WifWaf

https://bitwizards.com/thought-leadership/blog/2012/march-2012/4-types-of-people-every-entrepreneur-needs-to-know

“Now, I know advice is cheap and often suspect, but here goes. You’ve had a good start and there’s a long road in front of you, but always remember this: Your most difficult problem will be the people. In the military, they mostly divide themselves into four major categories: There are the ‘me-firsters’, the ‘me-tooers’ the ‘deadwood,’ and the ‘dedicated.’ You are among the minority, the ‘dedicated.’ Stick with them, search them out, and work hard to be worthy of their company. You won’t be popular with a lot of your bosses who act dedicated but really aren’t, and that can make life difficult at times. Beware of the ‘deadwood.’ Most of them mean well and, in their own way, try hard, are loyal, and even useful. But too often they’ll botch things up and get you and your outfit in trouble. Watch out for the ‘me-tooers.’ These guys will tell you whatever they think you want to hear. They borrow thoughts and ideas from others and present them to you as though they were their own. They are opportunists who look for every avenue to advance themselves, without sticking their own necks out. They ride someone’s coattails and try to make themselves indispensible to the boss. Believe me, they are not to be trusted. You don’t want yes-men around you. But you can’t always avoid them. The worst and the most dangerous are the ‘me-firsters.’ Most of them are intelligent and totally ruthless. They use the service for their own gain and will not hesitate to stick a knife in your back at the slightest indication you might stand in their way. They seem arrogant, but don’t be fooled; they are really completely lacking in true self-confidence. Do you understand that?”

In DOD system acquisitions negotiations, is the understanding of these points the CO's job or the Contract Price/Cost Analyst's job? In other words, should a CO take the analyst teammate's word for it if the teammate agrees with the contractor.

Joel, I know you’re speaking in context, but out of context my mind goes: “Oh, what a novel idea!” 🙄

That NASA article says the SpaceX subcontractor knowingly transported contaminated fuel from 2012 to 2020. The Wikipedia article on SpaceX Dragon 2 says, “The first automated test mission launched to the International Space Station (ISS) on 2 March 2019.[51] After schedule slips,[52] the first crewed flight launched on 30 May 2020.” I remember this being a moment of American engineering resurgence, as we no longer needed to rely on Russian rockets to get to the ISS. Here’s a source confirming my recollection. Was this company “Anahuac Transport Inc.” and particularly its Corporate representatives Gary Monteau and Brant Charpiot (whom admitted guilt) willing to risk the United States of America’s international standing on the world stage just for a few extra thousand bucks each shipment?

TransDigm is a publicly traded company and thus the SEC reviews all its shareholder disclosures. Is the general public rushing to buy stock in this extremely profitable enterprise? If TransDigm is not reporting to the SEC (i.e., the Government) profit margins commensurate with what the DODIG reported, then we still have work to do to be able to factually document the negotiation. Let's not take the IG's percentages as factual, and instead let's work with the contractor via fact-finding. Their SEC filings can be a starting point for this. The 10-K (annual report to shareholders) discloses that the past two years' gross profits have hovered slightly above 50% for TransDigm Group. See ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for TransDigm Group Incorporated, filed November 16, 2021 (pp. 27). Not quite 3000 or 4000 percent, to quote the IG. It should be the CO's job to read up on this existing resource, and then to work with the contractor to clarify what in the instant proposal rolls up in the 10-K as cost and what rolls up as profit. He/she can then request cost data on a limited selection of the portion determined costs, so that he/she can perform a cost analysis technique on them, e.g. FAR 15.404-1(c)(2)(iv), "Verification that the offeror's cost submissions are in accordance with the contract cost principles and procedures in part 31."

FAR 15.405(d)'s statement about documentation must be read in conjunction with FAR 15.406-3 and any supplementing text.

@joel hoffmanThe CO's tool for preventing the Taxpayer funding any illegal monopolization is FAR 31.205-27, Organization Costs (as supplemented by DFARS 231.205-70 External restructuring costs). The CO would have to write a pre-negotiation objective memorandum providing the basis for the inclusion of some of the costs under the -12 and -38(b) principles, and the basis for disallowance of some of the costs under the -27 principle. Once included, the costs can then be examined in the PNOM for reasonableness. See Raytheon Company; ASBCA Nos. 57743, 57798, 58280; April 17, 2017 (pp. 55-57). Granted, without cost data I have no idea how the CO would explain allocability in the PNOM. Congress certainly won't clear that up for us, though. I propose IPT pricing to resolve this.

Good reminder. The TransDigm fiasco could be a case study in the application of FAR 15.405.

I didn't miss the point of the Heritage Foundation article. I just want to talk about contracting.

I wonder if there was a potential solution to the accusation of price gouging available to the original COs that elevated these complaints. Anything would have been better than relying on Congress to fix it. Perhaps this: TransDigm's counterargument to price gouging is, essentially, there is risk to producing its parts that the Government does not recognize during negotiations. Could the chief pricer of an office that purchases these parts start recognizing this risk as a cost element, instead of profit? FAR already says "Economic planning costs" are allowable at FAR 31.205-12. FAR 31.205-38(b)(4) also supports this idea, I think. Could the office have been persuaded to include a quantification of this risk's costs, indirect as they may be, in with the other cost elements in the proposal? The pricer may have to disagree with a DCAA auditor and may so much as have to use IPT pricing to arrive at this, but think of the opportunity cost of that effort - it's in the link Vern posted above. Working with industry, instead, takes absolutely no elevation to Congress, no change to the acquisition system, no change to the regulations - just a tweak to regulatory interpretation and someone with the gusto to put it in written office-level guidance. I guess it comes down to who do you trust to determine a cost as waste - yourself, or a commander that came up in the ranks without contracting training? A manager that was promoted for reasons other than knowledge, skill, and ability in cost analysis? Or worse, an elected official with an agenda.

This just goes to show: Never elevate matters when you can resolve them at your level, and especially do not elevate to Congress. This rule applies to both sides of the negotiation table.

Thanks for your time.

I’ve been in contracting since 2009. I’ve heard of how OFPP moved us to PBSA, but I’ve not heard of the formula incentive contracts innovation of which you speak. I’m really wondering if you mean something from the distant past or if you mean something from the Better Buying Power memos (which I can find readily). My office’s CPIF contracts are shadows of the office’s past, with no delivery (schedule) incentives - only cost. This is despite the fact that time till closure of our sites is our biggest liability. I want to apply a historical perspective to my current workload of incentive contracts, hence I logged in and asked.

Vern, This just piqued my curiosity this morning. Could you regale us with the results of this innovation?

This would depend if the PM is truly intending to lock the KP in till contract completion, or if he/she is just dancing around personal services limitations. Those PMs that only want to hold the reins loosely over hiring and firing often use a small $25-$50k “fee reduction” in a special clause to hold over contractors’ heads. Sad but true. The reduction can be applied in the next TO’s negotiations (assuming Indefinite Delivery contracting). I think the promissory nature Vern is providing with this recommendation is a CO’s first and best solution to provide PMs when drafting the RFP, assuming a healthy competition where KP is of high importance. COs must also be aware they may uncover the PM’s true intentions I describe above.

If this is the intent of the statute and a revision to TINA is not required, then two things are needed: regulatory changes, and a culture shift. The statute was promulgated at FAR Table 15-2 requiring prime contractors to, "Conduct cost analyses for all subcontracts when certified cost or pricing data are submitted by the subcontractor." This does not leave room for a value-based "4,451 percent profits" (to quote the DODIG) in the same context where cost analysis as defined as, "the review and evaluation of any separate cost elements and profit or fee in an offeror's or contractor's proposal, as needed to determine a fair and reasonable price..." [FAR 15.404-1(c)(1)]. Then of course at the prime level, FAR 15.404-1(a)(3) requires, "Cost analysis shall be used to evaluate the reasonableness of individual cost elements when certified cost or pricing data are required." Some of this appears to have played the telephone game with Congress's original intent. Perhaps a taskforce like a miniature Section 809 Panel could be enlisted to reconcile these regulations to the statute. Once the FAR and all its Supplements are cleaned up, as for the culture shift, I would recommend market- and value-based pricing be introduced to COs via a cadre-of-experts approach, similar to the way DCMA Commercial Item Group was established. Unfortunately, that took an act of Congress too (-; just a few NDAAs). The cadre would be experts on analyzing the "judgmental information" included in the FAR 2.101 definition of "Data other than certified cost or pricing data". I assume all acquisitions where value-based pricing is used would require this uncertified data. Therefore, to resolve the problem at hand, I submit my post from earlier today (at least revise the CPRG) for acquisitions in which certified cost or pricing data are not required, and I submit the above for acquisitions in which the data are required.

I think the clause and Subpart titles are an artifact in the FAR from before some case law led to a rule change. Per The Government Contract Reference Book, "Prior to 1995, claims could not be adjudicated by a board of contract appeals or the U.S. Court of Federal Claims until there had been a dispute followed by the submission of a claim." (emphasis added). It goes on, "However, in Reflectone, Inc. v. Dalton, 60 F.3d 1572 (Fed. Cir. 1995), the rule was changed and it was held that there was no requirement that there be a dispute prior to the filing of a proper claim except where the issue was nonpayment of a voucher, invoice, or routine request for payment." I found what appears to be the resultant Proposed Rule in the Federal Register, at 66 FR 42921. The changes did not include a retitling of the clause or Subpart, which may have led to their current statuses as misnomers.

I will clarify my assumptions. To do so I will answer Question #1. Keep in mind I am not advocating for anything here, just stating facts. My answer to "Is there any legal requirement that companies selling to the government take a cost-based pricing approach to product pricing and price negotiation?" is "Yes": see provision FAR 52.215-20's incorporation of FAR Table 15-2, paragraph II.A.(2) where a CO may instruct contractors, "Obtain certified cost or pricing data from prospective sources for those acquisitions (such as subcontracts, purchase orders, material order, etc.) exceeding the threshold set forth in FAR 15.403-4 and not otherwise exempt, in accordance with FAR 15.403-1(b)." Table 15-2 was written that way because the statute at 10 U.S.C. 2306a behind FAR's subcontract pricing policy requires the CO to ensure an offeror for a subcontract is required to submit cost or pricing data before the award of the subcontract at a threshold price or higher. Because of this, what I submitted to you assumed that the alternative to revising the Contract Disputes Act is that Congress revise the Truth in Negotiations Act. How else could the government's application of policies grounded in cost-based pricing (e.g., TINA) be converted to market-based or value-based in circumstances where no exception to requirements for certified cost or pricing data applies?

No I am not - apologies for misreading the question. I answered more of a question of "What is the solution to a cost-based pricing apparatus (requiring detailed cost proposals, TINA, proposal "audits," etc.) that costs more than it's worth?"

These questions harken back to this fascinating discussion thread from last year featuring Vern and @bob7947 @joel hoffman @here_2_help: After reviewing the history and ideas on display in there, my answer to question #5 is "No"; instead, the Courts should be eliminated from the dispute process and a contractor should got one shot at resolving a TINA dispute via board of contract appeals. Yes, this takes an act of Congress to change the statute that is pointed out in the thread by Bob, but it would stop the endless, costly appeals you cite as evidence for TINA costing more than it's worth. A much simpler fix is available to eliminate the impetus for attacks on entities like TransDigm for not using a cost-based strategy. When a seller uses market-based or value-based pricing, a TINA exception often inherently applies. If a CO determines one of the five exceptions to certified cost or pricing data requirements applies, I think there is plenty of permissibility at FAR 15.403-3(a) already for COs to be directed by memorandum to use an expanded definition of "price analysis" that could be added to the Contract Pricing Reference Guides (CPRG). That definition could include market-based and value-based pricing options and could direct the buyer to ask seller to categorize its pricing approach as one of the three, so buyer knows which analysis method to use. The CPRG is the key here, to avoid any more Congressional acquisition reform delays and finger-pointing. Whoever owns and updates the CPRG is the office of primary responsibility for this. I wonder what wickets they must jump through to change it.

Yup, SCOTUS sided with you here. There is no precedent for a permanent alteration of our bodies as a requirement for work (my words). https://www.supremecourt.gov/opinions/21pdf/21a244_hgci.pdf

Allowability: Definitely FAR 31.205-13(a)(2) or (3) as a health clinic or wellness center cost. Allocability: Indirect if this is a contractor-initiated program. Can be direct, e.g, if this is the contract requirement of an award-fee type contract, but only if the injunction on these types of requirements is lifted. In the case of the award fee, some data collection is needed, to measure performance. I don't like the idea of direct at all. In fact, I don't like the idea of procurement being the chosen instrument for any of this. Financial assistance grants are more apt, because increased vaccinations meet a public purpose, not a direct benefit of the Federal Government. Reasonable: Should be based on market research of other businesses that are already doing this, e.g. grocery stores, airlines, etc. If direct, the PCO can require it as cost or pricing data. If indirect, the ACO with cognizance over the home office or business unit responsible for the contractor-initiated program can request it as support to the Forward Pricing Rate Proposal.

They did not have to, because no law was violated. That brings us to this: No, another new law will not fix this specific problem, at least, not without creating more problems than it's worth. The solution to this problem was already passed in the 2020 NDAA, resulting in a prudent adjustment to current regulation. That adjustment is already in the process of being promulgated, at DFARS Case 2020-D008 where it addresses 10 U.S.C. 2306a(d). This statute produced the following changes proposed to DFARS about reporting and tracking contractors in CPARS for failure to make a good faith effort to comply with a reasonable request to submit data other than certified cost or pricing data: and: Basically, the Proposed Rule raises the stakes of TransDigm's actions, to, at a minimum, the level of an HCA for review. It also shines a light on these types of actions by requiring they be addressed in past performance evaluations (which will affect source selections of the prime's management since these parts are sourced from their subs). That should be enough to dissuade bad faith without creating too many unintended consequences, e.g., dissuading new entrants to the DoD industry pool. No more involvement of Congress is needed, so the subject bill should not be enacted into law. I hope a staffer on the Hill looks into this bill for redundancy with 10 U.S.C. 2306a(d). I hope these Congresspeople talk to each other (how's that for theory?)

Hello Vern, I am curious how this pilot program turned out. Not interested in specific results, as each person's will be their own. Really just want to know do you have an update to this post, from last year's experience? I have my copy of Administration of Government Contracts, 4th edition, and am considering this endeavor. Thanks.