the interests of small businesses fail to account for their eventual growth into being mid-tier companies. At that point, such companies must compete against small businesses, other mid-tier companies, and very large companies. This poses great challenges to rising small businesses. I believe Congress and DoD should seek avenues to promote the lifecycle growth of companies by accounting for those mid-tier company challenges.

Randy J. (“RJ”) Kolton is VP of Mid-Tier Advocacy Group, and Senior Vice President (SVP), Business Development for Data Systems Analysts (DSA), Inc., a mid-sized, employee-owned company that is a leader in delivering business driven information technology and consulting solutions and services to the Federal Government and industry. Building on experience spanning more than five decades, DSA has deep expertise and comprehensive understanding of the operational, security, collaboration, and identity management challenges our customers must address.


OMB Acquisition Reform Proposal 6 – Removal of Recovered Materials Certification Requirement

© Stanislav – Fotolia.com

We’ve been discussing the Office of Management and Budget (OMB)’s six proposals for streamlining the acquisition process and improving the acquisition environment, part of the FY 2020 National Defense Authorization Act (NDAA), and we’ve reached the final post in the series.

This proposal would revise 42 U.S.C. 6962(c)(3)(A), which requires certification by Federal contractors to estimate the percentage of the total recovered material content for U.S. Environmental Protection Agency (EPA)-designated item(s) delivered and/or used in contract performance, and to submit a certified report to their contracting officer. 

This proposal has to do with the administration’s move to reduce “regulatory burdens.” It is part of a general overall trend, and here at TAPE we are unrelentingly in favor of reducing any kind of administrative burden. In this case there was a duplication where things had to be reported both to the EPA and to the contracting officer, who really wasn’t going to do anything about it because it’s the EPA who needs to keep track of recovered products.

For example, if you’re removing asbestos from a building, you have to report that it’s there, and how you’re going to dispose of it by taking it to the right place, getting it recycled, etc. Since that is an EPA requirement, not a FAR requirement, it makes good sense to leave it out of FAR. There’s still a burden, you still have to report it, but you only have to do it once.

Don’t we love the OMB?


Proposed Rule to Align the 8(a) BD and EDWOSB Program Requirements

© elnariz – Fotolia.com

In a previous post we discussed the SBA’s proposed rule about the certification processes for women-owned small businesses (WOSBs) and economically disadvantaged women owned small businesses (EDWOSBs).

This proposed rule, posted in May 2019, also looks to make the economic disadvantage requirements for the 8(a) Business Development (BD) program consistent to the economic disadvantage requirements for women-owned firms seeking EDWOSB status. This proposed change would eliminate the distinction in the 8(a) BD program for initial entry into and continued eligibility for the program.

Under the current system, the economic disadvantage criteria for EDWOSBs are the same as the continuing eligibility criteria for the 8(a) BD program, however an entity that applies for EDWOSB and 8(a) status at the same time, might be found to be economically disadvantaged for EDWOSB purposes, but denied the eligibility for the 8(a) BD program based on not being economically disadvantaged.

The new rule looks to make economic disadvantage for the 8(a) BD program consistent to that of an entity seeking to qualify as economically disadvantaged for the EDWOSB program.

The SBA specifically asked for comments (comments were closed on July 15, 2019) on the net worth standard that would be used for the EDWOSB and 8(a) programs. A 2017-18 study that the SBA conducted supported a $375,000 adjusted net worth for initial eligibility, in comparison to the current threshold of $250,000.

The SBA considered applying a $375,000 net worth standard to both the 8(a) BD and EDWOSB programs, however the study did not take into consideration differences in economic disadvantage between businesses applying to the 8(a) BD program and those continuing in the program once admitted.

The new rule proposes to use the $750,000 net worth continuing eligibility standard for all economic disadvantage determinations in the 8(a) BD program.

SBA specifically requested comments on whether the $375,000 net worth standard or the $750,000 net worth standard should be used for the 8(a) BD and EDWOSB programs, as well as how the different standards would affect small business owners participating in the federal marketplace.


SBA Proposed Rule to Amend WOSB and EDWOSB Regulations

© Rob – Fotolia.com

The main goal of the U.S. Small Business Administration’s (SBA) proposed rule (May 14, 2019) to amend regulations on the Women-Owned Small Business program is to put in place a statutory requirement to certify women-owned small businesses (WOSBs) and economically disadvantaged women owned small businesses (EDWOSBs), which can make them eligible for set-aside and sole source awards.

This proposed rule would allow an entity to be eligible to receive awards under the Women-Owned Small Business program, as long as its application is pending.

If that entity were to be selected for the award, its application would be prioritized by the SBA, which would lead to a determination within 15 days. The SBA would provide a free electronic application process to the entities looking to get WOSB and EDWOSB certified.

The provision also acknowledges that SBA may have difficulty processing all the potential applications in a timely manner, as there are approximately 10,000 firms currently in the WOSB repository.

The anticipated increase of applications from firms could possibly overwhelm the SBA, which typically processes around 3,000 applications per year for 8(a) status, and about 1,500 a year for HUBZone status.

The SBA asked for comments on possible solutions to avoid the potential bottleneck. Comments were accepted until July 2019 and they received more than 300 comments.

It’s important to note that if or when the rule is finalized, the certification requirement will apply only to those entities that wish to compete for set-aside or sole source contracts under the WOSB Contract program.

WOSBs that are not certified will not be eligible to compete on set asides for the program. However, women-owned small businesses that do not  participate in the program may continue to self-certify their status, receive contract awards outside the program as     WOSBs, and count toward an agency’s goal for awards to WOSBs.

Contracting officers would be able to accept self-certifications without verification for subcontracts, full-and-open awards, and small business set-asides.

The SBA believes that the proposed rule will bolster the number of federal contract awards to WOSB and EDWOSB-certified businesses, as well as better help agencies reach the 5% federal contracting goal for women-owned small businesses.

Under the current system, contracting officers must review a contract awardee’s documentation to verify an applicant’s WOSB and EDWOSB eligibility.

From the SBA press release: “By establishing a transparent, centralized, and free certification process, the SBA aims to provide contracting officers with reassurance that firms participating in the WOSB program are eligible for awards and encourage them to set aside contracts for women-owned small businesses.”


OMB Acquisition Reform Proposal 5 – Task and Delivery Order Protest Threshold

Business creative concept. People in crisis with banners protesting.
© studioworkstock – Fotolia.com

This proposal seeks to standardize the task and delivery order protest dollar threshold for defense and civilian agencies by raising the civilian agency threshold from $10 million to equal the defense agency threshold at $25 million.

So while this is a straightforward action, it does have extensive implications. Currently, the task and delivery order protest threshold are those things that apply to multiple-award IDIQ-type contracts.

Let’s say, for example, you’re on a contract vehicle like GSA Aliant and you lose a task order. Currently, you can only lodge a protest if the dollar value of the contract exceeds $10 million, however the same situation on the defense side has a threshold of $25 million before you can protest.

If this OMB proposal goes into effect, then everyone would be subject to the higher $25 million limit, below which a protest would not be allowed on task and delivery order contracts.

This will have the effect of reducing the number and likelihood of protests in the civil sector. Things that were formally protestable between $10 million and $25 million will no longer be protestable.

From the government’s standpoint, it is certainly sensible for both sides to have the same rules. By taking on the larger standard, however, it will reduce the protestasbility of a large number of task orders. This is likely to be more of a problem for small businesses then for large businesses.

The government is attempting to streamline and reduce the activities that are different between civil and defense section and in the long run, and that’s a good thing. On the other hand, the reason the rules are different is there is less money in the civil sector and the jobs are smaller in size, and that’s the way it’s always been. Ultimately this is not good news for the small businesses who now cannot protest.


OMB Acquisition Reform Proposal 4 – Uniformity in Procurement Thresholds

© sek_gt – Fotolia.com

This proposal seeks to bring uniformity to procurement thresholds following the increase of the micro-purchase threshold from $3,000 to $10,000 in the NDAA for FY 2018.

A procurement threshold is the lowest level at which you can award a contract as a sole source to one particular company rather than opening it up for competition. This applies when a job is so small that trying to find enough companies to compete for the work would be too costly for the government.

So this new proposal increases that threshold to also apply to multiple-award contracts, not just single. What this means is if I, as a federal contractor, already have a multiple award IDIQ contract with a government agency, they can issue these micro-purchase orders without competition, as long as they do not exceed $10,000 in value. This makes it more fair to all contractors whether they’re in single or multiple award contracts.

There’s always a risk that the contracting officers will break the jobs up into smaller increments, particularly in DoD where the micro-threshold level is higher. That we will see only with practice, as it were.

At TAPE we’re always interested in more opportunities for sole sourcing, because that allows a customer relationship to flourish. Hopefully this proposal will have that effect.


OMB Acquisition Reform Proposal 3 – Increase Threshold for CAS

© Cifotart – Fotolia.com

We’ve been discussing the Office of Management and Budget (OMB)’s six proposals for streamlining the acquisition process and improving the acquisition environment, intended to be included in the FY 2020 National Defense Authorization Act (NDAA).

Proposal 3 is about uniformity in procurement thresholds. So right now purchases starting at $2 million must adhere to cost accounting standards (CAS), but complete coverage doesn’t start until you’re at $50 million. This change will eliminate these wide differences by raising the basic threshold to $15 million.

That means you will only need to start paying attention to CAS at $15 million, and full coverage still starts at $50 million. The reason for this change is that there were already some exemptions established at various other threshold levels that caused confusion about when the basic CAS really apply.

The reason this is important for us as small businesses is that full CAS coverage is very comprehensive and has a lot of details, and it’s really hard for a small business to manage this. That’s why you don’t hit full CAS coverage until $50 million. At that point you presumably have the infrastructure in place to handle the extra requirements.

One other legalistic thing being done is that they’re decoupling the CAS thresholds from the similar thresholds in what’s called the TINA (Truth in Negotiations Act), because there’s some concern that by putting them together, issues and problems come up in both.


In SBA News – Updates from an Expert

© retrostar – Fotolia.com

Gosh, it seems like yesterday that the Mid-Tier Advocacy group held their Business Focused Breakfast around the legislative update with some regulatory issues thrown in (but it’s already almost time for the next one).

Our speaker on July 30th was Pam Mazza of Piliero Mazza – true experts in this legal and regulatory thicket we all have to plow through as GovCons…

We talked about the new Small Business Runway Extension Act, passed in December 2018. It turns out that the legislation had some flaws in it, so instead of new regulations flying for the 5-year average replacing the old 3-year average, they’re working on some adjustments.

It was somewhat over my head, to be sure, but it hinges on whether SBA was actually authorized, and Administrator vs. Administration. OK, I’m not kidding. However, it did pass bi-partisanly, so these changes should get made fairly quickly. Of course some places are implementing it, and I can hear the protests rumbling. My advice is to ask the question, do not assume.

Second was the SBA’s preliminary rule on inflationary adjustments to the size standards. By the way, a 10% rise from 27.5 million is going to 30 million, not to 30.25 million, because I guess bureaucrats like round numbers. These adjustments will take effect in August, but then you’ll have to be sure SAM Reps and Certs catches up, so things might take a while for these changes to actually change your size status. FYI, this is NOT the “re-evaluation” of Sector 54 and 236 still to come, someday…

There’s a bipartisan bill circulating to extend 8a sole sourcing to SDVOSB, HubZone, and WOSB/EDWOSB, and to raise the thresholds – these have not been adjusted in decades. The thicket of rule-of-2 rules and regulations for non-8a sole sourcing has got to be made easier, so we’ll see if this gains traction.

DoD issued a class deviation letter, allowing similarly situated entities on all DoD contracts.

DoD also issued a letter limiting LPTA contract evaluation types, but beware of “fake best value” where they have fewer factors and call it best value when price is really the issue.

Finally, SBA is looking at working some early termination graduation for 8a’s – more will be revealed.

And that’s the news report… These breakfasts are often a good place to hear and discuss the real issues, so if you can, attend them in your area wherever that may be. The next Mid-Tier Advocacy Business Focused Breakfast is on Tuesday, August 27th at the Tower Club in Vienna, VA, featuring SBA Associate Administrator Mr. Robb Wong. Learn more and get your tickets now.

© Nipaporn – Fotolia.com

OMB Acquisition Reform Proposal 2 – Repeal Defense CAS

© BillionPhotos.com – Fotolia.com

The Office of Management and Budget (OMB) has proposed six ways to help streamline the acquisition process and improve the acquisition environment, intended to be included in the FY 2020 National Defense Authorization Act (NDAA).

The second proposal is to do away with the Defense Cost Accounting Standard Board (CASB). The issue here is that there is a Defense CASB, and there’s a federal one as well. The result is, unfortunately, is that the two different sets of cost accounting standards created can often be, well, different. So what this OMB initiative is going to try and do is eliminate the Defense CASB and consolidate everything into this one place under the federal board.

Of course, not everyone is going to be happy about this. There will be differences between the standards, and things from the Defense CASB that somebody’s been taking advantage of and doesn’t want to give up, or conversely, anything changed from the Federal CASB will have proponents and systems that cater to that function. We’ll have to figure out what those things are. Reconciling these two will be a nightmare, but it’s always better to have one rather than two things carrying out the same function.

And don’t forget that there are computer systems that handle acquisition and contract issues and cost accounting, and those will need to be adjusted.

What this demonstrates is that nothing in contracting and acquisition is ever as simple as “just do this.” So much of our regulated activity gets caught up in the very regulations being implemented; it’s never simple to change.

But, we’ll keep working on it…


css.php