Section 809 Panel Results & Recommendations So Far - The Good, Bad & Uncertain
An 18-person panel sanctioned by Section 809 of the FY 2016 National Defense Authorization Act (NDAA)* was tasked with finding ways to streamline the Department of Defense’s (DOD) archaic acquisition process and result in a system that is bold, simple and effective. Their work has dominated the conversation in the government contracting/procurement landscape over the last year. You cannot attend an industry event, dinner or continuing professional education (CPE) course without findings from the Panel bubbling up.
Aptly named the “Section 809 Panel,” they were organized into 10 working groups focused on gathering input from industry and government representatives alike and addressing the issues at hand. I will look to summarize the Panel’s key recommendations and provide some thoughts on the good, the bad and the uncertain stemming from Volumes One and Two of their final report.
809 Panel Recommendations – The Good, the Bad & the Uncertain
August 22, 2018 | 2 p.m. ET
Interim Section Panel 809 Report Sets the Stage
It all started on May 17, 2017 with the Interim Report, in which the panel recommended, “modifying or eliminating statutory and regulatory requirements to reduce the burden and improve the functioning of DOD’s acquisition process.”
Throughout the Interim Report, the Panel demanded fundamental change to the DOD acquisition system. My firm, BDO, wasn’t the only one to have doubts. We had seen similar panels/task forces before. Recommendations were always provided, changes were sometimes made, but the overall impact to the acquisition system was never quite what we hope for. For example, the Federal Acquisition Streamlining Act (FASA) of 1994 incorporated notable changes, including modifications to simplify procedures for the procurement of commercial items. To some degree FASA did usher in some change, but simply agreeing to what constitutes a commercial item (i.e., commercial item determination) within the DOD became so inconsistent that the Defense Contract Management Agency (DCMA) had to establish a Commercial Item Group (CIG) almost 20 years later.
Yet, Congress seemed to buy in this time – nearly all of the statutory recommendations made by the Panel’s Interim Report were adopted into the FY 2018 NDAA. It was here the Section 809 Panel’s real work begun.
In January 2018, Volume One of the Panel’s Final Report was released. Words like “Dynamic Marketplace” and “outcome based acquisition systems” were used. The Panel declared that the existing acquisition system was based on a Cold War era mentality and proved to be an obstacle for the DOD to access today’s global market place. Volume One did not just include findings and recommendations, it contained redline changes to regulatory/statutory language. The heavy lifting for regulators significantly complete… maybe.
Overall, Volume One officially contains 24 recommendations, with each recommendation accompanied by sub-recommendations. The Report is broken out into eight sections:
- Commercial Buying
- Contract Compliance and Audit
- Defense Business Systems: Acquisition of Information Technology Systems
- Earned Value Management for Software Programs Using Agile
- Services Contracting
- Small Business
- Statutory Offices
- Statutory Reporting.
With more than 600 pages associated with Volume One alone, I’ve selected a few specific recommendations for commentary/discussion.
Recommendation 1 – Revise definitions related to commercial buying to simplify their application and eliminate inconsistency.
As previously noted, the DCMA created a separate Commercial Items Group to ensure the application of the existing commercial item definition would be consistently applied. With that, simplifying the current definition seemed like an obvious place to start. The Panel proposed classifying products/services/solutions that the DOD acquires into “lanes” and provided a conceptual model of how the DOD would arrive in any particular lane, defined as:
- Readily Available
- Available with Customization
- Defense Unique or Development.
With the simplified language, the new descriptions feel eerily similar to that of the current commercial item definition and its subjective terminology (e.g., “of a type”). The proposed revisions to the definition of “commercial,” including the distinction between product and service, is certainly positive. However, the impact of this recommendation will be a wait-and-see, particularly around how the interpretation of the proposed regulatory revisions are applied by government buyers, contracting officers and, most importantly, government auditors.
Recommendations 2 – Minimize government-unique terms applicable to commercial buying.
All I can say is, “Yes, please.” The Panel noted that currently there are 165 provisions and clauses applicable to the procurement of commercial items. Additionally, beginning in 1995 prime contractors selling either commercial (under FAR 52.212-5(e)) or noncommercial (under FAR 52.244-6(c)) were required to flow down four commercial buying clauses to subs; today that number is 22 and 20, respectively. Needless to say, the idea of re-assessing these requirements and minimizing unique terms for commercial buyers is a positive step.
Contract Compliance & Audit
Recommendations 5 through 15
I could not be more supportive of this section and its associated recommendations. In my experience, the cost, complexity and consequences associated with contract compliance oversight deter many companies from entering the government contracting market. These recommendations align closely to Commercial Buying section, but goes even further as it relates to: (i) DCAA’s role, their recent audit struggles (as highlighted by GAO reports), and the need to operate with a cooperative spirit; (ii) encouraging oversight to occur more timely; and (iii) applying professional standards (e.g., SOX) as a basis to replace criteria of DFARS 252.242-7006 “Accounting System Administration” with an internal control audit and establish a Professional Practice Guide to streamline contractor business system oversight.
I agree that contract oversight is a crucial function of the DOD’s system of controls to ensure the tax payer is protected. I also agree with the Panel’s main takeaway, that there are more efficient, cost effective and practical ways in which to provide that oversight.
Volume Two of the Panel’s recommendations, released in June 2018, builds on previous policy recommendations and incorporates an additional nine suggestions addressing: acquisition workforce, commercial source selection, the Cost Accounting Standards Board, and Services Contracting. It includes a proposed framework for change – strategy, structure, processes and procedures, resources, and culture – the key elements that drive the acquisition processes.
Improving Defense Acquisition
The Panel proposed shifting from a program-centric management structure to an effective portfolio capability structure to allow for tighter alignment of acquisition, requirements and budget process. As the Panel indicates, a portfolio approach to requirements, aligned with a more dynamic portfolio resource allocation model, could provide the flexibility to iteratively fund and execute priority capabilities.
I agree that the current variation of categorization frameworks make it difficult to assess capabilities and resource allocation at the enterprise level. That said, I will be interested to learn of specific recommendations stemming from Volume Three, in particular, funding flexibility and continuing resolutions. These would address funding instability issues weighing on the existing acquisition system, with some element of reserve funding likely to be put forth as the potential solution, but stay tuned.
Cost Accounting Standards (CAS)
Recommendations 29 and 30
Volume Two touches on the issues that a relatively inactive (until recently, anyway) CAS Board and the unchanged CAS remain incompatible with the way the government conducts its own business. I agree with the Panel’s assertion that CAS is yet another barrier to entry, limiting the DOD’s accessibility to the global marketplace. Worthwhile recommendations included: raising the CAS-coverage and disclosure statement monetary threshold to $100 million; adding much needed guidance for hybrid contracts to CAS program requirements; revising commercial item exemptions; and expanding CAS exemption to include any fixed-price type contract whose price is based on price analysis and without the submission of certified cost or pricing data. I believe there is an opportunity to go further (refining limitations within CAS to align with current business models), however, the Volume 2 Report is a solid starting point for evaluating CAS.
All in all, the information published by the Section 809 Panel captured many issues the government contracting industry has been lamenting about for years, and offers practical resolution recommendations. Hear my complete overview of the results from Volumes One and Two of the Panel’s report during the webinar 809 Panel Recommendations – The Good, the Bad & the Uncertain, live session taking place August 22, at 2 p.m. ET.
Giacomo Apadula is the Managing Director, Industry Specialty Services, for Deltek partner BDO, an assurance, tax, and financial advisory service provider, with clients across the U.S. and around the globe. He serves clients who operate in the government contracting and nonprofit market sectors on matters related to cost accounting, regulatory compliance, subcontract management, and litigation/audit support. His clients span multiple business sectors (e.g., aerospace and defense, manufacturing, service, bio-tech, large Pharma). Specifically, Giacomo has assisted clients in establishing cost accounting practices and indirect rate methodologies as a means to meet their organization’s strategic goals (e.g., maximize cost recovery, achieve cost savings) through the development of indirect cost rates.
*Amended by section 863(d) of FY 17 NDAA and sections 803(c) & 883 of FY18 NDAA
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