Can’t We All Just Get Along?

January 26, 2009 on 10:47 am | In Politics of Government Contracting | Comments Off

It is a matter of some interests that the Supreme Court today issued five opinions that are essentially all unanimous decisions. The variety of cases (criminal law, trade, ERISA, and retaliation under sexual harassment laws) usually sees a split among the “conservative” and the “liberal” sides of the bench. Not so today. Does this harbinger a new-found discipline by Chief Justice Roberts? Perhaps the SCOTUS has decided to also adopt the concept of “change” in their decisions. Or more likely – it’s just one of those days when the “easy” cases with which they all agree are easier to get reviewed and published. Hard to say from this perspective.

Each of the cases proceeded in the usual manner through the lower courts and the decisions were not decided the same way by each court that reviewed them. So there was clearly an opportunity for a divergence of opinion on the issues. Police were given additional powers during a traffic stop, dumping was determined to exist despite the attempt to separate “goods” and “service” contracts, and prosecutorial immunity for certain acts was upheld.

Much has been written lately about the new administration and what the concept of “change” really means. Some pundits say that it is socialism in sheep’s clothing; some say it is a needed divergence from the “illegal” actions of the Bush administration. It is interesting that when a bad liberal president leaves office, (i.e. Carter), he does so with the respect of the opposing party, yet when a perceived “bad” conservative president leaves, he is booed and jeered at the inauguration. So much of “reaching across the aisle” as the incoming president chose to not criticize the unruly, disrespectful crowd. Some say that our republic is in danger of failing. Some say the current president is not constitutionally qualified; some say he is not experientially qualified. Whatever.

The fact is that we have three branches of government. The Legislative side continues to show its utter dysfunctionality regardless of which party is in power and continues to have the lowest public perception ever recorded. The votes for president are, on a rough order of magnitude, evenly divided. So the only independent voice of reason left is that of the courts, and ultimately the Supreme Court. It is good, although of minimal comfort in the grand scheme of things, to see that at least these nine people of different backgrounds and ideologies can reach unanimous decisions on such a broad array of issues. There is hope for out republic. Despite change.

Time and Materials Contracts – Does Anybody Really Understand Them?

January 21, 2009 on 3:52 pm | In Contract Types | Comments Off

Under a time and materials contract a supplier is paid simply for delivering hours. Whether anything productive gets done, or a project is completed, or even if it is done correctly are risks that fall totally on the buyer. So long as the vendor shows up and puts in time, they get paid. The “materials” portion is for what is commonly known as “Other Direct Costs” or ODCs. This might include the cost of travel, costs for duplicating something, or most any other cost incurred on behalf of the buyer, by the seller, for which the seller expects to be paid. If there are no materials, and the contract is purely for hours, then the more common term applied to it is Labor Hour Contract.

According to the Federal Acquisition Regulation (FAR), these are highly undesirable contracts for the government. Yet from 1996 to 2005 their use by DOD alone grew from just under $5 billion to about $10 billion. In one study by GAO they reported that the numbers were grossly understated due to coding errors on the reports. The use of such contracts flies in the face of direction from Congress that contractors are to be held more accountable for results, not just putting in time. Thus there are strong mandates from Congress, the Office of Federal Procurement Policy, and many executive branch agencies (including DOD), that contracts for services should be under a performance work statement where the contractor gets paid only for results, not just time.

So why are they so widely used? From the seller’s perspective, they are great contracts. You get paid for showing up. If you actually accomplish something, well that’s just a bonus! They have no responsibility for the results and can’t be blamed if things go badly. They offer no warranty, and have no residual obligation. Unlike a fixed price contract that usually requires that the work be completed and delivered before any payment is made, under a T&M contract they can typically bill weekly or every other week. As we’ve noted in these pages before, cash is king to any business, and especially so for a small business.

From the buyer’s perspective, they are easy to place, require very little pre-planning, can be adjusted quickly if needs change, and gives the manager a body (or two or three or ten or one hundred) that they can use to accomplish their mission without the time and trouble of a detailed work statement and performance plan. So long as they have the budget, they can augment their workforce as much as they please. And it is for these same reasons that FAR suggests that this is one of the least preferred types of contracts. Additionally, as GAO pointed out, there is no monitoring of the monitors on T&M contracts to ensure that they are being administered correctly, with proper discipline, and with an eye toward achieving actual, measurable results. Even after a T&M has been used, perhaps properly, no one ever seems to go back and look for a less risky contract vehicle that will hold the contractor more responsible for results.

Even lawyers, who have traditionally been T&M providers of services, are beginning to do more fixed price work, or setting performance standards for their results. While that may not be appropriate for some types of litigation, most buyers would prefer to have the seller sharing in the risk for results, even where professional services are involved.

T&M contracts are a legitimate way to purchase hours of effort. While it may be the best process in some circumstances, long term efforts, or those that actually contribute to a measurable result probably have a better vehicle to use. Of course this will require more planning and effort on the buyers part, such as in the drafting of a performance work statement or statement of objectives, and more work on the part of the seller to put quality bodies on the project, assume some of the risk, and pay more attention to administering the contract. Contract professionals know this and know as well that it is the right way to contract for services in most cases. Less experienced, less knowledgeable, and just plain lazy ones live their whole lives off of T&M. The choice is yours.

Welcome to OUR New President

January 20, 2009 on 8:55 am | In Politics of Government Contracting | Comments Off

As I write this our new president is taking the oath of office. By the time I am done, we will have a new president. I use the terms “our” and “we” because under the American system of government we undertake a national revolution every four years – a revolution without the shooting and recriminations. We cede power to the popularly elected individual and the outgoing “regime” hands over the reins. Not every one agrees that this was the best choice for our country, but that does not matter. He was elected by the people of the states, the electoral college voted for him, and today he takes the oath of office. He is the president of the United States of America.

It is no secret that I do not support most of his views. I think he is simply wrong on abortion, the economy, socialism, and international affairs. I am intrigued how far left he was during the primaries, how centrist he moved (relatively) during the election, and how his initial selections for his cabinet have shown a continued drift to center. Maybe he will fool me. I actually hope he does because we cannot withstand another president like Carter, or for that matter Clinton. When Bush was elected through the same process in 2000, the far left screamed that he “stole” the election. I suppose there are a lot of ways to steal an election and I believe that organizations like ACORN are quite adept at doing so. But Bush won according to the rules, and the third branch of government ratified it. There was nothing illegal about it. Of course there are lingering questions about Obama’s citizenship. There is testimony that a court would find credible of those who claim to have been present at his birth in Kenya. This potential illegitimacy says nothing about the man or his views. It does say a great deal about how we view our constitution. If he was born in Hawaii, then there is no issue. If his parent’s declaration of his Indonesian citizenship was a fraud, an error, or his American citizenship was reclaimed, then there is no problem. But I confess that I do find it curious that the simple production of a single piece of paper would resolve this issue once and for all. So I do question a man’s judgment when rather than produce the record, he hires a bevy of lawyers to fight the court case. It does cause lingering questions.

So what if he is an “illegal” president? What if he is, constitutionally, unqualified? I’m not sure that matters once he is sworn in. He will be “our” president. I truly dislike the un-American jerks who touted bumper stickers saying “Bush is not MY President.” Yes he was. You were just too childish to accept it. Now it’s Obama. I’m not happy about it, but I care enough for America to wish him stunning success as the leader of the free world – a world that is much freer today than it was eight years ago. I truly hope that he leaves a similar legacy.

What does this have to do with government contracting? A lot actually. The Federal government is going to spend a great deal of money in the next few years. Some of it will be give-aways. Some of it will be public works money. And some of it will be the usual expenditures necessary to keep our government running. Some 480 Billion dollars worth each year just in procurements. Whether you support specific federal programs or not, there is tremendous opportunity for the business community. There is even greater opportunity if you fit within one of the various preference programs established by the government to encourage participation in the process by various preference groups. There is reason for hope. Maybe not in the manner touted during the campaign speeches, but hope nonetheless. Here at CCS we will do our part to make sure the procurement process works as it should. That the rules are followed. And that our clients have the best advantage in the competitive marketplace. Who sits as Commander in Chief is less important than that our American system of justice, government, and capitalist economy continues to thrive. And I am definitely on board that train of thought.

Davis-Bacon

January 14, 2009 on 3:38 pm | In Labor Laws | Comments Off

The Davis-Bacon Act is the law that requires the Labor Department to ascertain “prevailing wages” in various construction trades, publish those wage rates (by geographical divisions) and also requires all contracting officers to include in any construction contract over $2000 a requirement that these DOL-approved rates be paid to workers on government construction projects. Putting aside the $2000 threshold which has never been updated for inflation since the Act’s passage in 1931, the real issue is the wage rates themselves.

As I have demonstrated in many classes, the nature of the process has a strong inflationary push upward on the rates. Once DOL establishes the “prevailing” wage rate, it essentially becomes the floor. A survey conducted the very next day would be higher simply because the bottom half has been dropped off. Unions tend to like this, and where wage rates are depressed, or management is taking unfair advantage of the worker, it can serve a very valid and useful purpose. The problem is that these inflated, but so-called “prevailing” rates serve primarily to inflate the cost of government projects with no discernable benefit to either the project or society as a whole. Recall that Davis-Bacon fits squarely within the “Sociological School of Jurisprudence.” The law has, in fact, caused dissension within a company’s workforce since people doing the EXACT same job on a public project get paid more than those working on a private project. No one says that the lower rate isn’t fair until someone is suddenly making more – not because the effort is worth more in a free market, but because of government manipulation, the requirement is to pay more.

Unions, and by definition those who adhere to a more liberal political leaning, use Davis Bacon as a litmus test often to see if someone is “liberal enough.” You may recall that this was a significant battle when the Katrina funding was approved in Congress. Republicans wanted to exempt those funds from Davis Bacon applicability in order to stretch the dollars being spent and to offer jobs at reasonable wages to more people rather than fewer jobs to higher-paid workers. The Davis-Bacon proponents won. There is a rational argument, however, given the vast array of public work projects that seem to be on the horizon, that the wages SHOULD be a little below average rather than higher. By making the wages lower, the wealth can be spread around to more people (Didn’t Barry tell Joe the Plumber that he wanted to do that?), and as the economy recovers and higher-paying private-sector jobs become available, people can move into them and free up their public work job for the otherwise un- or under-employed. This was actually the process used by FDR in the stimulus projects of his day.

But we are not likely to see that out of the Democratically controlled Congress. There is a time and a place for wage-fixing, as there is a time and a place for Unions. These times of economic crisis do not seem to be the place for either, but will probably not dissuade our law-makers. So if you are joining the ranks of government contractors with this next wave of stimulus funding, or have been there all along, make sure that the proper wage determination is in your contract, that you and your subs have the ability to provide certified payrolls, and that you actually pay the workers in accordance with the wage determination for their skill category in the right geographical area. And add the cost of all of that overhead to administer Davis-Bacon into your contract as well. At least that will give a new job to a payroll clerk!

Welcome to 2009

January 9, 2009 on 4:41 pm | In CCS News | Comments Off

So a new year has arrived and with it a host of changes. We have a sinking economy, a new federal chief executive and his new administration, a host of new laws and regulations to follow, and more opportunities than we can ever pursue. In the classic sense we are opportunity rich and resource poor.

Reflecting on ’08, there were the usual ups and downs. The most significant down for most small businesses was the shrinking ability to manage cash flow. It seems that everyone slowed down payment and many were caught in the squeeze. For our part, we gained new clients, developed new classes, wrote new articles, and managed to get (most of!) our bills paid on time. There were disappointments with client failures and inability to pay, but business is business and we are NOT looking for any government bailout. We will work through these issues, just as we do with any problem that can be solved. We are, after all, problem solvers!

This new year presents a host of opportunities and challenges. And we are up for it! So take heart, pray for the success of our new president, and work with classic American industriousness to reach your goals for the year. And if you need any help with your contracts – just call us. We are ready to tackle whatever 2009 brings.

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