Category management — never quite trusted on the civilian side — comes to Defense acquisition

The Defense Department is telling its acquisition people to use what’s known as category management to expand the use of small business. But for years, small business has argued that category management actually limits the number of vendors who can sell to government. To help analyze the matter, the Federal Drive with Tom Temin spoke with Professional Services Council president and CEO, David Berteau.

Interview transcript:

David Berteau
Well, Tom, there’s three moving parts here. One is last year, in fact, really from the beginning, this administration has been pushing for increasing the number of dollars going into small businesses. Not only in general, but in particular categories, disabled veteran owned businesses, minority owned businesses, women owned businesses, etc. And they began to expand the ability to do that through the contracting process. And then in January, [Department of Defense (DoD)] released a long awaited, we’ve been waiting for it for about a year. It’s small business strategy. Then they’re going through a round of discussions now promoting that with professional services, council members and others. And then Friday, a week ago, DoD issued a memorandum and it’s jointly signed by the head of defense contract and pricing. And the head of the Small Business Office called achieving small business goals through category management practices. That’s a pretty innocuous sounding subject line. But what it seems to be doing is to say, you can get credit for tier two spend under management dollars, that typically is your category management goals. You can get credit for small business contracts that aren’t even issued under a category management best in class contract. So it’s like two different processes adding up to meet the same goal. It also then would help the administration reach its goal of more dollars flowing to small businesses.

Tom Temin
Well, to simplify here. If it says you can get credit for small business dollars with non-category management contracts, then it’s basically saying just buy from any small business you want to and the dollars add up.

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David Berteau
The memo is quite clear. It says the achievement of these goals, that is the goals for socioeconomic, small businesses, etc. Shall be prioritized over attainment of the best in class contract goals, if the achievement is not possible. So those agencies or subagencies in DoD, who would rather use their own vehicles instead of the best in class contracts, are essentially incentivized here to do so. So what does this mean for companies? I think, two questions that I’d like to know the answer to that we don’t is, what analysis has DoD done of where the benefits of this new guidance are going to flow? And the second is, what do you do for those companies that thought their purpose required them to get on these best in class contract vehicles? They spend a lot of money qualifying for those getting through the on ramps, waiting, sometimes months or years to get on. And now all of a sudden, they’re told that doesn’t matter. We’re not going to be using those vehicles, we’ll get at whoever we want, from some other way. Real big questions here that need to be answered. And we don’t know what those answers are. But we’ve asked DoD.

Tom Temin
Yes, to make an analogy. It’s almost as if they were to say, well, thank you all for getting on [Federal Risk and Authorization Management Program (FedRAMP)]. But we’re not going to necessarily use FedRAMP people compliant, in order to meet our cloud goals.

David Berteau
You’ve just given me something else to worry about, we’ll have to check on that.

Tom Temin
They haven’t done that. I’m just making the analogy to a program.

David Berteau
Exactly. But I’m not denigrating either goal. I think there’s some worthy objectives, in the small business focus that the administration has. There’s some worthy objectives in category management and best in class contracts. But I’m worried here that the process and sort of the input objectives, are going to mask and perhaps do damage to the real need, which is to get the results under contracts that you need to have in order to keep the government running better.

Tom Temin
Right, because this whole program of category management, which originated through the [General Services Administrations (GSA)], was controversial on the part of small business. And yet, here they went through the process anyway. What choice do they have to get to be on best in class contracts? And now you’re saying, well, what was all that for? If anything counts toward the small business goals?

David Berteau
And look, whenever you’re putting a priority in one part of the process, you’re diminishing the priority in another part of the process. And the real question is, who’s analyzing these secondary effects? Some of which are quite negative, either for the companies, or for the customers who can’t get it the people they need to get to.

Tom Temin
We’re speaking with David Berteau, president and CEO of the Professional Services Council. And I want to switch gears here for a minute and talk about the debt limit extension options, which none of them have been exercised yet except extraordinary measures. Because, this is Congress. And if they have till June X to reach the end of the extraordinary measures, they’ll go to June X, minus one day or minus two hours. So what could this mean for contractors, do you think?

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David Berteau
Well, there’s three things that are going on. One is we’re way earlier in the process in terms of the visible public attention here than we typically are. Because, usually we get to the point where extraordinary measures start to be extra sighs and the debate is months from now, in terms of what does Congress have to do. But for variety reasons, this is a front and center topic months ahead of time now. So the real things that contractors need to be aware of is, I think three pieces. One is, it appears that because we got to the debt limit sooner than we expected, by the way, part of the reason for that is interest rates went up. And so payment on the debt started going up in September, October, November. So we spent more money.

Tom Temin
Funny how that works.

David Berteau
That’s funny how that works, you can’t raise interest for the rest of the world, without also raising interest for the Federal government or for its own recycling of its debt. And so we’re going to reach it sooner. The thing is, Tom, we’re going to reach the limit here. Maybe in June, maybe in July, maybe in August. At a time where there’s no obvious legislative vehicle, particularly a spending vehicle, on which we would attach the debt limit extension. This is different than where we’ve been in the past, where typically the two have gone together. A [Continuing Resolution (CR)] and appropriations becomes the vehicle for the fight over the debt limit extension. That’s not the case now. So one of the things that we’re watching for is, will Congress actually try to take an action, to reconnect those two. That is reconnected debt limit extension to the CR, which should be the next logical budget document that we have coming forward, that has actual appropriations associated. That’s not until September. So that would require a short term extension of the debt limit, until then.

Tom Temin
It seems like the whole world is addicted to these large bills that have to be passed, as magnets for all the shavings of everything else that the government has to do. Whatever happened to legislation with a single purpose? This bill here by increases the debt limit. And it’s one page.

David Berteau
We could certainly do that. And there may be something that comes out of this. The battle lines that have been drawn, of course, are pretty far apart. The House Republicans are saying, we’re not going to vote for anything unless there’s significant spending cuts. They’ve talked about $130 billion, that’s pretty significant. The White House said, we’re not going to read anything that has spending cuts attached to it. So there’s plenty of room in the middle, but it’s not clear to me who’s moving to the middle. But you’re right, Congress could certainly do that. Typically, these fights are tougher in a divided Congress. It’s a little easier when the same party, is the majority in both houses of Congress and the White House. It’s much tougher when they’re divided. And Tom, we’ve had a divided Congress now for 30 years, out of the last 42. So it’s not as if we should know what to do here. The real question though is, are we going to tie this to a potential government shutdown? Which has happened a couple times in the past and certainly could happen again, here. And when would that occur? Probably not until Oct. 1.

Tom Temin
All right, well, it’s really then in Congress’s court only at this point. But we don’t know then, if somehow the extraordinary measures would end and the Treasury has to issue new debt to cover the old debt, how they would allocate payments. That’s really unknown. Whether contract obligations, employee pension, refreshment, or employee salary payments. All of these things have to be balanced.

David Berteau
Well, it’s 12 years ago now back in 2011. When we first wrestled with that question most openly. And Treasury concluded, and plenty of experts agree with them, I’m certainly not one of them. That it’s impossible to prioritize. It’s not only impossible to set the priorities, it’s probably difficult to actually execute them. It’s not like we issue paper checks to everything where the money goes these days. So much of this is automated and electronic that it’s going to be very, very difficult to manage. We’ve never defaulted. And nobody wants to go there. But boy, it’s going to be a tricky mess to get there. And we’re stuck in the middle of this.

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Tom Temin
Well, electronic or paper check. It’s all funny money.

David Berteau
Well, we are always borrowing from the future to pay the bills due today, from the commitments that were made. One of the other things that was clearly in play before, was the idea of a commission. Senator Joe Manchin (D-W.Va.) has mentioned we could do that again. There was the Rivlin-Domenici commission, there was a Simpson-Bowles commission. They both came up with good ideas, but none of that was implemented. It’s a much bigger problem now than it was in 2011.

Tom Temin
Wasn’t it Prince Metatronic that said that crowns rest, not on royal heads, but on debt?

David Berteau
Well, I haven’t recalled that. But I’ll have to go back to my early political sciences assessments. But meanwhile, for contractors, so you go back to 2011 and 2013. Ultimately, the impact was a sequestration. And there’s plenty of data, we did analysis there and PSC members know this. Contractors ended up paying about 80% of the impact of that sequestration costs. So in the end, what we have to worry about is what’s the impact on the dollars that keep our companies in business and keep the government operating?

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