The Federal Acquisition Regulation Council is taking on popular mentor-protégé programs. It cites a “perception that they win too many contracts.” It proposes preventing the joint ventures from bidding for slots on multiple award contracts. The Small Business Administration slipped the rule changes in to other changes having to do with HUBZone eligibility. Did it try to bury this proposal, which could prove controversial? The Federal Drive with Tom Temin got one view from the president and CEO of the Professional Services Council, David Berteau.

Interview Transcript:

Tom Temin  You have to really be an inside baseball scorecard reader to find this one, David.

David Berteau  Tom, you’re absolutely right, and thanks for having me on. You never know when something in the Federal Register is going to be important to you, even if it’s not available, visible from the title. So the Small Business Administration – and this is now a couple of weeks ago, this is back on Monday, July 22 that they posted this in the Federal Register – and the title of the posting was tribal consultation for HUBZone program updates and clarifications and potential reforms under Executive Order 14,112. One of the things we do at the Professional Services Council is we do track proposed changes to anything that’s going to affect contracts. We also track executive orders. By the way, that was not one on our list, because that is all about tribal consultations. That’s what that executive order is about. So it’s not really about small business administration contract, but set that aside. It does appear that it was buried. One of the things that we often think about is the government doing that on purpose. Are they just a little bit incompetent? And you know the Occam’s Razor rule, right? Always go to the most obvious answer. And so maybe it wasn’t deliberate, but it sure has a feeling that it was, which is really troubling, because this is an important issue. What SBA did is they would like comments on what they call prospective policy changes, and they lay out a number of options. These options, by the way, are not the entirety of what they might look at, and so you really have to look at all possible options. But you hit on the core issue here, the perception that joint ventures that are set up under mentor protege programs are somehow winning more than their share, I don’t know what their share should be of multiple award contract proposals. That perception, by the way, is not borne out by data cited anywhere in the Federal Register notice. And so one of the big questions is, what did the data actually show, as opposed to what does the perception show?

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Tom Temin  Sometimes, perception is not reality.

David Berteau  Exactly, although it can drive changes necessary there. But we believe at PSC that one of the most important things is to know what the facts are and to use the data to actually figure out what the reality is that the government has to deal with here. So the question really at hand here is the government sponsors and encourages larger companies to have mentor protege agreements with small businesses. In my experience, having had a number of these under me when I was in private sector as a government contractor, it’s a great advantage to the small business, because you get a lot of investment in capability and capacity, and, you know, leadership development and workforce development. And how do you bid and win contracts, and how do you perform? And so the small businesses the protege gets a lot of benefit from this. The government caps the number of proteges that a mentor can have, and you can only have so many, and you want to foster that relationship, because the government’s always in need for better performing, more capable small businesses, as you know. This is a big driver. So what are these prospective policy changes? Well, restricting what mentor-proteges could bid would have what kind of effect? It could certainly have effect on the protege and their ability to grow. It might open up opportunities for other small businesses who would no longer be competing with these joint ventures. But the real question, and the one that’s ignored here, is does the government get the results that it needs from that process? At PSC, Tom, whenever we have competing interests among our members, some small businesses might like this, some small businesses might want something the opposite of that. We always start by asking ourselves, what’s actually in the government’s interests? And if you can figure out what’s in the government’s interests here, that helps you drive towards what’s the right position for PSC to take. Well, the government’s interest is actually not in terms of upfront; it’s in getting the results it needs out of the contracts. Otherwise, what’s the point of a contract? So we’ll be wrestling with this as we respond to this request.

Tom Temin  Yes, the whole point of the mentor-protege was to help small businesses get into the contracting system. So that perception, if it’s true or whatever, is a sign of success, not a sign of ineffectiveness of that program.

David Berteau  It’s one of the real challenges in the small business programs in the federal government is, if you’re not careful, you will be successful, and then you will be punished for being successful because you no longer be eligible for the set aside. What we really need is the right balance here.

Tom Temin  We are speaking with David Berteau, President and CEO of the Professional Services Council, and I want to ask you about a different matter, and that is language in at least one of the National Defense Authorization bill proposals. Reconciliation is a long way off on them, as you know, but it would treat federal contractors and federal employees differently with respect to compensation for telework. That’s an odd one.

David Berteau  Well, teleworking became the watchword when COVID hit, which is now, what, four years and several months ago. In fact, you’ll remember Tom, we probably talked about it on this show back in March of 2020, when all of a sudden everybody had to go home. On the federal civilian side, the administration at the time – it was the previous administration – had been discouraging telework and pulling people back into offices, and then all of a sudden, they had to go in the opposite direction. But then the question came up for contractors, because it turns out that contracts often don’t authorize teleworking because they didn’t need to right before COVID. And so a contracting officer might say, well, telework is not authorized in this contract. We’re going to have to modify the contract. And so what’s the consideration you’re going to get? Well, in order to get around having to do telework one contract at a time across a million contracts, the Office of Management Budget put out a memorandum back in March of 2020 that says, maximize teleworking for contractors that almost immediately took effect. It’s still in effect in many cases, and my guess is based on the survey of our members, very few contracts have actually been modified, because the assumption is you can go back to this OMB memo directing maximum teleworking. Now we have a provision in the House Appropriations Bill for defense that says none of the funds appropriated or otherwise made available by this act – you love it when an appropriations act starts out this way; it’s pretty all encompassing – can be used to pay for the cost of teleworking or remote working for any employee or contractor in the federal government. And this is a violation in many ways, of the existing contracts and an existing thing. But more importantly, companies have proposed work on contracts. Signed contracts, built their forward pricing, rate agreements, built their rates for the work to be done under the assumption that maximum teleworking is authorized. Now, all of a sudden, you’re going to upend all of these contracts if that provision goes forward. So that’s in the House version of the bill. The Senate passed its version last Thursday, and our quick review of that bill is it’s not in that bill, so it will be a conferenceable item when they meet. Right?

Tom Temin  I had said the NDAA, but it’s actually the appropriations bill that has it.

David Berteau  It actually is in the appropriations bill. And we think that one of the big questions is, if this were to go through, there will be costs associated with this, because it’s, in many cases, cheaper to telework than it is to go into the office. The overhead of having an office is a lot more expensive than just paying somebody for their network connection. So who’s going to pay for those extra costs? How are those going to be incorporated into essentially, hundreds of thousands of contracts and task orders across the government? That question remains unanswered.

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Tom Temin  And is your sense that a lot of contractor employees are, in fact, teleworking, because unless they have to be in a SCIF or the government is not there to have a meeting, then you’re not going to have contractors going into the Federal Office for the same meeting that everyone else is remote at.

David Berteau  Well, in theory, that’s a good idea. But what we found, first of all, what we found in the initial stages of COVID is roughly 50% of services contracts, which is where PSC focuses our attention, can’t be done remotely. It is touch labor. It’s repair and maintenance. It’s operating on classified facilities. It’s doing lab work, even in manufacturing facilities, you do that. What we found was about 50% of our contractor workforce didn’t have teleworking as an option. That’s still true today.

Tom Temin  And that’s about the same percentages in the federal workforce itself.

David Berteau  Probably is. It probably is across the board. What we have found, though, is that we have a number of places where contractors are being required to go into the office, even though their government overseers are not there. Tell me how that makes sense. But the target of what this is aimed at may be a worthwhile target. More people back in the office. One of the things I think we’ve learned Tom is that there’s no virtual substitute for face to face, in person interaction, right? But until the government’s back. It doesn’t really make any sense for the contractors have to be back. But more importantly, what does your contract say? What do you reimburse for when it comes to costs, and how do you get that taken care of? You can’t do that by fiat legislation. You’re going to have to do that by appropriating funds and modifying the contracts.

Tom Temin  And the appropriations bills won’t pass anytime soon, anyway, so this is kind of academic at this point.

David Berteau  Well, your guess is as good as mine, but we’re almost certainly going to start FY25 on October 1 under a [continuing resolution]. We’ll probably keep those CRs going, if the past election years are any indication, it will be March or April before we have an appropriation bill for FY25 so you’re right. It’s a long way off, but it’s not too soon to start tackling these questions.

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