HHS puts more than $1B in contracts at risk by shutting down assisted acquisition services

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The Department of Health and Human Services’ Program Support Center handles more than $1.4 billion in contracts for other agencies as part of its assisted acquisition services offering.

Program Support Center customer agencies include the Office of Personnel Management, the Office of Special Counsel, the Environmental Protection Agency and most notably the Defense Department. In fact, DoD accounts for about $1 billion of that total.

Unfortunately for those and many other agencies, HHS is pulling the rug out from under them at possibly the worst time.

Department of Health of Human Services building

Internal memos obtained by Federal News Network show HHS decided to stop offering assisted acquisition services on June 14 just as agencies were gearing up for the fourth quarter buying season, one which many experts say will be even busier than normal because of the 35-day government shutdown.

This means all new acquisitions are stopped, including a $150 million multiple-award contract PSC was close to awarding for EPA and numerous in-process contracts for DoD.

It also means that any award made over the last four years must be moved to other agencies or absorbed by the home agency by Sept. 30, 2020. This basically gives agencies 15 months to move existing contracts.

The reason HHS gave for immediately discontinuing its assisted acquisition services: “As the result of an internal review that is ongoing, PSC has determined that it does not have the policies, procedures or internal controls necessary to conduct assisted acquisitions for agencies outside of HHS,” the agency wrote in a memo to civilian agency customers.

In a similar memo to DoD customers, HHS said it can no longer certify that it complies with the requirement in Federal Acquisition Regulation (FAR) 17.7 and in the 2008 National Defense Authorization Act that “requires the heads of all non-DoD agencies that provide acquisition support to DoD to certify that their respective non-Defense agencies will comply with defense procurement requirements for fiscal 2019 for assisted acquisitions executed on behalf of DoD in FY 2019.”

DD-254 at the heart of the rationale

Source say the issue comes back to how PSC is handling classified information for DoD and, potentially other agencies, procurements. This is commonly done by self-certifying their processes are rigorous using the the DD-254 form.

“The Federal Acquisition Regulation (FAR) requires that a DD Form 254, Contract Security Classification Specification, be integrated in each classified contract. The DD Form 254 provides the contractor (or a subcontractor) security requirements and the classification guidance that is necessary to execute a classified contract,” according to Army’s headquarters website.

HHS initially wanted to end all contracts immediately, but on July 1 DoD issued a memo waiving the Section 801 requirements in order to maintain continuity of operations and give them time to transition more than 500 current contracts.

But here is the rub in HHS’ decision — PSC doesn’t do any classified work. In fact, sources familiar with PSC’s operations say a recent audit found the organization does no classified work.

“The only thing the memos ever sited was not having a DD-254 in the file. It is not a FAR or Defense FAR or HHS FAR requirement to have a DD-254 in the file nor does having a DD-254 on a contract make it a classified contract,” said one source familiar with PSC operations, who requested anonymity in order to discuss internal documents and changes. “If a contract can be on FedBizOpps or eBuy, it’s not a classified contract. A contract for janitors at a DoD facility will require a DD-254 because you will have to have a clearance but that doesn’t make it a classified contract.”

Sources say the HHS management made a decision to get out of the assisted acquisition services business and went looking for a reason.

Pulling the rug out from under customers

Alan Chvotkin, senior vice president and counsel at the Professional Services Council, an industry association, said the lack of a DD-254 is rarely a reason for an assisted acquisition service not to undertake new work.

“Many of the assisted acquisitions that Program Support Center does, including many of its contracts for DoD, do not have classified information in the bidding. There may be a need to access classified information in performance of the contract, but not the bidding,” Chvotkin said. “I’m hard pressed to see how by itself not having a DD-254 on file is a rationale to stop offering assisted acquisition services.”

Chvotkin, however, said he doesn’t have all the details about what led HHS to conclude that they can’t perform.

“There has to be some work around that they and DoD have agreed to to allow them to continue working together. That work around can be applicable to front end of bidding process where solicitation is already underway and proposals have been submitted,” he said.

Alan Chvotkin is the senior vice president and counsel at the Professional Services Council.

Chvoktin may be right in the fact that there is more going on than just the lack of DD-254s in file.

Sources said HHS placed the three top executives at PSC on administrative leave in the spring. PSC Executive Director Al Sample, CFO Bill McCabe and Patrick Joy, the head of PSC’s contracting activity, were all temporarily removed from their positions and possibly even escorted out. Sample has been PSC’s executive director for more than four years. McCabe received the Meritorious Presidential Rank Award in 2015 and also worked as CFO of the Nuclear Regulatory Commission, and Joy has worked for HHS for 29 years.

Sample declined to comment on his situation. Emails through LinkedIn to McCabe and Joy were not returned.

A HHS spokesperson declined to comment on the status of Sample, McCabe and Joy, citing the fact the agency is unable to comment on personnel matters.

The HHS spokesperson, in fact, provided little insight into the PSC situation. There is nothing on PSC’s website about the change and, in fact, HHS took down the acquisition section of PSC’s site.

The agency, however, sent out FAQs to civilian and DoD customers with more specifics, but not offering much more about why HHS made the decision or how it is helping customer agencies.

When asked why is PSC unable to certify it is meeting the requirements under Section 801 of the NDAA, the spokesperson said, “PSC constantly reviews its business processes to ensure accountability and customer satisfaction. Section 801 requirements are no different.”

When asked whether HHS tried to fix the challenges with its DD-254s before deciding to stop offering assisted acquisition services, the spokesperson said, “PSC has taken the position that it is in the best interest of all parties to conduct an orderly phase out of this line of business.”

But sources say that’s the problem with this whole issue — PSC is not doing an orderly phase out. It’s more like a jolt to the system.

Sources say the issue is less about HHS’s decision to stop offering assisted acquisition services, and more about the sudden burden PSC is putting on DoD and other customer agencies.

Multiple customer agencies, OPM, the Department of Housing and Urban Development and EPA declined to comment on how PSC’s decision is impacting them.

The HHS spokesperson said customer agencies can rely on their own acquisition offices and “PSC is providing contact information for other acquisition shared service providers when appropriate.”

Additionally, the spokesperson said, “PSC is working with customer agencies independently to support their mission needs.”

One-third of all federal spending happening

But the source familiar with PSC operations said the quick decision by HHS clearly upset many agency customers and put them in a tough and unnecessary situation.

The source said a more orderly process would have been for PSC to finish administering every contract until the end of life, including all modifications and option years.

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“This decision places a huge administrative burden on the people who are so overwhelmed that they are using assisted acquisition services. This is really creating a five-alarm crisis in the fourth quarter,” the source said. “Deadlines for fourth quarter work were in June, and generally speaking other assisted acquisition service providers like General Services Administration and Interior, rarely accept new customers in July or August. They just can’t staff up to deal with new work. So if you only used PSC for assisted acquisition services, you are in trouble, and must find a way to do it yourself.”

Other government sources say the General Services Administration has some capacity to accept new work in the fourth quarter, but others such as the National Institutes of Health and the Interior Department, both of which offer assisted acquisition services, may have a harder time because they don’t have enough contracting officers to do the work.

“We are getting calls to pick up work,” said one federal executive with an assisted acquisition service, who requested anonymity because they didn’t get permission to speak to the press. “PSC’s decision is hurting a lot of DoD’s programs.”

Chvotkin said HHS’ decision also impacts vendors because they spent time and money bidding on solicitations that now must start over and calls into question the future of existing contract awards.

“PSC is putting enormous pressure on agencies to find places to move these contracts and it puts vendors at risk for losing work that they competed for and were working on,” he said. “I wish they had included a longer transition period because a lot of work needs to be done and I hope they stay fully engaged.”

Chvotkin said the Professional Services Council looked at the spend rate of federal agencies and about one-third of all federal spending goes out in the fourth quarter and almost a quarter goes out in September.

“Cutting off agencies when they had weeks of preparation work to get to PSC on time and are now finding themselves cut off during the worst time of federal fiscal year is tough,” he said. “If there was ever a good time to make a bad decision, the decision would’ve become after Oct. 1 and included a more reasonable transition period.”

Chvotkin said his organization is meeting with member companies, DoD and the Office of Federal Procurement Policy to figure out a way forward. He said OFPP is aware of HHS’ decision and is working with agencies to find solutions.

“This was all foreseeable if the leadership had talked to someone at the Program Support Center who understands acquisition they would’ve have understood the ramifications,” said the source familiar with PSC.

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