Past Performance on Steroids? New GSA Database to be Used to Help Determine Contractor Responsibility
We have written time and time again about the Obama Administration’s direction to Executive Branch agencies to get serious about documenting contractor past performance information. Generally speaking, this is a good thing. The fact is that program execution cannot be mandated by contract terms and conditions; the customer cannot sue a contractor into performing. The most one can get in such a situation is financial recompense. And so it is right and proper for a record to be kept of contractor performance, and that record should be a factor in future contract award decisions. This philosophy is reflected in recent direction from the OMB and FAR Case 2008-016, discussing how to use the Past Performance Information Retrieval System (PPIRS) and mandating that “clear, comprehensive, and constructive” evaluations be submitted for contract actions, so that they can guide future award decisions. (We noted that the process by which a contractor might challenge its PPIRS evaluation was unclear.) The proposed rule in FAR Cast 2008-016 would direct contracting officers to input reports into PPIRS whenever a contractor was terminated for default (T4D) or was determined to have submitted “defective” cost or pricing data when subject to the Truth-in-Negotiation Act (TINA). On September 3, 2009 the FAR Councils issued another proposed rule (FAR Case 2008-027) to implement a requirement of Section 827 of the FY 2009 Defense Authorization Act. The Act required the General Services Administration (GSA) to establish yet another database covering “integrity and performance” information of “covered Federal agency contractors and grantees” for a period of five years. The Act also required awarding officials to review the database information, and to consider other past performance information (such as that in PPIRS), “when making any past performance evaluation or responsibility determination.” The Act further required that certain members of Congress will have access to the database, in addition to acquisition officials. This new database is called the Federal Awardee Performance and Integrity Information System (FAPIIS). FAPIIS appears to be past performance information on steroids. The proposed rule deals with contract awards; the OMB’s Office of Federal Financial Management will propose similar guidance for grants and grantees in a future promulgation. According to the proposed rule, FAPIIS will draw data from existing systems “where feasible.” Existing systems that will provide data to contracting officers include: - The Excluded Parties List System (EPLS) will provide information on companies (and individuals) that are currently suspended or debarred from receiving Federal awards. However, the rule notes that suspensions and debarments last for a maximum of three years—but since the statute requires that information be maintained for five years, contracting officers will need to access the EPLS archives as well as the current List of Parties Excluded.
- The PPIRS and CPARS databases will provide data regarding contractor past performance. If PPIRS works as proposed, contractors that are terminated for default or that are found to have submitted “defective” cost or pricing data will be reported into the database. (See details in link above.)
The FAPIIS structure also encompasses new systems, including: - Contracting officers will report all determinations of non-responsibility and terminations for default “or cause”.
- Suspension/Debarment Officials (SDOs) will report all administrative agreements.
- Contractors with contracts and grants cumulatively valued at $10 million or more will report information related to all criminal, civil, and administrative proceedings directly into the system.
The following FAR revisions are part of the proposed rule: - FAR 9.105-2(a)(3) will require contracting officers to enter data on all contract actions over the simplified acquisition threshold into FAPIIS, if the C.O. makes a determination that the otherwise successful offeror is not a currently responsible source because of the lack of a satisfactory performance record or lack of a satisfactory record of integrity and business ethics.
- FAR 9.104-3(d) will “clarify the relationship of the non-responsibility determination and the Certificate of Competency” when a small business is involved.
- FAR 9.406-3 will require that SDOs enter data about administrative agreements (which are alternatives to suspension or debarment) into FAPIIS.
- A new contract clause, identified as 52.209-XX, will require contractors to identify whether they meet the criteria for FAPIIS reporting – i.e., a cumulative contract/grant award value of $10 million. The clause will be added to each contract expected to exceed $500,000. If the contractor meets the requirement, it will be required to report information regarding legal proceedings directly into the FAPIIS database on a semi-annual basis.
To their credit, the FAR Councils report that they “are committed to avoiding de facto debarments” and have proposed some controls to prevent automatic determinations of non-responsibility. For example: - There will be a point of contact for reports of system errors and a point of contact for each Government entity that enters information into FAPIIS.
- Contactors will have the opportunity to post comments regarding information that has been entered by the Government, which will be retained along with the performance information for a period of six years (five years of active access plus one year of archiving).
- The system will notify contractors automatically when new information is posted to the contractors’ records.
- If the Contracting Officer obtains relevant (negative) information about an offeror, that CO must contact the offeror to permit it to provide additional information that might demonstrate its responsibility. However, the CO must also notify the appropriate SDO if “the information appears appropriate for that official’s consideration” of whether to initiate suspension or debarment proceedings against that contractor.
Contractors will want to know what information they will need to report into FAPIIS. The proposed rule requires current FAPISS information to be certified as being current, accurate, and complete. It also requires a certification as to whether the offeror, and/or any of its principals, has, within the past five years, been involved in any civil or criminal proceeding, or any administrative proceeding, in connection with the award to or performance by the offeror of any Federal or State contract or grant, if the proceeding resulted in: - a conviction (criminal proceeding)
- a finding of fault and liability that results in a payment of a monetary fine, penalty, reimbursement, restitution, or damages of $5,000 or more (civil proceeding)
- a finding of fault and liability that results in the payment of a monetary fine or penalty of $5,000 or more, or the payment of a reimbursement, restitution, or damages in excess of $100,000 (administrative proceeding)
- a disposition by consent or compromise with an acknowledgement of fault by the contractor, if the proceeding could have resulted in any of the foregoing outcomes.
Open items include whether this proposed rule will apply to commercial items and whether the rule will apply to Commercial-Off-the-Shelf (COTS) items. This is clearly a significant proposed rule that may affect the ability of certain contractors to receive Federal contract or grant awards. It is, however, mandated by public law. As such, there may not be very much that contractors can do to affect it. It should be noted that the FAR Councils cite President Obama’s March 4, 2009 Memorandum on Government Contracting as support for the proposition that responsible contractors are those that have “historically completed projects both effectively and cost efficiently.” Rather than fight the proposed rule, contractors may be better served to develop communication protocols to ensure that their past performance information is accurate (or to provide comments when they believe the information is not accurate), and to ensure that they are accurately reporting information into the FAPIIS database(s) when required to do so. As always, strong performance and cost/schedule discipline, coupled with robust customer communication, is the best means of ensuring good evaluations by Government officials. The proposed rule is here. Comment on the proposed rule here.
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Pentagon Seeks Early Warning Indicators for Troubled Programs
In the face of current and future budget squeezes, Ashton Carter, the new Pentagon Undersecretary of Defense for Acquisition, Technology and Logistics (USD A,T&L) has a lot on his mind these days. The U.S. Governmental Accountability Office (GAO) has reported that about 95% of DOD's largest programs exceeded original baseline budgets by $300 Billion and averaged two years behind original schedules. Troubled programs (such as Textron's Armed Reconnaissance Helicopter) have been terminated for convenience (T4C) and it is likely that more programs currently are on the chopping block. Mr. Carter is quoted in a recent Aviation Week article as looking fore "earlier ways of assessing troubled programs," so as to identify them before the Pentagon is forced to report "Nunn-McCurdy" cost/schedule breaches to Congress. Mr. Carter also warned program managers that poor acquisition outcomes would lead to program terminations. Aviation Week quotes him as saying, "When we find programs that are troubled, that aren't performing in cost, schedule or performance or that are no longer needed, then we need to stop doing them." In the same interview, Mr. Carter says he is looking to reestablish Pentagon-industry partnerships. Such partnering has come under fire recently. The Aviation Week article quotes Mr. Carter as saying, "At the end of the day we are totally dependent on ... defense industry. The government doesn't make our weapons, private industry makes our weapons."  One organization that fosters such DOD-Industry partnerships is the National Defense Industrial Association (NDIA). NDIA has sponsored an Industrial Committee on Program Management (ICPM) for several years. The ICPM mission statement is as follows:
"To provide a forum for senior executives of NDIA coporate member companies and senior Defense Department acquisition officials to meet periodically to review and discuss issues of common interest and concern. Topics for discussion will include program and acquisition management policies, procedures, best practices and issues which impact military systems development, procurement and use." A recent (June 2009) ICPM meeting featured a briefing on the Navy's Probability of Program Success (PoPS) initiative, in which program health is evaluated on a variety of criteria, including requirements, resources, planning/execution, and external influences. The ICPM regularly discusses "predictive program metrics". For example, in November 2008 the ICPM received a briefing on potential predictive metrics. So, in response to Mr. Carter's intention to develop better metrics and indicators to help identify troubled programs, and to enhance Pentagon-Industry working relationships, we say -- it's already being done, sir. Have your subordinates brief you on what's already going on, and see how you can facilitate faster and better progress towards the common goals of industry and the DOD.
Tin Whiskers: We May be On Our Own
A six year-old directive from the European Union to eliminate lead from coatings and solders, in order to move toward environmentally safer electronics manufacturing, may lead to problems for NASA and the U.S. Defense industry. The culprit: so-called "tin whiskers"-- what NASA calls "electrically conductive, crystalline structures of tin that sometimes grow from surfaces where tin (especially electroplated tin) is used as a final finish." It is the lead in solder and coatings that prevent these whiskers, which can otherwise lead to short-circuits and catastrophic failures. The European Union enacted legislation in 2003 known as the Restriction of certain Hazardous Substances (RoHS) and Waste Electrical and Electronic Equipment (WEEE) Directives, which set June 2006 as deadlines for electronic equipment suppliers to eliminate most uses of lead from their products
According to a recent article in National Defense magazine , the U.S. Missile Defense Agency alone has documented $1 billion in catastrophic damage to satellites, missiles, and other defense equipment. The removal of lead from solder and coatings may lead to a dramatic increase in such failures. According to the article, almost 100 percent of DOD electronics have tin-lead components. Even though the United States does not mandate lead-free solder, the Pentagon and its contractors source electronics from a global supply chain, and many suppliers are based in Europe or other countries that are moving toward European standards, such as Japan and South Korea. In order to meet quality standards, DOD contractors will need to modify any lead-free commercial and COTS components, which will increase costs. The article estimates cost increases from 50 to 200 percent. The article quotes an industry source as stating that lead-free assemblies performed poorly when compared to systems that utilized tin-lead solder, meaning that performance may degrade even as costs increase.
The "tin whiskers" phenomenon is not new. NASA reports that it was first observed in the 1940s and 1950s and has been under study since that time. Although the whisker-forming mechanism is still not well understood, NASA recommends use of a conformal coat of Arathane 5750 may reduce the risk of electrical short circuits resulting from tin whiskers. It will be important for NASA and DOD contractors to address this issue, by both evaluating their suppliers for the use of lead-free solder and coatings and by developing appropriate mitigation strategies.
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Two Companies Off the Radar Screen Team Up to Launch ORBCOMM Satellites
Sierra Nevada Corporation (SNC) is a privately owned company on the edge of many technologies, including small satellite manufacturing, space system development, hybrid propulsion, ISR (intelligence, surveillance and reconnaissance), sensor systems, electronic warfare, and air traffic control. Employing roughly 2,000 and with revenues of approximately $700 million, this woman-owned business headquartered in Sparks, Nevada has had a 45-year history of growth and entrepreneurship—yet has stayed off the radar screen of many defense industry analysts. The stealthy nature of this company began to change in mid-2008, when it was selected to be the prime contractor for ORBCOMM’s second generation mobile telecommunications satellites, managing a team that included Boeing, ITT, and Microsat Systems. The initial ORBCOMM contract was for 18 satellites, and included an option for up to 30 additional satellites. The initial order was reportedly worth $117 million. In December 2008, SNC acquired SpaceDev for $38 million, adding nearly 200 employees and considerable innovative space technology and proven space products to its portfolio. In that same month, SNC received the 2008 David Packard Excellence Award and announced it was joining a team participating in the Google Lunar X Prize race to the moon. Meanwhile, another company, SpaceX was jumping into the spaceship development business with both feet. Founded in 2002 by internet entrepreneur (and billionaire) Elan Musk, SpaceX aims to reduce launch costs by a factor of ten. Headquartered near Northrop Field in Hawthorne, CA, SpaceX developed (and successfully launched) its own “Falcon” rocket. On July 15, 2009 a Falcon rocket successfully delivered Malaysia’s RazakSAT into orbit. On September 3, 2009 these two small, entrepreneurial, companies announced that they had agreed to work together to launch the 18 ORBCOMM satellites. SNC will manage the development and build of the satellites, and SpaceX will launch them via an upgraded version of its Falcon spaceship. By placing its launch orders with SpaceX, SNC is showing a great deal of trust. Although there SpaceX has recorded a recent launch success, its history is limited. Its most important commercial launch, the British Hylas 1 satellite, was recently switched to Arianespace. Thus, successfully launching 18 ORBCOMM satellites will establish SpaceX’s credibility as a launcher of commercial satellites, and will validate SNC’s judgment as a manager of commercial satellite systems. A failure will significantly damage both companies. We wish them both the best, and look forward to hearing more about these two companies, now that they are both on our radar screen.
Honeywell Aerospace Loses CEO and CFO
 On Sept. 3, 2009 New Jersey-based Honeywell International reported that two highly placed executives were departing its Aerospace unit. Rob Gillette (Aerospace CEO) left to take the helm of First Solar, a multi-billion dollar manufacturer of solar and photovoltaic modules. Like Honeywell Aerospace, First Solar is based in Arizona. Mr. Gillette will be replaced by Tim Mahoney, formerly Chief Technology Officer. In the same release, Honeywell announced the departure of Aerospace CFO, Bob Hau, who will be joining Lennox International, a Texas-based manufacturer of heating and cooling equipment, as its CFO. Why did the two depart the successful Aerospace unit? At $11 billion in annual sales, the Aerospace unit accounted for roughly 34% of total Honeywell International sales, but also accounted for nearly half of the conglomerate's bottom-line earnings, according to The Wall Street Journal's MarketWatch column. Aviation Week quotes a Wall Street analyst as saying, "Opportunities for further promotion at Honeywell were limited in the medium-term." The analyst notes that the departures allow each executive to "step into full CEO and CFO roles." In other words, each of the executives had hit their ceiling at Honeywell. No matter how talented or what results they created, there was no room at the top for them. Assuming this explanation can be taken at face-value, it seems a shame that the Corporate compensation committee couldn't have found a creative way to retain these two executives. Given the current economic pressures and potential Aerospace/Defense industry downturn, one would have thought Honeywell International would need all the talent it could find, and would not be able to easily replace these two executives.
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