InNeedofWisdom

My question was about the report, not FedBid. FedBid figures in the report, but the report is about the conduct of a government official.

In regards to the report, I thought it could have been much shorter. It seemed to re-iterate the same alleged facts under different headings in a redundant and confusing way. Also, the public airing of private "laundry" seemed completely unnecessary. If this was to go to trial, I don't see how the jury would not be prejudiced ahead of time by this report with all its various alleged facts.

The rhetoric by FedBid reminds me of the film Mr. Smith Goes to Washington. (There was a "Susan" and a "Taylor" in that film.) Here is a quote from page 38 (39):

We know this is just the beginning of a larger effort to bring transparency and accountability to the health care arena in both federal and commercial procurement, but we have won this round – and done so decisively. [emphasis added]

While FAR 15.308 does say the SSA can "use reports and analyses prepared by others," doesn't the SSA still have a duty to actually look at the actual proposals?

Do you think the SSA can use independent judgment based on the facts presented in the evaluation report?

In some instances simply focusing on driving to the best (lowest) price is demonstrably counter-productive to the long-term contract outcome.

H2H, Thank you for the link about the quality issues. It makes sense that the lowest price may not provide the best value (or deal, depending on how you define it). I also like how you emphasize the ongoing relationship (partnership) of the prime contractor and subcontractor to deliver the product or service to the government.

Answers:

1. No. But the Air Force has a moral obligation to be the best air force it can given the resources provided to it.

2. Yes. Sometimes the government's requirements give rise to circumstances that will prevent a contractor from providing the "absolutely best deal possible". Italics added. That's a dumb question.

3. That is a VERY badly written question. It might also be a dumb question, but I'm not sure what it means. I'll decide after you clarify, if you do.

A contractor's obligation to analyze prospective subcontracts is determined by the laws and regulations that apply to that process and by sound general business practice, which includes honesty and competency.

Vern, without getting into a circular argument with you about opinions or standards, the second question is intended to lead you to a logical answer based on 1) Your answer to the first question (e.g. if you had said, "Yes" to the first question) and 2) How you define "absolutely best deal possible". I like how you put the contractor's obligation into your own words at the bottom of your posting.

H2H and Vern, your answers to the first question agree with what I meant in the first part of the third question. I agree with you that there wasn't a need to repeat the first question again as a qualifier (regarding the government) to the second half of the third question (regarding the defense contractor). What I meant by the second half of the third question might be best explained by Frank Kendall's article, "Our Relationship with Industry" (http://www.dau.mil/publications/DefenseATL/DATLFiles/Nov-Dec2013/Kendall.pdf). Industry's concern (obligation) is to earn a profit (i.e. help the government spend money) in good faith and truthfully. Thank you for your responses.

As a related topic to paragraph (1)...

Do you think there is one test or two tests for stand-alone commercial services under paragraph (6)?

Based on the way the definition currently reads (after the change made back in early 2007 by FAC 2005-15), I think the definition says the commercial service only must be "of a type" with another service sold using either 1) An established catalog or 2) Market prices. In other words, I think the current version of paragraph (6) allows in the case of services exactly what I think paragraph (1) does not allow in the case of supplies! The verb tense in paragraph (6) makes it clear that "established catalog" and "market prices" are describing another "of a type" service instead of the service actually being procured.

However, have you read what the DoD IG had to say about this subject for F-16 mission training simulator services back in March of 2006? Based on the version of the FAR prior to early 2007, the DoD IG might say that my current position is wrong. The DoD IG concluded that these simulator services should have been acquired under FAR Part 15 as non-commercial. Even though there were arguably "of a type" commercial services sold using an established catalogs or market prices, the DoD IG concluded that was not enough based on the previous version of FAR 2.101. Here is a quote from pdf pages 23-24 of the report found at http://www.dodig.mil/audit/reports/fy06/06-065.pdf:

The FAR defines commercial services as: “Services of a type offered and sold competitively in substantial quantities in the commercial marketplace based on established catalog or market prices for specific tasks performed under standard commercial terms and conditions. This does not include services that are sold based on hourly rates without an established catalog or market price for a specific service performed” (FAR Part 2.101). Additional clarification provided by the Under Secretary of Defense for Acquisition and Technology in a January 2001 memorandum specifies that “of a type” is not intended to allow the use of commercial acquisition procedures to acquire sole-source, military unique items that are not closely related to items already in the marketplace. [emphasis added]

In case you are still interested in what may seem like a very boring subject, compare the FAR 2.101 definition to the public law definition found at http://www.law.cornell.edu/uscode/text/41/103. The phrase "of a type" was simply inserted in the FAR 2.101 definition without changing the public law definition. That may explain why the current definition of FAR 2.101 appears to require only one test: "Has another "of a type" commercial service been sold using an established catalog or market prices?"

Would you say that a Fram oil filter that fits only an MRAP is a commercial item or non-commercial item when there are many different types of oil filters that are used on one or a limited number of commercial vehicles?

Your question is whether the item is commercial or non-commercial. I would say the item is commercial under paragraph (3)(ii). But some people may think that because there is an "of a type" item used by the public, they can just check box 1 for paragraph (1) and keep going. I really think part of the reason the DoD wanted to get rid of the "of a type" language in the commercial item definition was because of abuse of paragraph (1). It is one thing to believe something is commercial, but it is another thing to certify commerciality under the correct paragraph.

I had to google "MRAP" to learn it is a "Mine-Resistant Ambush Protected" vehicle (http://en.wikipedia.org/wiki/MRAP). If the company that sells the MRAP oil filter to the army also offers the same MRAP oil filter to the public, there should be no problem with claiming commerciality under paragraph (1). Even if the company does not offer the same MRAP oil filter to the public, there should be no problem making the judgment call that the "modification" is minor to meet army (MRAP) requirements and claiming commerciality under paragraph (3)(ii).

But there would be a problem if neither the company nor anyone else offered (nor sold) the MRAP oil filter to the public, and yet the company certified the item as commercial under paragraph (1). That would be a false claim. If the government suffered loss and wanted to destroy its working contractor relationship while placing its own program at risk, the government could take that defense contractor to court and win. But my guess is that this kind of issue has never gone to court because most things can be argued to qualify for (3)(ii). What do you think?

You can find more info on the internet.

Thank You, Vern.

In a speech yesterday at the 2014 Air Force Association's Air & Space Conference and Technology Exposition, Gen. Hawk Carlisle made the following statement (which can be found at the bottom of http://www.af.mil/News/ArticleDisplay/tabid/223/Article/497497/innovation-is-key-to-stabilizing-the-pacific.aspx.)

We owe that to the American people, that the very next dollar we spend is an increase in combat capability for our force. We have a moral obligation to this nation to produce the very best Air Force we can produce, given the resources they give us. [emphasis added]

Here are some questions:

1. When you analyze a subcontract (price or cost analysis), do you believe you have any kind of moral obligation to negotiate the absolutely best deal possible?

2. Do you feel that other constraints (e.g. schedule expectations) justify using "resources" in a way that results in less than the absolutely best deal possible?

3. Or, do you believe that any moral obligation to produce the very best "product" (e.g. Air Force) is simply a concern of the government, and that your concern is to help the government spend money (in good faith and truthfully)?

If no question lines up with what you think about a contractor's obligation to analyze subcontracts, how would you describe that obligation? Do you think this lines up with the expectations of the government?

If you think about "of a type", it doesn't make much sense. People buy particular items. The items they buy may fall into a class of items, but they don't buy the class, they buy a particular item. So what does it mean to say that "a type" of thing has been sold to the general public?

Right, that is a good point. I like to think about the illustration of a basket with a red apple, green apple, orange, and grenade. All items are "of a type" in size. Only the red and green apple are "of a type" in flavor. But both the apples and the orange are "of a type" in use (eaten for nourishment). I think "in use" is the key to understanding "of a type" in paragraph (1). However, some people may think that if the item is "of a type" in use, it automatically meets definition (1) even without the item itself being sold to the public or offerred for sale. I say they should take the route of (3)(ii).

Thank you for providing the link to the DoD IG report on the C-130J. I am relieved that the AF took the route of (3)(ii) [instead of just (1)]. I think the DoD IG would not have been able to take issue with the procurement if the PCO had 1) Used FAR 15 instead of FAR 12 and 2) Obtained certified cost or pricing data (CCOPD) only on the minor modification IAW FAR 15.403-1( c )(3)(iii)( B ). But did all this happen before the change was made to require CCOPD on the minor modification if the modification was larger than the greater of either the TINA threshold or 5% of the contract?

The question is whether (i) and (ii) apply to "item" or to "type". In other words, must the particular item itself have been sold, etc., or offered for sale, etc., or is it enough that the class ("type") of which the item is a member has been sold or offered for sale, even though the particular item has not?

Yes, that is the basic question. I enjoyed reading your posting and the example about the tank. It makes sense.

It strikes me that the author(s) of the sentence were not very good writers. If the thing has been sold to the general public, then it stands to reason that it is being used for other than government purposes. Why doesn't the sentence just say: A commercial item is a product or service that has been sold or offered for sale to the general public or to non-governmental entities?

I think the writers of the first paragraph were trying to quote the 41 USC Section 103 definition (http://www.law.cornell.edu/uscode/text/41/103) while making a confusing change in structure.

I could go on, but, really, who knows what the definition means? What do you want it to mean? Go with that until you have an official interpretation.

I want the definition to mean whatever will keep me away from defective pricing and a false claims lawsuit. The DoD TINA statute (http://www.law.cornell.edu/uscode/text/10/2306a) in (h)(3) references (for the definition of commercial item) the 41 USC Section 103 definition.

Thank you for quoting from Reading Law: The Interpretation of Legal Texts (2012). Any ideas on where I could look for any case law on this would be much appreciated. I think this kind of issue could come up in 1) A defective pricing/false claims case or 2) A defense contractor appealing to the ASBCA for either a DACO's decision to disapprove the business system or disallow a portion of incurred cost (e.g. profit on an IOT at price when commerciality was not clearly proven). Case law on this kind thing would be a dream come true (for a beggar).

How would the offer to the public, without a sale to the public, affect your rationale?

It would change the outcome.

1. An IOT based on cost incurred does not allow the prime contractor to bill fee on the affiliated organizations fee.

Yes, there should be no compounding of profit on an IOT at cost. However, if the affiliated organization proposed/made its transfer in accordance with FAR 31.205-26(e), the affiliated organization should not include any fee within its IOT at cost. It is possible that the prime contractor and its affiliate could decide to split the profit from the prime level. If so, the transfer of split profit should be handled separately as an unallowable cost in order to prevent application of any burdens at the prime level on the affiliate's share of the prime's profit.

In my view, the Proposal Adequacy Checklist does nothing to address the real challenge -- which is to train Government COs and support staff to evaluate cost proposals upon receipt in order to determine if field pricing assistance is needed and, if so, where and how much is needed.

I agree with you that the government CO's and support staff should take full responsibility for cost analysis and only request field pricing assistance to the extent required. I found the discussion at the following link to be helpful: http://farsite.hill.af.mil/reghtml/changes/dac/DPN20130328.htm. The thing that really stood out to me was the discussion in comment #38 about final checklist item #17.

It appears that the DAR Council expects defense contractors to provide a price/cost analysis with the proposal for every "subcontractor" regardless of dollar value. That seems incredible. I understand that Table 15-2 requires a price/cost analysis to be done and price/cost analysis over $700k to be submitted with the proposal. But to me this is a new requirement to actually require the submission of ALL price/cost analyses with the proposal. Do you think this is what DCAA was getting at in its reply to the DoD IG?

The DoD IG recently published its review of various DCAA audits from 2011-2013: http://www.dodig.mil/pubs/report_summary.cfm?id=5967. I found pages 61-71 about DCAA audit 2701-2012C210... to be very insightful. The issues surrounding this report highlight an apparent difference between the cost analyst and the DCAA auditor.

Hypothesis:

The primary value of the cost analyst at a prime contractor (or upper-tier subcontractor) is to mitigate time constraints imposed by DCAA requirements (or, stated positively, to provide flexibility in maximizing the value for the customer.)

Timeline of Events:

Sep'10 - The Joint Strike Fighter (JSF) program office (PMO) asked DCAA Ft. Worth for assistance in anticipation of a proposal for 42 aircraft.

Jan'11 - The JSF PMO changed its requirement to only 32 aircraft and asked DCAA to not review subcontractor proposals (see Key Points 1 & 2).

Mar'11 - The JSF PMO asked DCAA Ft. Worth to provide "full scope audit assistance" once the proposal was received by DCAA Ft. Worth.

Apr-May'11 - DCAA Ft. Worth received the proposal and determined it adequate while waiting for cost/price analysis on $1.7B in subcontracts.

Aug'11 - DCAA Ft. Worth asked DCAA Bay States Branch Office (BSBO) to perform and complete an assist audit by the very end of Nov'11.

Sep'11 - DCAA BSBO said the subcontract proposal had many inadequacies, but agreed to proceed and give an adverse (bad proposal) opinion.

Sep'11 - The JSF PMO asserted in its pre-negotiation memo (not yet approved) that it would rely upon its own cost analyst for the subcontract.

Nov'11 - DCAA BSBO gave DCAA Ft. Worth a memo with limited cost information saying its assist audit report should be done by mid-Jan'12.

Nov'11 - The JSF PMO pre-negotiation memo (see Sep'11) was approved on the very date the assist audit was originally supposed to be done.

Jan'11 - The results of a DCMA technical evaluation were received by DCAA BSBO, but not incorporated into the audit report (issued 7 weeks later).

Mar'12 - DCAA BSBO provided its adverse opinion that the proposal was not acceptable for negotiation (just under 4 months after the due date).

DoD IG Findings:

1. DCAA should not have started the assist audit if DCAA didn't think it was adequate. And, (apparently...) in the future if the customer still wanted DCAA to continue, then DCAA should report that customer to the DoD IG?! (Different people could reach different conclusions from the DoD IG report.)

2. DCAA should have not have made the judgment call to request the assist audit. The JSF PMO had made it clear that it would take care of all the subcontract proposals on its own and did not need DCAA to help. (This is where the cost analysts at the prime and at the JSF PMO were used.)

3. Once DCAA decided to actually proceed with the assist audit of the subcontract proposal, DCAA should have incorporated the results of the technical evaluation from DCMA. According to the DoD IG, DCAA had "ample time" to incorporate the results (e.g. 7 weeks before audit report issuance.)

Key Points:

1. In Jan'11 the JSF PMO stated that it was "willing and open to discuss realistic, creative solutions to the generation and transmission of audit data to seek the greatest benefit to the Government." (That sounds like getting the facts without the report.)

2. In Jan'11 the JSF PMO also communicated there was 'enormous pressure to get...wrapped up by late summer/early fall' and that the JSF PMO would use the price/cost analysis of the prime contractor on the subcontract proposal.

3. In Sep'11 the JSF PMO communicated that its prenegotiation plan relied upon the JSF PMO cost analyst input for this subcontractor and took into account the prime contractor's price/cost and technical analysis of the subcontract proposal.

4. The DoD IG agreed with the JSF PMO that its prenegotiation memo demonstrated "a combination of analytical techniques and procedures used by the contracting officer to establish a fair and reasonable pre-negotiation position" for the subcontract.

Outcome:

DCAA disagreed with the DoD IG on all three findings and asserted that the new DFARS adequacy checklist would take care of things in the future. The DoD IG agreed that the new DFARS checklist would help and also stated, "Although DCAA did not agree, the management comments are responsive and we do not require additional comments." (This appears to mean the DoD IG decided to just drop the issue.)

Conclusion:

Whereas DCAA may conclude a proposal is inadequate for audit and should not be used as a basis for negotiations, the program office will find "realistic, creative solutions" to formulate prenegotiation positions and meet schedule expectations.

If I were a NASA contracting officer buying more space pens, I might not want to call it a commercial item -- I wouldn't have any commercial sales to establish the reasonableness of the price, and I would be barred from getting certified cost or pricing data. I might pay $1,000 per pen when certified cost or pricing data, if it were provided, might suggest a design and production cost of $400 per pen. My grammarian example would support my decision, because ( i ) and ( ii ) apply to ITEM, not OF A TYPE.

I agree.

Can you provide an example where there might be some differentiation between the ITEM product and the OF A TYPE product that might be helpful in grounding the discussion?

Absolutely! Let's use a "space pen" as the example. This pen writes in outer space and for this example only NASA may buy it. Here is my train of thought:

1. Is the space pen "of a type" normally used by the public? (Yes)

2. Has the space pen been sold or offered to the public? (No, in this example only NASA may buy it.)

3. Will the space pen be available to the public by time of delivery to NASA? (No)

4. Is the modification "of a type" normally available to the public? (For this example I would say, "No", but others might say, "Yes".)

5. Is the modification minor to meet federal requirements? (If we assume the space pen costs $1,000 and the original pen only $10, then I would say, "No.")

Some people might say that the space pen is commercial because the "of a type" item used by the public has been sold to the public. Instead of going to definition (3) and making judgment calls about modifications "of a type" or minor v. major, these people might say it qualifies for definition (1) based on the "of a type" item being sold to the public.

Epiphany:

Have you ever been told something, read something, and thought something for months, but then later concluded that what you were told and how you understood what you read was different from a plain reading of the text?

The Commercial Item Itself:

When you read paragraph (1) of the commercial item definition found in FAR 2.101, do you think paragraph (1) is saying that the proposed item itself must be either sold or offered for sale to the public [to qualify as commercial under paragraph (1)]?

When you read paragraph (1) of the commercial item definition found in 41 USC Sec. 103 (http://www.law.cornell.edu/uscode/text/41/103), do you think paragraph (1) is saying that the proposed item itself must be either sold or offered for sale to the public?

How many people do you know who say or think that only the "of a type" item must be sold or offered for sale for the proposed item to qualify as commercial under paragraph (1)? Are you familiar with any case law to support this?

Points against "Of a Type":

It may be in the best interest of the defense industry (and perhaps the government) to act as if paragraph (1) allows for an item that has never been sold or offered to the public to qualify as commercial under paragraph (1). But is that what it actually says?

What would be the point of paragraph (2) if a proposed item could qualify as commercial under paragraph (1) based on another "of a type" item having been sold or offered for sale to the public? Would not paragraph (2) be largely redundant if this was true?

Also, a proposed item could qualify for paragraph (1) or paragraph (3) because both address "of a type". When I held to my previous understanding of paragraph (1), I found it difficult to establish when a "modified item" should go under either paragraph (1) or (3).

Conclusion:

What do you think? Is it correct by definition for an item that has not itself been sold or offered for sale to the general public to be claimed as commercial under paragraph (1) of the FAR 2.101 commercial item definition? If not, do you think it is still pragmatically appropriate?

I always want to know more than my CO, and I want the CO to realize I know more than s/he does. It makes life so much easier....

It sounds like you are "here to help" the government spend money. There is nothing wrong with that done truthfully in good faith. Help the CO!

I have a follow-up question about subcontracts for DoD prime contracts based on the below statement.

So let's say that a contract includes two CLINs, one FFP and the other CR, and that the CLINs are "entire". In that case you might say that you have a combination FFP/CR contract, which is neither entirely FFP nor CR. Statute and FAR say that you must use only FFP, FFP with EPA, or T&M or L-H to buy commercial items. So the use of a CR CLIN would be improper under statute and FAR.

Do you know of any statutory prohibition against a prime contractor awarding a subcontract similar to the above scenario? The prime contractor would propose a similar CLIN structure (FFP/CR) at the prime level, but not claim anything as commercial after product integration at the prime. If the DoD customer asked for cost or pricing data on the subcontract, the prime contractor would simply provide the price negotiation memorandum documenting its price analysis. I think that CPSR reviewers might take issue based on DFARS 252.244-7001( c )(13), but would there be any public law violation?

...TINA's merits are a myth of acquisition reform that is worth debunking.

Here is a multiple choice question.

Do you believe the fault is with:

1) The law itself (i.e. TINA aka TCOPD)

2) The actions of people leading up to creation of the law,

3) The actions of people after enactment of the law,

4) Some combination of the above (please specify), or

5) Some other cause (please specify)?

My belief is that the fault is with the government not having its own profit incentive mechanism and people's reaction to apparent dishonest (or unethical) behavior.

(Hopefully, you have not used the term "fee" in your FFP proposal, because that would make you... well, you know.)

I resemble that remark! Thank You.

I am assuming you have told the government how much fee you are proposing at the prime level on your subcontract cost. It sounds like the government is just negotiating with you about fee. Have you told them how much fee is wrapped into the subcontractor's proposal to the prime? I am also assuming that the subcontract is FFP and for a commercial item. Are my assumptions correct?

Thank You, Vern. That is good to know.

I found an interesting speech about HR 1670 from 1995 (which I do not believe was signed into law) at http://www.defense.gov/Speeches/Speech.aspx?SpeechID=948. Here are some quotes.

...I am concerned about the attempt in HR 1670 to create a broader definition of a commercial item or service. I am all for buying commercial items and services. However, it appears to me that current acquisition reform proposals are attempting to define government and defense-unique items and services as commercial items in order to exempt them from coverage of the Truth In Negotiations Act and keep government from gaining auditor access to contractor records...

I wonder if the speaker meant to include FASA from 1994 when he said "current acquisition reform proposals". Does his statement about HR 1670 apply today?

I am opposed to the section of HR 1670 that proposes further changes to the TINA. As presently written, TINA allows an exception to the requirement for providing cost or pricing data when the agreed upon price is based on established catalog or market prices of commercial items that are sold in substantial quantities to the general public. The proposed legislation would eliminate that exception and apparently replace it with another exception that is a great deal broader.

Here was the speaker's perception about attitudes in 1995 when he (the deputy DoD inspector general) was delivering this speech.

The prevailing attitude this year seems to be to eliminate use of the TINA and the auditors. The companies and even some DoD officials state that if you eliminate TINA and auditor oversight, then the DoD can buy their DoD-unique items from contractors at lower prices. Well, if you believe that you will generally receive a better price by eliminating the right to ask for cost and pricing data or the opportunity for auditors to look at a contractor's records, then I have a bridge you will be interested in.

I wish the speaker had given more data to back up the following claim.

The truth is that requesting cost and pricing data is a common commercial practice. Large companies that have purchasing leverage will generally make their suppliers provide cost and pricing data. Contractors who do business with the government gripe about TINA, yet they will make their own suppliers show them exactly what a product costs to make before they buy it. If the large company detects they overpaid that supplier, the supplier will probably never get another contract. The government cannot exercise a similar option to simply exclude a supplier.

Is that so? Here is part of the conclusion of the speech. What do you think about the statement that CICA and TINA together "help add suppliers and reduce prices"?

This is probably a good time to add a few thoughts on some of the concerns I have with the acquisition reform process to date. I happen to believe that the process has been focused to a major extent on those cost drivers that the defense industry does not like.

These cost drivers can, in fact, be burdensome and inappropriately used, and even when properly applied, they can cost the contractor a lot of time and money while they help to assure the government gets a quality product at a fair price. I am referring to such things as Competition in Contracting Act and the Truth in Negotiations Act, which help add suppliers and reduce prices. These safeguards and other safeguards have been built into the procurement process in response to past abuse and snafus.

Acquisition reform, especially much of what is being proposed in this second round, is carrying out a longstanding industrial or supplier agenda to curtail or eliminate many of these key safeguards which have been built into the United States procurement process over the past 200 years. I broadly categorize these as disclosure requirements, certifications, price-reduction requirements and audit rights. Certain of these safeguards help ensure cost (fair price) and quality, both of which become greater risks as we rely more on commercial products and practices.

While industry strenuously argues that such safeguards are incompatible with commercial sales practices, it is our experience and that of the inspectors general at the General Services Administration and the Department of Veterans Affairs that large private-sector purchasers consistently require these same types of safeguards in their own dealing with suppliers, as does the federal government.

I do not know if there are many people outside a government oversight agency that see things the same way as the speaker. What do you think?

If the potential subcontract(s) would be subject to TINA (TCOPD) and the prime contractor is denied access, the prime contractor should require the potential subcontractor(s) to submit certified cost or pricing data to the government [based on FAR 52.215-12(a)]. If your situation is sole/single source at the prime contract level AND subcontract level, obtaining certified cost or pricing data may not help you very much to negotiate a lower price.

In DoD the prime contractor may request field pricing assistance from DCMA for a subcontract proposal, but may or may not receive back any details on why the DCMA price analyst recommends a lower price. There is not much the prime contractor can do in a sole/source situation without competition for leverage. Interestingly, the profit/fee negotiated at the subcontract level may be much higher than that negotiated at the prime level.

Some government customers require the prime contractor to negotiate (reach price agreement on) all subcontracts in advance of prime contract negotiations (with subcontract award after prime contract award). That way the government customer can tell the prime contractor to go back and try again if the government customer does not like the subcontract price. Adequate price competition is the best way to get lower subcontract prices.