Wednesday, May 30, 2012

CONTRACT INTERPRETATION REVISITED

Many, if not most, problems during contract performance arise over differing interpretations of contract requirements.  The same is true of most contractor claims under or related to contracts: they arise over differing interpretations of contract language.  So far, our most popular blog posting discussed the rules of contract interpretation enunciated in a recent Armed Services Board of Contract Appeals (ASBCA) opinion authored by Judge David James.

The rules have been around a long time and the final authority really is the Court of Appeals for the Federal Circuit (CAFC) since the U.S. Supreme Court seldom gets involved in federal procurement cases.  Judge James based his recent recitation of the rules based on the CAFC precedent.  Another ASBCA jurist, Judge Carol Park-Conroy, has stated the rules this way:
To prevail upon its parapet wall claim, SRC [the contractor] initially must demonstrate either that its interpretation of the contract is the only reasonable interpretation or that the contract was ambiguous.  The rules of contract interpretation are settled.  We are to read the contract as a whole and give it meaning that makes sense.  A contract is unambiguous if there is only one reasonable interpretation.  Conversely, a contract is ambiguous if it is susceptible to more than one reasonable interpretation.  It is not enough to demonstrate there are two different interpretations; rather, both must be within the 'zone of reasonableness.'  Ambiguities will be construed against the government as the drafter under the doctrine of contra proferentem, so long as the contractor relied upon its interpretation during bid preparation.  An ambiguity is patent if it contains glaring errors or patently obvious conflicts.  (Citations omitted.)
If the ambiguity is glaring or obvious, the contractor has a duty to inquire as to the contract language meaning before submitting its bid or proposal.  If the contractor fails to discharge that responsibility, it assumes the risk that the language will be interpreted against it.  If the contracting officer fails to clarify the language, the contractor still must assume the risk, or, of course, not submit its bid or price the risk accordingly.

We cannot overemphasize the point that the practical effect of these rules is the premium both buyer and seller should place on review of contract documents for clarity.  The government, as drafter, bears the initial responsibility.  But the contractor has a duty to inquire about obvious ambiguities and assumes the risk if the government does not clarify.  It is perfectly proper to protest to GAO before bidding if the language is not cleared up.  We should hasten to add that the ASBCA has said the contractor has no duty to "ferret out hidden ambiguities" and that a contractor only has a duty to read the solicitation for the purpose of preparing a proposal in response.

bill@spriggsconsultingservices.com; bill@spriggslawgroup.com

POST AWARD PROTEST TIMELINESS RULES

The first rule is not to protest unless the government has violated an acquisition regulation. The most common violation is the government’s failure to follow the announced evaluation factors.

The second rule is to move fast.

After you find out you lost the award, you must request a debriefing, in writing, within 3 calendar days. If the last day falls on a weekend or holiday, the deadline is the next business day and this is true of all the calendar day calculation rules. (Insist that the government adhere strictly to the requirements of FAR 15.506.) You then have 10 calendar days after the debriefing to file a protest at GAO. If you don’t ask for a debriefing, you have 10 calendar days after notification of award to protest to GAO (you must protest within 10 days of actual or imputed knowledge of the grounds for protest).  Note however, if you want to invoke the statutory stay of award or performance on the contract, these time requirements change.

When the government receives notice of a protest from GAO (be sure GAO promptly provides this notice), within 10 calendar days after award or within 5 days after a debriefing, whichever is later, the contracting officer must immediately suspend performance on the awarded contract. Notice the rule here is 10 days after award, not 10 days after you receive notice of the award. This is another reason to request the debriefing to allow time for imposition of the automatic suspension of performance pending GAO’s decision on the protest. Note also the rule is 5 days after debriefing for suspension of award or performance.

If you miss these deadlines, you are out of luck in protesting at GAO. However, if you act with reasonable promptness, you can still protest at the Court of Federal Claims (COFC). In fact, you can get a second bite at the apple at the COFC even if you lose at GAO. The COFC has disagreed with GAO on several occasions.


Suspension of performance can be overridden by the head of the contracting activity, on a non-delegable basis if urgent and compelling circumstances that significantly affect the interests of the government will not permit waiting for the GAO decision or contract performance is in the best interests of the government. The resumption of contract performance, however, can be challenged in the COFC in an action testing the propriety of the decision to override the suspension of performance. In a good number of these cases, the COFC has disagreed with the government.

If your grounds for protest involve the propriety of language in the solicitation, you already are too late. Those protests much be sent to GAO before the time for submission of bids.

YOU DON’T HAVE TO REMEMBER ALL OF THIS. JUST HEED THIS WARNING THAT THESE TIME LIMITS ARE STRICTLY ENFORCED AND YOU MUST MOVE QUICKLY IF YOU THINK YOU MAY WANT TO PROTEST.

Wednesday, May 23, 2012

COMMERCIAL ITEM CONTRACTING REVISITED

We need to clarify a few points about yesterday's post on misguided commercial item contracting.  First, as many of you have pointed out, we are statutory and regulatory purists.  We believe in following the rules strictly as they are written.  Second, we are not attacking commercial contracting with an agenda to demand contractors divulge their cost or pricing data.

In fact, we are not attacking commercial contracting at all.  We support the need to simplify federal procurement, make it more like the commercial world and thereby make it more attractive to commercial companies.  So, rather than supporting a narrower view of commercial contracting, we support a debate about broadening its application.  

The point we really want to make is we need to move in the commercial, UCC-like direction legally and not by subverting the existing law.

We also need to point out we do not understand the argument that we need a FAR Part 12 procurement in order to avoid submitting cost or pricing data.  The exception for adequate competition has been on the books since the 1960's.  Most procurements involve adequate competition.  So we do not need a Part 12 buy for that reason.

Finally, our main purpose in yesterday's post was to point out how the termination for convenience clause for commercial items needs to be changed.  Either write it like the UCC or use the regular clause.

Small business needs the principles articulated in FAR Parts 12 and 13.  We need to apply them in all small business buys.  We just need to make that the law.

bill@spriggsconsultingservices.com; bill@spriggslawgroup.com




Tuesday, May 22, 2012

MISGUIDED "COMMERCIAL ITEM" CONTRACTING

One of the government contracting reform measures of the 1990's was to try to make government contracting more like commercial buying.  Members of Congress were impressed with the argument that more firms would compete and costs to the government would be lower if the government bought more like private companies buy in the strictly commercial world.  As it turned out, Congress did not make government contracting in the image of commercial contracting and may have introduced more problems than it set out to solve.

As a matter of fact, much of what is purchased by the government under commercial contracts is not really commercial at all.  The Defense Science Board (DSB), a DOD advisory group, has long questioned just what type of modifications are permitted before a product, or service for that matter, no longer even resembles the commercial product or service.  We might add that in our experience, we have not really seen many services that could really qualify as commercial.  The DSB has noted "commercial" buying involves products ranging from "as is" with modifications going from minor to something the government wants but does not even yet exist.

Changes to the definitions of commercial items are afoot.  But not for the reasons we will suggest.  Congress currently is considering narrowing the expanded definition so as to require contractors to submit cost or pricing data (which is not required if the item is commercial -- and is also not required if there is adequate price competition).

We think commercial buying -- true commercial buying -- is a good idea.  But we would limit its application to buying commercial products "as is" and with minor modifications.  (We're not sure commercial buying really has real application to services in the public sector.)  And, we would afford commercial item contractors the full panoply of rights and remedies available under the Uniform Commercial Code (UCC).

One of the most, if not the most egregious errors in the legal world of public contracting is the termination for convenience clause in federal commercial contracts.  Under the UCC, termination would be a breach that entitles the contractor to recover all of its reasonable costs associated with the termination plus its lost anticipated profit.  Instead, we have a poorly and narrowly written clause with an even narrower interpretation from the Armed Services Board of Contract Appeals (ASBCA) in Red River which denied the contractor recovery of preparatory costs incurred before termination and which can be read to deny costs continuing after termination.  The case has been reversed and remanded but the rules on cost recovery in termination for convenience of commercial item contracts is far from certain since the reversal has no binding effect in other cases.

It just makes no sense that a commercial item supplier will recover less in a termination for convenience that its regular contractor counterpart will recover in a noncommercial setting.  And, it certainly makes little sense to us to deny the contractor its UCC-type remedies.

So this is our call to redraw the commercial buying landscape.  The definition of commercial item buying must be limited to "as is" and minor modification items.  Whether services should be covered at all should be carefully reviewed.  Finally, the termination for convenience error must be corrected.  Contractors must have at least the same rights as noncommercial contractors.  


However, we would like to see the principles in FAR Parts 12 and 13 and in the UCC applied to a broader range of federal procurements especially with regard to small business set asides.


bill@spriggslawgroup.com; bill@spriggsconsultingservices.com

Tuesday, May 15, 2012

THE CONTRACTING OFFICER: “AN IMPARTIAL, UNBIASED JUDGE”

On March 11, 2012, I posted a piece on “Our Adversarial Acquisition System” which followed a similar piece I wrote on October 28, 2011.  We as taxpayers demand a system of elaborate and complicated rules along with contracts of adhesion where we dictate the terms and conditions of contracts with those who sell to our government.  At the same time, we provide contractors certain legal rights which we actually expect them to exercise.  So, I’ve stated, let’s not be na├»ve.  We’ve set up a system purposely designed to create an adversarial relationship between the buyers and the sellers of goods and services in federal government contracting.
But that’s okay.  Our judicial system is adversarial.  And in government contracting, as in our judicial system, adversarial does not have to end in a partial, biased result.
In his message to Congress in 1862, Abraham Lincoln said:
                It is as much the duty of the Government to render prompt justice against itself, in favor of
                Citizens, as it is to administer the same between private individuals.
In 1912, the United States Supreme Court  said about the contracting officer in government procurement:  “But the very extent of the power and the conclusive character of his decision raised a corresponding duty that the agent’s judgment should be exercised not capriciously or fraudulently, but reasonably, and with due regard to the rights of both the contracting parties.”
The predecessor court to the Court of Appeals for the Federal Circuit said in 1950:
Some contracting officers regard themselves as representatives of the defendant, charged with the duty of protecting its interests and of exacting of the contractor everything that may be in the interest of the Government, even though no reasonable basis therefor can be found in the contract documents; but the Supreme Court has said that in settling disputes this is not his function; his function, on the other hand, is to act impartially, weighing with an even hand the rights of the parties on the one hand and on the other.
Penner Installation Corp. v. United States, 89 F. Supp. 545, 564 (Ct. Cl. 1950).  After referring to the 1912 Supreme Court opinion, the court in Penner said the contracting officer must not represent either side but must act "as an impartial, unbiased judge."
In settling disputes (and to facilitate avoiding them), it is not the proper function of the contracting officer to see what he can extract from the contractor.   This is not the contracting officer’s function say the highest federal courts.  The contracting officer is to act impartially.
The system of rules and regulations may create an adversarial system but in the end, the contracting officer is charged with the responsibility to take an impartial view of the competing interests and “weigh with an even hand the rights of the parties on the one hand and on the other.”


Postscript:  As our readers have pointed out, FAR 1.602-2(b) requires contracting officers to "Ensure that contractors receive impartial, fair, and equitable treatment . . . ."  

bill@spriggslawgroup.com 


SBA ISSUES SBIR AND STTR RULE

The Small Business Administration (SBA) has issued a proposed rule governing the size and eligibility for the Small Business Innovation Research SBIR and Small Business Technology Transfer (STTR) Programs.  The proposed rule implements the National Defense Authorization Act (NDAA) for 2012.  The rule addresses ownership, control and affiliation for SBIR and STTR firms.  Comments are due on or before July 16, 2012.

The SBIR program was first enacted in l982.  The statutory purpose of the program is to stimulate technological innovation by strengthening the role of innovative small business concerns in federally funded research and development.  In 1992, Congress enacted the Small Business Technology Transfer Act (STTR) initially establishing the program as a pilot program requiring certain agencies to enter into funding agreements with small business that engage in collaborative relationships with research institutions.  The purpose of the STTR program is to stimulate the interchange of ideas and technologies.  In 2001, Congress made the program permanent.

Late last year, the NDAA extended both programs through September 30, 2017.

Currently, SBA’s size regulations do not permit business concerns majority owned by multiple venture operating companies, hedge funds or private equity firms to participate in the program.  So, Congress has permitted SBA to address ownership, control and affiliation for businesses that are owned by venture capital, private equity and hedge fund firms.  So SBA has proposed that an SBIR and STTR applicant must be more than 50% owned and controlled by U.S. citizens, permanent resident aliens, or domestic business concerns or majority owned by multiple domestic venture capital, hedge funds or private equity firms.

Under the proposed rule, when determining eligibility, in addition to meeting the small business size and affiliation existing rules, the SBIR or STTR applicant would have to consider the following:

1.       Is it more than 50% owned by a single domestic business concern that is a venture capital, hedge fund or private equity firm?  If yes, it is not eligible.

2.       Is it more than 50% owned by one or more U.S. citizens, permanent resident aliens or domestic business concerns?  If yes, it is eligible unless #1 above applies.

3.       Is it more than 50% owned by multiple domestic business concerns that are venture capital, hedge fund or private equity firms?  If yes, then it is eligible unless #1 above applies.

SBA has reviewed the 500 employee size standard and it is not proposing any changes.  This is the current size standard for all research and development NAICS codes including SBIR and STTR.

SBA also addresses affiliation in the proposed rule and has decided to determine eligibility at the time a concern submits an application and at the time of award.  The new rule will appear as amendments to 13 CFR 121.  See 77 Fed. Reg. 28520 (May 15, 2012).
 

bill@spriggsconsultingservices.com

Wednesday, May 9, 2012

MEETING WITH LESLEY FIELD, OFPP'S ACTING ADMINISTRATOR

We were part of a delegation from the Prince William Chamber of Commerce Government Contracting Committee which met with Lesley Field, Acting Administrator of OFPP and Joanie Newhart, Associate Administrator on a range of subjects including the second myth busting memorandum OFPP issued Monday.  One of the most impressive things we observed was the dedicaton and enthusiasm with which this office is trying to get the word out to the working level. 

OFPP is not setting new policy.  It is just emphasizing best practices under existing laws and policies.  In fact, we view the myth busting memos as a best practices guide.

We also were impressed that OFPP wants to continue to press the case on debriefings.  We pointed out that neither myth busting memorandum really addressed the problem which is, in our view, the scourge of written debriefings.  We were not viewed askance when we suggested expurgated SSEB reports and SSA decisions should be released and discussed openly at debriefing meetings.  We suggested meetings with government lawyers on the subject since their advice may be crucial to solving the debriefing crisis. 

We suggested industry, particularly our group, could well assist in the myth busting effort by providing feedback from our members.  Lesley Field said that was exactly what OFPP had in mind and suggested the comments be specific, based on actual case histories and that success stories be included if not emphasized.  Our take away was that we could well make the points needed with success stories and we should search them out.

Our reception was warm and cordial.  OFPP really is trying to improve communications between industry and the government.  We would encourage everyone to get on board.  Sharing, discussing and providing feedback on the myth busting campaign is a great starting and rallying point.  We all ought to commit to the myth busting principles and pledge to pass them on to our peers.  Here's the short hand version of the memorandum Lesley issued Monday:
  1. Don't just put the contracting officer on your mailing list.
  2. Don't just bring your marketing person; bring your subject matter experts.
  3. Attend industry days and outreach events.
  4. The pre-RFP phase is an important time to show the agency what works.
  5. One-on-one meetings are important.
  6. Agencies are encouraged to share pricing information with each other.
  7. Proposals must be tailored to the specific requirements in the solicitation.
  8. Always ask for a debriefing and be sure it complies with FAR 15.505 and 506.
This is a call for your feedback.  Send us your success story on communications between industry and the government.

bill@spriggslawgroup.com

The memorandum may be found at http://www.whitehouse.gov/sites/default/files/omb/procurement/memo/myth-busting-2-addressing-misconceptions-and-further-improving-communication-during-the-acquisition-process.pdf.

Monday, May 7, 2012

MYTHBUSTERS II

Lesley Field, Acting Administrator of OFPP, will most likely release OFPP's second myth buster memorandum to senior procurement officials today.  Last year, the first myth buster memorandum was quite a hit and we posted several blogs about it over the last year.  We will meet with Lesley day after tomorrow to explore with her how to improve government/industry communications at the working presolicitation, preproposal and post award stages of procurement.  In the meantime, here are some thoughts we first expressed in a blog posting entitled "Exchanges with Industry Before Receipt of Proposals".

Yes, FAR 15.201 is entitled "Exchanges with Industry Before Receipt of Proposals".  "Exchanges of information among all interested parties, from the earliest identification of a requirement through the receipt of proposals, are encouraged."  (Emphasis added.)  All interested parties are encouraged to get involved in talking about the government's needs.  FAR 15.201 says such communication is encouraged so that potential bidders (offerors) can determine "whether or how they can satisfy the Government's ability to obtain quality supplies and services, including construction, at 4reasonable priced, and increase efficiency in proposal preparation, negotiation, and contract award."  The regulation reads like an open invitation to do a lot of talking.

There are a lot of success stories about how well FAR 15,201 communication can work.  But there also are some real horror stories about how lack of communication can kill a procurement in more ways than one.

The regulation specifically encourages industry days, small business conferences, public hearings, market research, one on one meetings, presolicitation notices, draft RFP's, RFI's, presolicitation or preproposal conferences and site visits (during which talking can take place). 

The only warnings in the section are to be consistent with the integrity requirements in FAR 3.104 and when the buy is on the street, the contracting officer cannot just talk to one bidder about information necessary for proposal submission without sharing that information with all bidders.  FAR 3.104 covers certain obvious fairness, favoritism, ethics and self-aggrandizement rules.  (No bribes, conflicts of interest, disclosure of contractor secrets or source selection information prior to award.)  Stuff we learned in Sunday School.  It does not inhibit communications contemplated by FAR 15-201.  FAR 3.104 covers basic morality; it is not an excuse to refuse conversation.

While we're on FAR 3.104, we also should point out it does not inhibit release of source selection information after award.  FAR 15.506 on debriefings states the minimum information to be released.  The more source selection information that is released at debriefings, the better the entire procurement process.  We once went to a debriefing at which the contracting officer released the key portions of the SSEB report and the entire SSA's decision (expurgated to remove contractor proprietary and confidential information).  We suggest this always ought to be the case.  OFPP agrees.

Once the contract is awarded, it contains an implied obligation on the government's part to communicate and cooperate with the contractor, "to do whatever is reasonably necessary to enable the contractor to perform."  This is a time honored legal principle read into every contract as a matter of law.  If that it true, does it not make sense to treat communications before proposals submission mandatory as a matter of law?  We think so.

Postscript: The latest myth busting memorandum is at http://www.whitehouse.gov/sites/default/files/omb/procurement/memo/myth-busting-2-addressing-misconceptions-and-further-improving-communication-during-the-acquisition-process.pdf. We will comment on it later.

bill@spriggslawgroup.com

Friday, May 4, 2012

MODEL SUBCONTRACT DISPUTES CLAUSE

The standard FAR disputes, changes and termination clauses are not mandatory subcontract flow down clauses.  In fact, it is improper to flow down the standard FAR disputes clause.  So here is a model subcontract disputes clause:

DISPUTES
1)  If a dispute arises in the performance of this subcontract, the parties will first attempt to negotiate a settlement.  If negotiation is unsuccessful, they agree to submit the dispute to mutually agreed upon mediation.  If mediation does not resolve the dispute, either party may seek redress in any court of competent jurisdiction.  Pending resolution of any dispute, the parties shall proceed diligently with the performance of the work.

2)  However, if any dispute gives the subcontractor recourse against the U.S. Government through the prime contractor's prime contract, the parties may agree to pass the subcontractor's dispute through the prime to the U.S. Government.  The subcontractor must submit the claim within 5 years after it accrues; the prime must cooperate fully with the subcontractor in prosecuting the claim; the parties agree to be bound by the outcome; the subcontractor must certify its claim in a form approved by the prime contractor; each party will bear its own costs in prosecuting the claim; and any other dispute or portion of the dispute not resolved in paragraph 1) above may be decided by a court of competent jurisdiction.  Pending resolution of the dispute, the parties shall proceed with performance of the work.

3)  This subcontract shall be government by the laws of the _____________________.  However, any FAR, DFARS or other federal agency clause or any clause substantially based on a federal agency clause shall be construed and interpreted according to the federal common law of contracts as applied by federal agency judicial tribunals.

This is just one example based on the work of the American Bar Association's Public Contract Law Section, which also publishes guides on which clauses are mandatory flow down clauses.  We have used other more expanded versions, but the concepts are clear.  If the federal prime contract is implicated, it is wise to provide a mechanism, even a requirement, that the subcontractor "pass through" the claim/dispute to the federal government.  This is sometimes called a "sponsorship agreement" which also can be negotiated separately at the time the dispute arises. 

Subcontract terms and conditions under federal government prime contracts can be tricky.  There is nothing in FAR, DFARS or any other federal regulation which provides a single source guide to mandatory flow down clauses.  Moreover, many flow down clauses need to be modified for subcontracts.  The disputes clause is the best example of a clause which has to be totally rewritten for subcontracts.

Subcontracting may be the best way to engage the federal marketplace but the confluence of federal and state law may make it a more complicated undertaking.

Postscript:  We're getting some good comments on ways to modify the clause depending on whether the prime contractor or the subcontractor has the superior bargaining position.  I usually opt for trying to make the clause fair to both sides.  Obviously, depending on who has the superior bargaining position, the prime or the sub can improve its position on the language.

bill@spriggslawgroup.com

Tuesday, May 1, 2012

THE PROPER USE OF LOWEST PRICE, TECHNICALLY ACCEPTABLE (LPTA)

Many commentators have noticed an abuse of lowest price technically acceptable (LPTA) source selection. In fact, there is growing concern that a solicitation is called best value, the evaluaton criteria actually say there will be a cost/technical tradeoff analysis, but in practice, the source selection becomes LPTA. We'd like to set the record straight on the proper use of LPTA and call upon contracting officers to pay close attention to FAR Part 15 in writing evaluation criteria and in source selection practices.

Look carefully at FAR 15.101. There is a best value "continuum". The relative importance of cost or price may vary. May vary. Today's environment of budget austerity does not change the rule. If requirements are clearly definable and the risk of unsuccessful performance is minimal, cost or price may properly become the predominant source selection discriminator (LPTA okay). Conversely, the less definitive the requirement, the more development work is required or the greater the performance risk, the more technical excellence or past performance should come into play (LPTA not an option).

Then look very carefully at the language in FAR 15.101-2(a) dealing with LPTA. LPTA should only be used when best value is expected to result from choosing the lowest priced technically acceptable proposal. So harken back to the best value continuum. Is the risk of successful performance minimal? Will you get "best value" by ignoring the tradeoff process? If not, LPTA is proscribed. We'll wager that careful and close attention to this language in FAR 15.101 will result is fewer LPTA procurements. Again, budget contraints have not amended FAR. We believe that rules are necessary in public acquistion actions. The rules are there for a purpose and they should not be ignored.

Finally, and equally importantly, read FAR 15.304 and 305 carefully. The evaluation criteria must be clearly stated. Clearly. Too often we have seen evaluation criteria which are patently unclear. Even more importantly, they are to be rigorously adhered to in the source selection process. No deviations. That means, source selection officials are not permitted - not permitted - to change best value tradeoff criteria to LPTA (without a redo). In a recent example, LPTA was used, in our opinion, to include risky companies in what turned into a bidding war.

Contractors aggrieved by the government's failure to follow the regulation are not without remedy. The rules are meant to be enforced. Austerity does not waive procurement regulations. Cutting corners to achieve cost savings is not permitted. Unless or until Congress changes the system of rules and regulations, everyone - no exceptions - must follow them.

WELCOME BACK, FIXED PRICE INCENTIVE (FPI) CONTRACTS

Secretary of Defense Robert S. McNamara thought they were the cat's meow. He ordered the military services to use incentive contracts instead of cost plus fixed fee contracts in 1962. They are complicated. Perhaps that is why they fell into disuse starting in the 1980's. But they are back. DOD has directed again that the military services use FPI firm target contracts instead of cost reimbursement contracts when it makes sense to do so.

This type of contracting is not for the faint of heart or brain. The FPI firm target contract is the most complex of all contracts in FAR Part 16. Contract managers and administrators need to know all they can about how the incentives operate.

Fortunately, there is a must read document on the subject which is still a great resource: Ralph Nash's Government Contracts Monograph on "Incentive Contracting". The paper can be downloaded free of charge from the Social Science Research Network at http://ssrn.com/abstract=1928629.

In simple, general terms, FPI contracts predetermine profit based on certain variables. The parties can tie profit to cost or to a combination of cost, delivery and technical performance. Profit becomes a mathematical formula which depends upon how things turn out in performance of the contract. The parties predetermine the formula upon which profit is based thereby objectively forecasting the ultimate profit position for the contractor.

The Monograph goes into considerable detail on how to negotiate and administer the geometry of the incentive structure. Chapter 2 is an absolute must read. Anyone who studies it carefully will be a master of the subject.

Welcome back, FPI contracting. But follow Ralph's advice carefully. These contracts only work if you work out the proper formulas.

A simple example: Target cost $100, target profit $10, ceiling price $120, sharing 50/50. If costs come in at $80, the contractor gets another $10 or a total of $20 profit (still within ceiling price). If costs are $120, contractor share of overrun is $10 so contractor gets no profit.

bill@spriggslawgroup.com

GOVERNMENT COMMUNICATION WITH INDUSTRY

We'd like to call to your attention an outstanding white paper from the American Council for Technology Industry Advisory Council on "Improving the Management of Federal Government IT Assets Through Better Communication With the IT Industry."  In 16 pages, this document describes the problems and presents proposed action items all designed to improve government communications with industry. And, everything applies across the board to all procurements for all agencies. We applaud this excellent work and look forward to following the implementation of its recommendations.

The ACT/IAC paper refers prominently to a little known Memorandum from the Deputy Secretary of Defense to all senior officials in any way engaged in acquisition. ACT/IAC lauds this Memorandum, as do we, and points out that "we have also never heard any government employee cite an agency that encourages communication with the private sector." Appalling! It's time we all read this Memorandum and made sure everyone in DOD is aware of it. Moreover, the policy should be extended to all agencies. Indeed, it is squarely in line with Dan Gordon's Myth-Busters Memorandum to all senior government acquisition officials about which we've written before.

"The Department's policy is for representatives at all levels of the Department to have frequent, fair, even and transparent dialogue with the commercial base on matters of mutual interest, as appropriate, in a manner which protects sensitive information, operation, sources, methods and technologies. For the Department, this includes representatives of end users and requirements generators as well as those within acquisition organizations. Traditional and non-traditional suppliers are to be included in such dialogue. Matters of mutual interest include, but are not limited to: DOD and industry business practices and policies; removal of barriers to competition; technology trends and development objectives; security challenges; and the performance of organizations, contracts, projects and programs." (Emphasis added.)

The memorandum attaches a summary of laws applicable to such communications. Without citing the laws, here is what they say: government officials may not participate in a matter that presents an actual or apparent conflict of interest; government officials may not disclose proprietary or source selection information; government officials may not give unauthorized preferential treatment to one firm but must treat all firms equally; government officials may not disclose trade secrets or other proprietary information without permission of the owner of the information; government officials must protect procurement-sensitive information; and, if applicable government officials must comply with the Federal Advisory Committee Act.

The DOD Memorandum says "officials within the Department are encouraged to communicate with industry . . . ." Dan Gordon, on behalf of the President of the United States, said this applies across the board to all agencies on all acquistions. Is anyone listening?

http://www.actgov.org/sigcom/bettergovernment/Document%20Library/ACT-IAC%20and%20Other%20Documents/ACT-IAC%20comments%20to%20OMB%20on%20improving%20communications%20between%20government%20and%20industry.pdf