Interview transcript
Terry Gerton The Defense Department continues to make news and we’ve talked a couple of times about what’s happening there with the 8(a) contracts audits. What are you hearing and what are you tracking?
Jim Carroll Yeah, we’re certainly watching this closely. And, you know, it’s funny you start this by saying the department continues to make the news, maybe one week we’ll be able to go the whole week without talking about the Department of War. Although I’m not expecting that at any time soon. And what we’re seeing now is the latest, what we’ll say is, review by the department, of contracts. Obviously we’ve talked previously about prioritizing the war fighter, which is looking at contracts and the performance. Now what we’ve seen on a speech by Secretary Hegseth is all 8(a) contracts valued at more than $20 million. And the department is the largest user of 8(a) contracts, probably 10 times more than any other agency. And it’s interesting because when Hegseth talked about reviewing all of these contracts, the 8(a) contracts, I hearken back to the November speech where he stated the goal is to build the industrial base with businesses, large and small, and 8(a) obviously are those small agencies. And so we’re looking at this closely, talking to the White House, talking to folks at the Department of War and trying to make sure that, you know, this is limited to companies that might be causing an issue. And we know there were a couple of small contracts, a few contracts that the Department of Justice is investigating. Obviously, no one likes those situations, but we’re very concerned that there might be wholesale changes that are just not really even in keeping with what the secretary wants.
Terry Gerton The $20 million threshold caught some eyes. What do you think is going on there?
Jim Carroll I think there, candidly, you know, my assumption is there’s a few contracts that they’ve already identified. And so they’re trying to target on to a handful of contracts when they’re looking at that range. 20 million is not that much money, right? In the scheme of things. I mean, obviously, you know obviously in some ways it is, but in Department of War contracts, $20 million, it’s not that much. I think they’re really looking at a handful contracts, much like prioritizing the warfighter. Our hope is that they’re trying to identify a few companies that might not be performing the way that 8(a) was intended.
Terry Gerton Jim, you mentioned Hegseth’s earlier speeches wanting to include firms large and small. They’ve also talked about bringing more non-traditional contractors into the defense space and 8(a) is often a way you get those. So is this sending a signal to the community that maybe you’re not welcome here?
Jim Carroll We really hope not. And, you know, all the work we’ve been doing, it seems that they’re definitely not trying to get rid of 8(a). I’ve heard very senior people, I spoke to a very senior person at the white house on this issue. They assured me they’re not trying to get rid of 8(a). They want to make sure that the companies that qualify for 8(a) are still allowed to do so. They reassured me up and down that 8(a) is here to stay. It’s just that there are, just like with every contract of every size and companies of every size, there’s a few that lose their way and that’s what they’re going to be looking at.
Terry Gerton And so what do you think is on the other side of this?
Jim Carroll I think that they really do and we can talk about this in a minute maybe about some of the other work coming out of the department such as transforming the defense innovation memo that was released, that they want to focus on the companies that are really producing something that are really, as that memo suggests, transforming the environment in favor of the warfighter. And that’s what we think is really sort of going on here, is that there are a few contracts that maybe are not performing or not doing what they should. And at the end of the day, when this all shakes out, that the 8(a) program will be running perfectly and smoothly, dear God please, and as well as these large ones that the president put in his executive order.
Terry Gerton I’m speaking with Jim Carroll. He’s the CEO of the Professional Services Council. Jim, let’s turn our attention to the Defense Innovation Ecosystem. What are you hearing there?
Jim Carroll They are almost, I don’t want to say singularly focused, but I think that’s probably as apt as anything on accelerating, not only the magazine depth of, you know, making sure that there’s plenty of the actual, what I’m going to say, products, the tangible items, whether it’s tanks, planes, munitions, ships, they really are trying to accelerate those. I don t know that candidly, as much as, you know, we all love the department and the work that it does to protect the country. I don’t think that there is a full understanding that some of these delays that, as they’re trying to transform the ecosystem, is done in conjunction with the department, with change orders, with the ways that things are happening. And these are joint extensions, sometimes joint, cost overruns where because the department is changing you know the requirements and just like if you had a bunch of change orders if you were building a home that that would increase the price and perhaps slow things down the same is exactly true for contracts with the federal government across the entire industry certainly in the defense sector and so I think that what we’re trying to do is educate some of these decision makers about how this work actually gets done and if there’s a delay, why.
Terry Gerton The Defense Department has certainly been going through a lot of effort to modernize its acquisition system and now it’s adding innovation into that. What does this focus mean for organizations like DARPA and the Defense Innovation Unit?
Jim Carroll We’ve spoken to some folks at DARPA. Some of them actually feel very energized. They feel that some of the work that they are doing can be increased. There’s a renewed attention on getting out the latest and greatest. We’ve seen that across the world with some of conflicts, that there’s modern technology that is being deployed and that it really is a game changer. Obviously, the funding continues to be an issue and a concern, but in terms of the attention to technology that sort of comes out of DARPA and the other places like that, there really is an increased focus. And we’re speaking to a friend that works at DARPA just before the snow storm. And the whole conversation was about how they’re briefing people higher up. There’s a focus on what can they produce the fastest and what’s going to be the most productive, but essential and effective for the warfighter. We’re hoping that there’s more and more recognition of that, of how these advanced research projects are really making a difference across the country.
Terry Gerton Jim, what’s PSC’s sense of how DOD is maintaining the balance? We’ve seen lots of efforts about reform and mobilizing the industrial base and building that team. And at the same time, the enforcement mechanisms are really getting ratcheted up as well. What’s the sense in the contracting community?
Jim Carroll The sense is that there is a renewed attention or new attention on some of the non-traditional companies. And at this point, some of them, what people refer to as the non-traditionals, I’m not gonna name any, but are really completely traditional companies at this point. And that’s what, again, we’re sort of educating the department, the White House, OMB, which is, every time there’s a change in administration, there are people that are new to these positions. They’ve been there a year now and there should be, and we’re trying to make sure that there is, a full understanding of how products get made for the government across the board and how it’s done in conjunction with our government contractors who work and sit right alongside their government counterparts.
Terry Gerton Well, speaking of balance, it’s always interesting to see when appropriations bills get passed, and we’re still waiting on Defense’s appropriation. Jan. 30 is coming up really quickly. What’s your sense of how things are progressing there?
Jim Carroll I know, boy, it’s upon us, isn’t it? So five have passed the Senate, Ag, Commerce, Energy, Legislative Branch, and some of the military construction and VA. The Defense, Homeland Security, obviously the handful of remaining ones, have not passed the senate yet. The Snowstorm has delayed everything a bit. It certainly delayed my ability to get to the office. But the Senate and House will be coming back. I was very optimistic there would not be a shutdown of any sort, that we were going to hit Jan. 30 and, you know, that we would get all 12 up and running. The, sadly, you know, some of the awful news coming out across Minneapolis is very upsetting and upsetting to members of Congress. And we’re certainly hearing lots of news about Homeland security and whether or not the bills for DHS will get passed. Terry, you know, you and I talked about this, DHS does have some money so they can continue to operate if they do not get passed by Jan. 30, but, you now, I want to be optimistic, Terry. I know you do too, that we’re gonna get everything passed and get some appropriate actions here by DHS to make sure that they do get fully funded and on a larger scale that they continue to safeguard the citizens period of the U.S.
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