It’s axiomatic that Defense spending will get cut with a Democratic Congress and White House, right? Not so fast. Democratic leadership this time seem to be moving gingerly. For more on this and what else contractors should keep in mind, Federal Drive with Tom Temin turned to federal sales and marketing consultant Larry Allen.
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Tom Temin: Larry, you’re seeing signs from the Democratic leadership in the Armed Services Committee that are saying, maybe not so much to cut it to pay for other priorities.
Larry Allen: That’s exactly right, Tom. And I think there are a couple of reasons for that. Last week, we saw Senator Jack Reed, the head of the Senate Armed Services Committee, publicly saying that he doesn’t believe that there are going to be a lot of deep defense cuts on his side of the Congress. That kind of echoes statements made just about a month or two ago by his counterpart in the House, Congressman Smith from Washington, who was saying that the reports of deep defense cuts and resultant money coming from them are greatly exaggerated. And I think that there are a couple of reasons for that. One is, we’re in a national security standpoint right now where neither party really wants to be perceived as the one that cuts spending and potentially giving an edge to the Chinese or Russians or other adversaries. So we want to remain overall strong on defense and strong defense posture. The other thing that I think was coming from Reid’s comments was political reality, Tom, what I mean by that is, you have a 50/50 Senate, and a House that I think the Democrats have the majority in only nine seats, political reality is that there aren’t going to be votes to substantially reduce defense spending. So you’re just not going to be able to do it. When you do a good job, like the defense industry does of spreading projects across multiple states and hundreds of congressional districts, everybody’s got jobs that the sector provides in the local economies. And that’s another factor. So I’m not expecting defense spending to rise. In fact, everybody, including the Pentagon, Tom has said that they kind of expect defense spending to flatten out. But overall, I think most contractors would take flatter defense budgets over 5-10 or even deeper percentage of cuts. And if you plan accordingly, it’s still a good market.
Tom Temin: Yes, if they do anything, it’ll probably be a review of the fourth estate and looking for fat in headquarters and so forth, pretty much what every administration does.
Larry Allen: Right. And we certainly seen some of that signaling come from members of Congress, specifically on the Fourth Estate, we’ll have to see if any further cuts are made there. DoD got a big whack in the fourth estate a couple of years ago, I’m not sure that everything is all the dust is settled on that. But it’s certainly something that people like to look at every now and then.
Tom Temin: We’ll call it the three and a half estates by the time they’re done. I want to talk for a minute about the string of executive orders that have come from the Biden administration. It looks dramatic, the big stack of fancy leather folders and all those pens. But without rulemaking, a lot of these executive orders don’t have a lot of bites, at least on the contracting end, do they?
Larry Allen: At least not yet, Tom. There’s been, as you noted, a proliferation of executive orders on issues that both affect government contracting and broader issues. These actions were entirely expected when Biden people telegraphed it before they even came into office. And indeed, we’ve had several that impact government contracting. The Made in America, one that translates into the Buy American Act is certainly been the one time I think that’s gotten the most attention. But more recently, we’ve had two come out on supply chain, one of which deals a little bit more closely with contractors in the government, one of which was more general to the national supply chain, but still has implications for contractors. And we’ve had at least one executive order come out talking about wage rates, which is Service Contract Act, and Davis-Bacon. So that definitely can impact service providers. The confusion, I think, comes on the fact that all these executive orders now that they’re out there, people are going around, what what how do we do this? And when do we do this? And what am I going to have to change about my business? And what I’m telling people is slow down. We don’t know yet. The Biden administration, like virtually every other administration before it, came in and put a moratorium on the issuance of new regulations. This time around time that moratorium expires in about three weeks, the 20th of March, so it won’t really see any new regulations that impact government contracting that come out until at least that time. Even after that time, if you’re going to see something that is general that the FAR council puts out, or something that encompasses all DoD contracts, doing regulations is a process, and you have to take the words of the executive order, and sometimes do a lot of reading between the lines to get at the intent, before you can issue a rule. So I’m telling companies, you have to understand what these executive orders are and what they could do your business. But the ultimate impact is we don’t know yet.
Tom Temin: And another thing we don’t know yet about is the possible use, as you’re writing this week, on the use of the False Claims Act as a way to enforce cybersecurity measures that are happening in other parts of the government, especially the CMMC program.
Larry Allen: Tom, the False Claims Act is the largest enforcement tool that the Department of Justice has generally to keep contractors in line on a whole host of compliance issues. And like any tool, it can be used in new and different ways. And we’ve seen senior people from the Department of Justice speak publicly over the last couple of weeks saying we are in fact going to use this tool, the False Claims Act, to go after contractors who we perceive have not really complied with their cybersecurity requirements, who have not complied with new coming to a contract near you CMMC requirements. So what I’m trying to get readers to think about and listeners to think about is False Claims Act traditionally thought about maybe whistleblowers, something that I did to not comply with say a pricing term in my contract, or maybe a country of origin issue in my contract. But the False Claims Act deployment goes well beyond that, and it’s going to go into areas like cybersecurity. So, as contractors go through new certifications and make new certifications that say, yes we’re cyber secure, we meet the standard, yes, we are CMMC secure, meet the standard. You’d better make sure that that’s true, because if it isn’t, the False Claims Act is a powerful tool that the Department of Justice can use to penalize you, and really up to three times the monetary damages that the government thinks that they incurred and for your trouble — after all of that you usually end up in front of the suspension or debarment official. And you certainly don’t want that.
Tom Temin: In fact, you cite Acting Assistant Attorney General Brian Boynton actually said as much to the federal Bar Association, which had a qui tam conference, qui tam meaning the type of settlement in which a portion goes to the person who originally raised the issue the whistleblower gets that money under qui tam, out loud saying this. So it’s not just a theoretical, but it sounds like this is what the Justice Department actually has in mind.
Larry Allen: Well, I really like to thank the Assistant Attorney General for echoing words that I wrote a couple of weeks ago, when I talked about this on one of my newsletters, I was speaking specifically to SolarWinds. And while we haven’t seen anything directly materialized in relationship to False Claims Act cases over the SolarWinds scandal, my general point was a good one. And that is the False Claims Act could be used for that type of issue. Just because it’s not a classic way that the act is used doesn’t mean the act doesn’t have that type of reach. As I wrote that and sent out that newsletter, Tom, I felt eyes rolling all over the Beltway saying, oh yeah Alan, what do you know, the Department of Justice would never use the False Claims Act. Some people think I’m an awfulizer Well, it was very nice to the Assistant Attorney General to say I’m not an awfulizer. That this is, in fact, what the Department of Justice is thinking. So it’s not just me saying it. It’s the people who control how they use the False Claims Act saying it, which is why contractors need to pay attention.
Tom Temin: Larry Allen is president of Allen Federal Business Partners. Thanks so much,
Larry Allen: Tom, thank you and I wish your listeners happy selling.