Bloomberg, a premier Wall Street and business information firm, directly competes with Dow Jones, News Corp. (WSJ) and most sources of business news and data, bought Eagle Eye Publishers in late February.   Eagle Eye, in our view, does the best job of cleansing, plugging, and presenting GSA’s unique set of federal contract data, the Federal Procurement Data System—Next Generation.  More than a numbers source, Eagle Eye publishes a range of data and analytical services useful for federal business intelligence.

By acquiring Eagle Eye, Bloomberg, which already had a news bureau in Washington, is probably projecting much greater ambitions.  Almost all stakeholders should benefit.  Here’s why:

1.  Bloomberg has skilled journalists who generate 6,000 news items a day.  They are, are sorely needed in the government contract arena, where few experienced journalists dwell.

Trade press writers generally lack the time and sources to dig up fresh news.  They are mostly confined to dressing up controlled releases of information by the government and contracting firms.   Audit reports, prepared testimony, news briefings and releases are primary sources.  They have no time for scoops of importance.  They gather available information pushed to them, cut it down, and possibly ask familiar sources for some opinion.   Apart from news, virtually all trade press columnists have clearly labeled industry or government day-jobs, which are different than, say, having in-house columnists who represent a range of views.

The mainstream media produces little about government contracting.  The Washington Post has never invested in talent that can do justice to the industry that employs the most people in Washington—yes, more than the 350 thousand government workers.  The New York Times only covers procurement intermittently; the Washington Times and USA Today do a better job, but devote scant resources.  The Wall Street Journal does a great job—when it deigns to do a story on contracting, usually in connection with a controversy, such as the Air Force tanker deal, or company crises.

This gulf of non-coverage explains why non-profits, such as POGO and Pro Publica, have a potentially large and hungry market for their expanding (muckraking, in a good sense) coverage.

Even with these sources, investors—and taxpayers—are more in the dark than they should be about an industry spending over $550 billion in tax dollars annually.

2.  Bloomberg already has a base of Washington know-how. It has published among the best coverage on the workings of the federal bailout, and can go deep—WSJ-style—on particular procurement controversies, such as the Air Force aerial tanker saga.

But there is so much more to cover, from the supply side, which is a yawning reportorial abyss, compared with focusing on the much easier demand, or government, side of procurement.  With its understanding of business, Bloomberg can easily surpass what the trade press and most mainstream media publish concerning contractors.  Its editors and reporters know the  corporate activities  that investors, customers, overseers, and other stakeholders need to grasp.

3.  Bloomberg is objective.  The controlled circulation trade press is heavily dependent on advertising.  And it also engages in such activities as award programs, industry-government galas, and under-writing charitable events.  The largest company, 1105 Communications, is also the owner of the  FOSE trade show.  These kinds of ties are not a great problem because of reader expectation, longstanding custom, and trade press dependence on government and industry sources that control the scope of what gets covered in almost every case.

Such ties and relationships would be a problem if the expectation were for news that can get the attention of policymakers, investors, and good-government groups that inform taxpayers.  However, there is scant indication that the trade press and the intermittently involved mainstream media are headed in that direction.  This is another good reason for Bloomberg to smell opportunity across several of its offerings and distribution channels.

3.  Bloomberg could make a breakthrough in federal contracting data.  Yes, this is a dreary subject and a constant, legitimate source of complaints.  GSA is likely to remain the sole source of the raw contract data, but there are many, untried ways to improve quality, presentation, and distribution.  But if any company could achieve a breakthrough, it is Bloomberg.

Bloomberg has the last word in the supply and distribution of a wide set of real-time and historical data sets that securities, commodities, and currency traders around the world need.  The company has high expertise in information systems, statistics, human interface methods, and multimedia technologies.

Even though Bloomberg could make a silk purse out the GSA data sow’s ear, we remain uncertain of the business case.  Perhaps because there are so few companies in the federal contract data business, innovation is slow and differentiation among the firms is limp.  This coterie of less than ten smallish firms deserves some new stimulation.

In summary:  people who need real and objective news of better quality and depth in the federal contracting business will benefit from Bloomberg’s stepped up presence.  The supply side—the companies—is what really needs more news and analytical coverage.  The MSM won’t care about the Bloomberg competition, but the company presents an obvious challenge to the usual trade press outlets in all media. Finally, with few meaningful improvements being planned in contracting data, Bloomberg is also capable of bringing major change in this domain if it wanted to.

On January 21 the Supreme Court issued a significant opinion on federal campaign finance law and regulation.  The Court ruled that the First Amendment to the Constitution on free speech protects corporate speech as much as individual speech.

Accordingly, corporations, labor unions and even certain types of trade and business associations may now make unlimited “independent expenditures” and engage in “electioneering communications” regarding federal candidates.

However, the court did not overturn the restrictions on direct campaign contributions, including in-kind contributions, thus ensuring some continuing role for corporate and labor union political action committees. Nor did the court modify the existing tax law restrictions applicable to non-profit organizations.

The court also did not modify the existing prohibition on contributions and expenditures by foreign nationals. Finally, while the court’s ruling addressed corporate and labor union spending, it ignored other restrictions on certain federal contractors, such as partnerships and sole proprietors.

The ink was barely dry on the decision before the President, congressional leaders and others criticized the ruling and questioned whether federal elections would be significantly changed because of the money that could now flow.

Notwithstanding the instant political response, federal election law practitioners are still studying the 163-page, split-court, decision to understand its effect. Similarly, the Federal Election Commission (FEC), and perhaps the IRS and others, will be required to update regulations that give implementation guidance. Nevertheless, many theories and questions are being raised concerning the potential impacts of this decision on the federal contracting community.

In a break from my traditional approach to this column, I will address some of those theories and questions.

How will federal government contractors respond?

While I’m no election law expert, my experience tells me that almost all federal contractors will await clear guidance from their election law experts about permissible conduct.  Companies may even defer until regulatory changes are made before taking action.

The reason for this is that most firms have become comfortable with the current system and have learned to operate with and within it.  The largest contractors, which have traditionally invested heavily in program or issue lobbying, will also carefully watch how key competitors are reacting to the decision.

However, some trade and business groups, or other, existing special interest organizations or that could be formed because of the Supreme Court’s decision, may not wait long to begin capitalizing on the decision, particularly in fundraising, even as they sort out new advocacy strategies.

Will this decision affect other regulations?

To answer, I look at three different sets of regulations. The first set comprises the primary FEC rules on campaign finance and campaign advocacy; since the Supreme Court’s decision focused specifically on the laws and restrictions relating to independent expenditures and “electioneering communications,” these regulations will certainly have to be changed.

The second set of regulations, such as the tax laws, is directly affected by the Supreme Court’s decision, though not specifically addressed by it. The extent of the impact on these rules will depend on how the FEC, IRS and other agencies interpret the scope of the decision.

Finally, there are numerous other regulations affecting government contractors, such as the FAR cost principles, that make certain “lobbying” and political advocacy costs unallowable for government contracts. I see no chance that these types of regulations will be changed – or need to be changed – based on the court’s decision. A host of other rules, such as those relating to conflict of interest, seem removed from the scope of the Court’s decision.  Accordingly, I don’t see them being addressed.

Will government customers start monitoring company actions?

Some have speculated that government customers will become aware of the advocacy actions of their contractors and that this awareness could translate into some form of informal disqualification in the evaluation or award selection. Despite the repeated efforts by some to show a link between campaign contributions and contract awards, given that campaign contributions must be reported publicly, I’m pleased that there is no evidence that campaign contributions –for president or Congress – have had any impact on an agency’s procurement evaluation or award decisions.

But I won’t discount the potential that some in government will be considering a candidate litmus test for contributions from government contractors seeking to do business with an agency or seeking congressional support for their program. Similarly, I won’t discount the potential that competitors might resort to providing such information to either agencies or congressional offices. But for the integrity of the federal procurement system, I hope to never see this behavior and trust that agencies would be broadly cautioned against it.

Will the decision change the composition of lobbying activities and actions by companies or trade associations?

I do not expect the decision to have a significant short-term impact in the government contract arena, which I follow broadly in terms of policy, regulations, and business. But I would expect single-issue organizations or broad advocacy organizations, such as the National Rifle Association or even the U.S. Chamber of Commerce, to immediately try to capitalize on the potential opportunities the decision provided.  They may, for example, increase fundraising outreach to affinity groups.

By contrast, traditional government contractors and advocacy associations with broad public policy agendas will probably proceed slowly. My view is reinforced by the statements by the President and members of Congress that they intend to either override the decision as quickly as possible or to blunt its impact through new regulations.

Given these policy dynamics, and the uncertain regulatory landscape, there may be only a limited window of opportunity for even the most aggressive advocacy organizations to dive into the openings created by the Court.  For most government contractors, the existing tools and techniques remain in place and have proven effective.

In my view, the long-term uncertainty about the legal compliance requirements outweighs the need for pushing the envelope to take immediate advantage of the court’s landmark decision.

The following appeared today on the Washington Technology Web site today, under the byline of  the Insider’s editor and publisher:

The Supreme Court decision issued on January 21 makes the head spin with visions of apparent opportunity, as well as major corporate damage.  The ruling rolls back prior federal law that bars companies from contributing to candidates from their general funds.

The popular concern is that well funded companies can do more than influence elections; they might buy them.  Of sectors that might just try for big advantage, financial services, healthcare, and energy come immediately to mind.

But what about government contractors?  Companies could bankroll candidates who fund, authorize, and judge the programs and spending of   their companies’ federal client agencies.  One could imagine that the companies could literally shape the composition of Congress, influencing the nature and extent of oversight and procurement legislation.

But that aggressive vision comes with a grizzly set of risks.  What if a company-funded congressman or senator gets voted out of office?  What about a  whole administration?   What are the odds of payback?  What if you get in an arms-race of political funding of a candidate with your top competitors?  And do you think Wall Street financial analysts and institutional investors (e.g., CALPERS) might care whom you fund?  And then there are the various ethics police.

It’s easy to imagine some industry players who don’t want the change.  Small business, clearly, could be disadvantaged by free-spending big companies with pots of money for political candidate contributions.  Companies with activist, conservatively ethical boards, plus watchful institutional investors just might be queasy –and vocal–about making political contributions.

Selected Congressmen are already gearing up legislative proposals to shut the door on company contributions to candidates.  And the president has already vocalized his displeasure with the Supreme Court ruling.

The White House actually has a ready-to-use rope to strangle candidate contributions from contractors.  It is in plain sight, and would require no Congressional action.  Over multiple administrations the government has put in place policies and regulations and progressively strong enforcement of organizational conflict of interest regulations.  Isn’t a cash contribution to a political candidate by an organization that would benefit the most obvious of organizational self-interest?  Try saying:  “organizational conflict of interest.”

Let lawyers slug it out, but we think that label can be made to stick.  Then companies shrug their shoulders and disclose the organizational conflict of interest.  Contributions would be a matter of public record anyway.

But it’s then up to the customer agency to determine if the OCOI is acceptable and needs mitigation. That’s an interesting hand grenade for an executive agency to pick up and examine.

Imagine the analysis. Connect the dots regarding a prospective contract award to the company making contributions to a new or incumbent political candidate and with the company’s present and future business interests and prospects.  Be sure to triangulate the candidate with his/her committee assignments and ties with a federal facility or agency program or employee labor unions.   Then, make a judgment about whether it is permissible for the contractor to both fund candidates and accept federal contracts.

We’ll let the administration, the Congress, and the courts decide.  Meanwhile there will be a new spectacle of the usual acquisition pundits and skilled industry lobbyists doing their thing.  This is just what we need in the federal acquisition community, another sideshow that will drain valuable time and attention from the many persistent and vexing issues, while threatening the interests of both  customer and company alike.

And it is a one-way phenomenon for the most part.  When was the last time that you saw the withdrawal or the softening of regulation of contractors?

But we were wrong nearly a year ago when we prognosticated that regulation of contracting would rise as a secondary effect of the understandable loud calls to re-regulate with some stringency Wall Street and other financial services industries.  While still necessary–in terms of public opinion polls and the sincere or postured mutterings from Congress, and even some business leaders–it seems clear we will not see that. Somewhat reminiscent of health care reform, we are seeing a dilution in sentiment and political feasibility for making significant financial regulation a reality.

Not only officials of the last administration, such as Treasury secretary Hank Paulson, but also current officials have softened their stance on financial industry regulation.  As a result, financial regulation will turn out to be wimpier and partial. 

Accordingly, we do not see a marked increase of business regulation generally, including on federal contractors.  Again, we are talking about an acceleration in the pace and boost in stringency of regulation, not the pre-existing baseline trend to progressively more regulation of the industry.

So what? Now that the proposed regs are out , industry anxiety should decline, especially for firms that have been working this problem in advance.  Still, for all of industry, minefields can be expected because of plentiful gray areas and the potential misuse of the regs in some cases by civil servants and/or contractors.  But don’t get us wrong; the regs are needed; as always, the magic is in the “how.”

The scope of the regs is flawed by definition because they apply only to contractor activities that are “closely associated with inherently governmental functions” in the acquisition sphere.  Inherently governmental is hotly debated in general, but the still-gray line is clearer when it comes to acquisition support, in our view.  Nonetheless,  there has been no fresh guidance from OFPP since 1991.  OFPP has committed to issue an updated, crisper definition by the end of December.

The FY09 Defense Authorization Act only required OFPP to address personal conflicts of interest only in the acquisition area, even though they can intrude with great damage later on in the contracting cycle.  PCOI could make a big difference, for example, when it comes to:  the drawing of conclusions in studies of a diagnostic nature, the management of indicators that shape award-fee determinations, or in key contract staffing decisions.

In our view, there is actually little documented intrusion of personal conflicts of interest in acquisition; note the lack of specifics in claims that contractors are taking over governmental functions.  And to state the obvious, whatever contractors do, the government solicited the services.  You could almost say contractors have been drafted as the acquisition workforce shrank.  But some experienced contractor executives we know would rather give up business than be subject to draining intense scrutiny, doubt, and contention because they work in the acquisitiion zone.

Another  feature, far more good than bad, is that contractors make the calls and keep the records on personal conflicts of interest.  This includes the filing of annual financial disclosure forms, a process that government employees in policy- and acquisition-related positions have been used for around 15 years.

However, there is a problem because, faced with the same regulations, different companies will set the threshold of potential PCOI differently. Some will be conservative, others not.  This inconsistency echoes what we see in government, where agencies often differ, for example, in their tolerance for organizational conflicts of interest and the stringency of mitigation measures.

We see no way to achieve alignment–out of fairness and to protect the government’s interest–except by judicious audits every once and awhile.  But you can be sure that allegations will be used, out in the open, indirectly, or furtively by some companies and some civil servants who may want to keep the playing field other than level. We see this today in aspects of some significant acquisition (e.g., questionable choices of vehicle, cryptic statements of work, overly constrained evaluation factors, gamey sole-source justifications).  There is every reason to expect such games to be played with respect to personal conflicts of interest.

The defenses are:  career civil servants and political appointees who actually manage and act as alert stewards for the taxpayers, continued good-ethics behavior by the majority of contractors.  They recognize that in the long run there is far more to be gained from good values than looking the other way, or worse.

Reference: Federal Acquisition Regulation; FAR Case 2008-025, Preventing Personal Conflicts of Interest for Contractor Employees Performing Acquisition Functions. The draft appeared in the November 13, 2009 Federal Register. Comments are due by January 12, 2010.

So What? Right now, the government can draw on almost any combination of companies and universities it wants through a variety of vehicles. Funding is increasing smartly, but product and company differentiation are hard to achieve.

This alliance is purely for marketing, as well as creating some identity for upcoming cyber bids. Some of the 14 firms already team—or compete.

The 14 companies clearly believe there is magic in their assemblage, led by the biggest government contractor, Lockheed Martin. Last week LM christened a laboratory and testing facility, with capabilities that other, larger players in cyber
security, such as SAIC and Booz Allen Hamilton, already have for cyber solutions research and evaluation.

In addition, with some potentially vexing legal and business challenges to form an alliance, and the government’s  hesitance to say what incentives are acceptable between alliance members, customers  may have some reluctance to deal with the alliance.

Among the subjects that must have kept quite a few attorneys and business executives busy when forming the alliance are the following:  (1) organizational conflicts of interest identification and mitigation; (2) safeguarding national security and
proprietary information held by one alliance members from others without a need to know); (3) respective roles in opportunity management and revenue generation; (4) dealing with existing contractual and teaming arrangements with
companies in and outside of the alliance.

As they are not cornering the cyber market, there’s no particular anti-competition angle to defend against, but there may not be squawks from small business if the alliance ever makes a splash.

Further, there is an elephant-in-the-room issue regarding what is permissible to bind together companies in IT-related alliances. It is coming up on two years since the Justice Department threw a chill into IT suppliers of all sorts when it joined a whistleblower’s suit regarding the incentives IT alliance team members give each other. The suit remains
unsettled, and even firms that have voluntarily come in for settlements, such as IBM, don’t know what the government will find acceptable. The three companies being sued—Accenture, Sun, and HP—show no sign of settling.

Since many of these legal issues tend to raise red flags and yellow lights, it is one more reason to view the alliance as a trial balloon at best. The mechanics–the fall out of all the issues that need to be resolved within the collective of the 14  firms—may be of more interest to government and industry than some of the cyber capabilities being offered.

On October 14 the FAR Councils issued two interim rules that will significantly shift the burden to contractors for demonstrating that costs incurred in cost-reimbursement contracts are billable to government contracts and that incentive award fees are properly earned. By congressional mandate, both rules apply government-wide and became effective immediately upon publication.

And both will have a significant impact on contractors and their business relationships.

Congressional concerns about “excessive pass-through” costs on contracts have risen since Katrina and since the Government Accountability Office provided several reports to Congress. Congress imposed similar restrictions on the Department of Homeland Security (DHS) in 2007 and on DoD in 2008 before imposing this restriction government-wide and those agencies already have rules on the books.Both agency-specific rules will be repealed when this interim rule is finalized.I covered the DHS rules in my June 2007column.

Excessive pass-through limitations.The first rule, “Limitations on Pass-Through Charges,” is designed to minimize the “excessive pass-through” of subcontractor charges and prime contract expenses when a substantial amount of actual work will be (or was) performed by subcontractors. For civilian agencies, the rule applies to cost-reimbursement contracts greater than the simplified acquisition threshold ($100,000). For DoD, the rule applies to certain fixed price contracts, and to cost-reimbursement contracts, greater than the threshold to obtain cost or pricing data ($650,000).

The rule requires that proposals disclose the total value of work to be performed by the prime and each subcontractor, respectively. If subs are to perform over 70 percent of the total value of work, additional detail is required on the prime’s indirect costs and profit/fee applicable to the subs’ work and a description of the prime’s“added value” to the  subcontractor’s work.It’s then up to the contracting officer to “determine” – by an analysis not described in the rule – if that added-value work is a benefit to the government.If not, those costs are “excessive” and will not be allowed.

Second, the rule provides that, if a subcontractor’s effort exceeds 70 percent of the value of the work actually performed, the prime must demonstrate to the contracting officer that the prime added value to the subcontracted work; if not, the “excessive” costs will be disallowed. Finally, where “excessive” pass-through costs are not allowable, even in certain fixed-price DoD contracts, the government is entitled to a price reduction equal to the amount of those costs in the contract price.

To monitor compliance, the rule gives the contracting officer access to subcontractor records to determine whether the subcontractor proposed, billed or claimed excessive pass-through charges.

Award fee restrictions. This interim rule imposes restrictions on the use and implementation of new  cost-reimbursement, award fee, contracts. No award fee contract may be awarded unless (i) all of the FAR limitations on
cost-reimbursement contracts are met; (ii) the government completes an award fee plan as required by the FAR; and (iii) the head of the contracting activity issues a “determination and finding” that addresses the three FAR suitability factors relating to incentive contracts.

Any proposed award fee must be linked to the contractor’s cost, schedule and technical performance as measured against the contractor’s objectives. A contractor’s performance will be ranked according to a five-level adjectival award-fee evaluation scale detailed in the interim rule. Each performance level assigns a fixed range of available fee percentages. Furthermore, no award fee can be earned if the contractor’s cost, schedule and performance is rated “below satisfactory.”No unearned award fee may be rolled over into subsequent rating periods.

Five agencies – Defense, NASA, Energy, Homeland Security, and Health and Human Services – award over 95 percent of all federal government award fee contracts, and many of the provisions in this rule are already used by these agencies. In addition, in December 2007, the Office of Federal Procurement Policy published a memo entitled “Appropriate Use of Incentive Contracts” providing additional guidance to agencies when considering using award fee contracts.

This past August, I testified on award-fee contracts before a subcommittee of the Senate Committee on Homeland  Security & Governmental Affairs. I’m pleased that several of my recommendations were adopted in this rule.

While their substance has been around in various forms for several years, these interim rules introduce new elements
and significant compliance challenges for both government and contractors. In both cases, the rules put a premium on up-front contractor planning and proposal disclosures, along with careful monitoring during contract performance. For example, a prime could demonstrate added value where it is integrating the work of several subcontractors and  synthesizing their input to meet government requirements, or, where it is providing the supervision, security controls and billing for several task-oriented small businesses.

Expect both of these new requirements to be included in all new contracts but you should strongly resist having them applied to existing contracts.

What’s a contractor to do?

First, examine your internal “make-buy” and small-business subcontracting processes and be sure they are up-to-date. Both of these processes are pivotal in the determination of “excessive” pass-through and contribute to your decision of what work will be done with your workforce and what will be subcontracted.

New proposals will have to address both the excessive pass-through requirements as well as the significant criteria that benchmark an award fee plan, if applicable.As a prime contractor, you will want to contribute to both elements. If you’re a subcontractor, be prepared to address how your efforts will add significant capabilities to the prime and be ready to
work with the prime on addressing both the “added value” they bring and the award fee criteria you contribute to during your teaming negotiations and the prime’s proposal submission.

Second, if either rule applies, all primes and subs should be particularly alert to the performance and compliance challenges that kick in immediately after contract award.By creating the necessary reporting and monitoring provisions from the outset, you significantly minimize the risk of losing substantial costs and fees during performance.

Finally, prime contractors should involve your key subcontractors and vendors early in the proposal strategy to ensure that they are familiar with your processes and decisions, as well as the critical importance of satisfying the compliance and performance obligations under both new rules.

With these rules, the government is further intruding into a contractor’s business relationships and further dictating how it will manage its prime contractor relationships. Those firms that promptly address the requirements of the new rules, that demonstrate the significant value they bring, and that pay attention to the cost, schedule and technical performance elements of the contract stand to minimize their financial risk exposure and maximize successful contract execution.

Here are seven reasons that suggest partnering never really existed, and may be unhealthy for contractor and customer alike.

1. Federal contracts don’t read like partnership agreements as known in the private sector.  There’s no equitable  risk-sharing or provisions that reflect a high degree of trust between partners. And there’s no discernible trend in that direction.  Rather, it’s for more regulation and forced disclosure of contractor business details.

2. The re-emphasis on contract oversight that emerged when Rep. Henry Waxman’s became chair of the Government Oversight and Reform Committee in January 2007 noticeably rattled the industry. Since then, the rising tide of regulation proposed and signed into law suggests the Federal customer-partner has had declining trust in supplier-partners for a few years.

3. The ever-tightening rules and enforcement concerning organizational conflicts of interest demonstrate less government faith in companies’ ability to identify and mitigate such issues. And just wait for the soon to be unveiled personal conflict-of-interest regs.

4. Both government and industry routinely show their reservations about operating more transparently. On the government’s side, FOIA transactions still seem to take forever.  Contractors’ disclosures to government and the public are almost always in response to government requirements and pressure and are often opposed by industry in the rule-making process. What publicly owned companies reveal is mainly driven by SEC regs and to please Wall Street equity analysts, not taxpayers or government customers.

5. Small businesses—the vast majority of the contractor population but with constant market share of federal prime contract dollars—act less satisfied, and often aggrieved, concerning government set-aside program spending and enforcement of the rules. The government hasn’t delivered any more dollars in percentage terms for years.  And some large companies still get a startling amount of “small-business” set-asides due to unsettled policy guidelines and  administrative error.

6. Government agencies, according to the Professional Services Council, are acting as if there were a mandate to insource, even though there is none.  The Administration has been careful to state its goals for program budget cuts and procurement and management reforms in source-neutral terms.

7. When troubled contracts and programs come to light in audits, reviews, and hearings, contractors remain muzzled by their customers, who prohibit releases of information unless approved by the government. Either (1) the customer-partner wants only its side of the story to be heard, or, (2) it is protecting the contract or contractor.  Come to think of it, there may be a spirit of partnership in this behavior, but it’s not one that’s good for the taxpayers.