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The omnibus budget package is a lot more than a bill to fund government operations. Congress stuffed its five thousand pages with tax and business provisions. Some have real impact. For what federal contractors have discovered so far, the Federal Drive turned to the executive vice president for policy at the Professional Services Council, Stephanie Kostro.

Interview transcript:

Tom Temin
And you and the council and your member companies have several themes that matter to contractors that have got nothing to do with budgeting for the government. What do you see in there?

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Stephanie Kostro
Thanks so much for mentioning the Consolidated Appropriations Act of just I’m just gonna refer to it as the omnibus, which is finally we got the full year appropriation for fiscal year 2023, which, you know, started several months ago, we take that in concert with the fiscal year National Defense Authorization Act, which was also signed into law last week. And between the two of those, we identified several themes of importance to federal contractors. I’ll just go through a few of them with you here. The first one is we do have increased transparency into DoD requirements. We’ve been pushing for a few years now, along with several companies that operations and maintenance funding is one year funding, but we don’t get a lot of information about milestones and funding needed in the out years or the future years. And so the NDAA has language that increases transparency. Why is this important, that allows contractors to plan invest and prepare for future operations and maintenance funding. Those are the accounts that because they’re one year accounts and the money will expire, often get raided in May to August of every year. And so this will hopefully help prevent some of that rating of those ONM funds, but also help contractors plan and make investments. The second theme was mitigating risks, supply chains. There’s some interesting language in there about semiconductor products and services, we’ll have to see what semiconductor services look like. But this is really about chips and whatnot, from China, in everything from cell phones to you know, major weapons systems. And so we’re going to be watching that closely. And then finally, the third one I wanted to highlight is the NDAA helps contractors try to recover costs that came from outside of their control whether it was related to COVID, or inflation. There’s a mechanism now by which DoD has the authority to help contractors recover those costs that were incurred, just due to no fault of their own. So those were sort of the three that we identified.

Tom Temin
And there’s a couple of things you wish had been in there for business tax relief to do with expensing of research and experimentation costs and how you can write those off.

Stephanie Kostro
This situation was created in the tax cut and jobs act from a few years ago, where you used to be able to expense all of your research and experimentation funding in the year it was incurred. So you got a tax credit for any of the R&D that you were doing, that went away with the law that was passed a few years ago. And ever since business has been trying to change the situation where they don’t have to amortize those costs. It’s a huge credit, no pun intended for them to be able to expense in the year the costs were incurred. And right now companies are looking at hundreds of millions of dollars in tax bills, because they didn’t get that credit. My guess and from what I’ve heard from my friends on the hill, is that they were fairly close to reaching agreement on this, but they just couldn’t get it across the finish line. This is going to be an area we’re watching closely come January and February, because I don’t think the negotiations are done yet.

Tom Temin
And when the Congress doesn’t do things, agencies do things on their own. You are worried about a rulemaking proposal from the Defense Department related to undefinitized contract actions. There’s probably a UCA acronym for that. What are they and what’s going on here?

Stephanie Kostro
I love acronyms you can pronounce these are UCAs or UCAs. So undefinitized contract actions are any actions in which the contract wasn’t already pre agreed it wasn’t a spec or a specification it wasn’t the prices were not agreed upon beginning the performance on the contract. So they’re undefinitized, are not defined right. What DoD has proposed is amendments to help refine management of UCAs. This is based on a DoD inspector general report that came out a little while ago, the proposed rule the comments are due Dec. 27. So, PSC we’ve already lodged in our comments, and we are opposing this rule, because it tries to incentivize contractors to definitize contracts, through those negotiations quickly and agree upon a definitization schedule. The problem that we’re facing is that a lot of the delays in definitizing contract actions or coming up with a schedule are not the fault of the contractors. And I go back to the comment I made earlier, which is, you know, if if something is outside of the contractor’s control, shouldn’t DoD be helpful and in some cases, you know, there are staffing issues and contracting offices, etc. that cause delays and the penalty is up to 5% of the payment schedule going forward. And this is something that I think is worth talking to DoD about figuring out what is the problem they’re trying to solve, and have some contractor input. So we are opposing that rule.

Tom Temin
We’re speaking with Stephanie Kostro. She is executivevice president for policy at the Professional Services Council. It sounds like something, for example, like a change order, which could delay a contract. And this is, of course, rampant in history, making things late. That’s the type of thing you’re talking about.

Stephanie Kostro
That’s the kind of thing and it’s also, the contractors have to submit what’s called a qualifying proposal. But sometimes the contracting officer wants cost and pricing data from subcontractors who are loath sometimes to share that information with the prime contractor. So you’re penalizing the prime contractor for something out of their control, getting that information from sub tier contractors. And so we’re aware that there are problems there are delays in defining defnitizing contract actions. But we think we need more engagement with the department before we regulate or have a rulemaking in this area.

Tom Temin
So comments are closed on that one. And if everyone was negative, maybe they’ll take it into account or something. Do they have a schedule for when they would like to have this rule in place?

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Stephanie Kostro
Well, it was a proposal and it’s gotta go final. So they were looking for comments on how to improve it. And we suggested that they withdraw this rule proposed rule, and come back to the negotiation table, or at least the discussion table and talk to contractors about what the real problem is here.

Tom Temin
And there is still time to comment on the draft RFP for the Alliant3 government wide acquisition contract proposed by the GSA, which they’ve had some trouble with. And this is like the new draft RFP for the new version of Alliant three, and those you have till Jan. 6, to comment.

Stephanie Kostro
Yeah, so I would highlight to all of your listeners that unlike a lot of comment periods, this one ends at noon, on Jan. 6, noon Eastern Time. So not close a business, not end of day, etc. This Alliant3 draft RFP came out. And we heard from a lot of our PSC member companies on what GSA is trying to do with teaming arrangements under this draft RFP. And that is to say, if you want to have a joint venture bid on this opportunity, you have to be a preexisting joint venture with past performance affiliated with that joint venture. This really runs in the face of what we’re trying to do in other vehicles as a nation in terms of getting mentor protegees, new teaming arrangements put together, this really does create a barrier to entry to those midsize companies who want to find teaming partners, but they don’t already have a pre existing relationship.

Tom Temin
Right. So therefore, your comment is, then?

Stephanie Kostro
Is to allow joint ventures that are not preexisting. There are also other things in this draft RFP about evaluation criteria, and they doubly award points for multiple products over $100 million. Again, penalizing it seems to me small business companies are creating a barrier to entry because not a lot of them will have contracts of that size, if past performance on so we are encouraging increased competition, lowering barriers to entry, and allowing companies to create creative teams that can get the work done, but aren’t great, because of this thing.

Tom Temin
And before we let you go, I want to come back to the omnibus appropriations bill, and all of the provisions that are not appropriations in there. And almost every industry in every area of American life is somehow affected within these sections. And there’s 1000s of sections and 1000s of pages. How did the PSC, for example, keep up with what was in there? Where did some of them take you by surprise as well? Because certainly, there’s not a single member of Congress that had any idea of the extent of what’s in there.

Stephanie Kostro
You know, it’s a really lengthy law. I can’t say bill anymore. It’s a really lengthy law. And I come from a House Armed Services Committee background, so I’m an authorizer at heart, right. And so authorizing on appropriations bills is something that I take very, very seriously in terms of trying to unpack what it is they’re trying to do and why they couldn’t get it in to an authorization bill. There’s a lot in this in the Consolidated Appropriations Act, we’re still going through it. We have member companies raising certain issues to us that we might not otherwise have found quickly. There is a lot that we’re going to have to unpack the treatment of inflation there is within the set of bills, NDAA and the omnibus a repeal of the vaccine mandate for for military personnel. There’s no similar action taken regarding contractors or other communities who are mandated now under legal injunction, but still unpacking to see what exactly got into this bill. I’m always astounded at how long these bills are in and I do question whether or not the legislators have poured over every provision the way they should have. So we’ll see as it shakes out over the coming weeks.

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