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I’LL TAKE THIS ONE, YOU TAKE THE NEXT ONE: THE PROBLEM WITH SUPRESSING COMPETITION

It can be tempting sometimes to talk with competitors about bidding strategies and whether or not they will bid on an upcoming procurement.  This is can be especially true in an IDIQ environment or BPA situation where there are fewer companies and the chances of people knowing each other well are good.  The “I’ll sit this one out, if you sit the next one out” strategy, though, is illegal.  Two companies recently found this out the hard way and had to collectively pay $29 million in fines for collusion and discouraging other companies from bidding on a Department of Energy auction.   In this specific case the government alleged that the defendants exerted pressure on the two other competing bidders to suppress their bids, depriving the Department of Energy of a fair bidding process and reducing the amount ultimately recovered in the auction.  The defendants were able to acquire the non-performing loan secured for far less than its fair market value.  We can already hear people saying, “what if it’s not an auction?”  It can’t be emphasized enough that the type of acquisition does not matter here.  What matters is whether companies engaged in anti-competitive behavior. The fine, too, is just one cost.  Legal fees, lost productivity, and now a bad reputation, will all cost the companies much more.  Not every company can compete on every task order, but make sure your decision to bid or not is a business decision, not one driven by the “wink-wink, nudge-nudge” culture of “we’ll the get the next one.”

SEPTEMBER SHAPING UP TO ONE TO REMEMBER FOR FED BUSINESS

Contractors can expect larger than normal fiscal year-end business due to the disruption of business earlier this year stemming from the government’s response to COVID-19.  Bloomberg Government reported last week that they expect $194 billion to be spent between now and the end of the fiscal year and that $101 billion of that will be spent in September.  That’s 52% of remaining funds.  Such a figure would exceed even the September 2018 spend of $99 billion.  BGov further believes that $28 billion will be spent on IT during the last quarter, while $32 billion will go towards professional services.  This is good news for contractors who may have seen critical projects delayed as their customers dedicated resources to emergency needs related to the pandemic.  Serious needs still have to be met, including security, delivery of services to Veterans, and front-line DOD mission support.  Contractors must be prepared more than ever, too, to help their customers buy from them easily.  Access to IDIQ contracts like the GSA Schedule, NASA SEWP, OASIS and others will be an essential part of a company’s business strategy. Don’t take our word for it.  NASA officials told a BGov audience that agency customers’ fourth quarter spending accounted for 54% of all of its revenue under the SEWP GWAC in 2019, 33% of which came in September alone.  Similarly, NIH’s NITAAC organization stated that the fourth quarter accounts for 57% of their annual business.  Being able to provide your customer with acquisition time savings may be just as important as the solution itself.  With Europe closed and two-week quarantines imposed in Maine and Hawaii, contractors should be extra-focused on finishing the year strong.  October vacations in Trenton will be there when you’re ready.

DON’T BET ON MORE DOD STIMULUS MONEY

Pentagon leaders have told Congress that they would like $10 billion in additional stimulus money to ensure that the industrial base stays strong while dealing with the impact of COVID-19.  Congress, however, may not be in a giving mood after already approving $10.5 billion in additional aid this year, increasing DOD budgets over the past three years, and being poised to deliver approximately $741 billion in spending for 2021.  “We don’t need to give them any more money,” said HASC Chair Adam Smith (D-WA) during a recent teleconference and quoted in an article by Federal News Network.  Smith went on to note that DOD had yet to distribute half of the COVID-related money it had previously received.  A lack of additional supplemental funding may limit DOD’s ability to compensate contractors for workforce disruptions related to COVID-19.  While the agency has the ability to do so, the real key is the availability of money.  Pentagon leaders have previously said that they could need billions more in aid to meet such needs.  Contractors should plan accordingly.  A strong fiscal year-end may offset some of the negative impact, but some may still face challenges depending on the level of initial business disruption.  Still, contractors may be fairing better than their commercial counterparts.  Deputy Defense Undersecretary for Acquisition and Sustainment Alan Shaffer said on Government Matters recently, “We are somewhere under 40 companies in the defense industrial base that have had layoffs. I compare that to the rest of the nation and I think the actions the department took to accelerate payment to our supplier sub tier actually allowed them to stay in business.”

TRUE OR FALSE: MOST FEDERAL COMPLIANCE ISSUES COME FROM THE FEDERAL TEAM

A sales executive under pressure to make a quarterly number “discovers” the military base down the road from your branch office.  An appointment is made and a sale is closed.  Later, the executive sends his new client a pair of Boston Red Sox tickets as a thank you.  Your federal team never even knew about it, but now you have a compliance problem.  The scenario above is not imagined, similar ones play themselves out all the time (not withstanding that there aren’t any Red Sox games currently).  That’s why the answer to the question above is “False”.  While your federal team may not be perfect, substantial evidence suggests that a company’s largest liability for non-compliance can come from people outside your federal business operation.  That’s why training for all of your sales and marketing professionals is a best practice.  It need not be the same full-on training the federal team receives, but everyone should be aware of the special rules surrounding the conduct of federal business.  Some companies even go so far as to strictly regulate who can and cannot call on federal customers.  This takes coordination and communication at the senior level of the company.  That’s the point.  Federal contract compliance is everyone’s business.  Make sure your company knows about your federal business and what it means to the company overall.

INTERIM RULE ISSUED ON BANNED IT/TELECOMM EQUIPMENT

An interim rule is expected to be published in today’s Federal Register implementing Section 889 Part B of the 2018 Defense Authorization Act.  This provision prohibits the government, “from entering into a contract, or extending or renewing a contract, with an entity that uses any equipment, system, or service that uses covered telecommunications equipment or services as a substantial or essential component of any system, or as critical technology as part of any system,” (new language in FAR 52.204-25) unless an exception applies or a waiver is granted.  Exceptions will be granted on a case-by-case basis and will only serve to delay the requirement to comply, not do away with it.  Contractors should closely examine the rule, the draft of which was 86 pages, and ensure compliance.  The interim rule is effective August 13, 2020Key features include:

  • The rule applies only to prime contracts, not sub-contracts due to the way the statute was worded.
  • The government shall insert the new clause into any new contract or existing contract upon modification, extension, or renewal.
  • Contractors must make a “reasonable inquiry” inside their company to discover whether or not covered IT and telecommunications equipment is used.
  • “Covered equipment” includes products from Huawei, ZTE, Hytera, Hangzho Hikvision Digital, Dahua and their affiliates.
  • The prohibition on using prohibited equipment extends company-wide and is NOT limited to those parts of the company that contract with the federal government.
  • Contractors that discover non-compliant equipment are expected to remove it and have one business day to notify the government that such equipment has been discovered.

The FAR Council acknowledges that the cost to comply with the standard will run into the billions of dollars.  Contractors are encouraged to submit comments on the interim rule during the 60-day comment period, indicating that this is considered a major rule making.  This interim rule has been anticipated for nearly a full year.  Companies should already have been taking steps to comply.  See the interim rule here for more and make sure you understand how it applies to your business.   https://acquisition.gov/sites/default/files/page_file_uploads/FAR%20Case%202019-009-Interim_Rule_prepublication_07_10_20.pdf