A vague Pentagon memo has some contractors on edge

Tom Temin: And Stephanie, let’s start with the Defense Department. This came from, I guess, not even an acting undersecretary, but a performing the duties of for acquisition and sustainment. And what is he telling people to do and how does that affect your members?

Stephanie Kostro: Well, thanks, Tom, for asking this. As the Professional Services Council, we are watching what’s happening across the government with a lot of vigor and vigilance. This memo in particular, which was signed out just last week, calls for a review and validation of contracts for consulting services. But the one-page memo, with a couple of paragraphs as an attachment about instructions, doesn’t really tell you much about how the government or DoD in this case is defining consulting services. And so in summary, this memo does is ask the different component heads, so the services, the defense agencies, etc. to submit a validation that if they want to keep a consulting contract, however that’s defined, it should be in support of or essential to the department’s statutory missions. And so we have got to go back to statute to find out what the Department of Defense is statutorily required to do and see if those contracts align with that. I’m not entirely sure what these justification materials or validation materials have to include. Not entirely sure, again, how they’re defining consulting services, but we do know that the first round of review will look at DoD orders on General Services Administration contracts. So if you’re on a GSA contract and you’re doing a DoD task order on that contract for consulting services, that review is due March 19th. And then all of the other contracts review outside of GSA, for which DoD has a part here, that’s due April 19th. And so this is a pretty fast moving train.

Tom Temin: And what is the GSA vehicle you think they’re aimed at here?

Stephanie Kostro: Oh, there’s a whole host of GSA vehicles, right. You’re going back to Alliance. You’re looking at OASIS. You’re looking at a whole bunch of GSA vehicles. So it’ll be very interesting to see exactly what the Department of Defense comes back with here on March 19th.

Tom Temin: Right. And they say to in this memo to the component heads, it’s all about looking what we can terminate the scope or forgo, which means they’re looking to cut here, not just a look-see at what’s going on.

Stephanie Kostro: Yeah. And that’s exactly why it’s important to know how the department is going to define consulting services. There are particular NAICS codes or the North American industry codes here that align to consulting. There is a definition within the FAR regarding consultant services. But we also know that in recent weeks, contracting officers have been doing keyword searches and so we’re not entirely sure what the processes by which somebody can determine whether it’s something as a consulting contract. Are they going by NAICS code, by the FAR definition, or are they doing a keyword search? And that kind of process will be very helpful for contractors to know, mostly because if their program is deemed essential by the component head, we’d like to help support with justification materials. And so how they are defining things is really important to that end.

Tom Temin: Right. And why do you think they went for GSA schedules and multiple award contracts in the first place?

Stephanie Kostro: So my guess, and this is just a guess, Tom, I haven’t talked to anybody in the Pentagon about this is that there are DoD task orders on GSA vehicles. That review will set the tone for the larger review, that’s due April 19th. And so I think this is more of a let’s fight off what we can chew here. And then if it works out well, replicate that same process for the second phase of this review.

Tom Temin: Because we do know that the Defense Department is sometimes, surprisingly, among the biggest users of these GSA vehicles.

Stephanie Kostro: That’s exactly right. And of course, we at the Professional Services Council want to watch this very, very carefully because if the Department of Defense is doing this on GSA vehicles, will other departments follow suit, etc.? And so as we watch everything that’s happening at the Pentagon these days in terms of potential cuts or reviews or assessments, this is one that we are tracking particularly closely.

Tom Temin: We were speaking with Stephanie Kostro, executive vice president for policy at the Professional Services Council. And you’ve also seen a lot of, outside of DoD, stop-work orders, terminations for conveniences. This is happening at every agency directly under orders from the White House. So what have you seen in terms of quantities and dollars here so far?

Stephanie Kostro: So our data that we have regarding stop-work orders and terminations, the most granular data that we have currently is from the international development community. You may recall, Tom, that there was an executive order specifically on foreign assistance funds. We’ve seen in the media and elsewhere what has happened with the U.S. Agency for International Development and its employees. So we have a particular subset of PSC member companies who worked with USAID. So we have very, very granular figures there. We are talking thousands of contracts. We are talking hundreds of millions into the billions of dollars regarding either unpaid invoices so far or some questionable costs. Or rather, there are questions about costs. That said, and I want to be clear on this, Tom, every president, when they come into office, it is that person’s prerogative to review and make sure their programs align with the president’s priorities and what he or she, he, in this case, would like to see happen. So we have no qualms or any argument with the review of programs. What’s unusual about this case is the number of stop-work orders that went out and they went out very, very quickly. So the review is happening after the work is stopped. Whereas in previous administrations, the work was allowed to continue while that review was ongoing. So long story short, PSC had a session last week specifically on terminations for convenience because the initial tranche was a lot of stop-work orders. We gave some advice. We have a contractor checklist on our website that talks about here are the questions you should ask your contracting officer, here are the costs you should be tracking, etc. under a stop work order. We did something similar for terminations for convenience or T for C’s as they’re called. And we had a session specifically last week to talk about terminations for convenience. The claims process or the settlement process is different. Stop work order versus T for C. And so we wanted to make sure our member companies knew exactly what is eligible for reimbursement.

Tom Temin: Yes, I’ve talked to a couple of contracting officers myself and that’s what they’re spending their time doing now. Never mind new business. They’re combing contract and many of them are small. Many of them are for consulting services or management support. This kind of thing, which they say, I guess we can get away with not doing. But I guess people are worried that this could spread to more important contracts for more essential types of services.

Stephanie Kostro: One instance, Tom, and there was a company that raised this to my attention is there was a termination for convenience that went out. And then a couple of days later, the contracting officer came back and said, ‘No, no, no, we’re going to reinstate this part of your contract that we terminated.’ So we are actually seeing pretty drastic actions being taken and then walked back a little bit. Again, I go back to the first principle of let’s determine what the function of the government should be and then figure out what the resources are to lay against that function. And what we see happening is actually terminations and the potential reinstatement of parts of contracts. It’s really hard for contractors to flex like this when they get stop-work orders or terminations. They have to shift resources, their people, their financial systems, etc. and sometimes if they’re laying people off, those workers aren’t coming back. And so this is a cause a lot of churn in contracting.

Tom Temin: And there seems to be with the counterpart of the layoffs happening at the federal agencies or the terminations, reductions in force there, you would cynically, perhaps, or skeptically say, ‘Well, they’ll just have contractors do the work that the employees leaving are doing.’ But then if they’re terminating contracts, then there’s no place for any of the employees to go, especially the government people leaving. There won’t be those contractor openings.

Stephanie Kostro: I think on one hand, Tom, that’s true. We are seeing a lot of terminations and there are particular areas that we know this administration is de-emphasizing, or getting rid of, descoping, to use the word from earlier in the session here. That said, there are areas where the administration and the rest of the executive branch would like to pursue work, and if they don’t have the civil servants there, they may very well turn to contractors. So we are looking at some of this process as a real opportunity for contractors to show how efficient and effective they can be in this space. I just think we’re in the first bit of churn here as the president aligns programs with his priorities. And so I’m not saying that there is a light at the end of the tunnel, but I’m sure that there will be at some point.

Tom Temin: In the meantime, you’d like for contractors to get paid for the work they have performed, though?

Stephanie Kostro: Yeah. I mean, part of what attracted some companies to doing business with the government is the fact the government had a great track record on paying its bills. We are seeing some delays in paying invoices and PSC put out earlier this month a press release on, hey, the government has to pay its bills. There are unpaid invoices to the tune of hundreds of millions of dollars out there for work performed in December and January before inauguration, and we really would like the government to pay its bills.