In a surprising move this morning, Secretary Robert Gates announced to Congress that the US Air Force acquisition of the KC-X Refueling Tanker has been cancelled. Secretary Gates, with the aid of Defense and Air Force officials, determined the re-competition of the refueling tankers would not be completed by January 2009. As a result, Secretary Gates is asking for a "cooling off" period to allow for an administration change, and the Department of Defense (DoD) will continue to maintain the current KC-135 fleet with additional funding in FY09. At this time, the DoD is planning to continue funding the KC-X program in the FY10 to FY15 budgets.

The sordid story of this procurement underscores the problems the government faces in managing large scale acquisitions. To come this far only to end in a canceled procurement costs the U.S. taxpayer millions of wasted dollars and subjects companies to millions of dollars in lost profits. In a procurement this size, it also has a material impact on the ecconomy. The GAO indicated earlier that requirements were not clearly defined and cited flaws along the source selection process. The Air Force is now reaping what it sowed.

But, is the Government fully to blame?

The acquisition process may have been badly managed, but the level of scrutiny and interference by Congress and the political issues surrounding this program have surely contributed to this particular outcome.

Both Unisys and Northrop Grumman's protests have been answered. TSA has reopened the ITIP competition, allowing both companies to compete for the $2 billion contract. As discussed in a recent INPUT blog, protests were filed with GAO and the FAA Office of Dispute Resolution for Acquisition in July 2008 after both companies were left off the down select list of final bidders.

This is great news for Unisys, the incumbent for the ITIP program, and Northrop Grumman, but it brings up some good questions. As we all know, both companies filed protests only after being passed over during selection for the down select list of final bidders. Less than a month later, they were allowed to compete. This is the first task order protest under GAO jurisdiction since the change in rules which allows protests for task orders greater than $10 million. It is also the first time GAO heard protests of TSA procurements since TSA was recently made subject to the FAR. I wonder if TSA is setting a precedent...

Can vendors expect to just submit a protest and get back into competition?

What is going to happen once this contract is awarded?

Is it safe to assume that additional protests will be filed and, if so, what does TSA plan to do at that point?

Is this another example of vendors positioning Protests as part of their capture strategies?

The award is anticipated by the end of the year, so all we can do is wait and see who the victorious vendor is and the effect of that award determination on post-award protests.

It's been a busy summer for TSA! As a recent INPUT blog mentioned, industry watchers are waiting for GAO decisions on the Unisys and Northrop Grumman protests of the $2 billion ITIP procurement, in particular as it's the first task order protest since the recent change in rules. While ITIP remains undecided, GAO announced its decision for another high profile TSA procurement – the Integrated Hiring Operations and Personnel Program (IHOPP).

The controversial $1.2 billion (with $3 billion possible) human resources contract was awarded to Lockheed Martin in early July. Members of Congress, as well as industry groups like the American Federation of Government Employees and the National Treasury Employees Union have been critical of the contract, expressing concern that TSA might be outsourcing inherently governmental work in a workforce environment already plagued by problems.

To compound matters, losing bidder Avue Technologies filed protests with both GAO and the FAA Office of Dispute Resolution for Acquisition (ODRA), arguing that TSA failed to consider that the two losing bidders on IHOPP are both private sector shared service providers under the Human Resources Line of Business (HR LoB). Lockheed Martin is not a shared service provider under the program. Yesterday, GAO released its decision to deny the protest, explaining that they do not have the jurisdictional authority to make a judgment since TSA was exempt from the FAR until June 26, 2008. Since the procurement was initiated prior to June 2008, it falls outside of the FAR, giving FAA jurisdiction over the procurement. ODRA officials confirmed the protest is pending, with an average adjudication time of 62 days.

Northrop Grumman has joined Unisys in protesting TSA's Infrastructure Technology Program. Unisys filed in early July, followed by Northrop Grumman on July 21. Both companies were left off the list of finalists eligible to bid on the contract, worth $2 billion.

I will be watching this protest closely for a number of reasons. It's another data point in a growing trend of protests, and I'm interested in seeing how the outcome motivates other contractors who may be considering protesting as part of a business strategy. Most importantly, this contract is going through the EAGLE contract vehicle, and will be the first task order protest under GAO jurisdiction since the change in rules allowing protests for task orders greater than $10 million. This is also the first time that GAO will hear protests of TSA procurements - TSA was made subject to the FAR starting June 23, 2008.

TSA officials have said in the past that, although the agency's procurement was under the auspices of the FAA Acquisition Management System (AMS), acquisition officials followed many of the FAR's guidelines. However, lawmakers made a lot of noise about what they called TSA's "inconsistency in its acquisition environment," which led to DHS amending its procurement regulations to pull TSA under FAR as part of the TSA Procurement Reform Act.

Although the details of Northrop Grumman's and Unisys' protests are not yet known (other than "possible flaws in the conduct of the procurement"), the alleged "wasteful spending, mismanagement, and confusion" that inspired Senators John Kerry (D-MA), Olympia Snowe (R-ME) and Rep. Chris Carney (D-PA) to introduce the TSA Procurement Reform Act don't bode well for TSA.

Could this be a case of a steep learning curve causing some protestable missteps?

Listening to WTOP during my moderately easy commute to and from Reston this week, I kept hearing a Northrop Grumman ad talking about its KC-45 tanker. I've heard radio ads from federal contractors before that provide a quick hit overview of their services for all of those federal workers suffering through their not-so-easy commutes. But as I heard the Northrop ad a few times, I realized that it was part of a "protest media campaign" to position itself against Boeing for "Take 2" of the Air Force tanker contract.

In case tankers aren't your thing and you haven't been paying attention, GAO recently sustained a Boeing protest against the Air Force for awarding Northrop Grumman and EADS the contract to replace its air refueling tanker fleet (read INPUT's blog on this topic). As a result of the protest sustainment, the Pentagon stepped in and decided to cancel the original contract and issue a new request for proposals from the two companies. What's interesting is that both Boeing and Northrop Grumman have embarked on a public media blitz aimed at...I'm not exactly sure.

There are Op-Ed pieces, blogs, print and radio ads, and websites (all telling the "real story") galore. Northrop has at least 2 radio ads that I've heard, one of which ends by emphasizing the fact that its tanker exists now, while the competitors' is just on paper. Boeing took out full page print ads, and there are billboards and other signage, particularly within the DC metro area and Mobile, AL which stands to gain 1,500 aerospace jobs if the Northrop/EADS team wins the contract and builds two plants there as planned. (Foosackly's Chicken Finger restaurant chain in Mobile invested in a billboard of its own that reads, "We Would Like to Offer Boeing a Finger," and there are T-shirts and bumber stickers for disgruntled aerospace workers on the go).

While the government is not supposed to be influenced by the media, the PR has helped gain momentum among lawmakers from states that will be missing out on jobs if Boeing loses again. It highlights what some may call hypocrisy in government – we've seen lawmakers calling for unbiased and fair competition in contracting...that is until it affects their states. I imagine that the "call your elected official" movement can be expected. It's not clear, however, if those who are even aware of what's going on would want to get involved.

Check out some of their efforts:

BOEING

Real Tanker ad

KC-X Competition website

The Tanker Decision: Why it Doesn't Add Up ad

NORTHROP GRUMMAN

Northrop radio ad

KC-45 website

America's New Tanker website

What is very interesting is that in a March 11 motion, Northrop asked GAO to dismiss large sections of what it called Boeing's "PR-plated" protest. Now it seems that PR isn't such a bad thing.

Unisys' protest over being left out of the final bidding for TSA's $1.5 billion Information Technology Infrastructure Program (INPUT Opportunity # 36132) was widely expected. However, it also portends an emerging post-award capture strategy.

Unisys very likely has a solid list of arguments behind their protest. It also is an interesting strategic move since their term as incumbent is scheduled to end on December 31st, 2008. In May, we watched IBM quickly drop their protest over the award of the FBI's Next Generation ID system (INPUT Opportunity # 16535) and join successful bidder Lockheed Martin in doing the work. We are hearing stories of more of such "settled protests," which may mean that protests and negotiations are becoming more common in the capture strategies of Federal contractors and in the expectations and schedules of Federal procurement officials.

The GAO talked today by upholding Boeing's Protest filed on March 11, 2008 against the Air Force's award to Northrop Grumman and EADS for the Aerial Refueling Tanker. The Northrop Grumman and EADS team won the contract to build the KC-X aerial refueling tankers on February 29, 2008, which has a $35 Billion potential ceiling value.

The GAO report claims the Air Force "had made a number of significant errors that could have affected the outcome of what was a close competition between Boeing and Northrop Grumman." The GAO recommends that the Air Force reopen discussions with the firms, collect revised proposals, re-evaluate those proposals, and make a new source selection decision.

The Air Force's Course Correction

The GAO's decision does not use light language regarding a number of perceived flaws during the procurement process. Currently, INPUT anticipates the Air Force has three options:

1. Allow the two teams to resubmit proposals and enter into the Source Selection phase anew, the most likely per GAO recommendations.
2. Re-open competition to all market participants, unlikely given vast delays in requirement fulfillment.
3. Re-entering into the source selection phase with the current proposals, yet, considering the number of errors found by the GAO, this is also an unanticipated alternative.

Shortly after the GAO decision, the Air Force Contracting Office stated it would be a few weeks before a final verdict is reached regarding how to proceed. During this time government officials will be evaluating the GAO's recommendations and weighing the various options.

War Ramifications

It's no secret this is one of the hottest issues right now, not only for contracting, but also politically. Local politicians have been vocal about the award to Northrop Grumman and EADS, a foreign company. Politicians alluded to an increase in U.S. government funded work shifting abroad, regardless of Northrop's on-going rebuttal that the manufacturing of the plane's bodies will take place in Mobile, AL and generate up to 25,000 jobs at home.

Yet, although few are discussing it, the largest short-term ramification of this decision is an increase delay in obtaining new refueling tankers.

The Acquisition Improvement and Accountability Act of 2007, approved as part of the 2008 Defense Authorization Act's Section 843, provides for key changes to task and delivery order contracts. Contractors who've battled to win a spot on a task order contract vehicle only to be shut out of task order competition will be interested in these changes, which went into effect on May 26.

Fair opportunity to compete

Old rule: Agencies were required to provide contractors with a "fair opportunity to be considered" for task/delivery orders over $3,000. However, "fair" was not well-defined and many task/delivery orders were awarded before all eligible contractors were even aware that it existed.

New rule: "Fair opportunity" is better defined as providing contractors with a notice of the task/delivery order with a statement of needs; a "reasonable" period for them to provide a proposal in response; disclosure of significant factors/subfactors; a written statement documenting the basis for best value awards; and an opportunity for a post-award briefing.

Single source awards

Old rule: Multiple task/delivery contract awards were preferred.

New rule: The new statute reinforces the preference for multiple awards, and prohibits agencies from awarding task/delivery order contracts over $100 million to a single source. Any exceptions must be justified in writing by the agency head.

Task/delivery order protests

Old rule: Contractors could only protest task/delivery orders on the grounds that "the order increases the scope, period, or maximum value of the contract under which the order is issued."

New rule: Contractors can protest large task/delivery orders on any grounds, and allows for protests for any task/delivery order over $10 million.

These changes are likely to have some significant ramifications, both good and bad. The use of task order vehicles has increased dramatically over time, and now represents nearly 30% of all federal IT spending. But it's not easy to compete on these contracts. Countless times I've heard contractors complain about how difficult it is to win task orders. We know that winning a spot on a task order vehicle is simply a license to hunt, but many times task orders were awarded before most of the eligible contractors knew that it was hunting season. Section 843 is designed to provide a better playing field by ensuring that everyone is aware of the opportunities. It also gives contractors a better shot at some of the larger task orders. However, the game-changer is the ability for contractors to protest task orders awards.

Because a big chunk of contracting happens behind the task order veil, this could have a significant impact on the acquisition environment. As it stands now, there were 6.3% more protests in FY2007 than FY2006 (see the Exhibit 1). While there has been only been an overall 4% increase in protests from FY2003 to FY2007 (with fluctuations in growth and decline), the percentage of protests sustained by GAO has climbed steadily over that time.

Exhibit 1

Bid Protest Statistics, FY2003-FY2007

Will we begin to see a much higher volume of protests now that task orders can be protested? That remains to be seen, and I think it depends primarily on the vehicle. For example, only 96 of more than 6,000 task orders on the NETCENTS vehicle were more than $10 million in value (see Exhibit 2).

Exhibit 2

However, for DHS' EAGLE contract vehicle (Exhibit 3), 34 of the 157 task orders (21.6%) were above the $10 million mark.

Exhibit 3

In some cases, it's possible that a $10 million+ task order award would be worth protesting, simply because they don't come along that often.

Whatever the case, we could begin to see some agencies keeping their task orders below $10 million to avoid protest risk. Agencies could mitigate some of that risk by sticking to the "fair opportunity to compete" rules, but that's no guarantee that task order protests won't be part of their future.

As our GSA team was quickly dispatched from INPUT's offices in Reston, VA on Wednesday afternoon having just found out a few hours earlier that John Johnson, GSA Assistant Commissioner was to speak at the ACT/IAC Membership Meeting. Mr. Johnson's appearance provided a status update for the GSA Alliant GWAC. Johnson opened by providing the now familiar events of the Alliant requirement, including the initial Small-Business and Full and Open awards and subsequent protests.

Johnson reviewed Alliant's court appearance providing insight into what the ruling determined were the weaknesses of GSA's initial review process:

• Past Performance Consistency
• Rankings of Basic Contractor's Plans
• Documentation for Price Evaluation
• Trade-offs and Analysis/Rationale Documentation

The new milestones of Alliant:

• Johnson stated that the revised Alliant awards, both small-business and full and open, are anticipated in December 2008.
• Due to Alliant's ongoing evaluation, GSA ANSWER has been extended through June 30, 2009 and GSA Millennia has been extended through October 31, 2009 to allow more time for transition to Alliant once awards have been finalized.

GSA has not reopened the process to receive revised proposals; they are simply asking for revalidated past performance information. In addition, GSA is handling the entire source selection process in-house to avoid any further controversy. But questions remain.

What are the implications for industry and the future of this contract vehicle? With a December 2008 anticipated award timeframe, when can we expect to see task orders beginning to fly through Alliant? Should we expect another round of protests following the December awards? Clearly, GSA has had a hard time getting this vehicle off the ground. With both industry and Federal Government watching to see how Alliant performs, the looming pressure on GSA continues.

Alliant, GSA's $65 billion Government Wide Acquisition Contract (GWAC) vehicle, has been delayed again and does not look to be taking off with agency task order requests for close to year after it was intended to begin. GSA is scrambling to re-evaluate the same proposals in an effort to lessen the chance of sustained protests. However, unless GSA awards a contract to every vendor that submitted a proposal; the next round of awards will very likely be protested again by one or more of the deemed unsuccessful vendor(s). Inevitably with a program of this size and potential value, further protests could delay the start of task order competition just a bit longer.

As for a tactical strategy, federal contracting shops are now looking for ways to procure existing requirements during Alliant's delay. There are a few options. First, the obvious answer being GSA's Millennia and ANSWER contract vehicles that will eventually be swallowed up by Alliant. Vendors both small and large who do not hold prime contracts on these vehicles should look for teaming opportunities with the vendors that have established themselves in each of these vehicles; primes can add new subcontractors throughout the life of the contract. Second, there is always the old stand-by - GSA Schedule 70. And last but not least, the plethora of IT-related GWACs offered by GSA, NIH, Commerce, and NASA.

But larger than the 'what to do now?' question, exists the overall purpose of establishing a GWAC in the first place. GWACs are massive contracts utilized to fulfill IT requirements whenever, wherever and whatever while offering up to a decade of peaceful ordering for federal agencies. However, giant contracts often have to endure years of market research, requirements definition, procurement, source selection, protests, other rounds of source selection, and a multitude of protests before a final award, ultimately costing the tax-payers millions of dollars to finalize. Is the massive struggle to finalize these gargantuan contracts overshadowed by the following years of convenient and efficient ordering?

As the scope, length and value of GWAC/ multiple award contracts (MACs) grows, so too will the importance and tension surrounding the procurement and selection process. As this streamlined procurement methodology becomes more common, government should be prepared for increased oversight, protests and positioning for final contract awards; these vehicles are accounting for an increased percentage of potential government-to-business contracting dollars. Similarly, for future vehicles, vendors should also be prepared for a repeat of this "Giant-Alliant" type long, arduous process prior to final task order competitions.