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Salus

How to Change an Agency Culture to More FAR Compliance (from the outside)

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First, I want to say that I am a big fan of these forums. There is a ton of useful information here that has been very helpful to us.

I want to pick the forums’ collective brain to see if anyone has advice on my particular and peculiar situation. We are running into the same issues over and over with an agency, and these issues seem to be in direct conflict with components of the FAR. It is totally possible that I am the one who doesn't understand the FAR (am I the jerk?). Please read on and share your thoughts!

My business is a subcontractor to a prime under an IDIQ. We provide specialized services that meet a core need for this particular agency, and have an informal joint venture for this type of work with my prime. This IDIQ is being used for all non-IT related contracting for this agency, though the original solicitation didn’t make this at all clear, apparently, they announced that at an industry day that I wasn’t able to attend (the work I do, which is part of the core agency mission was not even described in the solicitation for the IDIQ). So for the next several years, my only mechanism to provide my services to this agency is through my working with my prime.

This agency has a LONG history of using labor-hour contracts to hire contract employees in lieu of hiring federal employees. These contractors perform the exact same duties as federal employees, which are core components of the agency’s mission, and they are required to do it at federal offices in the same office as federal employees doing the same work. I know this because I worked at the agency for six years, and for those six years I share an office with contractors doing the exact same job as me (though they typically get paid much less). The contracts to support these positions are typically the 5-year, base + 4 option year approaches. All of this makes it look very much like personal service contracts, despite this being explicitly prohibited under the agency’s contracting mechanism. They don’t actually put any effort into disguising this fact when they write the contracts beyond the required statement saying “this is a non-personal services contract”.  The appearance of using this as personal service even extends into the agency having contractors represent the agency in public and stakeholder/decision-making groups. When you ask one of the contractors who their supervisor is, most will provide the name of their NMFS project manager unless they were specifically coached to answer otherwise, and the contracting companies exercise no supervision of these employees.

We have been pushing for 4 years to try to get the agency to move to a non-personal service approach at least in our area of expertise. We have brought up the personal services issue from the COR level to the IDIQ manager and the agency ombudsmen over this time frame. We have been offering a firm-fixed price approach to meeting the agency needs, which is less expensive than their labor hour approach, offers guaranteed work productivity, and compliant with the law and regulations. We have had one region use the method and that contract worked great, and that region is seeking another round of the fixed price approach. However, the entire rest of the agency has completely disregarded the approach, to the point of continuing to award labor hour contracts for personal services even when we offered a less expensive fixed-price approach. And to be clear, my prime partner and I have a solid past performance history. But our approach, which to the best of my understanding is the ONLY approach they have been offered that is actually compliant with FAR has for the most part passed over in favor of awarding to the incumbent contractor and their incumbent contract employees (which also goes even more to the point that the agency is treating the contract employees as though they are their employees).

My understanding of the problems here are really:

  • ·         These seem to be blatantly personal service contracts as they meet ALL of the criteria for evaluating whether a contract is personal services or not under 48 CFR § 37.104.

  • ·         They are using labor hour contracts to hire for these positions despite having clearly stated criteria for number of hours requested (they are hiring in single full-time employee increments per line item), without performing a Determination & Finding to support the use of labor hours over firm fixed price or fixed price with economic adjustment (despite FAR 12.207 and FAR 16.601.

  • ·         And just for fun, this agency has awarded more than $40 million in contracts in one year to one company under small business set-asides where the standard is $16.5 million, and has actually refused to do anything to remedy this to comply with the spirit (and letter) of the Small Business Act. I know that FAR hasn’t been updated, and technically what they are doing is within regulation, but they refuse to take any actions within their discretion to even limit their awards to one business under small business-set asides to $16.5 million per year, request a new small business certification, or even exercise individual CO judgment to implement the intent of the SBA.

My prime offers a broader array of services and has other contracts, and is not willing to risk retaliation by appeal award decisions, and as a subcontractor, I don’t have standing to appeal or take the issue to the GAO. And the CO’s, IDIQ manager, small business advocate, and agency ombudsmen have all made it pretty clear that we would likely experience retaliation if we started appealing awards based on the use of personal services, mismatched contract types, or even our technical review ratings. I would say they have made it clear that we could expect retaliation without threatening retaliation, it would always come from somewhere else in the agency.

I could appeal the expansion of scope for the IDIQ, but that ultimately leaves me with the same issues. I also want to be cautious on doing anything as it could potentially have pretty negative consequences for my prime partner if their name got associated with mine.

So the advice I am seeking is how can we get the agency to move forward into a more FAR compliant approach. I understand there is a long history in doing the things the way they have for decades, and we are not trying to force them to change all at once. But we do want to see them make changes when they have the opportunity to do so (e.g. awarding contracts to proposals that are non-personal services approach and fixed-price over labor hours when the proposal is better than satisfactory and price competitive or cheaper!).

I know that is a fair amount of information, so I hope I still made our issues clear. I also want to acknowledge that I could be wrong about all of this and totally be misunderstanding the FAR as I have not had comprehensive training on it, and am looking at specific components often in isolation.

Any advice here is appreciated!

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Your post unlocks all kinds of considerations  that are the basis for FAR subpart 37.104 and FAR part 19 regarding SB set-a-sides.   Here are ones that crossed my mind as I read your post as while an agency may simply state “this is a non-personal services contract” there is a lot more to it.

13 CFR 121.104 regarding SBA calculation of annual receipts.  You might consider a full read of 121.

FAR 7.5 - Your basic information makes me wonder if the agency has stretched the use of the contract into this world.

5 CFR 500 Subpart E - The contract seems too long term for this to apply.  But it does raise the issue of matters of "personal services" reaches in to the employment regulations and statutes of the Federal government.

There are several statutes that allow agencies to do personal service contracts.  USDA has a couple 7 USC 1627, 7 USC 2225, and 5 USC 3109 has broader application.   All have direct relationship to appropriations where monies are made available for the statutorily allowed personal service contracts. Further agencies are given FTE ceilings through appropriations and is the cause for an agency to determine whether they are allowed to do personal services. This brings to mind "{T)he axiom that an agency cannot do indirectly what it is not permitted to do directly" (Ref: GAO Redbook,  Chapter 3).   

Agency Head - With no specific reference your post implies that an agency's top level management has approved in some way the method being used for contracting for the needed services.  Noting this working with a particular CO or IDIQ manager may not be the solution the solution may be at a higher level.

Alternative Proposal - Within the context of the solicitation, and with a good relationship with the prime, using an alternative proposal to promote your idea could be considered but only if the solicitation provides that an alternative proposal is allowed.   Reference FAR 15.209(a)(2) and the associated FAR clause 52.215-1.

19 hours ago, Salus said:

Any advice here is appreciated!

Not advice but just a spectrum of thoughts some of which you have expressed.  Leave it alone or possibly raise to a higher level inclusive of the agency Inspector General......the spectrum carries with it the impacts you have noted.  Even when I was a CO pushing against agency culture carried with it either subtle or direct retaliation so it does exist.   Yet there is  some point that inappropriate application of acquisition strategies must be "called out" to protect the public's interest and trust.  Your decision on what action you might take is a serious one no matter the direction chosen.  I hope my thoughts provide some help to you.   

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Salus, what do you want to get out of this?  Are you looking for more business?  Or is it the principle?  Or something else? 

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Thanks C Culham. I have read the size determination info. This company was a small business during the initial award of the IDIQ, then became a large under the old rules, then became a small again, and finally self certified last year as a large for the IDIQ NAICS code under SAM (but not within the IDIQ). I really don't have an issue with the way determinations are made, even the 5 year rolling average. And the agency is being FAR compliant, but I still have a hard time with them awarding more than $40 million to one company, mostly under small business set asides per year, and continuing to make those awards under small business set asides. That company is on track to receive the same amount this year despite our repeated queries that they at least apply CO judgment in awarding under small business set asides.

As far as whether the personal services are allowed, under the IDIQ master contract, all personal services are expressly prohibited from being awarded under this IDIQ.

8 hours ago, C Culham said:

5 CFR 500 Subpart E - The contract seems too long term for this to apply.  But it does raise the issue of matters of "personal services" reaches in to the employment regulations and statutes of the Federal government.

I couldn't find 5 CFR 500, so I am not certain to what you are referring to here. But some of the contractors have been performing the duties of federal employees for more than 20 years. This has created a pretty significant codependency with the agency. There is a strong bias towards incumbent contract companies when they have one of these employees, where they really don't have to compete on price. We lost a bid where we were $300,000 less expensive (to be fair, only 5% lower on a 5 year award), providing a FAR compliant fixed price solution that exceeded all of the performance requirements, had solid past performance, but the incumbent (and large) company still won the award. 

We have been asking each time we are bidding during the question period if they will consider alternative approaches, and so far they have said yes so far, so we have been submitting alternative proposals where they are (theoretically) welcome.

If we lose out on this next round of proposals where we are being extremely careful to make it as clear as possible how we are exceeding PWS criteria and the benefits (beyond an apparent better fit for FAR), I may try to reach out to a Regional Administrator that I had a working relationship with when I was at the agency to at least raise the issue as a question rather than a point of conflict. I have a hard time imagining even doing something like an informal call with an attorney at the GAO's Office of General Counsel to get an unofficial answer on some of these questions would go over well, but it might be a less costly approach in terms of retaliation. So far, I have had CO's tell me that personal services is 'like when they make contractors go get their laundry'. 

Thanks for highlighting some other possible routes and statutes to consider. It definitely feels like a maze sometimes! Regardless of what we end up doing (or not doing), I am braced for it to be a long slog.

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Hi Formerfed,

Obviously those are pretty important questions we need to keep in mind at all times when contemplating action. 

I would say clearly, more business is a goal. We honestly could compete on price by following the standard practice of underpaying contractors for the work they are doing and just hiring them to fill in federal roles like everyone else, which is also easier from our administration standpoint because the agency does all the employee supervision, and the contractor is only responsible for hiring, submitting the initial paperwork, and providing time accounting. Between my company and my prime partner, we have the right past performance to jump right onto that treadmill for new positions.

But one of my issues with that is that it results in contract employees making far less than their federal peers with fewer benefits and no pension, AND it cost the government more money. The agency completely ignores FAR 52.222‐46. As an example, the agency published a requirement for a position requiring a masters degree and 7 years of professional level experience, and based on that, the fair market wage for that position should have been over $90,000, but based on the winning bid had to have been paying less than $65,000, roughly $30,000 less than the fair market wage, unless the company was generously donating labor to the government. These sorts of wage discrepancies are really easy to find. My office mate was a contractor doing the same job when I was working for the agency was making $20,000 less than me when he had 2 more years of experience doing the same work.

However, the whole purpose of founding my company was that I figured out an approach that would allow us to do a specific task that makes up a very large portion of work for the agency at a reduced cost over their use of labor hours. We would be able to make a reasonable amount of money (no one is getting rich here), pay good wages for completed work, and take advantage of expertise from people not normally available to the government (because they are location bound, have prioritized other quality of life considerations, aren't interested in full-time work). 

So I was left with a solution to an actual problem the agency has that would reduce their cost, move them away from using contractors as federal employees, and allow us to pay our professional employees proper and fair compensation. It also reduces federal labor because the agency project manager is usually responsible for training the new employees and providing supervision, neither of which is required under our approach. We are also able to clearly connect it to the comparative labor effort of labor hour approaches, so it isn't a matter of confusion or ambiguity. The culture of using contractors as employees is so ingrained though, that it is proving extremely difficult to make headway. One step of progress was that in years past (all of 3 years ago), the agency used to tell the contractor who to hire for each position. Now it is a mix of providing some reasonable position descriptions (but still clearly looking like personal services for the most part), or when they want to bring the incumbent back, they just write very specific job requirements for the positions so that only the person currently doing the job qualifies.

So the answer to your question is yes.

We are looking for more work and applying just and common sense principles (and the actual regulations). The goal is to compete fairly for work that is complaint with the applicable regulations, reduce cost to the government, and importantly to me, also complies with FAR 52.222‐46 so that contract employees are getting proper and fair compensation. I am no saint, but I try to make ethical decisions. But this one should be an easy sell because the only thing the agency has to give up is control of contract employees being used as federal employees. That it isn't an easy choice for the agency is starting to feel like the universe trying to gaslight me.

** As for why I think there is such reluctance to change, I think it is because it usually works fine. Different offices get employees in a manner that is much easier than getting a new federal employee and doesn't require the allocation of permanent funding, and for the existing federal contractors they get an easy source of revenue that requires very little work on their part. Only a few offices ended up having really bad experiences where the contracting company really started abusing the system, where they would hire someone for one of the positions, let the agency train them up, and if they performed well, they would take that employee into the main company and replace them with someone else, repeating the cycle. If it hadn't been for that, I don't think we would have gotten our approach in at all without filing an appeal or suit.

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Salus,

Thank you for the detailed explanation.  We can better see your dilemma.  In situations like this, there are usually two ways to improve.  One is to bring critical attention To the matter, which might fix things but harm your chances for future business.  The other is introduce the proper approach through constructive and positive means.

Assuming you’ve unsuccessfully brought this up with contracting and program office management, I would schedule a meting with senior management.  That is at a level over financial, contracting, HR, and perhaps the program office.  Prepare a presentation highlighting benefits from your approach and cite the actual results from your regional office experience.  I would feel out your audience and introduce  the issues in a manner appropriate to their reactions.  You could bring up dangers inherit from personal services,  potential financial services, and overall appearances of improper agency management.  You mentioned responding to a PWS but perhaps a SOO is even better.  Suggest a solicitation based upon agency specified high level outcomes and have industry respond with competing solutions.  It opens up the door to alternatives but doesn’t prohibit proposing the existing process.  The agency has no risk.

Hope this helps

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I’ll just add personal services are largely a government wide issue.  Unless an agency has a tight grip on service contracting and takes proactive steps to nip in the bud, it happens.  This type comment isn’t unusual

QuoteSo far, I have had CO's tell me that personal services is 'like when they make contractors go get their laundry'. 

Few agencies are really prohibiting it the way they should.  Lots of reasons and you mentioned some.  In addition, it’s easy for the government to bring new people on through a contract. Compare that to government hiring that takes six months.  A contractor employee not performing well can be told to leave a replacement is right behind them.  Someone with needed new skills can be brought on quickly and those with now not wanted skills are told to leave.  

It’s hard to strictly say work is personal services.  The FAR has criteria and some agencies use more detailed.  But most work doesn’t fall into a yes/no area.  As long as the SOW implies contractor employees get direction from their contractor supervisor, many COs see that as fine.  Mot importantly agency managers don’t view it was wrong.  The government gets better overall benefits and often prices are lower.  Lately industry is cutting benefits while the governments remain unchanged.  The government leave benefits is significant better than most companies.  The bottom line price differences isn’t that great with the exception of a few occupations like IT.

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Thanks Formerfed.

I do like the idea of trying to get an SOO. That would actually be a better fit and opportunity for us because the PWSs tend to be written toward encouraging hiring staff for them, while our approach is tailored towards their objectives, mission, and even some of their current strategic objectives. And I would love to have a meeting with senior management. I have no idea about how to go about making that happen, but I will start giving that some thought.

And yeah, I can totally see how the system gravitates towards its current setup. I am mostly frustrated by the institutional inertia to stay that way, even when better options are presented. To be fair, federal agencies have never been known for their enthusiastic embracing of change!

I appreciate the information and advice!

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Salus,

I’m just offering my experiences in setting up a meeting with senior management.  It’s based upon my time as a Federal employee and a lot of years as a consultant.  I’ve found to be really effective, all the key players need basic information in advance and invites to the meeting.  These include contracting, program, budget/finance, planning, and HR.  I would give them just enough info so they know what’s the meeting is about but not enough to build a case against before the meeting.  Let them know your idea is so broad and encompasses so many pieces of the agency, it needs to be a team effort and a senior manager as champion.  That way, no one feels slighted and they want to make a contribution.  The big picture is a substantial improvement to the agency and they each are a key part.

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