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MAIL BAG: “NOT TO EXCEED” DOESN’T EQUAL “AWARD AMOUNT”

New reader J. Legend of Brentwood, CA writes, “Our company is doing work on a contract with a “not to exceed” amount of $200,000.  We will likely only incur $100,000 of time and labor.  Can we bill for the full $200K?”  Nice try, J. but a “not to exceed” contract means only that the government will spend “up to” that amount during the contract.  Contractors cannot bill for more than the time or costs they actually incur.  Submitting a bill for more is a prima facia False Claims Act violation and can cost your company more than the business was worth.  There is substantial case law on this point.  Although it might be tempting, it is ultimately not worth the risk to your company’s other business or reputation.  Contractors can only bill according to the terms and conditions of the contract and only for valid prices or costs incurred.  This is true, by the way, even if a government contracting officer says you “must” bill for the entire “not to exceed” amount.  Although CO’s should always be given respect, following advice contrary to the law can still get you in trouble

DOD MAY POSTPONE CONTRACTOR BAN ON USE OF COVERED IT/TELECOM

Pentagon leaders stated recently that they will delay the enforcement of pending restrictions on contractor use of covered telecommunications and IT equipment.  Colloquially known as “Section 889 Part B” the provision bans contractor use of Huawei, ZTE and other technology anywhere in a contractor’s enterprise.  It had been scheduled to become effective in August.  An interim rule is thought to be held up in OMB’s Office of Information and Regulatory Affairs (OIRA).  Both Pentagon leaders and contractors were increasingly concerned about the lack of regulatory guidance on such a far-reaching statute with considerable implications not only for contractors, but their supply chains as well.  In addition to a delay, perhaps of up to a year, DOD leaders are also looking at applying a risk-based approach to implementing the rule when enforcement does begin.  That essentially means that compliance resources will focus most on critical systems and supply chains that support essential, tech-heavy missions.  To be clear, though, compliance with Section 889 Part B means that a contractor, and its subcontractors, cannot use telecommunications or IT equipment from Huwai, ZTE, their affiliates and other companies that a DOD panel may designate anywhere in their company.  This extends to items such as security cameras used as part of a warehouse security system, phones, computer monitors or any other tech from the listed companies and their affiliates.  It is also important to note that while DOD may focus most of their own resources on critical systems, whistleblowers will still be free to allege non-compliance.  Contractors and their subs likely have some extra time here to remove questionable equipment from company installations.  That should not be seen, though, as an indication that covered tech can stay in place if you’re not involved in DOD mission-critical projects

DHS ORGANIZATIONS & POTENTIALLY OTHER FEE-BASED OFFICES FACE POSSIBLE FURLOUGHS, IMPACTING YOUR BUSINESS

In case government business wasn’t distracted enough already, the Customs and Border Protection (CBP) and US Citizenship and Immigration Services (USCIS) agencies are facing possible partial furloughs this summer in the wake of dramatically lower user fees brought on by the COVID-19 pandemic.  Unless Congress provides supplemental funding in July, thousands of employees in these, and possibly other fee-based organizations, could be furloughed.  The potential for a furlough is enough of a distraction.  First, agencies must, by law, conduct Continuity of Operations Planning (COOP) in case actual furloughs do happen.  Those discussions take would-be customers away from discussions with contractors and in virtual meeting rooms.  Second, the prospect of losing pay for a period of time can be distracting for any employee, DHS workers being no exception.  Add on top of that transitions from home-based work to offices re-opening and it is easy to see that the pace of business will almost surely be impacted.  There is not much contractors can do about this situation, either, other than showing empathy and patience.  Congress may well provide funds, but likely not until the last minute.  It is also important to note that while Congress may restore funding for employees, any acquisitions that were to have been funded by user fees may not be covered and are very likely on hold.  Contractors doing business with any department that operates either partly or entirely from user fees should have serious discussions now about the viability of current operations a contractor may be supporting and fund availability for planned projects.

TAKE THE ALLEN FEDERAL CHALLENGE – REVIEW YOUR CONTRACTS BY THE 4TH OF JULY

Forget the “juice cleanse” or whatever diet you’re contemplating to get rid of the “Quarantine 15”, Allen Federal is challenging all contractors to conduct a thorough review of their contract files by the 4th of July.  This could be the single-most important project your company can take to ensure that the only fireworks you see will be the ones you should.  It should go without saying that a complete contract file, including electronic records of e-mails between contracting officers and your company, internal company documents and, of course, all award documents and modifications, should be at the fingertips of your contract manager.  If it didn’t need saying, though, we wouldn’t write about it now.  Many companies think they have a complete contract file, until they discover that records have gone missing and that there is about as much information in the file as you get from your teenager late on Saturday night.  More than one company has found that it’s been operating under assumptions, passed down as oral history, that have little documentation to back them up.  That’s a tough position to be in when the auditor comes knocking.  Federal agencies shouldn’t laugh too hard, either.  Many is the time that the government has had to ask a contractor for contract file documentation they can’t find themselves.  So, now is the time.  Take the Allen Federal Challenge and ensure your contract file is complete!

WILL DEOS BE A NAIL IN THE COFFIN OF LARGE IDIQ CONTRACTS?

Legal wrangling continues to delay the implementation of the DISA DEOS cloud contract, an acquisition managed by GSA.  DISA has yet to see one order more than 10 months after award.  That’s no record, unfortunately, as DOD’s JEDI contract has been in litigation on both a pre- and post-award basis for over two years.  Added to the costs and delays specific to these two programs is a belief that large Indefinite Delivery Indefinite Quantity (IDIQ) contracts simply cost too much and take too long to put in place, especially when technology and solutions change quickly.  What good is a contract that takes less than 30 days to buy from when the contract, itself, takes five or more years to be useable? 

Federal agencies that want agile acquisition to match their agile solutions are already using faster buying methods, such as Other Transaction Authority.  Small Business Innovation Research programs are also growing in popularity, especially when obtaining cutting edge technology.  On the cloud front, DOD continues to fulfill customer needs through existing contracts that contain many of the features of either DEOS or JEDI.  The fighting over DEOS and JEDI is a side show as the real work of government proceeds.

Federal acquisition professionals and their internal customers may decide that the basic large IDIQ model has had its day.  While there simply aren’t enough acquisition professionals to conduct open market procurements for all requirements, smaller, shorter-term vehicles may be developed.  We understand the irony of this since recent efforts have been to trim the number of vehicles, but if those programs can come on line faster, their popularity may rebound.  Another idea is to increasingly use non-priced contracts.  This will speed the award of larger contracts, but require more work at the customer agency level.

Contractors with large IDIQ portfolios cannot assume that the status quo will remain.  Recommending solutions to important customers can help you stay ahead of the game and ensure that your company isn’t caught with a 1998 contract model when agencies shift to something that fits the 2020’s.  You can be part of the change or play catch up.