So, you want to contribute to a political candidate?

Welcome to the continuing beta testbed  of the Government Services Insider Web service.

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.

False Claims Settlement Stats: Yellow Light For Contractors

On November 19 the Justice Department released statistics on False Claims Act recoveries for Fiscal Year 2009 reported as the second highest total ever, $2.4 billion.  But if you look behind them, as the nonprofit watchdog Taxpayers Against Fraud does, you can see there is a record high tide in recovers, roughly twice as much.

So what? While you have to find “procurement fraud” at the very bottom of the DOJ press release cited above, and recognize it is small compared to the false claims dollars generated by Big Pharma and other healthcare firms, government services contractors need to be alert to likelihood, if not a certainty, or more and larger cases on their turf.

Why?  It is not as simple as former deputy attorney Paul McNulty and others in law enforcement claim, that is, more contract spending = more fraud.  He has no stats to document a relationship, even an indirect one.  No body has such statistics.

Other, less tangible factors combine to make more FCA suits and settlements (or trials) a near-certainty.

1. The success of FCA cases is likely to breed more cases, promoting latent or hesitant whistleblowers to come out and make their case (which takes years and takes a personal toll in most case one can read about).

2. The government will begin to find more cases without the help of whistleblowers. There is simply more scrutiny of contractors.  While the media still only rarely originates a story on contract misbehavior, the government is coming up on two years since the “rebirth” of oversight when Congressman Henry Waxman took over the Government Oversight and Reform Committee.  That was enough impetus to motivate agencies to scrutinize contracts more carefully and for Congress and others to take a step up in rebuilding and enlarging the government’s acquisiton workforce.

3.  Contractors, regardless of good intentions, have not kept up with internal surveillance and compliance of operations. Years of double-digit growth, turnover in managers, use of more junior staff in management, and shortfalls in management information all create a blindspot for some of our most successful firms.  If one talks with executives of large and mid-size companies about the risks, most, in our experience, say they are worrying more about enforcement of policies on pricing, contract administration, and daily work supervision.  This  area of risk factors is the flip-side of what worries the government–inexperienced COTRs, too few experienced auditors, inadequate contractor surveillance systems, and

Personal Conflict of Interest Regs: Good Start, Minefields Ahead

When the government announced its intention last year to come up with regs on contractors’ personal conflicts of interest (PCOI), there was almost an audible dread in the industry.  Already under the gun with renewed and heightened oversight, a growing we-they fissure with civil servants, and amplified bad press for a handful of deeply troubled contracts, the new regs spelled trouble.

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.

Cyber Alliance Raises Mores Questions Than It Answers

On November 12, 14 companies that play in the cyber security business announced an alliance. Built around some well known capabilities in software (such as RSA’s in encryption), hardware, and services, the group offered itself as a  collective resource to the government and other customers.

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.

Partnering: Dead? Was It Ever Alive?

Some recent public mourning of the death of government-contractor “partnering” has a nice, wistful feel.  But did partnering ever really have a pulse?

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.