News
February 2, 2018

Highlights from First Volume of the 809 Panel's Final Report

Advisory

In 2016, Congress instructed the Department of Defense (DoD) to convene a panel of procurement professionals from government and industry to review the regulations governing DoD procurements. The "Section 809 Panel" was instructed to recommend "amendment or repeal" of defense procurement regulations "with a view toward streamlining and improving the efficiency and effectiveness of the defense acquisition process and maintaining defense technology advantage."1

On January 31, 2018, the 809 Panel issued the first volume of its much-anticipated Final Report, setting forth 73 discrete recommendations to Congress for procurement reform.2 Volume 2 of the report is due in June of 2018, and Volume 3 is due in January of 2019. This first volume addresses, among other topics:

  • Commercial Buying;
  • Contract Compliance & Audit; and
  • Small Business Goals.

Weighing in at nearly 650 pages, the Report has a lot to offer, and in places proceeds well beyond the limited remit of "amendment or repeal" of existing regulations, proposing major reforms and revisions that would require significant new law and rulemaking to implement. The law that established the 809 Panel did not require Congress or DoD to adopt its recommendations, but the full 3-volume report represents an attempt to define the terms of the debate over procurement reform, and is intended to feed into Congress' deliberations over the 2019 NDAA. This advisory aims to give a brief summary of the Report's tone and contents.

Towards A "Mission Driven," "Dynamic Marketplace"

As an overarching theme for its analysis and recommendations, the report opens with a call to move away from what it describes as the current "process-oriented" acquisition system and toward a "mission driven," "results oriented" system. The central concept appears to be granting DoD procurement officials a relatively unexamined flexibility to choose between various contracting procedures and "trade off" values such as competition, transparency, and speed to obtain "optimal" results given the DoD's emerging mission needs.3

The Report defines four "lanes" of procurement from which a DoD procurement may choose when making these initial determinations:

  1. Readily available products and services;
  2. Products and services requiring minor customization;
  3. Products and services requiring major customization; and
  4. Products and services uniquely developed for DoD.4

The Report implies that the Panel intends for different rules to govern each of these approaches: "in its future reports, the Section 809 Panel will define how competition, transaction, and transparency rules should differ across the four lanes."5 These recommended rules will include "DoD‐unique transaction rules and oversight when working with the traditional defense marketplace segment" (lanes 3 and 4), while using a lighter hand with less "management and oversight" on "the nondefense marketplace segment (lanes 1 and 2).6The spectrum defined by these "lanes" is familiar from the current system, whereby DoD may choose between using "rule-light" commercial contracting systems such as the Federal Supply Schedule, and conducting more formal full and open competition under the rules of FAR Part 15.

The Report contains various recommendations to update or replace the current rules governing some aspects of this existing divide (commercial buying, for example, see below). Presumably, the subsequent Volumes 2 and 3 of the Report will clarify if the Panel ultimately recommends that Congress or the DoD issue four distinct new sets of contracting rules to define procedures to address this familiar dichotomy between commercial and non-commercial contracting.

Commercial Buying

A significant aspect of the Panel's recommendations focus on simplifying commercial item acquisition to realign the system with the goals initially expressed in the Federal Acquisition Streamlining Act of 1994 (FASA). These recommendations include:

  • Bifurcating the term "commercial item" to distinguish between "commercial services" and "commercial products,"7
  • Eliminating the definitional distinction between commercial items and Commercial Off The Shelf (COTS) items;
  • Establishing a uniform definition of "subcontract" and "subcontractor." Critically, the Panel recommends that the "definition would exempt purchases of commodities, commercial products, and commercial services that are being procured for multiple contracts from the flow down of government unique terms."8In other words, reducing or eliminating disclosure or compliance requirements for subcontractors providing "commercial items" to both commercial and non-commercial prime contracts.
  • Deleting the vast majority of mandatory flow downs for commercial item contracts and making it more difficult for additional flow downs to be added in the future;9
  • Revising and clarifying Termination for Convenience clauses for commercial item contracts;10
  • Revising DFARS provisions relating to rights in technical data policy for commercial products.11This recommendation is particularly directed at removing barriers to participation by nontraditional companies, as it confronts "the current DFARS approach of mandating the flow down of data rights clauses to commercial items that have not been proven to be developed at government expense."12 This issue has arisen in RFPs across multiple agencies, as prime contract offerors have struggled to obtain licenses that satisfy both the government requirements for extensive data rights, and the interests of companies that are not dependent on government business.

Contract Compliance & Audit

The Panel recognizes that the "DoD contract compliance and oversight process is one of the barriers to entry into the DoD marketplace because DoD's oversight process is not always timely, efficient, or effective."13 To address that concern, the Panel makes several recommendations:

  • Revise DCAA's mission statement "to focus on its primary customer, the contracting officer;"14
  • Revise the metrics used in DCAA's annual reports to Congress, and thereby revise the DCAA's focus on cost recovery as the only measure of success: "DCAA's emphasis on return on investment alone do[es] not adequately demonstrate performance. DCAA is not, and should not, be considered a profit center." The Report calls for a focus not only on retroactive detection and recovery, but proactive training and prevention: "Although detecting contractor noncompliance is important, preventing noncompliance through education and training of contractors and contracting officers is DCAA's original mission and the best use of its resources."15
  • Providing contracting officers and auditors with flexibility to use audit and advisory services, defining the term "audit", and directing a review of the rules of DCAA and DCMA to ensure appropriate alignment and eliminate redundancies;16
  • Establish statutory time limits for defense oversight activities;17
  • Permit DCAA to use independent public accountants to meet time limits and resolve current backlog;18
  • Review and reconsider efficiency of compliance for and oversight of contractor costs and business systems.19

Small Business Goals

The Panel also gives considerable attention to small business contracting, criticizing DoD's current approach:

DoD is not fully capitalizing on small businesses' innovativeness. Instead, DoD appears to focus its small business policies and programs on acquiring goods and services based on meeting societal goals not related to mission. Complexity and slowness in the acquisition system, an uncoordinated outreach process, a lack of clear points of entry into the defense market, and contract compliance requirements deter and appear to prevent small businesses from working with DoD. Small business programs enabling research, development, and innovation have the greatest potential to positively affect DoD and the small business community.20

The Panel provides one overarching recommendation to: "refocus DoD's small business policies and programs to prioritize mission and advance warfighting capabilities and capacities."21To that end, the Panel also provides three subrecommendations to:

  • Establish the infrastructure necessary to create and execute a DoD small business strategy, ensuring alignment of DoD's small business programs with the agency's critical needs;
  • Build on the successes of the SBIR/STTR and RIF programs;
  • Enable innovation in the acquisition system and among industry partners.

The Report delves into the weeds of DoD's own proposed reforms in this area, discussing the proposals set forth in DoD's August 2017 report to Congress on the subject.22 The Report largely endorses the organizational changes proposed by DoD, but argues that the proposals do not go far enough in increasing points of entry for small businesses into government contracting, empowering DoD's existing small business experts, or refocusing away from numerical targets (which contracting officers seek to meet by focusing on obtaining "basic commodities and services" from small business).23 The Report calls for DoD to explore the more complex and cutting edge capabilities of small companies, and consider such capabilities in its planning.

Tea Leaves For Protest Reform

Given the increasing clamor for protest reform over the past several years, it is notable that this first volume of the Panel's report does not make any recommendations for changing the bid protest system. However, it is clear from the Report that the Panel is considering such recommendations in future volumes. While it is difficult to anticipate what those recommendations might look like, this first volume suggests that the Panel may be considering enhancements to the award announcement and debriefing processes:

Even when companies have been able to successfully navigate the preaward processes, award decisions are often still mystifying to vendors. Although the Section 809 Panel is continuing its research, it is clear that protests have become a tool for industry to receive feedback and better understand the government's acquisition decisions. Such extreme and costly steps should not be needed for industry to get information on DoD's needs and processes or to understand the end result of the acquisition process.24

Other Areas of Focus

In addition to the broad recommendations relating to commercial purchases and contract compliance, the Panel also makes recommendations relating to more specific areas of interest such as DoD's acquisition of IT systems and the use of Earned Value Management for software programs using Agile.25 In relation to services contracting, the Panel also recommends clarifying definitions of personal services and nonpersonal services, and incorporating in the DFARS a description of supervisory responsibilities for service contracts.26

The remainder of the Panel's recommendations fall into two general categories. The first relates to giving the Secretary of Defense broad authority to structure DoD, which is manifested in multiple recommendations to repeal statutory requirements relating to the structure of DoD.27 The second relates to eliminating statutory reporting requirements.28 In addition to recommending the repeal of many existing reporting requirements, the Panel recommends a default rule that all DoD statutory reporting requirements will sunset after 5 years.

Conclusion

There is a lot to unpack in this first volume of the 809 Panel's Final Report. The Report is both broad in scope, and specific in its prescriptions, providing specific revisions and redrafting of multiple rules and statutes, and promising more to come. There are recommendations and discussions in the report relevant to contractors in nearly every corner of the government contracting marketplace, and much that is directed to the commercial marketplace at large. We will continue to keep you updated as we learn more.

© Arnold & Porter Kaye Scholer LLP 2018 All Rights Reserved. NOTICE: ADVERTISING MATERIAL. Results depend upon a variety of factors unique to each matter. Prior results do not guarantee or predict a similar results in any future matter undertaken by the lawyer.

  1. Section 809 of the National Defense Authorization Act for Fiscal Year 2016. Public Law 114-92, as amended.

  2. 809 Panel, Final Report Vol. I.

  3. Id. at 7-10.

  4. Id. at 11.

  5. Id. at 13.

  6. Id.

  7. Id. at 29-3.

  8. Id.

  9. Id. at 41-42.

  10. Id. at 44-4.

  11. Id. at 46-49.

  12. Id. at 46.

  13. Id. at 53.

  14. Id. at 66.

  15. Id. at 67.

  16. Id. at 70-7.

  17. Id. at 76.

  18. Id. at 80.

  19. Id. at 82-102.

  20. Id. at 168.

  21. Id.

  22. Id. at 172-3.

  23. Id. at 175.

  24. Id. at 10.

  25. Id. at 103, 149.

  26. Id. at 157.

  27. Id. at 195-96.

  28. Id. at 223.

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