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HHS’ shutdown of assisted acquisition services remains painful, wasteful

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The Department of Health and Human Services is not just failing its agency and contractor customers but also, once again, demonstrating why “the government” gets maligned as wasteful, insular and uncaring.

With its decision to end its assisted acquisition services through its Program Support Center, HHS is putting more than $1 billion in contracts at risk. It’s hanging large and small agencies out to dry — ranging from the Defense Department to the Environmental Protection Agency to the Office of Special Counsel — by canceling contracts and giving them little time to prepare for the changes. And it is withholding payment to potentially hundreds of small and large contractors, putting some at risk of closing down or facing employee layoffs and additional contract costs.

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At the same time, HHS is paying tens of thousands of dollars in prompt payment penalties to those same contractors for avoidable mistakes, inching ever closer to what experts would call waste and abuse.

“Since the beginning, HHS PSC was inflicting pain on themselves,” said Ron Robinson, a former program manager for Copper River Technologies, which provided contract support and financial analyst services until December when PSC ended its three-year contract two years early. “It is horrible the way HHS has handled this. They should be held accountable, and it doesn’t seem like anyone wants to. There wasn’t communication. There was a lack of transparency. You see that time and again with them suspending warrants and putting four people on administrative leave without telling them why.”

Multiple requests to Reps. Mark Meadows (R-N.C.), ranking member of the Oversight and Reform Committee, and Harley Rouda (D-Calif.), were not returned seeking comment on PSC’s actions.

One flawed reason to another

Robinson and four other industry sources, all of whom requested anonymity because they either are still waiting to get paid by HHS or because they still have work before the agency, say the rationale for closing down the Program Support Center’s most successful offering was based on one flawed reason after another.

HHS jumped from one explanation to another to justify what sources called an irresponsible and short-sighted decision to close down PSC’s assisted acquisition services in such an abrupt and painful manner. The rationale included:

  • An alleged missing $40 million from its acquisition fund
  • How PSC’s contracting officers “handled” classified information
  • A potential criminal investigation of contracting officers at the Space and Naval Warfare Systems Command

Four executives remain on administrative leave after almost a year: Al Sample, the well-respected head of PSC; Bill McCabe, the chief financial officer, and the director of Financial Management and Procurement Portfolio; Patrick Joy, the head of PSC’s contracting activity; and Donald Hadrick, the chief supervisory contracting officer. HHS continues to pay their full salaries at the Senior Executive Service or GS-15 levels and benefits, costing the government more than $600,000 a year. Meanwhile, HHS still searches for a reason that will stick for why these highly-respected executives were embarrassingly walked out of their offices last spring.

Attempts to contact McCabe, Hadrick and Joy through LinkedIn went unanswered. Sample declined to offer further details beyond that his situation hasn’t changed.

A HHS spokeswoman chose not to answer more than a dozen specific questions for this article, despite multiple attempts to convince them to share more in order to capture both sides of the story.

This is the only comment HHS provided:

“HHS is currently conducting a review of its financial systems and processes in an effort to improve PSC operations and strengthen transparency. This is part of a larger process improvement effort. At the same time, PSC is working with customer agencies independently to support their individual missions and make payments as soon as possible after ensuring the goods or services have been delivered and meet the customer’s requirements.”

Lack of transparency, communication

The decision by HHS not to offer any insights or any further comment is part of the problem with this entire situation. The lack of transparency has been stunning, to the press, agencies and vendor partners. For the spokeswoman to say PSC is working with its customer agencies feels disingenuous at best and full on deceit at worst to the multiple sources Federal News Network talked to for this article.

Read more: Reporter’s Notebook

Time and again, vendors say PSC stopped answering phone calls or emails. Soon after, payment for work already completed ceased too. And sources say both PSC and the agencies who are their customers are playing the finger pointing game leaving vendors caught in the middle.

“They are still stonewalling us. We can’t get anyone to answer us. When we do reach someone, we are told to go back to [the awarding] customer agency. Lawyers are blaming each other, telling us to take this up with the other agency,” said one industry source. “We’ve written a formal request for payment. We are waiting for attorneys to talk more. We only received responses when we sent emails directly and aggressively to request something. But when we send invoices, [PSC is] not responding.”

Other vendors experienced the same HHS communication blackout.

“Our invoices are now several months overdue. We have made repeated calls, sent repeated e-mails, and we’ve gotten no commitment whatsoever to pay or even [have been] given a payment date,” said another industry source. “We have sent supporting paperwork not once, but multiple times. It seems to go to different people each time, and gets ‘lost’ when the new persons come along.”

The source said the lack of communication and payment delays are even more difficult for small firms.

“As a small business, this hits hard. Highly skilled people and teams which have taken years to build up are facing layoffs. [It’s] very hard to recover from this afterwards. Ultimately the customer suffers diminished readiness,” the source said. “It’s not good.”

HHS also failed to tell the Defense Department in September about suspending employee assistance programs. DoD and HHS finally worked out a way to get the program running again, but sent formal notification after the fact that it planned to end the services two months later. It’s also unclear if HHS shut down EAP services as the website provides no information on the current status of the program.

Payments starting to flow

Two other industry executives said PSC is starting to pay invoices, but it’s been an uphill climb for months.

One of the industry sources said HHS has paid prompt payment penalties for as much as $84,000. The Prompt Payment Act requires agencies to pay a penalty of 2.6% interest for every 30 days the invoice is overdue. The source said with most invoices being at least three months late, HHS is paying 7.8% interest on almost every contract. This is another example where HHS’s decisions have resulted in waste.

“Vendors are happy to get paid and [are] getting paid lot of extra money because three months or more of interest adds up,” the vendor source said.

Another industry executive said the level of scrutiny invoices are getting is over the top.

“PSC is taking a position that until they have completely confirmed that everything has been delivered per contract specification they will not make payments,” the source said. “Whether this is a way to prolong the process because they don’t have the money or they are trying to find out what happened, we get a sense there is some disarray within PSC’s contracting shop about how to close these contracts out.”

That disarray comes from another decision HHS made over the summer. Sources say PSC went from having three people — 1.5 full-time equivalent federal employees and 1.5 FTE contractors — processing invoices to having eight untrained federal contracting specialists take over these duties.

Read more: Acquisition News

“They brought in a new invoicing team and they still are going through a steep learning curve,” said one industry source. “Eight people could not do what three people could do who were properly trained. Being a contracting specialist is very different [from] being a financial manager. Contracting specialists may know the verbiage of payments, but not the specifics. They also have to learn two systems they have never been in before in a short span of time. That led to many problems, a lot of errors and these delays.”

Invoicing is a dirty process

Sources say the training HHS provided these contract specialists was inadequate.

“PSC had to bring in a second trainer because the first one didn’t know how to train people for invoicing,” the source said. “This put contractors a quarter behind in getting paid. And processing an invoice is a complicated process. It’s a five-step process before it even goes to Treasury, and you have to make sure it’s on the right line of accounting, aligns with requisitions and a lot of other steps.”

The source added the invoicing process at PSC has been in bad shape for years, filled with manual processes and email approvals.

“The backlog had been in the hundreds of thousands of dollars and this only expanded it,” the source said. “The accounting folks will find errors from two or four years ago. There are some areas that couldn’t close their books because invoices never got fully resolved. There are just a lot of errors, and it’s always been a dirty process.”

Over the last year, questionable decisions, such as getting rid of experienced invoice processing employees has marked this story.

HHS’ first reason for ending assisted acquisition services was it decided it didn’t have the oversight in place to do classified work. Robinson, the former Copper River Technologies program manager, said the HHS general counsel, all of a sudden, had some concerns about misuse of form DD-254 for classified work.

“It was an absolute surprise. I’m not sure why there would be any great concern about it as we had been dealing with them for years without any problems,” he said. “Their concerns were about the handling of classified information, but we never had classified information. The majority of DD-254s were attached to an action that was more for facility clearances. We did a lot of IT contracts so contractors may have access to secure facilities, but it wasn’t doing what you’d think of as hard classified work.”

OGC driving the decision

Robinson said the Office of General Counsel was driving a lot of these “problems” at PSC and found willing partners in people like Scott Rowell, the assistant secretary for administration, and James Simpson, the acting deputy assistant secretary for acquisitions in the Office of The Assistant Secretary of Administration.

“It goes back to OGC driving the ship and OGC, in my experience, was extremely risk averse. They saw an issue or problem as a risk, even though we had operated for years and years without issues,” Robinson said. “My belief is the Office of General Counsel at HHS was never a fan of assisted acquisitions. When Simpson got in there, OGC found someone who would listen to them and they used it.”

Read more: Technology News

HHS used the DD-254s and the claim of a missing $40 million as the first two reasons for ending its services and suspending the four executives. But when both motives fell apart sources say HHS used a potential criminal conduct claim at the Space and Naval Warfare Systems Command in San Diego as the reason for shutting down the assisted acquisition services.

Federal News Network previously reported both the alleged missing $40 million from the acquisition fund and the DD-254 problems were debunked. In July, sources familiar with PSC’s operations say a recent audit found the organization does no classified work. And in August, Federal News Network reported that the “missing” funds had to do with the new leadership lacking the understanding of how the acquisition supply fund works. Sources said once the Office of Management and Budget got involved and explained how the fund works and therefore $40 million was not missing, HHS management “drummed up” this national security concern with the DD-254s.

Robinson said one of his former colleagues was called to testify before special investigators in January on the alleged criminal activity. But special investigators called off the meeting as he was preparing to leave.

“It seems that’s not legitimate and it seems to fit in with the fact they couldn’t get the DD-254 accusation to work,” he said. “To say there may have been criminal things going on as another reason to shutdown assisted acquisition services … it’s part of how they are blowing smoke to find fraud waste and abuse issues.”

Sources say it could take three-to-five years for PSC to fully shut down its assisted acquisition services, and the organization may have to award another contract to clean up the mess its executives created by not understanding the situation.

It is HHS’ right to get out of the assisted acquisition services – no one in industry or government would disagree. But HHS officials’ failures – their lack of transparency and poor decision-making created unnecessary hardship on agencies and contractors and paint an avoidable black cloud over the government. And that’s sad.