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Welcome to Apogee Consulting, Inc.

Name Change

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They say you can’t judge a book by its cover but, perhaps, one can glean something from an organizational name or title. When one receives an email from an individual running a small business, whose signature includes: Founder, CEO, President, COO, and CFO then (perhaps) that offers a small insight into that individual’s character. Similarly, when one’s LinkedIn profile includes all the Certifications and Degrees right there in the title (just after the name) then that might say something as well.

In the mid-90’s it was called Defense Procurement and Acquisition Reform. That told you right there what the mission was.

Later, it became Defense Procurement and Acquisition Policy (DPAP). For many years, DPAP executed its mission to be “responsible for all acquisition and procurement policy matters in the [DoD], including serving as the principal advisor to the Under Secretary on acquisition/procurement strategies for all major weapon systems programs, major automated information systems programs, and services acquisitions.” Clearly, the new mission had de-emphasized acquisition reform in favor of strategic advisory services (“strategery”?).

A while ago DPAP spun off “Defense Pricing” which didn’t seem to have any mission of its own. At least, it didn’t have a separate website and it was challenging to figure out the chain of command. As one might guess from the title, Defense Pricing focused on the price paid by the DoD for its weapon systems. An early Defense Pricing initiative was “should-cost” analyses. Defense Pricing advised the F-35 PEO regarding negotiating strategies.

While Defense Pricing was doing its thing, DPAP continued to update the DFARS and the associated PGI, as interim and final rules were issued. Our opinion of that process is, shall we say, well known to readers of this blog.

And then Congress forced a reorganization of the Office of the Under Secretary of Defense (AT&L) and the ripple effects caused a reunion (so to speak) of Defense Pricing and DPAP, under the sole direction of the Director of Defense Pricing/Defense Procurement and Acquisition Policy. And that combined organization executed its mission—which was basically the old mission—for several months.

Then, on September 11, 2018, the organization changed its name. It is now known as Defense Pricing and Contracting (DPC). See this memo.

As we noted above, if you go by the organization’s name, you might think that it’s now superseding the Defense Contract Management Agency (DCMA) and is managing contracting activity on behalf of DoD. That does not seem to be the case.

Yet.

In fact, the mission of the newly named organization is a bit unclear at the moment. The announcement memo (link above) states “The DPC office is currently evaluating our mission, function, and responsibility. Additional information will be provided at a later date based on our determinations.”

So time will tell exactly how DPC will contribute to the success of the warfighters.

In the meantime, the newly named organization announced on August 21, 2018, that some scammers are trying to represent themselves as being DP/DPAP/DPC. The announcement (found on the DP/DPAP/DPC website, stated, “We have been advised that an individual may be impersonating Mr. Shay Assad, Director, Defense Pricing and Contracting (formerly Defense Pricing/Defense Procurement and Acquisition Policy) by email and/or telephone in an attempt to obtain software/equipment/etc. This office does not issue solicitations or buy directly; we are a policy office. The Pentagon Force Protection Agency advises you contact your local law enforcement office if you question the legitimacy of a request or solicitation. Also, forwarding a copy of the suspect email to This e-mail address is being protected from spambots. You need JavaScript enabled to view it enables the Department to track the email as a phishing attempt.”

So if somebody reaches out to you and says they are Shay Assad, Director, DPC (or Director of any other DoD directorate), and asks for software/equipment/etc., then you should report the scam as requested above.


Last Updated on Tuesday, 18 September 2018 13:11
 

Rent vs. Lease vs. Buy

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In what appears to us to be yet another sign of the dumbing-down of acquisition professionals, the FAR Councils published a proposed rule that would revise FAR Part 7.4 to “clarify … that the term ‘lease,’ as used in the subpart, includes the ‘rental’ of equipment.” Yes, because it was completely unclear for the past 34 years that the term “rental” was semantically equivalent to the term “lease.” Nobody ever understood that when the FAR told Federal acquisition professionals attempting to perform a lease versus purchase analysis to “consider … cumulative rental payments for the estimated period of use” (under the Subsection heading of “Equipment Lease or Purchase”) it was completely misusing terms, and therefore the Federal acquisition professionals who were required to adhere to the requirements were being confused.

And thus the required lease versus purchase analyses were being screwed-up. All because people were confused between “rental” and “lease”.

We are not making this up.

In fairness, it is possible that somebody looking to split hairs might argue that “rental” applies only to land or property (going by the online definition), whereas “lease” could apply to anything (including land or property). And a “rental period” is, technically, only 30 days and is automatically renewed each period, whereas a “lease” is for a specified period. Those are real differences. But Holy Heck is that a convoluted way to approach regulatory analysis! You know a lawyer must have been involved, because the differences (such as they are) are all legal differences. Legal nuances, so to speak.

However, even the FAR Councils weren’t willing to admit that there was a real semantic difference between the two terms. The new proposed language would tell Federal acquisition folks that—

While there are some differences between renting and leasing in many industries, there is no standard distinction between both renting and leasing that spans across all industries. Rental agreements are typically for shorter periods of time than lease agreements. Additionally, maintenance requirements and financial terms (e.g., fees or payment terms) differ between a lease and a rental agreement.

(Emphasis added.)

If there is no real difference and if we should all expect reasonable professionals to figure out that when the FAR says “cumulative rental payments” (under the direction regarding how to do a lease versus purchase analysis) it might be talking about the actual cumulative payments under a lease, then why did the FAR Councils feel such a burning need to address this issue?

In the comments associated with the proposed rule, we were told that “The objective of the rule is to ensure the value of rental agreements are included in the decision on whether to lease or purchase equipment. … Based on Fiscal Year 2016 data from the Federal Procurement Data System, the Government issued approximately 34,925 contract actions for the rent/lease or purchase of equipment.”

In other words, there were no known cases of a lease versus purchase analysis not being performed (or being performed incorrectly) because some hack argued that “rental payments” were somehow different from “lease payments.” Nope. Instead, the FAR Councils decided to attack this … issue … because there were a lot of transactions that required a lease versus purchase analysis—and they wanted to make it super clear to even those Federal acquisition folks at the lowest levels of reading comprehension exactly how to perform such a lease versus purchase analysis.

And just to be absolutely rock-solid certain that all Federal acquisition professionals were given a complete toolset that could be used to perform a lease versus purchase analysis—

The rule also adds a helpful link to a GSA site that provides additional guidance on renting and leasing equipment and updates the GSA office from which agencies may request information when making lease or purchase decisions. In addition, weblinks have been added to the rule for Office of Management and Budget (OMB) guidance for lease-purchase analysis, see Special Guidance for Lease-purchase Analysis (Section 13 of (OMB) Circular A-94, also see 8.c.(2)); and OMB Circular A-11 Appendix B Budgetary Treatment of Lease-Purchases and Leases of Capital Assets.

Apparently reading comprehension, and basic business analysis skills, are in such dire straits within the Federal acquisition corps that “helpful” links are being added to the Federal Acquisition Regulation, so as to walk “professionals” through the process.

We are not making this up.

It’s pretty clear—or it absolutely should be—that before entering into a lease, one should determine whether it is more economically beneficial to instead purchase. This is just Financial Analysis 101. But rather than find acquisition professionals who can actually do Financial Analysis 101, the FAR Councils have chosen to accept the current state of the workforce and simply walk the “professionals” through the required steps, with lots of hand-holding “helpful links” to make sure they don’t stumble along the way.

Anyway, as with all proposed rules, the public (that’s you) is invited to submit comments. Follow the link above (in the first sentence) if you wish to provide input to the FAR Council’s deliberative rule-making process. We do not encourage anybody to mock the rule-makers, as tempting as it may be—though of course we’ve taken that liberty here, within this blog article.

Last Updated on Sunday, 09 September 2018 14:43
 

New DoD Micro-purchase Threshold

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Finally.

We’ve been following the strange reluctance of the DoD to comply with Congressional intent regarding the micro-purchase threshold. The 2018 NDAA raised the threshold to $10,000. DoD issued a Class Deviation raising the threshold, but only to $5,000. We reported at the time: “Interestingly, DoD chose to raise the micro-purchase threshold to $5,000, not $10,000 as the NDAA demanded. (The $10,000 threshold was implemented only for certain limited circumstances that do not seem to be envisioned in the NDAA language.)

Our impression was that the micro-purchase threshold for DoD was buried in some statute that Congress forgot to modify. In any case, Section 821 of the 2019 NDAA clarified that “Notwithstanding subsection (a) of section 1902 of title 41, the micro-purchase threshold for the Department of Defense is $10,000.” That would seem to end any ambiguity regarding Congressional intent.

DoD must have agreed with our assessment of Congressional intent because, on 31 August 2018, another Class Deviation was issued. Class Deviation 2018-O0018 “rescinds and supersedes” the prior Class Deviation and officially increased the micro-purchase threshold from $5,000 to $10,000.

The Class Deviation did a couple of other things, including eliminating the definition of “micro-purchase threshold” found at DFARS 202.101 in favor of the FAR definition. In other words, the DoD will not carve out any exceptions for itself; it will abide by the FAR rules in this area.

So that would seem to be that.

Oh, wait.

The micro-purchase threshold is now $10,000 for DoD, except when it isn’t.

The new Class Deviation restricts the micro-purchase threshold to $2,000 for acquisitions of construction. It also restricts the threshold to $2,500 for acquisitions of services subject to the Service Contract Act. Each of those areas is covered by yet another statute, according to the Class Deviation.

We guess Congress must address these two areas next year, in the 2020 NDAA, if it truly wants to raise the micro-purchase threshold to $10,000.

 

CAS Board Struggles

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We’ve written several articles about the CAS Board and how it’s struggled for relevance over the past decade or so. In fact, if you Google “CAS Board” some of our articles show up. That’s a telling result. Not only does it indicate that our articles on the topic are of interest but—more importantly—it clearly demonstrates the paucity of actual links to anything the CAS Board might be doing in the shadows of the Old Executive Office Building.

As we’ve documented, the Trump Administration took down the CAS Board site and replaced it with … nothing. Although the CAS Board has uploaded a couple of items to the White House site, you almost have to stumble upon them.

For example, a list of the current members of the CAS Board was uploaded in November, 2017. You would only know this if you did a Google (or similar) search for it.

Another November, 2017, upload was a Federal Register notice that the Disclosure Statement (CASB Form DS-1) was being revised. It was a 1996 notice. We have no idea why it was deemed so important that it merited an upload.

A more recent upload dates from April, 2018. It is the planned agenda for CAS Board Meeting No. 76. It indicates that the Board plans to hear from members of the Section 809 Panel’s CAS Team 9, addressing the topic “Modernizing CAS”—followed by “CAS Board Recap & Discussion.”

The upload of the meeting agenda for Meeting No. 74 (held February, 2018) has much more content. It includes topic such as “the applicability of commercial standards to CAS,” and “CAS applicability and coverage thresholds” to both ID/IQ and hybrid contracts.

The meeting agenda for Meeting No. 75 shows that there is a new member—Yvonne Hinson, CPA, CGMA, Ph.D. You wouldn’t know that if you went by the official list of Board members (link above), but you’d know it if you Googled each meeting, trying to figure out what in tarnation the CAS Board is actually trying to accomplish.

For the record, we were unable to locate any agenda from any “Meeting No. 77,” so perhaps the agenda has not yet been uploaded.

Based on the foregoing, it’s clear that that the CAS Board is meeting and is having discussions. However, since no meeting minutes have been published, it’s difficult to see if the Board is making any progress. The situation is opaque in the extreme.

On the other hand, information is leaking out via other—quite unofficial—means. The industry associations seem to have some insight into the issues with which the CAS Board is struggling. As we noted in a recent article, the CAS Board has been charged with converging CAS and GAAP. Our perception is that the effort isn’t going very well.

In fact, the July, 2018, issue of Government Contract Costs, Pricing & Accounting Report (Vol. 13, Issue 4), printed in full the letter of resignation from long-time CAS Board Staff member Eric Shipley, who has been with the CAS Board since 1994. The letter of resignation was respectful, but pointed. It was clear that Mr. Shipley had a difference of opinion with current CAS Board leadership.

For example, he wrote: “… under current CAS Board leadership, presenting an analysis of all public comments or even merely communicating alternative viewpoints and approaches appears not to be welcome. I find it almost inconceivable that the OFPP staff believes a full presentation and discussion of public comments is apparently beyond the CAS Board’s interest.” (Emphasis in original.)

Mr. Shipley also seemed to plead with the Board to slow things down. He wrote, “I urge the Board to instruct the Work Group to focus on the issue identified by the public and keep the scope of the rules limited. I also urge the Board to … develop an ANPRM [advanced notice of proposed rulemaking], and not to focus on a stand-alone Staff Discussion Paper that is not needed.” With respect to timing, he wrote “Even taking these actions, I would not expect an ANPRM to be drafted, reviewed by OMB, processed by OIRA and prepared for publication in the Federal Register before 2019.” [Ed. Note: We may have misinterpreted his comment; he may have been asking for the Board to speed things up. In which case, YES.]

(Readers may note that we think the CAS Board is moving sufficiently slowly already. We compared their rulemaking speed to “molasses flowing over ice at the North Pole.”)

There was more to it, of course. The resignation letter ran about 10 paragraphs.

The resignation letter is an indication of tension between the Board and its Staff. As noted above, the Board has a mission to try to converge CAS and GAAP accounting practices. It is clear that Mr. Shipley, at least, did not support that mission. (He wrote, “There is a current case which seems to favor GAAP over the CAS although each set of standards serve a unique purpose.”)

But nobody would know any of this from the CAS Board itself. There is no coherent messaging, no overall communication strategy. Part of this obviously stems from the Trump Administration’s focus on things other than CAS (or even reform of CAS administration). But we suspect that the remainder of the gap comes from a loss of focus on transparency. Which is a shame.

Last Updated on Tuesday, 18 September 2018 13:13
 

Travel Problems

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Having recently returned from a higher-than-normal amount of travel, I believe this is a good time to rant (again) about the overall stupidity of the cost allowability rules that pertain to travel.

When I travel for work, I comply strictly with the FAR travel rules (FAR 31.205-46). Those rules are based (to a limited extent) on the Federal Travel Regulations (FTR) and Joint Travel Regulations (JTR) that apply to Federal government personnel. In other words, government contractors are (generally) required to travel within the same rule set as applies to Federal government employees—and that is simply not possible.

For example, it’s very difficult—if not impossible—for contractors to get the “government employee” rates provided to Federal workers. If you book a reservation at that lowered rate, you will almost certainly be asked to show your Federal ID when you check in. If you don’t have it (because you’re not a Federal employee) then there are several possible outcomes. Maybe you’ll get the rate anyway, because it’s too much trouble to change the reservation. Maybe you’ll have to pay the higher “room rate.” Maybe your reservation will be cancelled. Or maybe you’ll be arrested and charged with attempting to defraud an innkeeper, which is a crime in many states. Rather than deal with those risks, you will probably opt to simply book the cheapest rate you can get, knowing that most “good” hotels are outside the GSA’s lodging limits.

Of course—as any auditor will tell you—contractors certainly don’t have to live within Federal per diem limits. They are free to spend whatever they wish; the limits simply pertain to the amount of travel costs that will be reimbursed in direct costs and in indirect cost calculations. In other words, the difference comes from profit. (In a future rant, we might explore how the DoD’s “weighted guidelines” approach to setting profit objectives ignores this little factoid.) The problem is, that profit also funds other things, such as capital investments. Taking unallowable travel costs out of profit puts pressure on contractors’ ability to invest in their business.

But the Federal travel rules and the FAR travel cost principle are stupid. They are stupid because they focus on the individual elements of travel and therefore don’t lead to the lowest overall trip cost.

Scenario: The airport is 10 miles from the office where you will be meeting and working for the next five days. You need a hotel for four nights.

Example #1: There is a hotel right next to the office but it’s $5.00 over the local lodging ceiling, so your travel agency books a hotel that’s 5 miles away—meaning it’s 15 miles from the airport. You saved $20.00 in unallowable lodging expense ($5.00 x 4 nights) but you are now spending an extra $100.00 in taxi fare. (The trip from the airport to the hotel is longer, and each day you need to take a taxi from the hotel to the office, and back again.) You saved $20.00 but spent an extra $100.00 transportation. Nice. That extra $100.00 is fully allowable, of course.

Example #2: You are flying Monday thru Friday. The airfare is $1,000.00. But if you were to return on Sunday, the airfare would only be $600.00, because of the Saturday night stay rule. You could save $400.00 by extending your trip by two days. And the lodging is only $130.00 per night; and the daily M&IE rate is only $48.00! Doing the math, by spending an extra $346.00 you save $400 in airfare, for a net savings of $54.00. Thus (all things being equal), it makes perfectly reasonable business sense to extend the business trip by the weekend. But good luck explaining all that to your boss, who thinks you are boondoggling. And good luck explaining all that to the people who process your expense report—and the auditors—who only see two days of unallowable “personal” travel tacked-on to the business trip.

Example #3: Same facts as Example #2, above. You can save $400 in airfare by adding two days to your trip. But instead of asking the company to pay for two days of lodging and M&IE expense, you want to apply that $400 towards an upgrade to Business Class. You’ll cover the weekend hotel and meals on your own dime (perhaps by staying an Aunt Betsy’ house and letting her cook for you), but you want to fly on that plane in a place where that teenage brat in the seat in front of you isn’t going to cram her seat down on your knees. Plus, if you fly Business Class, you might be able to actually get some work done on the plane! It’s a win-win, right? No, it’s not. Because the FAR travel rules on airfare don’t permit you to do this. Therefore, you must fly the “lowest available airfare” unless you can find some other reason for upgrading.

The fix for this seeming conundrum isn’t hard, and the FAR already has a precedent that could be applicable.

Looking at the compensation cost principle (31.205-6), we see the following language at (b), which discusses compensation reasonableness: “Compensation is reasonable if the aggregate of each measurable and allowable element sums to a reasonable total.” The regulation implies that offsets are allowed. In other words, if one compensation element is higher than would seem reasonable, another (lower cost) element can offset it. What’s important is the aggregate total, not the individual compensation elements.

DCAA audit guidance confirms this approach. The DCAA Contract Audit Manual (at 6-413.7) states “Offsets between individual compensation elements are implied in this concept. By using offsets, the contractor can provide proof that, in total, the cost of the compensation package is reasonable.” (We note that the offset calculation must be made between allowable elements of compensation.)

In order to address some of the concerns we’ve raised in this article, the FAR travel cost principle should be revised to add language such as the following—

Travel costs are reasonable and allowable if the aggregate cost of each trip is less than would it would have been, had each allowability rule provided below been followed exactly. Offsets between individual travel elements, including otherwise unallowable travel costs, may be used, where the result provides a demonstrable cost savings to the government.

How nice that flexibility would be, for travelers, for contractors, and for the taxpayers.

 

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Newsflash

In March 2009, Nick Sanders’ article “Surviving Government Audits: Have the Rules of Engagement Changed?” was published in Government Contract Costs, Pricing & Accounting Reports (4 No. 2 GCCPAR P. 11). Apogee Consulting, Inc. is proud to announce that Mr. Sanders’ article was selected for reprint and publication in Thomson West’s The New Landscape of Government Contracting.  Mr. Sanders, Apogee Consulting’s Principal Consultant, joins such distinguished contributors as Professors Steven Schooner and Christopher Yukins, Luis Victorino and John Chierachella, Joseph West and Karen Manos, Joseph Barsalona and Philip Koos and Richard Meene, and several others.  The text covers a lot of ground, ranging from the American Recovery and Reinvestment Act (ARRA) to Business Ethics and Corporate Compliance, and includes several articles on the False Claim Act and the Foreign Corrupt Practices Act.  In addition, the text includes the full text of many statutory and regulatory matters affecting Government contract compliance.

 

The book may be found here.