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This article is a series of questions and answers about the Section 809 Panel, especially the first of the three volumes they submitted to Congress.

Acquisition Reform, Pentagon Reorganization, and the Section 809 Panel

By Christoph Mlinarchik, JD, CFCM, PMP | Owner, www.ChristophLLC.com

Congress wants federal contracting reform. That’s why they created the Section 809 Acquisition Reform Panel in the National Defense Authorization Act (NDAA) for fiscal year 2016. Congress is also frustrated with the way the Pentagon does business. That’s why they demanded a total reorganization of the (former) Office of the Undersecretary of Defense for Acquisition, Technology, and Logistics or USD(AT&L). The Section 809 Panel recently released its first major report and the Pentagon reorganization is already in progress. Save your time reading through hundreds of pages. Here’s your executive summary from a Pentagon and contracting policy insider who is on the ground, implementing these changes on a daily basis.

What is the Section 809 Panel?

The Section 809 Panel is filled to the brim with federal and industry experts in government contracts. In 2016, Congress directed the Department of Defense (DoD) to create an expert panel on acquisition reform, drawing from both the public and private sector. The Section 809 Panel’s goal is the streamline DoD acquisition laws and regulations by amendments (changes) or repeals (deletions).

What is the latest news from the Section 809 Panel?

On January 31, 2018, the Panel released the first of three volumes focusing on reforming the complex system of federal contracting in the DoD. Volume one focuses on commercial buying, contracts audits, and small business policy. Be on the lookout for Christoph LLC’s reports on volumes two and three, which are coming soon! (You can sign up for Contracting Currents from Christoph LLC – a monthly educational newsletter- by emailing Christoph@ChristophLLC.com.) Volume two is due in June 2018 and volume three is due in January 2019.

Is what the Section 809 Panel recommends “final” or “effective” in any way?

No, not until and unless Congress legislates. The Panel’s report contains recommendations for Congress to pass laws or federal agencies to change regulations. Nothing is final. But you should know that Panel members are well connected to Congress and the Pentagon.

Nothing is guaranteed, but it’s safe to bet the Panel’s recommendations will be considered by Congress and leadership in federal agencies. In fact, draft legislation from Chairman Mac “Big Mac” Thornberry of the House Armed Services Committee (HASC) seems to directly cut-and-paste language and recommendations from the Section 809 Panel’s report.

Also, just because reform efforts start with DoD doesn’t mean they won’t affect non-DoD agencies. Contracting reform usually spreads from DoD to other federal agencies. In this way, the Section 809 Panel might set the blueprint for the rest of the civilian, non-DoD agencies. In short, all contracting professionals should be tracking the Section 809 Panel.

Commercial buying – simplify, streamline, reduce clauses

The Panel recommends an increased focus on commercial buying. Commercial contracting should be cheaper, faster, and more efficient because it’s based on market-tested solutions. As such, commercial contracting should have less clauses and complications. For contracting, the Panel envisions four major groups:

*readily available commercial products and services

*requires minor customization

*requires major customization

*unique products and services, developed only for DoD

The first, purely commercial category of contracting will be streamlined and simple, with increasing complexity and rules moving towards the last category of DoD-unique requirements. Simplify the easy stuff and eliminate nearly all clause flow-downs for commercial subcontracts. Save the scrutiny and regulations for special weapons that only DoD buys.

Uniform, commonsense definitions

Dealing in federal contracts means being extremely careful with definitions, which can vary based on the circumstances. The Panel wants to fix that problem by adopting a single, uniform definition for subcontract and subcontractor. It also wants to eliminate the confusing definition for COTS or commercial off the shelf items.

Contract audits from DCAA

Nobody wants to be audited by Defense Contract Audit Agency (DCAA). It’s a nightmare. The Panel wants to improve this perception of DCAA by making it less adversarial to federal contractors. They suggest removing any financial incentives for overly aggressive audits by revising DCAA’s success metrics.

Instead of measuring DCAA “success” by how much money they extract from federal contractors, focus on prevention and better training for government employees and contracting officers. This seems like a reasonable suggestion and a welcome relief for industry!

Big changes in small business policy

The Panel recommends that DoD focus on getting innovative, cutting-edge technology from small businesses, rather than set-asides and socioeconomic categories. Make no mistake, this is a major departure from existing small business policy!

The Panel criticized DoD for chasing small business set-asides instead of shaping the small business industrial base to provide innovative technology for the twenty-first century. Pursue solutions, results, and advanced technology, not quotas, recommends the Panel.

Going a step further, the Panel also recommends creating a new “Defense Small Business Act” to consolidate all DoD small business policy in its own section of the law. This would exempt DoD from the existing system of the Small Business Act.

What is happening at the Pentagon?

First, Pentagon acquisition policy swings back and forth like a pendulum. Some think the Pentagon should centralize decisions for the major defense acquisition programs (MDAPs), the big-ticket items like the Joint Strike Fighter. Other believe the individual military services like Army, Air Force, and Navy are better equipped to understand and take responsibility for these programs. Under the Administration of President Trump and Defense Secretary Jim Mattis, the direction is clear. Decentralization to the military services is the current plan, which is a direct departure from the policy under former USD(AT&L) Frank Kendall.

Who is the new USD(AT&L)?

Interesting question, because there is no USD(AT&L). That position is abolished! The Honorable Ellen Lord was the successor USD(AT&L), but Congress wants the Pentagon to reform the way it does business, and that includes reorganization of the Office of AT&L, where acquisition takes place.

As of February 2018, AT&L was abolished and split into two new offices: Acquisition & Sustainment and Research & Engineering. The Honorable Ellen Lord is the USD(A&S) and the Honorable Michael Griffin is the USD(R&E). The idea is that R&E is a lean, agile, risk-taking organization to seek innovation and conduct cutting-edge research and development. The overwhelming majority of spending will still occur in A&S, which will retain the big-ticket items like jets and aircraft carriers.

What does all of this mean for the contracting professional?

The time is ripe for acquisition reform. Now, more than ever, it’s imperative to research and stay curious about what’s happening in the four sources of authority in government contracts. The four sources are laws passed by Congress, regulations promulgated by Executive Agencies, policy that doesn’t fall into another category, and legal decisions issued by the Court of Federal Claims, the Government Accountability Office, or the Boards of Contract Appeals.

Things are changing, and they’re changing quickly. Your duty as a contracting professional is to translate these changes to meaningful action for your clients, and to proactively prepare for the effects of new legislation or changes to the Federal Acquisition Regulation. Here’s an example of why all contracting professionals need to keep their heads up and their eyes open as they diligently research…

What is happening with outreach to non-traditional defense contractors?

Congress wants the DoD to reach out to businesses which otherwise avoid government contracts. These “non-traditional defense contractors” (NDCs) are, rightfully, afraid of onerous accounting requirements, dense regulations, protracted contracting timelines, and predatory intellectual property clauses. So, Congress has been toying with the legal definition of NDC and the various “goodies” the DoD can offer to entice these NDCs.

The Defense Federal Acquisition Regulation Supplement (DFARS) was recently revised to follow Title 10, United States Code, section 2380a, which states that contracting officers may treat the supplies and services provided by NDCs as commercial items. That’s quite an enticement! Contracting officers can use the simplified, streamlined, commercial item procedures when dealing with NDCs. So far, so good.

What is the definition of a NDC?

Congress also recently changed the definition of NDC at Title 10, United States Code, section 2302(9). For the DoD, NDC means an entity that has not performed a contract or subcontract for DoD subject to full cost accounting standards (CAS) coverage in the past year.

What Congress almost certainly did not realize, but what every contracting professionals knows, is that small businesses are statutorily exempt from CAS.

Are all small businesses NDCs?

So what’s the punchline? After stating these premises, what’s the conclusion? Congress accidentally “blessed” nearly every single small business as a NDC. It’s not every single small business, because some small businesses could have performed a CAS-covered contract under a North American Industry Classification System (NAICS) code in which they do not qualify as a small business.

However, the fact remains that Congress opened up a gaping loophole, probably by accident. DoD contracting officers now have the discretion to treat goods and services provided by nearly all small businesses as if they were commercial items, as long as they’re willing to justify it under the spirit and intent of the law. The only questions that remain are (a) how many contracting officers are willing to use this new authority and (b) how soon will Congress close the loop if they determine that it’s being abused.

The answers to these questions are partly up to you, the contracting professionals!

CHRISTOPH MLINARCHIK, JD, CFCM, PMP is an attorney, expert witness, professional instructor, consultant, and author of 50+ publications on contract law and acquisitions. As owner of www.Christoph LLC.com, he teaches courses and advises on contracting, source selections, proposals, bid protests, and government contract law to federal, military, and private industry professionals nationwide—from novices to C-level executives. Christoph was a senior contracting officer for the Department of Defense and has Defense contracting experience across the Air Force, Navy, Pentagon, and Office of the Secretary of Defense. He also previously served as an Air Force JAG acquisitions attorney. Christoph was recently honored with the “Top Professionals Under 40” award by National Contract Management Association.

Christoph LLC is available for consultation, advice, and in-house training about Federal contracting topics, including source selections, proposals, government contract law, bid protests, and more. Visit www.ChristophLLC.com or email Christoph@ChristophLLC.com for details.