Transformation in Government Contracting

I think we can all agree that the year 2020 was fundamentally disruptive for both people and business. Much has been, and will continue to be written on it; I suggest this McKinsey survey for a wide view on the scope of the transformation. Even the typically circumspect Federal contracting industry has not escaped the acceleration into new modes of thinking. Beyond pandemic factors, a new administration and the implementation of long-term initiatives like the Cybersecurity Maturation Model Certification (CMMC) are also having a major effect on the contracting landscape. Below are a few of the changes to look out for in 2021 and beyond:

  1. The Executive Order on America’s Supply Chain

This is new as of late February, and I expect to have a deeper look in the coming months, but this has the potential to transform how the government purchases in fundamental ways. There are already several statutory preferences for acquiring domestic products like the Buy American and Buy America Acts, but those laws don’t extend to the production of those products. This executive order builds on several others by directing agencies to submit capability reports that detail current production capacity, gaps, and recommendations for building resilience in their supply chains. It is likely that those reports will be directive for both agency interpretation of the FAR in the short-term, and potentially for Congressional action in the long-term.

  1. The Rule of Two

While small businesses are eligible to bid on most open market solicitations, the government recognizes that the reality of unrestricted competition may reduce access for small business concerns. To protect the diversity of the contracting pool, set-aside programs mandate acquisitions from small or diverse businesses. These programs are balanced by exceptions that allow the government to make awards when small businesses cannot fulfill certain requirements, as determined by market research. One commonly used test in the research process is called the Rule of Two: For contracts under a certain threshold, the government must utilize a set-aside if there are at least two small businesses who could reasonably bid and offer a fair market price.

Recently, the discretion to apply the rule of two was litigated in the U.S. Court of Federal Claims, with the COFC ruling that it is required when set-aside obligations apply. This decision provides significant clarity for small businesses, and is expected to have wide-ranging implications for contracts under $250,000.

  1. Adoption of Commercial Business Practices

Less visible is the general adoption of commercial business practices across government acquisition practices and operations. In the Department of Defense especially, public/private partnerships have resulted in significant efficiency increases and cost reductions via trial programs. The visible success of these efforts within DoD and other agencies will likely fuel further exploration of contractor integration “inside the fence”. In these scenarios, contractors often become responsible for performance goals rather than specific requirements, allowing the government more access to best-in-class commercial processes and technology. As these programs continue to develop, look for more opportunities through industry day connections and other networking events.

Separately, each of these have the potential to shape industry outlooks, combined with the underlying push toward a more digital economy they will have outsize impact on contracting for 2021 and beyond.

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