Inside the DoD Reporter's Notebook: DoD drills down on service contracting; a controversial decision on contractor pay

Monday - 6/2/2014, 4:15am EDT

"Inside the DoD's Reporter's Notebook" is a bi-weekly feature focused on news about the Defense Department and defense community as gathered by Federal News Radio DoD Reporter Jared Serbu.

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Military departments foresee a "good year for services"

A s part of the Defense Department's Better Buying Power initiative, improving the Pentagon's acumen with regard to service contracting has been on the to-do list since the first version of BBP was unveiled in 2010. But DoD and military service officials are giving strong indications that they plan to devote serious effort to the subject over the next year.

In the immediate aftermath of the Navy's ship husbandry scandal, Secretary Ray Mabus promised "radical" changes in Navy service contracting. In its 2015 budget, the Navy pledged to reduce its service contract spending by $2.5 billion.

In separate interviews, top Army and Air Force acquisition officials told me they're planning a major focus this year on getting more efficient with services, both through more use of strategic sourcing and by gaining more insight into what services their departments are actually buying. Probably not a bad idea, because the military actually spends more money on services than it does on products.

"I think two years from now, you're going to see much more attention to our services, much more knowledge of our services and much more experimentation on how we buy our services," Dr. William LaPlante, the assistant secretary of the Air Force for acquisition, told me in an interview (tune in June 4, at 3 p.m. ET, to hear the full hour). "I think it's been wisely recognized as an area that needs attention."

LaPlante says the Air Force is in particular need of better data on its spending for knowledge-based services.

"I jokingly say knowledge-based services should just be called 'stuff,'" he said. "Because the way we categorize it, it can contain everything from a plasma physicist helping on the re-entry of a Minuteman missile, to designing a building, to helping with a view graph presentation. It's all real work, but we've got to get more precise on how we classify these things."

More broadly, LaPlante said he's planning a period of experimentation around service contracting. The biggest such experiment involves the Air Force's commitment to use GSA's OASIS contract for the preponderance of its purchases of professional services.

LaPlante believes the majority of the cost savings the Air Force will find won't come from buying fewer services, but by eliminating regional and command-level disparities in the rates the Air Force is currently paying.

"What are we paying for IT services at bases in different parts of the world? It really comes down to market research. What is reasonable and achievable? We are going to find instances where we just shouldn't be buying things, but I think much more we're going to find places where we're just paying way too much, not out of any malice, but just out of not having the knowledge of what's achievable."

The Air Force was the first military department to create single manager for all service contracting, and the Army has since followed its lead, said Harry Hallock, the deputy assistant secretary of the Army for procurement. In addition, the Army has hired portfolio managers to oversee given categories of service contracting across the entire Army.

"I really think this is going to be a good year for services," he said. "We've got to save money, and this is a place that's ripe for it. I think the way to get at services better is to look at it from a strategic sourcing point of view. We all buy certain types of services, and we all buy them differently. Why are we doing that?"

Hallock said his service contracting experts have begun traveling to local commands to help them understand how to better define their requirements. A majority of service contracting is executed not at the Pentagon, but by commanders with local needs who are not acquisition experts.

Like the Air Force, Hallock says the Army thinks it will save money by eliminating duplication and inefficiency in its contracting methods. But unlike the Air Force, he thinks a majority of the savings will come from culling out unnecessary purchases.

"This whole thing starts with what services do we need. I think that's where we're going to save the bucks," he said. "An example I use is those folks out there who don't think they're part of the acquisition process who are saying, 'I have 20 employees and I need them all to have BlackBerrys.' OK, why? What do those folks do that requires them to be tethered to the office 24/7? When you start asking those questions, you start getting answers that get you to the real requirements. That's where I think we're really going to get bang for the buck."

Meanwhile, the Office of the Secretary of Defense has launched its own new push to get the Pentagon's arms around service contracting from a DoD-wide perspective.

Alan Estevez, the principal deputy undersecretary for acquisition, logistics and technology, is leading a project that will create "domain experts" for 15 separate areas of services. Their task will be to work with the military services to identify areas of service contracting where the lion's share of money is being spent, and hopefully find the best practices for buying different types of services.

If Pentagon officials don't figure out how to reduce their service contracting bill, there's a chance Congress will do it for them. The House version of next year's Defense authorization bill pays to retain weapons systems DoD wants to cut, in part, by slashing service contract spending by $818 million.


FAR Council imposes retroactive pay caps on contractors

T he government's Federal Acquisition Regulation Council has just published a final rule to significantly broaden the pay caps that apply to vendors who work on DoD, Coast Guard and NASA contracts.

The current amount contractors can charge back to the government for their employees' salaries is $487,000, a figure set by last year's Ryan- Murray budget agreement.

Previously, the ceiling applied only to a company's five highest paid executives. The FAR change extends the caps to all employees, including scientists, engineers and other workers who can be pricey to hire. The decision finalizes an interim rule the FAR Council first published in June of last year.

Needless to say, contractors have never much liked the idea of broadening the pool of covered employees, nor the idea of caps in general for that matter. But they're particularly upset about the new rule, because it applies retroactively to all of the compensation costs they've incurred on government contracts that were signed anytime after Dec. 31, 2011.

"We are dismayed that they did not rectify the improper retroactive application between the December 2011 law change and the issuance of an interim rule in June 2013," said Alan Chvotkin, vice president and counsel for the Professional Services Council, an industry group. "That 18-month interval of inaction was unnecessary and, more importantly, unmistakably imposes a retroactive reduction in costs in violation of the government's own acquisition regulation and a long line of court decisions. As a result, covered contractors will have to unscramble their accounting to make this change in allowable compensation rates that were validly incurred during the 18 months it took the FAR Council to act. That is simply unacceptable."

Vendors argue the decision is guaranteed to harm their cash flow and is likely to discourage companies from pursuing government business. But the government argues its hands were tied, since Congress mandated the effective dates for the new caps in the 2012 version of the Defense authorization bill.

In comments to the interim rule — comments that obviously proved to be unpersuasive — companies pointed to several reasons that's not true. Applying the change retroactively amounts to a breach in contract, and federal courts, they say, have held that contracts should be honored even if they conflict with federal law. They also argue another section of the FAR itself explicitly forbids new rules from being applied retroactively.


Obama pledges IT fixes at VA. What does that mean for VistA?

G iven that information technology issues in the Department of Veterans Affairs now have the attention of the President of the United States, the ongoing modernization of VA's VistA health record system bears watching over the next few months. Will the patient scheduling scandal in Phoenix and elsewhere provide a boost for the upgrades VA's already working on, force the project to reboot or maybe something in between?

During the brief press conference Friday in which he announced Eric Shinkseki's resignation, the President lamented that patient schedulers in Phoenix had to use four different computer screens running antiquated software and made clear he wants at least the scheduling portion of VistA fixed immediately.

"You have, in many cases, old systems, broken down systems. This is stuff that is imminently fixable, but we've got to know about it," he said.

VA, which helped pioneer the field of health IT, recognized several years ago that the entire suite of applications and infrastructure that make up VistA has gotten long in the tooth, so it has spent the last three years making incremental upgrades to the system with help from the open source community.

VA appeared to have settled on the path it wants to take for the outpatient appointments module after a challenge competition that culminated last October with a $1.8 million prize to a D.C. firm called Medred, which engineered an open source scheduling application that plugged into VistA and also met modern federal health IT standards.

VA hasn't publicized its schedule for deploying a new patient appointments application to medical facilities, but last week's interim IG report made clear that VA is a long way from where it needs to be, both from a technology and business process standpoint.

Per the IG, getting a patient on the electronic waiting list in the Phoenix system involved taking a screenshot from one computer, printing it out on paper, and then sneaker-netting the same data down the hall to another division in a process that could take one to two months.

That sort of thing is clearly indefensible, and we don't quite know yet whether that particular subcomponent of the Phoenix problem is the product of an intentional effort by local officials to create a Rube-Goldberg scheme in order to obfuscate wait times or more the fault of the underlying technology.

In any case, the community of folks who have been excited about or have an interest in VA's decision to try a new approach to modernizing complex federal IT systems have an interesting few months ahead.

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