The BDO GovCon Week Ahead - July 2019

July 29, 2019

BUDGET DEAL WOULD BURY SEQUESTRATIONThe budget deal that President Trump reached with House Speaker Nancy Pelosi recently has good news for contractors on several fronts, perhaps none more that the fact that the agreement would bury the automatic spending cuts known as sequestration.  The sequestration mechanism previously brought across-the-board spending cuts when appropriated dollar levels were above previously agreed upon budget amounts.  The new deal, which still must be adopted by Congress, also sets total defense spending for Government Fiscal Year (GFY) 2020 at $738 B and a bit more for GFY 2021.  Domestic spending, meanwhile is set at an overall level of $632 and $635 B, respectively.  That equals $320 B more over two years than previous agreement levels that would have cut spending at the end of the current GFY.  Adoption of the deal may be difficult in the Senate where Republican members may oppose what they see as unwarranted spending growth and increase in the national debt.  The Administration has promised that the President will sign the measure if Congress approves it, which is slated to happen this week before Congress adjourns for summer recess.  Adoption of the budget deal does bring some degree of certainty to total government spending and would end future sequestration threats.  Partial or total government shutdowns at the start of the next GFY are still possible based on specific funding differences. 
WHAT'S ON YOUR GSA TEAMING AGREEMENT CHECKLIST? The end of the fiscal year brings many opportunities to team with fellow contractors with whom you can pursue business your company might not always be able to win on its own.  It’s always a good idea to have a checklist of what is needed for any prospective agreement.  Obvious items such as what each company will be responsible for, how disputes will be handled, and rights in technical data, should all be a part of your agreement.  Another factor is how you will get paid.  The Federal Acquisition Regulations do not contain provisions under the Assignment of Claims clause for teaming agreements.  You and your teammates need to specifically spell out how and when each team member will be paid.  Typically, a team lead takes the role of who the government sends payment to, and then that person or entity pays the team members.  Make sure this process is transparent and well-documented. This will help ensure that each teammate records the sale as a GSA Schedule sale and pays the Industrial Funding Fee (IFF) on their portion of the project.  If you’re a small business team lead, you may also want to check on whether your acceptance of payments on behalf of the team could jeopardize your size status.  Not all status determinations are made on gross receipts. And if your company is already close to the ceiling, ensuring that merely acting as a pass through via which the government pays team members doesn’t result in your company outgrowing their size status is important.  All of this advice is based on the simple premise that you must have a team agreement in writing before you proceed with government work.  Failure to do that could put your company at risk if the project does not go as intended.
UNDERSTANDING THE NEW BUY AMERICAN EXECUTIVE ORDER AND ITS IMAPCT ON COMMERCIAL OFF THE SHELF ITEMS:  President Trump issued an Executive Order on July 15th, directing the Office of Federal Procurement Policy (OFPP) to consider new rules that would expand the impact of the Buy American Act.  How the Act is enforced today is already confusing for contractors and federal buyers.  Companies selling Commercial Off the Shelf (COTS) items need to understand what the impact of this Executive Order is on how they sell to the federal government, so they can educate themselves and their federal customers.  First, it is vital to understand that the domestic content requirements of the Buy American Act do NOT apply to COT’s acquisitions.  That will remain the case even if OFPP decides to increase content requirements on products such as steel and iron.   The Act also does not apply to the acquisition of COTS information technology.  COTS IT has a blanket exemption from the Buy American Act.  Next, the Act only applies to acquisitions up to a maximum dollar threshold of around $198,000 per transaction.  Acquisitions above the maximum threshold are controlled by the Trade Agreements Act (TAA).  It is important to note that the TAA and Buy American Act never apply to the same acquisition, except in cases where a company may add an open market item to a purchase order that otherwise contains items on an Indefinite Delivery Indefinite Quantity contract.  These details are often not well understood, even by experienced government acquisition officials.  Your company should be aware of the rules and regulations that govern your acquisitions and be able to show your government customer why rules like these do not apply.  The new Executive Order should not change how sellers of COTS items do business with the federal government.
Training on the latest marketplace and compliance issues is a must for government contractors.  BDO offers training to meet any organization’s need, no matter how the size.  BDO can implement a training session that covers the issues most important to your business.


July 22, 2019

SOLE-SOURCE BUSINESS CAN BE BIG BUSINESS IN Q4:  Almost $44 B was obligated in the fourth quarter of Fiscal Year 2018 via non-competed or sole source contract actions, according to Bloomberg Government’s “Race to the Finish” webinar on July 17th.  That amount is likely to be replicated during the current 2019 fourth quarter as well, as federal agencies look for fast ways to obligate dollars against the September 30th deadline.  While it is still very true that Indefinite Delivery/Indefinite Quantity contracts, like GSA Schedules, do a significant amount of business at the end of the year, the sole source number is noteworthy.  While Bloomberg didn’t specifically break down where that money went, it is likely that most of it went to incumbent contractors working on projects where an extension was looming and to small businesses so that the obligating agency could make its set-aside goals.  Far less likely is that new market entries received a significant share of the funds.  Though that is quite possible with a large dollar amount in play, relationships do matter in federal business, as well as risk-avoidance.  Incumbent contractors should take note.  If you have a project coming to the end of its current cycle, getting money obligated via a sole source justification could ease your entry into the new fiscal year.  The same logic applies if you’re a company with particularly good relationships with some customers.  As always, contractors should be prepared to help their customers provide support for the most comfortable acquisition approach.  Helping your client is a plus at any time of year.
FEDERAL BUSINESS OUTSIDE THE BELTWAY? YES!The Departments of Interior and Agriculture announced this month that they plan to move portions of their workforce out of Washington, D.C., and into locations closer to their clients.  While the nation’s capital is still home to well over half a million federal employees – plus the contractors that support them – this is a good time to consider is the strength of your client relationships with federal offices located across the country and overseas.  Aside from military bases, there are significant federal installations in major cities such as San Diego, Boston, New York and Atlanta.  Even smaller locations, such as Huntsville, Alabama, have a large federal presence.  We’ve run into clients and other contractors we know literally every time we’ve stayed at a certain Huntsville hotel.  Focus too much on Washington, and your firm may miss out on substantial opportunities in places that may only be a two hour flight away.  These federal spaces are often concentrated, making it easier to cover multiple prospects at once, and develop key relationships.  The contact you have at one regional office today may jump to another federal agency in the same city, which could be a great opportunity to increase your reach.  To be clear:  few companies have sizeable federal business while ignoring Washington outright.  Sometimes you have to be where the decisions are made.  Planning is important due to the vast size of the government, and the fact that it is becoming more spread out across the country

DON'T TRIP ON COMPLIANCE AS YOU RACE TO THE FINISH LINE:  It is the federal busy season, and your business is likely at or near full throttle.  It’s important to close business, but not at the expense of potential costs in the future.  This is no time to stop the weekly or monthly call to ensure that your GSA contract manager, for example, knows about your latest discounts and sales.  Contract violations don’t happen when you increase your discounts.  Violations happen when you increase discounts without making a corresponding change to your Schedule contract.    It is also not the time to accept an invitation to partner with a person or organization you are unfamiliar with.  It is important to vet your partners just as carefully as you choose your golf team for the next corporate event.  Remind your sales team also, that despite their woeful record, free tickets to the Orioles game for your federal customer is a foul ball.  Whether its government business, driving, or even your morning run, go too fast and you put yourself or your company at risk for getting hurt.  There are times when it is important to avoid bad business.  That’s especially true now when there is plenty of good business to be closed.  You want the government to write you checks, you don’t want to have to write them back to the government.  Make sure your compliance plan is up to date and fully incorporated into your usual business routines. 
Does your business need help with optimizing its approach to government business or compliance assurance?  BDO can help with experienced teams that help clients in a variety of market segments understand critical business strategies, as well as other specialized knowledge critical to government market success.


July 15, 2019

GSA SEEKS COLLABORATION/PARTNERSHIP WITH INDUSTRY:  GSA Administrator Emily Murphy believes that the best way ahead for her agency is to work with industry partners to best serve their common federal agency customer.  This has not always been GSA’s view of industry, so it is refreshing to hear Murphy say that innovation and good customer service are best achieved by working together with contractors.  Murphy is taking a page out of the books of both people like NASA SEWP program manager Joann Woytek, and former GSA leaders Frank Pugliese and Bill Gormley.  Contractors should definitely make the most of this opportunity.  New ideas for both solutions and acquisition methods are on the table.  Improved opportunities for discussion, like industry councils, could either be restarted, or enhanced. Next year’s FAST conference is an example of an opportunity the government contracting industry should not miss.  Experience shows that GSA, and other agencies, develop better acquisitions and develop better acquisition outcomes when industry is part of the discussion.   The stronger the foundation that can be built now, the better the long-term results will be in customer service and weathering future storms.  Don’t wait to talk to GSA. 
MORE EVIDENCE THAT COMPANIES CLING TO SIZE STATUS AT THEIR OWN RISK:  The government buys a lot of services and products from small businesses.  In fact, they spent a record amount of dollars with small firms in FY’18.  Still, fully 75% of the government’s prime contract dollars go to “other than small” companies.  Although the money is there, many formerly small firms, or people that claim to be part of a small business, cling to the small business label as some guarantee of federal market success.  As we’ve said before, this is risky business, indeed.  A former Virginia state legislator is going to prison for two and a half years, and paying more than a half  million dollars in fines, because he misrepresented himself as a small business owner for the purpose of obtaining federal business.  According to prosecutors, Ronald Villanueva participated in a nine year conspiracy with two companies to get Small Business Administration minority set-aside contracts by misrepresenting ownership and management of the companies.    Many other companies and individuals have faced fines and/or suspension and debarment because they equated small business status as a must for doing business.  The majority of federal buyers will buy from you if your solutions match their mission needs.  This explains the 30-50% of inter-agency contract dollars that regularly flow to small businesses.  It’s also vital to remember that federal business is very much relationship-driven.  If you have misrepresented your company’s size, you hurt that relationship and, your opportunities for business with others who see that your firm could not be trusted.  It is important to focus on your core competencies and let the size status issue take care of itself. 
CONTRACTOR WOES POINT TO THE PROBLEM OF PUSHING OUT THE BOW WAVE:  There are almost as many different approaches to how a contractor reacts to the discovery of potential compliance problems as there are contractors.  The tendency among some companies is to take as little action as possible in order to have minimum disruption to the conduct of normal business.  The problem with that approach is that it does nothing to stop a problem from growing.  One prominent supplier of spare parts to the DOD recently learned this lesson.  The company had already been warned by the DOD IG for overcharging the government for spare parts.  It now faces another investigation by the same organization, as well as Congressional scrutiny.  This can lead to much more operational disruption than if the problem had been identified and dealt with appropriately.  There’s also the matter of additional cost, which cuts into the company’s profits and creates uncertainty among owners and investors.   These are some high prices to pay for, ironically, charging high prices for spare parts.  It would likely have been better for the firm to address issues of overcharging when they were first raised, handle them through administrative channels, and reimburse the government for overages.  Ignoring compliance problems won’t make them go away.  A good compliance system really costs only pennies on the dollar.  Which would you rather do: 1. Have a two- week issue where your firm pays thousands back to the government; or 2. Have a two-month issue that will end up costing you millions?  Don’t count on no one ever looking down the corridor you would rather they not.  Make sure your compliance programs are an integral part of your company’s federal business. 
Does your business need help with optimizing its approach to government business or compliance assurance?  BDO can help with experienced teams that help clients in a variety of market segments understand critical business strategies, as well as other specialized knowledge critical to government market success.


July 8, 2019

LARRY ALLEN JOINING BDO USA, LLP – LEAD NEW PRACTICE AREA: Larry Allen, President of Allen Federal Business Partners, is joining BDO USA, LLP as the Managing Director of the Federal Market Access Practice, a newly created service offering designed to assist companies in growing their federal sales, provide strategic contract consulting services, and industry-leading compliance and accounting support. Allen joins the team on July 8th.  BDO’s Industry Specialty Services Group has deep experience working with the government including commercial products and services contracting, contract management, and compliance best practices.   With more than 500 government contractor clients, and almost 200 professionals focused on federal contracts, BDO provides a uniquely comprehensive and integrated suite of tax, assurance, and consulting services  designed to address government contractor’s needs. The Government Contracting practice has the experience to assist GSA and VA Federal Supply Schedule contractors, as well as state and local government contracts.  Allen will continue to work with federal contractors to identify new business growth opportunities, help provide compliance with government contract requirements, and provide seasoned insight on GSA contracting matters.  Allen Federal clients will now have access to the full range of accounting and consulting services offered by BDO.  The Week Ahead newsletter will migrate to BDO with a new format, and will continue to deliver insight into the government contracting industry that readers have enjoyed over the past 8 ½ years.

WELCOME TO Q4 – THREE THINGS TO FOCUS YOUR FEDERAL BUSINESS ON NOW:  Welcome to the fourth quarter of the federal fiscal year!  It’s officially busy season for government contractors and their federal agency customers.  This year’s busy season will be especially full given that many agencies have not caught up from the earlier partial government shutdown.  Here are three things your company can focus on now to get ready for the year ahead: 

  1. Validate Your Pipeline:  The time for “what if” and “maybe” about what business you might win is expiring. Focus your resources on potential business your company can actually win.  Where are your customer relationships strongest?  Are their projects funded?  Do they have an internal champion to help ensure execution happens this year?  These are some of the questions experienced contractors ask which can help separate potential opportunities from real business. 

  2. Does Your Customer Know Your Capabilities? Remind your federal customer about your latest services or capabilities to keep your message in front of them.  Many like white papers and even well-produced videos highlighting what you can do, and how that aligns with their needs.  There are many options and services being offered to organizations in the government contracting space, so be creative.  

  3. Be Ready to Answer the “How” Question:  Your customer likes your services.  They are funded and ready to go.  Now, how do they get to you easily and quickly?   Be ready with one to three ways they can connect with you quickly.  For example, this could be a standing IDIQ contract like a GSA Schedule, a set-aside via small business partner if you’re a large business, or something innovative like Other Transaction Authority if it’s a DOD opportunity.  There is usually more than one way to sell to the federal customer. Take these steps now to help put your firm in a good position to succeed over the next three months.

    Compliance Corner:

    PREPARING FOR A PRE-AWARD AUDIT:  Has your company’s GSA Schedule business grown over the past five years?  Are you one of the top 10 companies on your GSA Schedule?  Never had an audit beforeAny one of these factors, or a combination of them, could mean that your company could be a candidate for a pre-award audit during the next contract renewal process.  While “pre-award” may sound innocuous, it’s really more accurate to label this GSA compliance tool as an interim audit.  A GSA auditor will typically examine the information that was used to assemble your renewal offer, and a sample of sales made through your current contract to help enable compliance.  It is often the case that your audit letter will arrive before you actually send in your renewal package.  Cooperation with the auditor is important, and it is important to know what they really need. Assemble a team of both internal and external resources to manage the audit process, ensure that the scope is appropriate, that there is one central point of communication, and that the senior management team in your firm understands what’s happening.  Pre-award audits are a normal part of both GSA and VA Federal Supply Schedule life.  The right preparation, however, is essential for minimum disruption to your business and a timely renewal award.


BDO provides both pre and post-award audit assistance for its clients.  Our experienced team can guide you through the process and help keep business disruptions to a minimum.