4 hot spots in federal procurement

Look for innovations to help fix several procurement problems

Because of federal procurement reforms, more agencies use governmentwide acquisition contracts. E-procurement has simplified federal information technology buys. Two major contracts, known as Alliant, promise to bring even greater changes to federal contracting.

But as some procurement officials and business owners can attest, bigger is not always better. Consolidation and centralization can produce as many watered-down solutions as winners, and no-bid, no-competition contracts, open only to preferred vendors, threaten to shut out innovative and specialized midsize companies.

Too small to bid for prime contracts but too large to qualify for small-business set-asides, midsize companies complain that agencies are squeezing them out of federal contracting opportunities. Meanwhile, procurement officials say they are not sure that the General Services Administration’s Contractor Team Agreements and its planned Alliant vehicles will end that complaint.

Based on our discussions with industry experts, here is a list of some of the hot spots in federal procurement.

1. GSA streamlines and consolidates with e-procurement and Alliant.

Despite having more than 10,000 contract holders on GSA schedule contracts, the agency has streamlined its e-procurement program and eased the administrative burden on GSA employees. “GSA could be the only agency that allows a contractor to respond to [a request for proposals], modify an existing contract and bid [request for quotations] work electronically,” said Courtney Fairchild, president of Global Services, a market research and business intelligence company.

GSA has also used Advantage, its online shopping and ordering system, to simplify the procurement process for federal agencies. But industry experts say they want GSA to find better ways of sharing aggregate information about how agencies spend their procurement dollars.

“Our systems are not great at gathering that data, but we are now using a combination of GSA Advantage tools and e-Buy to pull [together] the spending analysis data,” said Jim Williams, commissioner of the new Federal Acquisition Service. FAS will oversee all GSA acquisition programs, including Alliant.

To develop the Alliant and Alliant Small Business contracts, GSA is working with the Office of Management and Budget to comply with the federal enterprise architecture. As part of an effort to standardize how government does business, the architecture provides common language to describe common functions.

That architecture sets the stage for smart buying through strategic sourcing, Williams said, referring to the practice of using preferred vendors with prenegotiated contracts to supply products and services that agencies routinely use.

“We’re trying to make Alliant a flexible vehicle, but we’re also looking at ordering procedures to make sure that contractors reuse solutions that agencies have already purchased so we can take advantage of work we’ve already paid for,” said David Drabkin, director of acquisition operations at FAS.

2. Agencies reassess lengths and terms of contracts.

No one doubts the competitiveness of large procurements such as the Justice Department’s IT Support Services (ITSS) 3 and the Internal Revenue Service’s Total Information Processing Support Services (TIPSS) 3.

But some critics say ITSS-3’s seven-year contract period is too long. “It shuts out all but the prequalified,” said Mike Williams, executive vice president of business development at Apogen Technologies. ITSS-3 and similar contracts “are so large that there is no spending outside of that contract.”

Such contracts might be a more efficient way of doing business, but they reduce competition, he added.

Williams said he would like to see OMB’s Office of Federal Procurement Policy recommend that contractors be able to challenge task-order awards of $5 million or more.

3. Midtier companies continue to feel the squeeze.

The Homeland Security Department’s $45 billion Enterprise Acquisition Gateway for Leading Edge solutions program and the $50 billion GSA Alliant contracts have unrestricted tracks for open bidding by large contractors and restricted tracks for small-business set-asides.

Small businesses get help with a dedicated procurement track. But the structure could lock out midsize companies reporting more than $21 million in annual revenue, some industry officials say. That’s the revenue ceiling the North American Industry Classification System uses to define a small business.

“They are also too small to offer the broad resources of the large prime contractors,” said Mike Peak, corporate vice president for contracts at Apogen.

The ceiling excludes midtier companies “or forces them to work for the General Dynamics, Lockheed Martins and Northrop Grummans of the world,” Peak added.

Federal procurement analysts agree that large contractors control access. “If you want to do business with a government agency and you are a small or midsize firm, you are at the mercy of large contractors,” said Paul Brubaker, chief executive officer of consulting firm Procentrix.

Small businesses are hurt in other ways, said another industry expert who asked not to be named because of his potential involvement in new procurement opportunities. Sometimes when a Small Business Administration 8(a) company outgrows its small-business status, prime contractors drop the company in favor of another 8(a) company.

“There is preferential treatment in contracting, and the cusp of the small to midsize range of $22 million to $23 million is a tough spot to be in,” the expert said.

GSA’s new Alliant program, however, is expected to open at least one door to midsize companies by eliminating the dollar threshold when GSA requests past-performance information for evaluations.

“We won’t put as much merit in the size of the opportunity a company had as in how well they performed,” said a GSA official speaking on background.

4. ANCs might be left in the cold.

Under the SBA 8(a) program, tribal and Alaskan Native Corporation-owned businesses can receive sole-source contracts without protest, regardless of the dollar amount. All other 8(a) firms can only get contracts without competition or protest when they are valued at no more than $3 million.

That procurement policy is controversial because prime contractors create strategic alliances with ANCs to win no-bid, no-protest contracts. ANCs, on the other hand, need prime contractors to win a piece of large contracts.

“The 8(a) and service-disabled veterans are angry that ANCs get more benefits,” said Guy Timberlake, CEO of the American Small Business Coalition, which advocates a level playing field for businesses competing for government contracts.

“They can practically write their own statements of work,” Timberlake said. ANCs might lose some of those privileges if Congress decides to address the issue, he added.

Nevertheless, some experts worry that the squeeze on non-ANC small businesses could reduce competition unfairly.

“The majority of tasks that wind up in contract vehicles have been premarketed and sold by one particular company,” Brubaker said. “They want to give the illusion of competition when actually there’s very little chance that a task order will go to anybody other than the company that marketed it to the government in the first place.”

Gerber is a freelance writer in Kingston, N.Y. She can be reached at Chergerber@cs.com.

GTSI chooses an extreme makeover

Government integrator GTSI recreated itself to take advantage of changing procurement opportunities. With $900 million in annual revenue, the company could almost be classified as a large business, but it doesn’t have the resources of a Lockheed Martin, with its $36 billion in revenue.

After several years of declining sales and revenue, GTSI announced last year that it would become an information technology services provider. To make the transformation, the company increased its staff of security-cleared engineers and project managers from about 20 last year to 100 in 2006, said Scot Edwards, GTSI group vice president and chief marketing officer.

The company evolved into a new business that bundles commercial products with customized professional and financial services from several contracts, including General Services Administration schedule contracts, NASA’s Scientific and Engineering Workstation Procurement III, and various blanket purchase agreements and agency-specific contracts.

GTSI now competes for contracts that cover architecture, IT project design and installation, and other professional services, Edwards said. The company is certified in the Microsoft Partner Program for Advanced Infrastructure Solutions, he added.

GTSI charges for IT services under a variety of pricing options, including traditional leasing and cost per usage and time. “We recently did an agency data center implementation based on the number of transactions per month,” Edwards said. For the data center, GTSI has a predetermined monthly fee based on a set number of transactions. It can raise the price if the center exceeds that predetermined number, he said.

— Cheryl Gerber

VA goes to NASA

Opting to break with tradition and buy another agency’s information technology contract was a novel approach to procurement for the Department of Veterans Affairs. But that’s what VA officials did when they realized they could save money by outsourcing their procurement activities. Instead of developing a third Procurement of Computer Hardware and Software (PCHS) contract, the VA announced in July it would use NASA’s Scientific and Engineering Workstation Procurement (SEWP) III contract.

“In planning PCHS-3, we realized it’s very labor-intensive to develop a new” indefinite- delivery, indefinite-quantity contract, said Gary Shaffer, director of IT capital and service execution at the VA’s Office of Information and Technology. “Instead of putting our resources into developing contracts, we decided to look outside.”

VA officials said they knew they would not have all necessary PCHS-3 capabilities ready by the time the PCHS-2 contract expired, so they began to consider using NASA’s SEWP. The VA had previously purchased small amounts of software and hardware under the NASA contract. SEWP contracting officials needed only 10 minutes to provide the VA with data on the agency’s SEWP purchases in a one-year period, which Shaffer said was impressive.

“They have an uncanny ability to do reporting, an ease of adding new things to the contract in less than one day, and they allow direct buying using credit cards as long as vendors report it back to NASA SEWP administrators within a week,” he said.

Because the VA can buy only hardware and software but not IT services under the SEWP contract, the agency must find another contract to satisfy that requirement. “You need a lot of tools in your toolbox,” Shaffer said.

— Cheryl Gerber

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