Ideas & Insights

Government Contractor News Update – March 2018

Government Contractor News Update – March 2018

Every month MGO’s Government Contractor practice provides this round-up of important news and information affecting the Government Contracting industry.

#1: Unbalanced Pricing Case Study

Unbalanced pricing exists where the bid prices of one or more line items is significantly overstated or understated despite an acceptable total evaluated price. Under the Federal Acquisition Regulation (“FAR”), unbalanced pricing may increase performance risk and can result in the government paying unreasonably high prices.  But the concept of unbalanced pricing is often misunderstood in practice.

In a recent bid protest decision, the Government Accountability Office (“GAO”) wrote that unbalanced pricing doesn’t exist merely because some of an offeror’s line item prices are low.  Rather, unbalanced pricing requires both understated and overstated line items–that is, some line items appear too high while others appear too low.

The GAO’s decision in First Financial Associates, Inc. B-41573, B-415713.2 (Feb. 16, 2018) involved a DHS solicitation to administer the agency’s child case subsidy program.  The solicitation was issued as a small business set-aside, and contemplated the award of a contract to the offeror providing the best value considering three factors: technical merit, past performance, and price.  The solicitation apparently called for offerors’ pricing proposals to include breakdowns by contract line item numbers.

After evaluating proposals, the agency awarded the contract to FEEA Childcare Services, Inc.  An unsuccessful offeror, First Financial Associates, Inc., then filed a GAO bid protest.  FFA challenged several aspects of the agency’s evaluation.  Among its challenges, FFA alleged that FEEA’s pricing was unbalanced because FEEA allegedly had priced some CLINs “extremely low.”

The GAO wrote that: “To prevail on an allegation of unbalanced pricing, a protester must show that one or more prices in the allegedly unbalanced proposal are overstated; it is insufficient to show simply that some line item prices in the proposal are understated.”

The GAO explained, “while both understated and overstated prices are relevant to the question of whether unbalanced pricing exists, the primary risk to be assessed in an unbalanced pricing context is the risk posed by overstatement of prices, because low prices (even below cost prices) are not improper and do not themselves establish (or create the risk inherent in) unbalanced pricing.”

In this case, “FFA only claims that some of FEEA’s CLIN prices are understated; FFA does not allege that any of the awardee’s CLIN prices are overstated.”  Therefore, “FFA provides no basis for us to question the agency’s price evaluation for allegedly failing to identify unbalanced prices.”

In the competitive world of government contracts, it’s not unusual for competitors to question one another’s pricing, and “unbalanced pricing” is one of those terms that is often thrown around when a competitor’s pricing appears suspect.  But as the First Financial Associates protest demonstrates, a proposal containing understated CLINs alone isn’t unbalanced–rather, unbalanced pricing requires both understated and overstated line items.

#2: 2017 Incurred Cost Proposals Due June 30, 2018

If your company is a calendar year-end and you had cost type contract activity, your Incurred Cost Proposal is due June 30, 2018. You are required to submit an incurred cost proposal if you have any contact with the FAR clause 52.216-7 Allowable Cost and Payment (cost type contracts).

Specifically paragraph d.2.(i) The Contractor shall submit an adequate final indirect cost rate proposal to the Contracting Officer (or cognizant Federal agency official) and auditor within the 6-month period following the expiration of each of its fiscal years. Reasonable extensions, for exceptional circumstances only, may be requested in writing by the Contractor and granted in writing by the Contracting Officer. The Contractor shall support its proposal with adequate supporting data.”

If you need assistance or would like us to review before you submit please give us a call.

Our services regarding your incurred cost proposal include:

  • Review of clients’ incurred cost proposals
  • Prepare incurred cost proposals
  • Be available during the audit to proactively address issues as they arise.
  • Respond to questioned costs and other issues in written and verbal formats
  • Help negotiate positions with DCAA management and Administrative Contracting Officers
#3: Seaport-NxG Update – article by Nicole Tripodi, BD Professional

There will be some changes in the new Seaport-NxG program, but one thing remains the same: there will likely be a very high number of awardees on the contract. Currently, about 3,195 vendors hold a contract, with upwards of 4,000 vendors holding a contract at any one time during the 15-year ordering period for SeaPort-e. Of these vendors, 2,876 have never won a single task order!

The agency’s challenge in managing the vehicle is the 2,876 vendors who have never won a task order. Administratively, the team cannot carry vendors who “don’t try,” according to the agency. We’ve seen the agency off-ramp vendors for this reason, however, the agency’s evaluation and award approach for SeaPort-NxG creates an environment for this challenge to continue:

In January 2018, the SeaPort-e Program Manager met with members of the Professional Services Council to discuss the new iteration of SeaPort-e (called SeaPort-NxG). Like its predecessor, SeaPort-NxG will be a Multiple Award Contract (“MAC”) for engineering and program management support used by Navy Virtual SYSCOM agencies. The agency discussed the challenge to administer the contract to a high number of incumbents, but the Next Generation acquisition approach encourages a high number of bidders to respond. The agency may experience continued administrative challenges with its approach.

Evaluation criteria will be a series of pass/fail requirements to ease the agency’s evaluation.

Vendors will provide one (and only one) prime or subcontract experience providing direct Navy support in one of the 23 support areas (Note: the agency is not asking for past performance but is looking for past experience – an important distinction that lowers the bar on how the experience is evaluated. The agency will not be reviewing CPARS nor asking for past performance questionnaires).

No cost realism evaluation – ceiling values for hours and dollars will be provided, which the industry must remain under.

In the words of the agency representative, “If you can spell Navy and your company has had no debarments, you’ll probably get a contract at the MAC level.”

The Program Manager also stated that while the number of awards to be made is not known, there is no limit to the number of awards the agency intends to make.

This approach is akin to industry not qualifying new business opportunities. If the agency does not do early “qualification” of companies at the MAC level, they’ll likely receive thousands of proposals (and, yes, the agency is expecting around 3,000 proposals), which they must award according to very broad standards. With no qualification of thousands of awardees, the agency will likely see the same issues with administering contract to companies that never win a single Task Order.

The following is a link to the FedBizOps webpage with Q&A regarding the new SeaPort- NxG.

 #4: Pentagon Warning to Defense Industry

The Pentagon is warning defense-industry CEOs to better protect their computer networks or risk losing business.

“The culture we need to get to is that we’re going to defend ourselves and that … we want the bar to be so high that it becomes a condition of doing business,” Deputy Defense Secretary Patrick Shanahan said February 7th at an industry conference sponsored by the AFCEA and the U.S. Naval Institute.

Shanahan noted that CEOs would likely be hesitant to “sign a cyber disclosure statement that says everybody you do business with is secure.”

“In areas of safety, protecting your workers, in terms of protecting our data or protecting their information, there should be this standard,” he said after the speech.

The former Boeing executive likened network security to personal hygiene, something that individuals do every day without thinking about it.

“I came from a company where product integrity and safety was the first order of business,” he said. “I think of things like safety, and cyber falls into that category — whether it’s safety or security, as being one of those things that should be uncompromising.”

Some of the largest defense firms have experienced embarrassing hacks in recent years, exposing sensitive data about top-of-the-line American weapons. Boeing and other defense firms have reportedly been the target of foreign hackers on numerous occasions. Last year it was revealed that an Australian supplier on the F-35 Joint Strike Fighter program reportedly had sensitive, unclassified data stolen from its servers, and there are reports of the F-35 program being targeted by the Chinese as far back as 2007.

In the aerospace industry, Shanahan said, employees are not afraid to admit when they make a mistake, because it’s built in the culture.

“This goes back to who you are based on how you grew up,” Shanahan said. “[Boeing would] spend an enormous amount of time talking safety and security. When I look at the processes, there’s big opportunity for us to continue to improve that.

#5: Added EEO Poster Required for Contractors

According to the National Law Review, federal contractors should be reminded that, in addition to posting the Equal Employment Opportunity is the Law poster — federal contractors and subcontractors that may have entered into new or modified federal contracts on or after January 11, 2016, must also post the EEO is the Law Poster Supplement.

The poster and supplement are available in Arabic, Chinese, English, and Spanish.

These notices must also be provided in an accessible format for individuals with disabilities. The notices must be posted in the contractor’s workplace in conspicuous areas where notices to employees and applicants are customarily posted.

If a contractor has an online application process, it must include the poster and supplement or a link to these notices in its online application materials.

The EEO is the Law poster was last updated in November of 2009, and since then there have been several updates to the federal affirmative action-related laws.

Therefore, the supplemental poster will be needed until the U.S. Department of Labor issues an updated poster.

#6: DOL to Step-Up Compliance Evaluations

The Department of Labor’s (“DOLs”) office of Federal Contract Compliance Programs (“OFCCP”) sent 1,000 Corporate Scheduling Announcement Letters (“CSAL”) to federal contractors. The announcement letters are a courtesy heads-up to contractor establishments letting them know they’ve been selected by the DOL to be evaluated for compliance with federal equal employment laws. The OFCCP annually evaluates 2,000 to 4,000 federal contactor facilities to confirm and enforce compliance with three federal equal employment opportunity laws. For those entities receiving a CSAL, it is a gift of time for employers to self-audit their EEO compliance.

We always encourage our clients to self-review their compliance with DOL regulations to avoid  potential sanctions, penalties, and civil and criminal liabilities. Among the consequences of non-compliance are the following:

  • Contractor may be debarred and declared ineligible for any future government contracts;
  • Contract may be canceled, terminated, or suspended in whole or in part;
  • For subcontractors, liability may exist if debarment causes the prime contractor to be in breach of the prime contract; and

Where a violation is material, the Department of Justice (DOJ) may bring suit to enforce the regulations or enjoin noncompliance. DOJ is also authorized to bring a criminal action for the furnishing of false information to DOL.

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