New rules, new challengers for contractors

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It’s been two years since Congress passed legislation aimed at purging equipment made by untrusted telecom companies like ZTE and Huawei from the federal supply chain. Last week, an interim rule that fully implements the legislation finally took effect. And this part of the law may be quite a bit tricker for companies to navigate. Not only does it ban certain suppliers’ technology from federal networks – it effectively requires federal contractors to do the same thing. Larry Allen is president of Allen Federal Business Partners. He talked with Federal Drive with Tom Temin about some of the challenges vendors could face.

Interview transcript:

Larry Allen: Jared, this is a very wide ranging interim rule. And it is in effect now for companies doing business with the US government. Its wide ranging because it affects a great deal of contractor operations, not just those that have anything to do with the fulfillment of their government contracts. It’s a broad rule based on broad legislation that is aimed at having contractors not use the covered technology, and you mentioned a couple of the names Huawei, ZTE, although there’s a list, anywhere in their enterprise. On the surface of it, that could mean a substantial component. And in fact, there is wording along those lines in the interim rule that talks about the degree to which any of the covered technology might be incorporated into a system. But the bottom line is the company has to do a reasonable review of its resources. And again, not just its resources that are used to support US federal government contracting. So it requires a substantial investment of time and money on the part of industry to do an inventory of what might be there. And then if there is a finding of covered technology that is a meaningful component then a mitigation plan has to be implemented to get it out. And that’s the easy part. Jared, the more complicated part is, what do you do with things that may not reach the level of important component or substantial component? What do you do with an employees commercial cell phone that they might say, a personal cell phone, but maybe 20% of the time it’s used in the conduct of government business? Is that the type of thing that needs to be changed out? And if so, who’s paying for it? That’s always a big question. So these are some things that companies are going to really have to look at and address. Jared, some of the answers are going to be immediately available, but some I think are only going to develop over time — unfortunately, probably through litigation.

Jared Serbu: That is unfortunate. Is there clarity in the rule? Your last answer seemed to suggest the answer is no. To figure out what is and what is not an allowable cost when you’re trying to go through a mitigation plan?

Larry Allen: Well, there is language in the interim rule that talks about cost and some of it is going to be reimbursable if you’re a cost type contractor, but that’s if you’re a cost type contractor. If you’re doing business on a firm fixed price basis, or your commercial item contractor where your contracts are based on pricing and discounts, who knows? That’s a little bit less obvious. In terms of the types of technology we’re talking about, like a lot of other things, there’s a definite safe area, a definite unsafe area. That’s easy enough to understand, but there’s also inevitably a gray area in between. And that’s where I think there’s going to need to be some extra guidance that comes out. Government contracting is a big enterprise, Jared, and one interim rule is likely not going to cover all the exemptions.

Jared Serbu: Yeah, but on the other hand, it is an interim rule and there’s certainly an opportunity for companies to comment here. I’m sure the comments are going to be voluminous. In your experience, looking forward, how much would you expect the government to make changes here between now and the time that they ultimately publish a final rule?

Larry Allen: Well, that’s a really good question. And I think that industry should only expect changes to the extent that additional guidance is going to be provided from the regulatory overseers. They are given limited flexibility by Congress in implementing the statute. So it’s not like people at the Office of Management and Budget, DoD and GSA were sitting around looking for something to do, and hit upon this. 889-B refers to a provision from a recent National Defense Authorization Act. So Congress set forth the basic rules here, and they did not allow for a lot of flexibility. So if you’re a contractor, I’m not sure that I would be looking for a lot of relief in any changes that might come to the interim rule. I might just be looking for more information on specifics. That could be comforting, but it could also be disquieting in that it could cost your company extra money.

Jared Serbu: Alright. In our last couple of minutes here, let’s let’s pivot to another issue. Atually, this is in response to another NDAA provision a couple years ago after a couple really years of preperation. GSA now opening the pilot version of it’s a marketplace portal. What are some of the things that you’re going to be watching for and that we should be watching for as this thing opens up for business, at least on a pilot basis?

Larry Allen: Well, Jared first it is open on a pilot basis. The three companies that were awarded the commerce pilot, initially, Amazon, Overstock, and Fisher Scientific are all up and running. I think a couple things to look for, one, GSA has received a lot of interest from federal agencies on how they might be able to participate in the pilot. The original scope of agencies and parts of agencies that were going to participate was fairly limited. But since the award announcements were made, a number of agencies have expressed an interest. That’s really kind of what took GSA some time to start to onboard more of those customers. So clearly, there’s an interest. Interesting to me that GSA right now has the temporary authority to increase the amount of sales per transaction that go through this program up to $20,000. Many agencies, as you know, have a temporary micro purchase threshold level of 20,000. GSA is going to keep the e-marketplace transactions, though, to the standard $10,000 micro purchase threshold. So I think that we’ll start to see some business. We’ve already started to see a little bit of business here at year end. We will see more of it, but it’s going to be at a small dollar level, small per transaction level, that we’re definitely, definitely at the beginning stages of the shakedown cruise of this initiative, as federal agencies and GSA figure out their hierarchies and how to manage the information that flows through this program. But I think we’re going to see probably some increased business. One of the things that I’d be interested to see Jared is just how actively the three awardees market this program, particularly now through the end of September. I’ve heard lots of rumors about what companies might do. We really haven’t seen any of the awardees come out yet with a promotional campaign. Certainly any type of promotion any type of effort to draw attention to this program, I think, would immediately draw business.

Jared Serbu: Yeah, that seems really key to me because interest at the agency level, saying our agency wants to participate in this as different from individual procurers building the habit of going to the marketplace instead of buying from schedules or somewhere else that they’ve become accustomed to over the years.

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Larry Allen: That’s very true. And while on the surface and congressional intent was that this should be easier for federal agencies to make small dollar purchases than traditional acquisition methods, I think your point is a good one that federal buyers tend to reuse the same acquisition methods that they’re already comfortable with. Certainly people are comfortable with buying online already. But whether they’re going to switch over to a new GSA program right now remains to be seen. Certainly on paper, the interest among the agencies is there. Just have to see if that translates into actual transactions.

Jared Serbu: Larry Allen is president of Allen Federal Business Partners. Thanks as always Larry.

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