Secretary of Defense Mattis States Congress’ Continuing Resolutions Hurt Contracting

Military Defense Budgets
Military Defense Contracting is Hurt by Resolutions

In early September, Congress avoided a government shutdown by passing a continuing resolution that stays in effect through December 8. While the action may have temporarily solved one problem, it spells uncertainty for the Department of Defense.

Hard Times Ahead for DoD?

On the same day that President Trump signed the bill, Defense Secretary James Mattis sent a letter to the Senate Armed Services Committee explaining the impact of the CR on DoD operations.

– The CR effectively imposes a freeze on hiring actions, leaving important positions vacant. In addition, training and professional development for existing personnel is delayed.

– DoD is unable to begin new programs or increase production on existing ones. This affects 18 new programs and eight production rate increases planned by the Army for the period of the CR.

– Funds cannot be reallocated to accommodate changing needs.

– Non-critical maintenance is on hold, hurting DoD’s efforts to upgrade military readiness after a loss over the past several years.

CRs Becoming the Rule Rather than the Exception

Over the last eight years, Congress has passed only one budget on time, causing it to rely heavily on CRs. According to Army Chief of Staff Gen. Mark Milley, this has caused a snowball effect that’s taking a toll on the military.

On the other hand, critics are concerned that, without full accountability the DoD budget is becoming bloated and wasteful.

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Trump Hotels May be Banned from Federal Contracts and Events

Hotels Look to DJ Products for Powered Equipment Solutions
Hotels Look to DJ Products for Powered Equipment Solutions

President Trump’s extensive business holdings have been a source of controversy as a possible conflict of interest. A bill recently introduced by Democratic lawmakers would prevent federal officials from incurring any expenses at Trump-owned hotels and properties.

Separating Business from Politics

Sen. Gary Peters, top Democrat on the Senate federal spending oversight subcommittee, is lead sponsor of the Heightened Oversight of Travel, Eating and Lodging (HOTEL) Act. A statement issued by Peters said the bill would prevent top-level officials from exerting “undue pressure” on employees to patronize their businesses.

The HOTEL Act would forbid official business stays by executive branch officials at any properties owned by the president, vice-president and Cabinet secretaries. Family members are included, which would also exclude properties owned or operated by Trump’s children.

A Constitutional Challenge?

Questions had arisen regarding a March meeting of high-level government officials at Mar-a-Lago, a Palm Beach, FL club in which Trump has 99 percent ownership. According to an invoice obtained by the Washington Post, one attendee was charged $1,092 for a two-night stay.

Legal and ethical experts have suggested that the Mar-a-Lago incident could be a violation of the U.S. Constitution’s domestic emoluments clause banning federal or state payments to the president other than his salary. As majority owner of Mar-a-Lago, Trump is free to withdraw funds from the business at any time.

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Made in America – Meets National Security Needs for Department of Defense

Made in America - Meets National Security Needs for Department of Defense
Made in America – Meets National Security Needs for Department of Defense

Following a push for “Buy American,” the Trump Administration has rolled out another executive order regarding the sourcing of defense equipment from domestic manufacturers. Soon, contractors may be required to source made-in-the-USA materials from a DoD equipment supplier whenever feasible.

A more thorough analysis of what we know so far about the new DoD equipment supplier requirements has been made by Inside Government Contracts. Among the takeaways:

> The manufacturing order is intended to assess the military’s procurement methods as well as to boost the country’s defense manufacturing industry.

> The Secretary of Defense must complete a report by April 17, 2018, detailing the “resiliency and capacity” of the defense industrial base, so exact laws and regulations will be clearer around that time.

> Requirements to buy American products will most likely impact purchases for products that are already made or could be made domestically, and are not prohibitively more expensive than foreign-made alternatives.

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Congress Pads Bills with Preferential Treatment for Military Sole Source Contractors

Congress Pads Bills with Preferential Treatment for Military Sole Source Contractors
Congress Pads Bills with Preferential Treatment for Military Sole Source Contractors

Much of the business world is moving toward greater transparency these days. Some clothing retailers even explicitly state their costs per garment while touting their openness. In the defense industry, things don’t work like that. In fact, sole-source contractors for the Department of Defense were just given free rein to sell more to Uncle Sam without providing any cost info for labor or materials.

Funding the military meets with wide agreement, even among members of Congress. As David Dayen of The Intercept recently wrote, the National Defense Authorization Act passes on-time more than any other recurring vote.

Cost data must be provided for competitive contracts as part of the bidding process. For supplies or services with a sole-source contractor, there was previously no need to share cost data for contracts up to $500 million. That just got quintupled up to a $2.5 million limit.

As you can imagine, this means that suppliers who already have a monopoly on their work can now do even more business without transparency.

Smaller contractors have to worry about the cost of DoD contractors’ equipment needs and labor while bidding competitively. One could argue that’s the best thing for taxpayers’ interests and for maintaining a free market.

As Dayen notes in his coverage, this preferential treatment for larger, sole-source contractors takes away focus on minimizing costs for DoD spending. It also lets certain players avoid disclosure to rig the system in their favor.

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DoD Forms Advisory Panel to Help Firms that Aren’t Typical DoD Contractors

Changing Regulatory Instructions for the DoD are Fueling a Need for More Technological Adaption.
Changing Regulatory Instructions for the DoD are Fueling a Need for More Technological Adaption.

The most innovative companies have countless ideas and technologies that are useful to the Department of Defense, but doing business with DoD can look and feel very differently than what tech firms are used to. In Silicon Valley and beyond, firms that prize speed, agility, and the ability to pivot or launch a product on a moment’s notice can feel encumbered by red tape when collaborating with the government.

A DoD advisory panel was recently formed to expedite collaboration with non-traditional contractors—those companies who aren’t accustomed to DoD contracts.

So far, the Government Accountability Office has identified these challenges facing DoD contractors’ equipment needs, negotiations, and finances:

• Complex processes

• Drawn-out processes

• Inexperience on the part of DoD staff

• Unusual, government-specific terms and conditions

• Unpredictable budget and cash flow issues

• Conflicts with intellectual property rights

Government and the tech industry have long enjoyed a two-way street of innovation and growth. What’s different now? According to the GAO, the private sector has increased R&D spending by 200% since 1987, while the government has held steady at 10% growth.

Among the goals: speed up contracting agreements to 60 days max, and enable DoD agility with easier access to new technology platforms.

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Have the Feds Over-Outsourced Work Contracts?

Outsourcing is Driving Contracts
Outsourcing is Driving Contracts – Too Much?

Has the Pentagon been outsourcing federal work too frequently? Some lawmakers believe so, and they’re attempting to resolve the problem by instituting a cap on service contract spending by the Defense Department.

Restoring Balance to Defense Department Outsourcing

A cap that limited service contract spending to fiscal 2011 totals was instituted in fiscal year 2012. The measure remained in effect until fiscal year 2015, but it has been removed for the past two years.

Rep. Colleen Hanabusa, D-Hawaii, introduced the amendment including the cap, which was part of the annual defense authorization bill approved by the House Armed Services Committee. According to Rep. Hanabusa, the cap was necessary to “strike a fair balance” between federal workers and service contractors.

Has Outsourcing Become “Unfair and Inefficient?”

The International Federation of Professional and Technical Engineers local in Hawaii represents a number of Navy civilians. Led by its president, Jamie Hiranaka, the union supported the amendment’s inclusion.

Hiranaka stated that without the cap, “unfair and inefficient” outsourcing of jobs is likely to continue. With no room to hire federal workers, DoD agencies would be forced to outsource new work.

Michael Fischetti, executive director of the National Contract Management Association, disputes the need for a cap. In his view, such caps make spending decisions political rather than acquisition-based.

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Probe Started into Camo Colors Selected for Afghanistan Military by the Pentagon

Probe Started into Camo Colors Selected for Afghanistan Military by the Pentagon
Probe Started into Camo Colors Selected for Afghanistan Military by the Pentagon

Military spending by the Department of Defense is sometimes a source of controversy. The subject recently took an unusual turn when a criminal probe was launched regarding the purchase of uniforms for Afghan troops.

“This Is About Reason and Common Sense”

John Sopko, the Special Inspector General for Afghanistan Reconstruction, opened the investigation this past July. Sopko made the announcement when he recently appeared before a House Armed Services subcommittee.

According to Sopko, there are two significant problems with the purchase:

• Although Afghanistan is largely covered by desert, the uniforms feature a woodland pattern.

• The expensive and proprietary pattern was purchased from a private contractor when the Defense Department had their own patterns available for use.

In the IG’s 17-page report, it was implied that the pattern was selected based on a whim expressed by the Afghan defense minister rather than a formal assessment to determine an appropriate choice.

The Government Reacts

While the Pentagon and the IG are often at odds, Secretary of Defense Jim Mattis criticized the “ineffective and wasteful manner” of spending taxpayer dollars. Rep. Vicky Hartzler (R-MO), chair of the oversight and investigations panel, stated, “We cannot afford to make avoidable mistakes.”

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Congress Tackles DoD Acquisition Overhaul

Putting the Pieces Together for Effective Acquisition
Putting the Pieces Together for Effective DoD Acquisition

Once again, the House Armed Forces Committee is tackling the hot-button issue of DoD acquisition reform. The current Defense authorization bill under consideration includes a blockbuster provision that would signal the biggest change in decades.

DoD Joins the E-Commerce Revolution?

The provision in question requires DoD to purchase commercial off-the-shelf products from at least two private sector online platforms such as Amazon and Staples. Committee chairman Mac Thornberry’s original proposal has been revised to include all federal government spending.

While proponents of the measure believe the government would benefit from the already competitive nature of online buying, opponents question the possibility of conflicts of interest by forcing commercial firms to sell through a portal operated by a competitor. There’s also the question of compliance with the Buy American Act and other legal requirements.

Controlling Service Contract Spending

Other provisions address service contracts, which comprise more than half of the DoD’s contracted spending. DoD budgets would be required to include detailed spending plans for both service contracts and weapons systems, and so-called “bridge contracts” to cover the period between an expiring contract and a new one, which would need approval from officials at increasingly higher levels of command.

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Military Contractors: The New Cyber Security Gurus

Questions
Questions on the Rise of Cyberintelligence

Over the last few years, a sizable stream of high-ranking intelligence officials and operatives have migrated to similar positions with military contractors and other private sector firms. How does this blurring of lines impact our country’s intelligence community?

Rise of the Cyberintelligence-Industrial Complex

As President Dwight Eisenhower left office in 1961, he famously warned about the dangers of the growing military-industrial complex. Observers are now noting the similar rise of a cyberintelligence-industrial complex that could have even more serious implications.

A prime example of this model is the Chertoff Group, founded in March 2009 by the firm’s namesake, Michael Chertoff, former Secretary of Homeland Security. Chertoff also enlisted Michael Hayden, retired four-star general and former National Security Agency (NSA) director.

From the beginning, the Chertoff Group touted its ability to provide clients with access to the same leaders who have “kept the American homeland and its people safe.” Hayden was even more explicit, expressing his desire to re-create his government experience in the private sector.

Democracy at Risk?

What are the dangers of this new cybersecurity elite?

• Knowledge gained by men and women working at the highest levels of cyber-intelligence is now available to the highest corporate bidder.

• This new class is free to operate in a “black hole of secrecy” without government oversight.

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Reforms Coming to DoD Acquisition Including Online Marketplace

Reforms Are Coming to DoD Acquisitions
Reforms Are Coming to Online DoD Acquisitions

E-commerce has changed the way Americans shop, and that could soon include the Department of Defense. The National Defense Authorization Act (NDAA) for fiscal 2018 would allow DoD to purchase through the same online marketplaces used by civilians and commercial buyers.

Is E-Commerce a Solution for DoD Spending?

Defense Department purchasing has traditionally been done through DoD contracting or the General Services Administration (GSA) calendar, which includes set pricing. Rep. Mac Thornberry of Texas, chairman of the House Armed Services Committee, proposed that DoD be given the ability to purchase online from retailers such as Amazon and Staples.

According to Thornberry and other proponents, the reform would allow DoD to enjoy significant savings on off-the-shelf goods such as bottled water and treadmills. A recent GSA Inspector General report found that GSA prices run 13 percent higher than the open market.

DoD would also benefit from access to data allowing improved tracking and analysis of purchases. As Thornberry explained, such a level of transparency and accountability would be “revolutionary” for these processes.

The bill passed out of committee into the House, where it was approved on July 14 by an overwhelming vote of 344-81. It now awaits the Senate’s passage of its own version of the bill so the two can be reconciled.

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