Taking the “I” Out of IRAD
Last Updated on Sunday, 04 December 2016 21:08
Lots of churn on this topic during the past year. In fact, 2016 might be best characterized as the year when the Department of Defense got serious about applying central management techniques to what has historically been known as contractors’ “independent” research and development efforts. We’ve written quite a few articles on the topic, most of which concerned Mr. Frank Kendall’s efforts to implement his Better Buying Power initiatives to make IRAD more “efficient”.
Our opinion on BBP and its attacks on IRAD are well documented. We will not elaborate on it here.
Over at Dentons, a government contracts article notes problems implementing the recent DFARS rule that requires contractors to engage in “technical interchanges” with DOD personnel in order to make their IRAD expenditures allowable costs. We wrote about our concerns with the rule here. The Dentons practitioners noted other concerns, including the fact that DCMA recently issued guidance to its contracting officers that they are not to assist contractors in arranging those technical interchanges.
According to the Dentons article—
On November 21, 2016, the Defense Contract Management Agency (DCMA) issued guidance to its contracting officers instructing them to refer contractors’ requests for information concerning their points of contact for technical interchange purposes to the Office of the Assistant Secretary of Defense (Research and Engineering) (OASD R&D) or their ‘buying commands.’ … the guidance fails to discuss the elephant in the room, namely that contractors have been reaching out to OASD R&D and requesting technical interchanges, but have not been receiving responses. Thus, with 30 days to go before many contractors begin their FY 2017, contractors are unsure whether they will be able to technically interchange with appropriate DoD technical or operational personnel prior to incurring FY 2017 IR&D costs. As a result, contractors are uncertain about the allowability of the costs of their 2017 IR&D projects because these projects may begin without a technical interchange. Potentially more concerning, some contractors’ FY 2017 began prior to November 4, 2016, the date the final rule was published. While the final rule is clear that the requirement to technically interchange does not apply prior to the date the final rule was published, it does not address whether IR&D costs incurred on November 5, 2016, are allowable costs, absent a technical interchange.
If you go read our prior article on the topic (link above) you’ll see we actually predicted that result. Go us!
So the new rule can’t be implemented because the technical side of DOD won’t cooperate with the acquisition side. As commenters told the DAR Council would be the case. The DAR Council did its usual thing and ignored the input and pushed the rule forward despite the warnings. They simply did not care. It was something required by BBP and Frank Kendall, and to hell with all the naysayers.
You can thank Mr. Frank Kendall, USD (AT&L), for this one.
In related news, on 01 December 2016 the head of the Defense Procurement and Acquisition Policy (DPAP) published a DFARS Class Deviation that acknowledges the new rule isn’t working. The Class Deviation permits contractors to hold their technical interchanges with DOD personnel anytime during 2017, even if the IRAD projects have already started for the year. (The rule required that the interchanges take place prior to incurring any expenditures.) The Class Deviation purportedly is required “to afford contractors a phase-in period to develop processes and procedures.” Left unsaid is what the Dentons practitioners called “the elephant in the room”—i.e., that nobody is home at the Office of the Assistant Secretary of Defense (R&D).
Many contractors simply cannot schedule the interchanges because OASD (R&D) will not cooperate. DCMA has washed its hands of any responsibility to implement the rule. The Class Deviation gives DOD a year to figure out its own areas of responsibility and processes; the statement about contractors’ needs is simply window-dressing.
Did we mention you can thank Mr. Frank Kendall for this wonderful situation?
In related news, it seems Mr. Kendall is soon going to be out of a job, according to reports.
It will be interesting to see what happens to the rest of his satrapy over the next year.
Dunning-Kruger Strikes Again (Part 2)
In the first part of this story, we related how Rocko’s company hired Apogee Consulting, Inc. to help them navigate the rough waters associated with FAR Part 15.403 and FAR Table 15-2. We were referred to Rocko but problems quickly developed. Among those problems was a looming schedule conflict. Rocko was going to be out of the country for several weeks and Ed was going to take a two-week vacation. Things looked problematic until Ed called the prime contractor and obtained schedule relief. We all agreed that, while Rocko was away, his staff would work on the detailed estimates. As data was developed it would be reviewed by Apogee Consulting, Inc. for compliance. When Ed was away, Rocko would review the detailed estimates and apply “management judgment” to the pricing.
At least, that’s what we thought we all agreed to.
Despite several attempts by Ed to get insight into how the detailed estimates were going, we ran into a seeming brick wall. Phone calls went unreturned, as did emails and even text messages. Ed and I began to suspect that the staff wasn’t actually working on anything, despite their apparent enthusiasm at our in-person meeting and despite their acceptance of action items. We began to get the idea that nothing would be done without Rocko’s hands-on participation. And he was out of the country. Or was soon to be out of the country. It was not exactly crystal clear where he was and what he wanted us (and his staff) to be doing on the project.
All we could do – and we did it, over and over – was to send emails pointing out that Ed was going to be out of pocket very soon, for about two weeks. If he couldn’t review anything before his vacation, it was going to have to wait until his return. As was becoming the norm with this client, we received no response to our (multiple) emails on the topic of scheduling.
Ed took off for his planned vacation having reviewed nothing. We had no idea whether the client had done anything at all. From what little info trickled to Ed, we got the sense that Rocko had decided (despite our advice to the contrary) to hold the line on the competitive quote he had submitted several weeks before hiring us—regardless of whether he could justify a higher price in the sole-source environment.
Folks, it’s tough to add value when the client refuses to take your advice.
Thinking that Rocko must have returned from his European trip, I reached out to him in Ed’s absence. I tried a couple of emails, with nothing coming back. Not a good sign.
At this point I noticed that Rocko hadn’t yet paid our first invoice. Readers of the blog know (or should know) that our standard payment terms are 15 days after receipt of invoice. Fifteen days may seem like a quick turn, but it’s what the DoD expects from its prime contractors with respect to small business subcontractors—so it’s become our expectation. We make exceptions from time to time, but this wasn’t one of them. Rocko had signed our standard engagement letter contract specifying payment 15 days after invoice receipt. And he was now at 30 days and climbing. So I started nagging him about that, as well. Similar lack of response.
Nothing regarding project status and nothing regarding payment. The tone of my emails got a bit more strident.
Finally I got this email in response to one of mine—
I'm now back [from Europe] as of today. I will speak to accounting tomorrow regarding your invoice. I have a [prime contractor] analyst arriving at 8 am on Wednesday. If you would like to be included that would be great. My problem with our start has been the following: I only need one not two experts. I'm not sure where Ed fits in. If either of you has time Wednesday we begin at 8am. We need to get back on track.
Again: communication problems. To say our wires were crossed would be a polite way of putting it.
We had previously agreed—and had gotten buy-in from the prime—that we would slip the original schedule to give Ed and Rocko a chance to review the inputs. Now Rocko was telling me—with 48 hours advance notice—that he had scheduled a meeting with the prime.
What was the analyst going to do? I had no idea. Ed had no idea. And Rocko wasn’t saying. We had no strategy, no plan, and (as far as I knew) no work product. Normally, I would expect the interaction to be a bit of a disaster.
Rocko knew that Ed was out of town and could not support the meeting. He scheduled it anyway.
I couldn’t support the meeting, which was why Ed was the lead on the project. A fact that had been made very clear to Rocko (or so I thought). Rocko didn’t have two experts; he had Ed and I was backing-up Ed while he was on vacation. Another fact that had been made very clear to Rocko.
The sentence “We need to get back on track” was troubling, to say the least. Ed and I had just spent the past month trying very hard to move the project forward, with little or nothing to show for it.
What does one say to that mishmash of misinformation? I tried to put a positive spin on my response, but even as I typed the response to Rocko, I knew in my heart that it was too late to affect anything. Dunning-Kruger had struck again and this project was going to crater.
Ed returned from vacation later that week and, before he did anything else, we talked about strategy. We figured our best bet was for Ed to call/text/email Rocko as if everything was fine. Rocko replied to Ed’s text, letting us know that he had successfully negotiated the FRP contract and the project was over. And our check would be in the mail in 10 days.
How Rocko had successfully negotiated a price will remain forever a mystery. It is likely that he was unable to prepare a bottoms-up cost estimate in the required FAR Table 15-2 format. It is near certain that he didn’t have anything approaching FAR-compliant indirect rates. Apparently a deal was struck and the prime contractor was satisfied.
The only theory I can think of is that the prime went back to the old RFQ and decided that competition had actually been achieved even though there was only one actual bidder. There are a couple of seldom-used FAR loopholes [found at FAR 15.403-1(c)(1)] that state—
A price is based on adequate price competition if …
- There was a reasonable expectation, based on market research or other assessment, that two or more responsible offerors, competing independently, would submit priced offers in response to the solicitation’s expressed requirement, even though only one offer is received from a responsible offeror and … Based on the offer received, the contracting officer can reasonably conclude that the offer was submitted with the expectation of competition. …
- Price analysis clearly demonstrates that the proposed price is reasonable in comparison with current or recent prices for the same or similar items, adjusted to reflect changes in market conditions, economic conditions, quantities, or terms and conditions under contracts that resulted from adequate price competition.
(Note we’ve renumbered and edited the FAR subsection for clarity. If you want the exact verbiage and all the rules associated with the loopholes, you need to read FAR 15.403-1(c)(1) very carefully.)
Thus, it may well be possible that the representative of the prime contractor was able to use one of those two loopholes to find an exception to the requirement to submit certified cost or pricing data, so long as Rocko was willing to hold to his original quoted price. We don’t know that’s the case; but we also don’t know it wasn’t the case. And we don’t know how much money (if any) Rocko left on the table by sticking with his original quote.
The point of this story is that Rocko knew what he wanted and he wasn’t going to let any self-proclaimed SME’s get in his way. All our experience and knowledge meant nothing to Rocko, because there was no upside for him. So long as he was going to hold his original pricing, there was no possible value we could add. Even if we were right and he could have charged more because his subcontract award was a lock, all that would have done is make him look bad to his staff.
Meanwhile we are still waiting for Rocko’s payment, now 60+ days overdue.
We Should Talk More
Long ago (but not in a galaxy far, far, away) we wrote about an OFPP initiative to get government contracting officers to communicate with industry. The OFPP, for those who may not know, is a small niche office within the White House’s Office of Management and Budget (OMB). Allegedly, it plays a “central role in shaping the policies and practices federal agencies use to acquire the goods and services they need to carry out their responsibilities.”
Why do we say “allegedly”? Hang on for a sec; we’ll get to that in a moment.
In that prior article, we discussed OFPP’s publication of an Executive Memo from then-OFPP Administrator Dan Gordon. (Mr. Gordon was replaced by Mr. Jordan who was replaced by Ms. Rung, for those keeping score.) Mr. Gordon’s Memo required each Executive branch agency to develop a “vendor communication plan” to address “how the agency will reduce unnecessary barriers, publicize communication opportunities, and prioritize engagement opportunities for high-risk, complex programs or those that fail to attract new vendors during re-competitions.” Mr. Gordon emphasized the importance of vendor communications by attaching a “mythbuster” memo that “busted” commonly held “misperceptions” about barriers that might impede government folk from, you know, talking with potential suppliers.
We ended our prior article with the following: “Whether it’s auditors talking to those they audit or contracting officers talking to bidders, communication is a good thing. And that is the official policy of the U.S. Government.”
But the OFPP memo and the policy emphasis and the long-winded mythbusting letter seemingly failed to change anything, at least as Congress saw things. Despite the official role of the OFPP and the alleged power it had to set acquisition policy, nothing changed. Or at least, not enough changed. Congress waited for a while and then determined that the status remained an unfortunate quo. So it decided to make a public law, as it is empowered to do by the U.S. Constitution.
Congress enacted a bill (HR 1735, the National Defense Authorization Act for 2016). In that bill, Section 887 required that –
Not later than 180 days after the date of the enactment of this Act, the Federal Acquisition Regulatory Council shall prescribe a regulation making clear that agency acquisition personnel are permitted and encouraged to engage in responsible and constructive exchanges with industry, so long as those exchanges are consistent with existing law and regulation and do not promote an unfair competitive advantage to particular firms.
And then President Obama vetoed the bill.
And then it was revised and resubmitted, and it finally became a Public Law. We think. Because Bob Antonio at WIFCON doesn’t have a P.L. number associated with it, which is unusual. Could be an oversight. Probably is. But maybe not. He usually doesn’t make that kind of oversight.
Regardless of the murkiness of the legal status of the 2016 NDAA, the Section 887 language quoted above is being used as the basis of a proposed FAR revision that would clarify “that agency acquisition personnel are permitted and encouraged to engage in responsible and constructive exchanges with industry.”
Maybe that is going to be a newsflash to some government contracting officers.
So why does the FAR need to be revised?
Because the Dan Gordon mythbusting memo was ineffective. Because the Executive branch agencies (apparently) ignored it. Because they (apparently) never developed any required vendor communications plans. Or, if they did all the things they were told to do, then Congress (and/or suppliers) never noticed anything had changed. But we think the most likely explanation is that all those Executive branch agencies basically just ignored the OFPP Administrator’s Memo.
Why did they ignore it? Why did they feel free to ignore Mr. Gordon’s Memo?
Maybe because it’s a high-turnover position, and those agencies might have thought that the next OFPP Administrator was going to bring in a different set of priorities. And so they would never be held accountable for ignoring the direction they had received from the previous Administrator. To be clear: we don’t know that this is the case; but we strongly suspect it is.
Their plan to ignore the Memo seems to have worked to some extent. They might have gotten away with it, too—except for those meddling Congress critters.
So here we are with FAR Case 2016-005 that proposes to amend FAR 1.102-2(a)(4) “to specifically state that Government acquisition personnel are permitted and encouraged to engage in responsible and constructive exchanges with industry, so long as those exchanges are consistent with existing laws and regulations, and promote a fair competitive environment.”
As with all proposed rules, you may submit a comment if you would like to. The contact info is in the link to the Federal Register notice (above).
But we pretty much think we’ve said all that needs to be said on the topic. If an Executive Memo from the OFPP Administrator won’t get contracting officers communicating with industry, there is no reason to suspect that a FAR revision will. It will be nice to have, of course. And contractors will point to it when they whine that they are not getting their fair share of the public trough. But nothing is really going to change.
And yet Congress will continue to try to do something, because everybody knows it’s too hard to enter into the defense marketplace. (See our many articles on that topic for details.)
Meanwhile, OFPP Administrator Rung, who brought into vogue the notion of “category management” as an important Federal acquisition priority, has left the OFPP to join Amazon, according to reports. Her replacement has not yet been named. It seems likely that the position will go unfilled until incoming President-elect Trump names his nominee.
It will be interesting to see what the next OFPP Administrator’s priorities will be, and whether anybody will actually, you know, care.
Dunning-Kruger Strikes Again
Last Updated on Thursday, 24 November 2016 19:42
Reference is made to a prior blog article on the topic of the Dunning-Kruger effect, defined by Wikipedia as “a cognitive bias in which low-ability individuals suffer from illusory superiority, mistakenly assessing their ability as much higher than it really is.” We concluded that prior article by providing the following advice:
So, dear readers, try to be aware of The Dunning-Kruger Effect (and other cognitive and social biases) and mitigate it by recognizing the limits of your own expertise. Don’t try to leave the bounds of what you know and ‘wing it’ by guessing about what you don’t really know. Hire subject matter experts, and listen to them.
That’s not to say that all self-proclaimed subject matter experts are equal, or that they are all worthy of veneration. The fact is, you must do your due diligence on the consultants you hire, the same way you do your due diligence on the employees you hire.
If you are aware of your limitations, and think you’ve picked the right business advisor—then listen to what your advisor tells you. And do it.
Recently we were ambushed once again by the D-K effect. We saw it coming but we still walked right into it. All the warning signs were there, but we brushed them off. Mind if we share the story with you?
Picture a small business, a pretty successful one. It has a multi-faceted business model, selling its products commercially and (with modification) to prime defense contractors. It enters into firm, fixed-price, subcontracts at values below the threshold at which certified cost or pricing data would be required. It performs its job well and delivers high-quality products on time with minimal (if any) change order nonsense.
The General Manager – let’s call him “Rocko” – runs a tight ship and he’s a very nice man. His employees like him a lot. For one thing, he lets the office staff bring pets into the workplace. But make no mistake: it’s Rocko’s ship and he runs it his way. His way has been pretty successful and it has kept a lot of people employed.
The company successfully developed a derivative of its primary commercial product for one of the prime defense contractors and that prime successfully walked its program through Milestone Decision Authority reviews, moving from Low-Rate Initial Production (LRIP) to Full-Rate Production (FRP). In support of the FRP contract, the prime wanted to award Rocko’s company a FFP subcontract for one year plus four options. The total value of the award was in excess of $750,000. Unless the prime was going to compete the subcontract, Rocko’s company was going to have to prepare, submit, and negotiate its very first cost proposal in the FAR Table 15-2 format and disclose certified cost and pricing data. And they had no clue about any of that stuff.
Rocko’s company had developed the product and successfully tested it under the LRIP program. It was only natural the prime would award a sole-source (or single source, if you prefer) to the small business. But that pesky cost & pricing data issue scared everybody. Therefore, the prime decided to compete the award and Rocko’s company received a competitive Request for Quotation (RFQ) and submitted a quote to the prime. Unfortunately, they were the only company to submit a quote; nobody else had the capability to make the product to spec. Even though it was a derivative from a commercial item, the technology used by Rocko’s company was a barrier to the other potential competitors. So competition wasn’t achieved, and the prime was back to a sole source award, and Rocko was back to figuring out this whole certified cost and pricing data and this whole FAR Table 15-2 thing, and so Apogee Consulting, Inc., was called in to assist.
Who called us? It was a representative of the prime contractor. The prime wanted a neutral, knowledgeable, source to work with Rocko to prepare a cost proposal suitable for cost analysis and negotiation. That was a little weird but we thought “why not?” And so we took the gig.
That was our first mistake. The last time we got D-K’d it was also a referral. From now on, we don’t accept referrals. If you want to hire us, you better get to know us first.
Our second mistake was dealing with Rocko. Our first dealings with him were via email and phone, as is the case with so many of our clients. But the communications were a bit off. For example, I emailed Rocko and told him that Ed would be contacting him first thing Monday morning to set up an appointment to come visit him. At 8:30 AM I received an angry call from Rocko, asking why Ed hadn’t yet contacted him and why did I say “first thing” in the morning if I didn’t mean it? (Note: Ed called him at 8:45 AM.)
How do you explain to somebody that “first thing” means different things to different people? For example, “first thing” to a Washington, D.C. law firm means between 9:00 and 9:30 AM; whereas “first thing” to a manufacturer might mean 6:30 AM. Since Ed didn’t know what “first thing” meant to Rocko—who was, after all, the company General Manager—he compromised and called at 8:45 AM. Rocko didn’t understand any of that decision-making, and that lack of understanding (or empathy, if you will) should have been a big red flag. We ignored it, of course.
Strike two. And we hadn’t even showed up to begin work yet.
Speaking of showing up to work, we had trouble scheduling meetings with Rocko. He was unavailable for much of the time, whereabouts unspecified. More to the point, his staff was reluctant to meet without him. (It was, after all, his company.) Ed and I discussed this issue and we decided to force things by setting up a two-hour meeting for a Friday morning at 10 AM. Rocko didn’t show but he participated via speaker phone. We had his staff there and we developed a project plan that would lead to the desired outcome. Everybody in the room agreed with the plan. They took action items. They seemed enthusiastic. Rocko was noncommittal.
One early question concerned the initial quote submitted when the company thought it was a competitive acquisition. Did Rocko want to hold to his quote, or did he want to let the bottoms-up estimating process (required for a FAR Table 15-2 compliant proposal) dictate the price of his new offer? We noted that, since he had a seeming lock on the work, he was free to ask for whatever profit rate he might think his customer would pay. While his staff nodded encouragingly at our comments, Rocko was noncommittal. Again.
The next challenge concerned due dates. Rocko was about to leave the country for several weeks and Ed had a two-week vacation planned. Given the scheduling conflicts, we all agreed that we would ask the prime for an extension. Ed called the prime’s representative and learned that this would not be a problem, since the prime wasn’t going to negotiate its contract until late Q1 2017. Everybody sighed with relief, now that the time pressure had been reduced.
We all agreed that, while Rocko was away, his staff would work on the detailed estimates. As data was developed it would be reviewed by Apogee Consulting, Inc. for compliance.
At least, that’s what we thought we all agreed to.
If you would like to hear the rest of the story, stay tuned.