Commerce’s CATTS procurement exemplifies all that’s wrong with federal small business contracting

The Commerce Department’s Commerce Acquisition for Transformational Technology Services (CATTS) multiple award contract is the perfect microcosm of all that’s wrong with federal procurement and small business.

Despite the fact there are thousands of contracts that agencies award every day going off without a hitch — at least that’s the important reminder from former federal executive David Drabkin and many others over the years — the Commerce effort to create a high-dollar, long-term relationship with small businesses flies in the face of the government’s long-held goal to increase and support the small business industrial base.

In fact, it’s easy to argue that CATTS, and really many other similar acquisitions efforts, are detrimental to that goal.

“Where you have a large number of contractors differentiating among them is a challenge. With CATTS, price was not a primary factor as the range from bidders was incredible. The proposed prices were evaluated but not scored, which is a new trend to move away from pricing at prime level until you get work done,” said Alan Chvotkin, a procurement expert and partner with Nicolus Liu. “When you get hundreds or thousands of bidders on a contract like this, I’m a big fan of letting them all in. I’ve told the General Services Administration all the time that their biggest enemy to getting a contract like this done is GSA itself. Agencies go crazy to evaluate and pick an arbitrary score. While I’m not sure if that is the case here, I’m also not sure if 15 winners is enough or too many or if they could let everyone in too. But that is part of the acquisition strategy that agencies spend a lot of time on, but don’t look at their market assessments well enough and that leads them into this type of challenge.”

On the surface, Commerce’s challenge is it’s facing 12 protests before the Court of Federal Claims of its award under CATTS.

The agency received dozens of bids for its 10-year IT services contract with a ceiling of $1.5 billion. The contract is for agencywide IT services support including chief information officer support, digital document and records management, managed service outsourcing and consulting, IT operations and maintenance, IT services management and cybersecurity.

The vendors who are protesting claim Commerce misevaluated proposals because the agency didn’t adhere to the criteria it listed in the solicitation.

Herschel Chandler, the president of Information Unlimited Inc. (IUI), a small business who previously did work with the agency through other vehicles, said this is a first-of-a-kind Commercewide acquisition vehicle. He, like many other companies, believe they had no choice but to protest because if they don’t get on CATTS, they will be shutout of Commerce for the long term.

Winner take all contracts

That all-or-nothing feeling that Chandler and other small businesses protesting CATTS have is common across the government and part of the bigger issue at hand.

From the National Institutes of Health IT Acquisition and Assessment Center’s (NITAAC) CIO-SP4 to the Homeland Security Department’s FirstSource III to GSA’s defunct Alliant 2 small business, agencies faced and will continue to face protests and delays while creating frustrations among potential agency customers and vendors for the arbitrary decision to limit the number of awardees under these mega contracts.

The situation has only gotten worse over the past decade with the Office of Federal Procurement Policy’s push for category management, use of the meaningless term “best-in-class” contract and the emphasis for agencies to focus their spending on these types of vehicles.

It’s not that big contracts weren’t protested before category management and “best-in-class” came into the lexicon, but vendors feel more pressure than ever to win a spot.

The data supports this feeling among small businesses, both in terms of how much agencies are spending on these large contracts and the downstream impact of not winning.

GSA says agencies spent $54.5 billion on BICs in fiscal 2022, missing the governmentwide goal of 12% by half a percent. That was still $7 billion more than in 2021 and almost $10 billion more than in 2020. Of the 28 largest agencies GSA tracks for BIC spending, only eight didn’t meet their 2022 goal. Commerce, for example, spent 17.7% of its acquisition budget on BIC contracts, 1.7% more than its goal.

Shrinking small business base

At the same time, the data also shows the focus on BIC and category management more broadly is hurting the industrial base. A report from the Women’s Chamber of Commerce found in 2021 that the federal acquisition process category management has led to a drop in the number of small business vendors participating in government contracting. Since 2017, small businesses showed a 24% fall. Women-owned suppliers dropped more than 22%, while veteran-owned suppliers dipped more than 17%.

The Small Business Administration told Congress last June that the combination of category management and contract bundling also were negatively impacting the small business industrial base.

While it’s doubtful that the Commerce Department CATTS procurement will end up being a BIC, which is reserved mainly for governmentwide acquisition contracts or multiple award contracts open to multiple agencies, like FirstSource III and CIO-SP4, the fact is the pressure to bid and win these large, long-term contracts is real.

And this gets us back to why it’s so mindboggling that Commerce is digging in its heels on CATTS.

Based on the data provided by an agency spokesperson, Commerce’s history with supporting small firms has been strong and it expected to award more contract dollars through CATTS to small firms.

The spokesperson said the department awarded approximately 50% of total eligible obligations to small business against a prime-contracting goal of 39% and exceeded all prime-contracting socio-economic goals.

“For the portfolio of IT programs encompassed within the CATTS scope of work over the previous five years approximately 58% of the associated IT spend was awarded to small business and 42% to other-than-small business,” the spokesperson said. “Through use of the CATTS contract, Commerce projects up to 98% of the IT spend on this portfolio will be awarded to small business.”

The spokesperson added that in 2022, Commerce awarded contracts to approximately 4,888 different companies including 3,434 small businesses and 1,454 other than small businesses, with small businesses representing approximately 70% of Commerce’s overall supplier base.

It seems like CATTS is aimed at addressing major challenge all agencies face: a decreasing small business supplier base.

“These counts reflect a decrease of approximately 4% to 6% year-over-year compared to 2021 and 2020 consistent with a federalwide decrease in vendor counts,” the spokesperson said. “In this regard, overall both the number of small business and other-than-small business suppliers decreased for Commerce by approximately 8% since 2020. Commerce is actively pursuing means of expanding its supplier base, however, through proactive market research and innovative acquisition strategies consistent with recently issued OMB memorandum M-23-11, Creating a More Diverse and Resilient Federal Marketplace through Increased Participation of New and Recent Entrants. As reflected in GSA’s supplier base dashboard, Commerce’s efforts in 2022 to grow its supplier base resulted in a new entrant rate of 22% compared with the governmentwide average of 14.5%. Commerce is a leader in promoting small business contracting and increasing the pool of federal suppliers and anticipates making further contributions in these areas in 2023 and beyond.”

A messy solicitation from the start

So despite the need to expand its small business industrial base and the Biden administration’s emphasis on supporting small firms, Commerce is making it harder for the unsuccessful bidders of CATTS to continue to work in the federal market.

“We didn’t want to protest, but we are in a situation that we’ve never been in before,” said one industry executive, who requested anonymity because they feared retribution from Commerce. “If we don’t get on CATTS, we think we will be shut out from Commerce.”

The industry executive, like several others who chose to speak anonymously, expressed disbelief, frustration and bewilderment about how poorly Commerce ran the procurement and how their actions fly in the face of the Biden administration’s small business focus.

From the beginning, vendors bidding on the procurement said it went awry. The year-plus long solicitation process included 13 amendments, 2,198 questions submitted by vendors and extension after extension of the due dates.

Not surprisingly, Commerce’s spokesperson declined to comment on the CATTS protests because it’s under active litigation.

One industry executive called it one of the most expensive bids their company ever put together. The executive said they spent almost $100,000, which is three to four times more than any other typical bid.

Another executive called the RFP the worst they have seen in 20 years of working on federal contracts. The executive said they kept waiting for Commerce to fix the problems, and therefore withheld a pre-award protest.

“This whole procurement from day one has been very hodgepodge. It came out as a draft and we all figured they would clean it up during final solicitation process and they didn’t,” the executive said. “Then they had phase 1 and 2 deadlines, and if you read the RFP, there were so many redundancies and overlapping requirements all over the place. It looked as if 10 different people wrote it and they decided to put everyone’s ideas into the RFP, and it became confusing and contradictory.”

Then came the award decision with Commerce choosing 15 companies in September.

The unsuccessful bidders said the debriefing put a sour cherry on top of the entire poorly run process.

A flawed procurement?

Chandler said Commerce doubled down on its inconsistency and flawed procurement strategy.

“When developing the proposal, you are looking at section M, the evaluation criteria. That is how they must evaluate the proposals. It’s in black and white. But after we got the debrief, we were disqualified because of some of the wording of the evaluation criteria,” he said. “In Phase 1, Commerce said demonstrate your ability to meet the criteria across four subsections, with each being weighted the same. We hung our hat on those criteria. But during the debriefing the government said we failed to provide an approach in our technical evaluation. They never asked for an approach, but that is where they dinged us. And it was common across all protests.”

Of the 87 bids Commerce received, Chandler said 75% earned an unsatisfactory rating for their technical proposal.

He said right then and there Commerce should’ve realized how flawed the procurement was and taken corrective action.

Other executives offered similar debriefing stories where Commerce said the reason why they failed the technical evaluation was a lack of an explicit approach, even though the RFP never asked for that in the evaluation criteria.

“If they had wanted us to demonstrate our ability and provide an approach, then we could’ve said how could we do that in 65-page limit for our proposal?” Chandler said. “But they didn’t say it and we didn’t ask.”

Chandler and others also pointed out that the price differential was substantial enough to raise red flags. Vendors’ bids ranged anywhere from $93 million to $54 million.

The protests ended up at the Court of Federal Claims instead of the Government Accountability Office, which typically takes longer to decide cases and costs the protestors a significant amount of money to pursue.

Costs to protest rising

But instead of Commerce seeing the concerns outlined by a dozen protestors, knowing the costs that potentially could be incurred by the small firms and taking corrective action, even to just reevaluate the bids, the vendors say Commerce is fighting tooth and nail.

Chandler said the protest is costing him north of $125,000.

Another vendor said they have spent more than $25,000 and could cost them upwards of $80,000 before deciding with withdraw.

A third vendor said the cost of lawyers is bleeding them.

“Commerce is just papering the attorneys. The administrative record is 30,000 pages. The government’s response was 300 pages itself,” Chandler said.

On top of that, many of the winning bidders decided to intervene, adding more to the costs for both the winners of CATTS and the protestors as the administrative record continued to grow.

Chvotkin, the procurement attorney, said it’s not unusual for winning companies to intervene.

“If this is under a protective order, vendors will pay a lot of money for attorneys to review this stuff, and then they can’t talk to clients about it because it is not brought in under administrative order. You have to retain counsel that you trust because they will know things they can’t tell you,” Chvotkin said. “Costs go up because it’s significantly more expensive to be the Court of Federal Claims instead of [the Government Accountability Office]. GAO was theoretically designed to be a lower cost protest option, which is why it’s shorter and the administrative record is less.”

So while the Court of Federal Claims decides these protests, the question comes back to how can agencies avoid this situation in the future?

One logical option would be for agencies to let all minimally qualified contractors on the vehicle and let them compete at the task order level, and not pick an arbitrary number of awardees.

Another idea, which is something GSA is starting to do, is to have multiple award phases like with Polaris, giving companies the opportunity to continually improve their bids, or have continuous on-ramps like they plan to do with OASIS+ as a way to get out of this protest and delay continuum.

To Commerce’s credit, it did plan for on-ramping of new entrants under CATTS.

“[T]hrough the CATTS on-ramping process, Commerce anticipates enabling the addition of new suppliers to replenish the vendor pool over the life of the contract. On-ramping is an acquisition innovation Commerce incorporated into the CATTS acquisition to ensure new suppliers can be added to the vendor pool to maintain robust competition and a diverse and resilient IT supplier base,” the agency spokesperson said.

At the same time, Commerce, unlike GSA, offered no timeline for when it would open up the on-ramp. GSA’s OASIS+, for example, plans to have a continuous on-ramp, which is a better strategy to avoid long term delays because of protests.

Options for the future

And of course, this entire situation begs the question: Why did Commerce believe it needed its own IT services contract in the first place? GSA and NITAAC already offer similar contract vehicles — Polaris, 8(a) STARS III, Vets GWAC and CIO-SP3 small business — not to mention the GSA schedules with 35,000 vendors, 70% or more of which are small firms.

As far as Commerce’s CATTS, the protestors say they hope the agency will either reevaluate bids or cancel the entire procurement and start over.

The other option, of course, is to let all the protestors on the contract because the difference between 15 awards and 27 awards is minimal when it comes to administrative costs and likelihood of receiving too many bids per task order also is small.

Of course, Commerce, like many agencies, probably would tell you they are limiting the number of awards because they only want the “cream of the crop” providers and don’t want to have to manage dozens of awardees.

But it’s clear that’s an old way of thinking. Data shows that if agencies let in 100 or 500 vendors, they will not get 50 or 250 bids per task order. Agencies typically get three to five, maybe 10 at most per task order.

If Commerce’s goal, and all agencies’ for that matter, is to support and grow the small business industrial base, then arbitrary decisions about the number of awards has got to end, or agencies need to find another way to constantly refresh the list of awardees to stay out of the arduous protest cycle.

It’s clear Commerce’s issues with CATTS is not a one-off. Every agency that decides to arbitrarily limit the number of awards under a massive winner-take-all type of contract will face these same challenges. This is why the answer doesn’t lie in Commerce or DHS or even GSA, but at the feet of the Office of Federal Procurement Policy to match policy with practice with training.

Until that happens, the talk about small businesses being the engine that runs the economy will remain just that.

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