When are defense contracts in effect 'non-defense'?

For several years, Congress has been concerned that the Defense Department's use of "assisting" procurement agencies and other contracting vehicles has concealed poor acquisition planning or attempts to circumvent limits placed on funding.

These include orders issued under federal agency multiple award contracts (MACs), government-wide acquisition contracts (GWACs), as well as the General Service's Administration's federal supply service (FSS) schedules.

As a result, Congress and the administration have established new policies to ensure accountability for Pentagon funds spent through non-defense contracts.

Concerns have centered on five key areas:

Scope. Have defense contracting officers or assisting agency officers issued task or delivery orders for items outside the original scope of the underlying contract? The prison interrogators scandal at Abu Ghraib spotlighted this type of "out-of-scope" contracting--misusing a non-defense agency (Interior Department) information-technology contract--by arguing that interrogators would be entering data into a computer system.

Funding. Have funds transferred to assisting agencies under indefinite delivery/indefinite quantity (ID/IQ) contracts been used to create obligations beyond the time period specified in an appropriation, thus circumventing the intent of the appropriators? This practice essentially "parks" money to circumvent annual budget constraints.

Acquisition planning. Has an acquisition plan been prepared in advance of every task order or delivery order issued under an ID/IQ or schedule contract, as required by the federal acquisition regulation?

Ordering procedures. Have contracting officers followed the ordering procedures required under each specific contract? ID/IQ ordering procedures differ from other forms of contracting.

Competition. Did non-defense assisting agencies ensure the acquisition process was transparent and competitive, and that the government and taxpayers receive the best value through the contracting process? The Government Accountability Office recently found that competition was waived for nearly half of the MAC and FSS orders GAO reviewed. Guidance for granting waivers apparently did not sufficiently describe the circumstances under which a waiver of competition was appropriate, or at what levels waivers should be approved.

In response to a new statutory requirement, specific Defense Department requirements exist for reviewing and approving use of non-defense contracts exceeding $100,000. These procedures apply to all acquisitions using defense funds, whether by or on behalf of the Pentagon. At the same time, GSA has launched its widely publicized "Get It Right" program, aimed at government contracting officers, program managers and finance officials. It also focuses on the responsibility of contractors to recognize and report potential problems.

What if a government auditor determines that work requested by a contracting officer and performed by a contractor is beyond the scope of the contract? Some officials have suggested that if the "task or item ordered is outside the scope of the contract, the contractor has responsibility to notify the government." This suggests that the contractor's integrity could be called into question if it performs "out-of-scope" work.

Except when a contractor and a government official conspire to violate the law, it is unfair to suggest that there is misconduct on the part of a contractor who performs the precise work requested. Otherwise, the government is, in effect, asking contractors to make legal "scope" determinations for each order that comes in, and forcing contractors to challenge or protest potentially out-of-scope orders.

Traditionally, scope issues have been treated as administrative matters, without a suggestion that contractor ethics or integrity are implicated. This is particularly true with respect to many cases that fall into a "gray area" where the scope issue is not clear legally. For example, what if a company is hired to provide business process consulting under a contract like GSA's Group 70 IT schedule, because the improvements will require new information technology? Should the contractor turn the work down because others could argue that GSA's services schedule is designed for such services?

Contractors will need to become acutely aware of new and revised requirements that apply to the Defense Department's use of GSA schedules, MACs, and GWACs, while being prepared to work with customers to avoid any after-the-fact allegations that work was improper. In addition to a combined Defense Department/GSA inspector general report due to Congress by mid-2005, contractors may see further attention from the administration and Congress to the rules governing federal acquisitions.

The recent, dramatic surge in military deployments has led to instances of corner-cutting and concomitant policy changes. All contractors should be mindful of striking the appropriate balance between efficiently satisfying the Defense Department's needs as a primary customer, while at the same time achieving the benefits of competition and meeting regulatory requirements. This has always placed difficult demands on both contractors and government officials.

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Dorn McGrath is an attorney with the Greenberg Traurig law firm. Steve Charles, executive vice president of immixGroup Inc., also contributed to this article. The opinions expressed here are solely those of the authors and are not intended to provide legal advice or represent the view of NDIA or the NDIA Ethics Committee.