Changes on the horizon for defense contractors

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Federal contractors are bracing for radical changes in policy and the threat of a short-term government shutdown as they look forward the coming transition. With where they’re looking for information and how to cope, the president and CEO of the Professional Services Council, David Berteau, joined Federal Drive with Tom Temin.

Interview transcript:

Tom Temin: David, golly, everywhere you look there’s the potential for big change back to where things were, say four or five years ago. Let’s talk about the impact on contractors from transition and what you’ve seen so far, the signs coming out. What’s going on there?

David Berteau: Well, thanks, Tom. And it is December of an election year. So this is the time where transition should be kicking into high gear, right. And as you know, one of the big questions for contractors is what does this mean for us? What’s a new administration mean for us? So we look for signals everywhere we can. One of the places we look is what have they actually said. And so you look at the stated priorities of the Biden administration on their website. And they’re quite big. I mean, it’s COVID-19, which is obviously critical to everybody. Its economic recovery, which is obviously critical with everybody. And then it’s racial equity and climate change, both big topics in the campaign. But the statements are so general that’s very hard to translate any of that into either business opportunities or constraints on business that may arise from this. So then you look at their past record. And of course, the past record of Joe Biden was vice president and I don’t want to draw too much from that. I mean, I’ve looked at the last four vice presidents who went on to become president, and none of them governed in the way that their predecessors did. Richard Nixon certainly didn’t replicate Dwight Eisenhower.

Tom Temin: Hardly.

David Berteau: Right. Lyndon Johnson made a habit of breaking from Kennedy’s past. Gerald Ford a little hard to compare Ford to Nixon, because Ford never actually ran for office. But he also ran it very different. And of course, George HW Bush was nothing like the Reagan’s for years. And the world was different in all of those cases as well. And so you can’t really draw too much from that. So then you look at all of their position papers, but again, there’s so general that it’s very hard to extract from that. Okay so greater emphasis on veterans, you could see that translating into some contract preferences, for example, or contract funding, but it’s hard to predict any specifics associated with that. So then the big question, of course, is the transition got off to a little bit of a slow start. It really wasn’t until till Pennsylvania certified, Michigan certified last week and Pennsylvania certified last week, that you ended up opening up the door to that. And so you look at what the impact of that will be. But there are some positive early signals. So let me let me pause there before I go into those early signals and see what you think.

Tom Temin: Well, yeah, I think that that’s all you can look at is what they have stated, and it is fairly vague, climate change bad, ending racism good. Not that anyone would argue with those generalized types of statements. I guess the question is what will come down to in what the administration will likely demand of contractors as conditions of doing business with the government. And that’s where they do have some pretty good leverage, regardless of Congress. So tell me, what are some of the day one actions you might anticipate? You mentioned the idea of litmus tests for contractors.

David Berteau: Right. So we’re looking for early signals, right. And of course, one of the early signals is who you pick for these positions. But most of the agencies that will really drive government contracting haven’t been mentioned yet. We’re only now beginning to talk about the Office of Information and Regulatory Affairs, which obviously has a big impact on on rulemaking, both for procurement rules, and for other rules that affect contractors. But a couple of positive signs. One is the movement that we’re seeing on the Hill on the FY-21 appropriations, right. So if you go back four years, when the Trump team was coming in, they basically said to the Hill, don’t pass anything, leave it all to us. And so that ended up really with a series of continuing resolutions that led to no full year appropriations for FY-17 until seven months into the year, right. So the fact that Congress is now undertaking that you have to believe that there’s at least an implicit and probably an explicit agreement with that from the Biden team. And that’s a positive sign because it says they’re not going to waste time going backwards. They’re going to actually focus on the budgets going forward. So that’s good. But then we’re seeing signs as well and not coming from the team, it’s coming from other players in the transition process of litmus tests particularly for appointees, right. And the idea that nobody from industry should ever be put in a position where they would actually oversee anything that has to do with industry, because heaven forbid that they know what they’re talking about.

Tom Temin: Yeah, we’re already seeing some objections to a couple of the economic advisors because they have Wall Street experience.

David Berteau: From a contractor’s point of view, this is really important. And all of us who started our careers in the government and thought we understood contracting then came out and saw what it was like on the opposite side, right. It’s two sides of a coin. But the back side of that coin feels very different than the front side. They have to be integrated, you have to be able in order to get the maximum value from contracts, you have to have government officials who understand how the process works, how to get the most out of it, how to get better competition, how to get better requirements, how to get better source selection processes, and how to run better contracts. Most of the problems we see in contracts stemmed from either poorly defined requirements, or poorly written and poorly executed contracts, they’re not only the fault of the performers on those contracts. So you really need people in the government who understand this from both sides. Then there’s the day one actions, and I suppose someone has come up with a list because the candidate Biden…

Tom Temin: He keeps growing,

David Berteau: He keeps growing, it’s like a day in Genesis, right, it may last a long, long time before we finish. But I don’t mean to diminish those, there are a lot of very important day one actions, I think. And two of them of course is signing the nominations and getting the confirmed people in place that Congress has already addressed so that you’ve got a government that’s up and running on day one. And the second is the executive orders or the recessions of executive orders that come into play. And here’s one where I think we’re all paying a lot of close attention to — Executive Order 13950, the combating race and sex stereotyping where there’s no suspension in debarment threats, there’s hotline concerns. There’s concerns about the government telling companies what they can do with their own money on their own training of their own employees, and actually make them potentially less competitive in the marketplace for talent. But just rescinding an executive order doesn’t undo everything, you’ve already gotten now class deviation memo out, putting the language from that executive order into solicitations and into contracts. You don’t undo that simply by rescinding an executive order. You’ve got to take all the steps necessary to deal with those kinds of things at the contract level. This is what governing is all about.

Tom Temin: And there’s some other kind of down on the ground issues to be concerned about — comments do on the latest CMMC, the Cybersecurity Maturity Model Certification program, which has been proceeding a pace through all of this. And those comments are due right now. And that’s something the administration, the Biden administration, is going to have to decide what it wants to do about.

David Berteau: Right. And of course, this is an interim final rule issued under the defense FAR supplement. And so it takes effect on the same day the comments are due. PSC is providing comments, they’ll be on our website, you can put a link to them up so people can read what we have to say. There’s something that takes effect immediately, which is the requirement that not only that the CMMC standards will be put in place — but more importantly, the underlying standards from the NIST 800-171 documents. Companies have to complete their self assessments, their self scoring, and turn those into DoD for the reporting system that they maintain there. That’s a requirement, but it’s not at all clear, and our comments actually asked a number of questions about this, what happens to companies that haven’t completed that assessment, haven’t turned it in? There’s 100,000 defense contractors out there, and not all of them will have received the memo, right. And so getting those assessments in becomes really, really critical here. And then the implementation of this, we’re starting to see the beginnings of what they call pilot programs, they already had the Pathfinder programs to develop the process. Now you’ve got pilot contracts coming out. But DoD more than it has in the past is saying this is going to take five years to roll out. You raise a good question, what if any changes come from this? Certainly had people associated with the Biden campaign that were criticizing the Cybersecurity Maturity Model Certification program. But no one has actually offered an alternative that provides better cybersecurity, and clearly what we have is a growing threat. And what we’re doing now is not enough to counter that threat. And so we’re going to continue to work with our members to both implement this and comply with the standards, even as we’re trying to affect the implementation change through our comments and our interactions with the government.

Tom Temin: And earlier you mentioned the whole budget situation, the fact that it looks like there is some kind of top level agreement, which Congress could pass 1.4 trillion for 2021. But there could still be a shutdown if the president decides to ignore that bill. And even though it would go into effect automatically at some point, there would still be that gap between his refusing to sign or just choosing not to sign and when it would go into effect post veto period. And that’s 10 days.

David Berteau: Right. Well, we have that image of the last time the President was sitting there with the big stacked CR on his desk or the table and say, I’m never going to sign another large omnibus bill like this. Well, he’s going to get another large omnibus bill like this if Congress has its way. So there’s two scenarios here that can play out. The current continuing resolution expires midnight December 11. And that’s just a week from Wednesday, right. So that’s not very far off. Congress is working towards passing an omnibus bill for that. But we’re already seeing some hang ups on that. If they don’t get it done in time, then they’ll probably propose another short term continuing resolution, maybe carry through till Christmas, give them two weeks to keep working. What if the president doesn’t sign that bill? But what if he doesn’t veto it either? What if he just sits on it, then we have a shutdown because we have a lapse in appropriations. Congress can’t override a veto that hasn’t occurred. It’s nowhere in the Constitution does it allow you to do that, and the President has the constitutional authority to sit on a bill for 10 days before it becomes law. During those 10 days, we would have a lapse in appropriations and a full government shutdown. We’re looking for signs that agencies are planning for this, we’re not seeing very many of them. So we’re advising our members do what you always do when the potential risk is there, probability may be low, but the consequences would be high. And that is talk to your customers, see what they’re planning. Look at your schedule. Do you have any options that come due? Do you have any deliverables that come due? Will there be somebody there to accept them. Get your invoices in so they’re in the system and you can continue to get paid, right. Because government shutdowns treat contractors very, very differently than they treat government civilian employees.

Tom Temin: Yeah so that means, in all cases, because of the transition and change in policy, and because of some of the short term situations that are less known, you just got to be prepared and keep your ear to the ground if you are a contractor, especially it seems, in this late period of 2020.

David Berteau: You do. And I almost don’t even like to talk about it because you sort of draw to yourself by talking about it. But you do have to be prepared. Companies need to be prepared. And you can almost count on the fact that the government’s not going to be doing the preparing itself as thoroughly as it would otherwise because they see lots of optimism, right. Congress is working on a bill, they’ve determined the amounts that need to be in each of the appropriations bills. They’ve got a whole week and a day to get this done, right. Easily get a year’s worth of work done in a week. And so there’s lots of reasons for optimism there, but it’s still prudent to plan.

Tom Temin: David Berteau is president and CEO of the professional services Council. We’ll end on that note. Thanks so much.

David Berteau: Thank you Tom. See you next time.

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