The second group of “consulting contractors” are coming under the General Services Administration’s microscope.
A new set of 10 vendors have until Friday to submit data, analysis and options for potential savings of their existing consulting contracts to GSA and agency customers for review.
The 10 vendors are:
ASGN Incorporated
Chemonics International
FCN Inc.
Iron Bow Technologies
ManTech International Corporation
Minburn Technology Group LLC
Peraton
Salient CRGT
Smartronix LLC
V3Gate LLC
Fox Business News first reported the list of nine companies and the latest letter from GSA. Federal News Network learned that GSA sent a letter to a 10th firm, Iron Bow.
“To advance this review in partnership with industry, we are seeking your firm’s detailed input on spending, broken out by agency, project and category of service, as well as the pricing of such services. We intend to use this input as a scorecard to compare your perspective both against our government-wide review, as well as against those submitted by other consulting firms,” wrote Josh Gruenbaum, the commissioner of GSA’s Federal Acquisition Service, to the companies in a letter obtained by Federal News Network. “In order to strengthen the go forward relationship, it is imperative that you respond clearly and transparently, lean into developing taxpayer friendly pricing, and offer market discounts as appropriate.”
Industry experts questioned GSA’s decision to put these next 10 companies under review as many are not traditional consulting contractors. In fact, Miniburn and Iron Bow are resellers, while Peraton is considered more of a system integrator.
“When people say consulting contracts, I think their definition is too broad. There are management contracts, many of which are shorter and are firm fixed price with some incentive basis,” said an industry executive, who requested anonymity for fear of retaliation. “And then there are staff augmentation contracts. Those often are T&M contracts. Those people become extensions of staff and often times when an incumbent vendor loses contract, half or three quarters of staff just flip their badge to the new vendor. I think that’s more of what GSA is looking at.”
Industry sources also point out that there were some big names missing from the first two rounds, including CACI, Northrop Grumman, Lockheed Martin and KBR, all of whom have sizable contracts with the government and are involved in the same type of “consulting” work as the first 20 companies.
$33B in potential savings or avoidance
GSA initiated this effort with an initial set of 10 consulting firms in February. The agency followed up in April with a second letter after reviewing these companies’ initial responses.
Sources say these firms met with Gruenbaum and other FAS leaders, but the agency hasn’t responded since the vendors submitted their second set of data and analysis.
GSA officials have said the first 10 companies were just the beginning and the governmentwide review would include many more firms.
A GSA official familiar with the effort, who requested anonymity to discuss the ongoing effort, said the first set of companies submitted about $33 billion in potential or real savings through descoping, terminations and restructuring of existing contracts, and GSA already has acted on $8.9 billion.
“We think it’s the right way to do this by letting the firms have a voice. What you are seeing through public statements by companies like Booz Allen Hamilton and Leidos is they are buying into the administration’s goals,” the official said. “Through the first set of consulting firms, we have taken action on about 2,500 contracts and realized $8.9 billion in actual savings. The firms came back after that second round and they are offering other tools and support beyond what we asked them to do to improve the federal acquisition process.”
The second round of letters are a continuation of this effort to reduce contract spending and reshape these consulting contracts to focus on being more outcome based and less about putting butts in seats.
“The administration is intent on finding every dollar of savings they can find and we are looking at how we can change or improve the system along the ideas of this administration to fix it in the future,” said the GSA official. “We are looking at things like outcome based contracts, capping wrap rates and other reforms that will lead to more long term savings and improvements to how these contracts are written.”
Continued push for outcome based contracts
The second letter to the next 10 vendors is similar to the first one with the exception of GSA isn’t asking for credits or a refund and there is no mention of agencies overpaying for these services.
GSA is asking for the vendors to “identify spending by each agency, identify each related contract and project and further break down spending by functional category in simple layman terms (i.e. a 15 year old should be able to understand what service you provide and why it is important — no consultative jargon or gobbledygook).”
Additionally, GSA continues to push for more “outcome based” contracts.
“All contracts that are deemed essential and recommended to continue following this review should be proactively restructured to be priced on an ‘outcome based’ model, which we define as results based on quantifiable deliverables or milestones,” the letter said. “You should also strongly consider a ‘shared savings’ model for the pricing of each project such that it results in the work paying for itself, with you as contractor having ‘skin in the game.’ If necessary, provide a rationale for those cases, if any, where in your view ‘outcome based’ or ‘outcome based with shared savings’ pricing is inappropriate. In sum, we expect significant discounting compared to current pricing.”
The GSA official said one of the goals of the initiative is to move toward a standardized rate card and get away from time and materials (T&M) type contracts.
“When we have to use T&M, we want it to be more standardized and predictable. We think T&M is not preferable and outcomes based is our preference,” the official said. “T&M is open to more vagary. We want to figure out how to get to best-value type contracts.”
The industry executive said companies are trying to adapt to many of these changes, especially the move away from time and materials type contracts and exploring share in savings opportunities.
But the expert said a lot of these changes depend on the government too.
“The big question is whether the government gets their bluffed called. If there is a big project and there is share in savings, will the government cut a big check or will they see it as being too risky and go back to the old way of doing business?” the expert said. “Moving to an outcome based contract isn’t as straightforward as it seems either. Most government contracts are not outcome based. The deliverable is defined by monthly status report. The government is looking at inputs like the number of people who meet specific requirements or a monthly activity report of a program. Outcome based is an objective and it varies based by program, but it’s a measurable milestone. It could be taking cost out of an organization or implementing savings or even finishing a piece of code and delivering it every two weeks. Payment should be tied to achieving those outcomes, not a monthly payment.”
Approach is off base?
The challenge many vendors face is getting the agency customer to identify those outcomes ahead of time and then agreeing to the compensation approach.
The executive said that takes more skill on the government’s part and sometimes industry is smarter than the government, especially when you get to less sophisticated contracting shops.
Stan Soloway, a former deputy undersecretary of Defense for acquisition and technology and now president and CEO of Celero Strategies, said GSA’s goals to relook at contracts and improve their overall value to the government is a good one. But the way they continue to go about it is off base.
“We have in the system competition requirements, price realism requirements and delivery requirements for a reason. If you want to question whether the pricing is correct or if the government is getting value for the money, those are perfectly fair questions to ask, but it’s difficult to ask them in the middle of contract,” he said. “It’s also a question GSA should be asking the agencies and not the vendors. If you want to take remedial action, you can take it during an option period or recompete it. These are not unfair questions, but they are targeted in the wrong way and the timing is wrong.”
Soloway and other industry experts say it’s difficult for vendors to drive the changes GSA wants them to, such as converting contracts to outcome-based or moving toward a fixed price type of contract or “tell us how you’d create a share-in-savings” type of approach.
“There is nothing that is unreasonable that they are asking, but the who they are asking, the timing of the ask and their expectations are what is unreasonable,” he said. “If you want to get the questions FAS is asking, go back to solicitation, look at the bids and assess the pricing against what everyone else bid. That is the whole point of holding a competition in the first place. I’m not sure why GSA is trying to reinvent the wheel. Sure, there are times that we see pricing that is high, but there are reasons for it and there are controls that are in place to ensure that agencies are getting a good deal.”
Another industry expert said moving to firm fixed price could cost the government more, especially for things like agile software development where the outcomes aren’t as clear.
The executive said firm fixed price contracts generally need specific parameters and if there aren’t good project guardrails, vendors will charge more because they are taking on the risk.
At the same time, the first industry executive said GSA’s initial efforts with the 10 companies seem to be having their desired effect more broadly.
The expert said a lot of industry folks are asking if they will be next.
“Many have been running internal fire drills and simulating what they would do if they are next because they want to be ready,” the source said. “They have found it to be a good exercise and found some things that need to be cleaned up. Some were proactive and offered their agency customers some ways to clean up the contracts already.”
The GSA official said there is no doubt these firms provide critical support for the government, but the administration believes these contracts can be improved.
“We are asking agencies to do this with us as this is a two-sided effort,” the official said. “Agencies were asked to identify things that they deemed critical. Now we are asking industry to help us if they want to do work with the government because there has to be a shared sense we are all owners of the debt and deficit.”
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