The Federal Trade Commission has proposed a rule to ban non-compete employee contractors. Federal services contractors are decidedly not of one mind on this issue. For more, the Federal Drive with Tom Temin spoke with Stephanie Kostro, executive vice president for policy at the Professional Services Council.

Interview transcript:

Stephanie Kostro
I want to be very careful that as a trade association, we don’t offer legal advice or accounting advice, to be honest, to our member companies. But we are questioning what the end goal is for this kind of proposed rule. Which would essentially ban employers from entering into noncompetes and to rescind existing noncompete clauses for their employees. We have members on both sides of this particular fence, we have companies that have other ways of incentivizing their employees to stay. And to stay with them. One of our companies calls it stickiness. They like to create stickiness for their employees. And then we have other particularly small businesses that say, we spend so much time training and sharing our trade secrets with these employees. And it’s really a loss when a large company or another company, at least, can poach them or take them away from us with our trade secrets. And so, we have companies on both sides of this fence. Some who think it’s not a big deal. And some who think it’s a very big deal.

Tom Temin
Right? And so you will do what then in in commenting on this proposed rule? Because you do have several views on it.

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Stephanie Kostro
We’ve gone to our member companies and said, tell us what impact this will have. We can talk a little bit about the theory behind it. But really, what is the real world impact? Will this proposed rule, if it takes effect, make you change your business model as it pertains to your employees? And so we are waiting to hear back from them. The comments are due back to the government by March 20. And so I suspect what our comments will include; will be things like, on one hand, this, on the other hand, that. One thing that we are considering including in our comments, is the fact that the government itself sees value in noncompete when it comes to their own employees. And I just offer an example here is, if you are a senior official at an agency, and you decide to leave that agency, oftentimes you might have a one or two year agreement with the government that you will not pursue certain lines of work. That is, in and of itself, a noncompete agreement.

Tom Temin
I guess they would argue a parallel would be, if we said you can’t work for Canada or Mexico for two years, as opposed to another company.

Stephanie Kostro
Exactly, exactly. But obviously, the nonompetes, they don’t call them noncompetes. They’re calling them cooling off periods, or what have you. It is that if you were a government employee, at a certain level, you can’t go work for certain kinds of industry. You can’t do certain kinds of work for one to two years. That is restricting what those employees can do, what kind of work they can seek after government employment. I think it’s interesting to see, [the Federal Trade Commission (FTC)] and the government try to impose noncompetes, the banning of noncompetes that hear with the industry.

Tom Temin
Aside from whether it’s a good idea, I’m surprised it’s not coming from the Labor Department rather than Federal Trade Commission.

Stephanie Kostro
Yeah, that is interesting. And we do wonder why that is the case. But I do highlight the Labor Department has released lots of proposals in the last little while. They are inundated, I think, with a lot of the rulemaking activity. And it’s just a curiosity to me that that FTC released this proposed rule and not DOL.

Tom Temin
I guess at the end of the fiscal year, contractors can go contracting officer shopping, to be able to just find a place that has capacity. So maybe the FTC had more capacity and the rulemaking than the Labor Department did. This is phenomenal. We’re speaking with Stephanie Kostro, she’s executive vice president for policy at the Professional Services Council. And here we are in the post debt ceiling period. The emergency effects haven’t really kicked in, because the government is operating under extraordinary measures. But this is something that contractors in the association are watching with some trepidation also.

Stephanie Kostro
We are watching this very, very closely. If you’ve looked back in the history of the United States. We’ve had a technical default that was in the Carter administration. And every time the debt ceiling comes up, we start hearing rumblings about what a default might do to the United States. Certainly reduces our credit rating, etc, then you can read about that and all sorts of media. But I would say, from a government contractor perspective, we are watching this very closely. The extraordinary measures that are already in place, were put into place last week on the 19th. There are things like reinvesting funds in certain government accounts, retirement accounts. And certainly that is something that the Treasury wants to make them whole once this debt ceiling issue is in the past. But there are other emergency measures that are possible. And I think at the end of the day, a lot of this will have impact, particularly, on publicly traded companies. And to see what access to capital would be like, the cost of borrowing, etc. going forward.

Tom Temin
Right, because the merger and acquisition climate, especially in the federal contractor area, is not really very strong this year. And was not that strong last year.

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Stephanie Kostro
No, if you look at the mergers and acquisitions market. Targets are scarce, there are not a lot of targets that are open for mergers and acquisitions. And even for some that are, the Department of Justice and others have really questioned whether some mergers and some acquisitions should take place. So, this is an interesting dynamic within the marketplace. And the debt ceiling certainly does not make it any better.

Tom Temin
Yeah. So some of that is the financial situation, the stock market situation, the valuations. But also, because you sort of have a hair trigger government with respect to antitrust at the moment.

Stephanie Kostro
Exactly. Yep.

Tom Temin
All right. Well, let’s move on to another topic. I wanted to ask you about something a little bit more down to earth here. And that is the Veterans Affairs Department’s Transformation Twenty-one Total Technology. Next Generation (T4NG). I don’t know it looks like something you’d mix with water and tastes like orange juice. Anyway, this RFP is out, five year opportunity, what’s the reaction on the street to that one.

Stephanie Kostro
So PSC member companies were very excited to get on what we call T4NG, which is what you exactly what you describe the Transformation Twenty-one Total Tech Next Generation contract. It was a multiyear contract, task order based etc. But it reached its ceiling early. And so they are recompeting it as T4NG2. So the next generation two. What is a little bit off putting about the situation right now, is the VA released the draft RFP on a Friday before a three day weekend. With a seven day calendar day turn around to get comments and questions from industry. So not cool at all. Because really, it amounts to four business days, or really three and a half. At the end of the day, this is a 60 plus billion dollar opportunity. What is unfortunate is because industry was surprised by this, people were onboarding to the original contract, as late as last year in 2022. They spent lots of money to get onto that contract without any return on their investment. And now they have to recompete for this. And it really seems, with such a tight turnaround, that the VA is not particularly interested in industry feedback. And that is, I think, a strategic error on the VAs part. PSC did submit comments by the deadline of Jan. 20. And part of it included the fact that this timeline seems very, very rushed. And if they really seriously want industry feedback, they need to give it enough time.

Tom Temin
Right. They can act in haste and repent at leisure as some of these large of [Governmentwide Acquisition Contracts (GWACS)] tend to go sometimes. They can be delayed for years, by solicitation phase protests. Have any members protest to the thing outright?

Stephanie Kostro
Not that I’m aware of. But I wouldn’t be surprised if someone had and said, obviously this is this is going way too fast. One additional issue that I want to raise for your for your listeners, Tom, is that the Biden Harris administration has had this big push to use small businesses. And we’ve seen that in several different forums. What I hope the Veterans Affairs Department realizes, is when you have a vehicle where small businesses onboarded, less than six months ago. And you’re repeating it, they might not be able to afford to recompete to put together the bid, to figure out the teaming arrangements for this particular contract next generation two. And so I hope they’re thinking through the longer-term implications on the industrial base, including small businesses.

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Tom Temin
All right, and just to quickly here, the [National Institute of Standards and Technology (NIST)] cybersecurity framework 2.0, also concept paper out, kind of like an RFP, if you will, a concept paper. And this, of course, is very generous with commenting periods and solicitation of comments and general. Reactions there?

Stephanie Kostro
It’s a really great contrast, we just talked about the VA and its tight timelines. NIST had a request for information come out just about a year ago. And we submitted comments, they incorporated some of those comments, they’re going through another cycle now. And I mentioned, it was a year ago when they asked for initial comments. Now they’re having workshops, etc. We are very pleased with how they’re handling this. We need to unpack their concept paper a bit. It was just dropped on Jan. 19. And comments are due March 3. So we expect to comment and participate in this industry feedback set of workshops.

Tom Temin
All right, VA, we hope you’re listening to how NIST does it. Do it not before a long weekend and give people three months.

Stephanie Kostro
Something like that would be helpful. Yeah.

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