Monthly Archives: October 2024

Defense Secretary Lloyd Austin has released a memo stating that the second phase of the Department of Defense’s Replicator initiative will focus on countering the threat posed by small unmanned aerial systems to force concentrations and critical installations.

In a Sept. 27 memo, the three-time Wash100 awardee said DOD expects Replicator 2 to help address challenges in the areas of technology innovation, production capacity, force structure, system integration, policies, authorities and open system architecture.

Austin directed Deputy Defense Secretary Kathleen Hicks and Adm. Christopher Grady, vice chairman of the Joint Chiefs of Staff, to oversee the development of a plan for Replicator 2 for inclusion in the president’s fiscal year 2026 budget request to Congress.

“My expectation is that Replicator 2 will deliver meaningfully improved C-sUAS protection to critical assets within 24 months of Congress approving funding,” Austin wrote in the memo.

The DOD secretary noted that the director of the Defense Innovation Unit will serve as the office of primary responsibility for the initiative and work with the defense undersecretary for acquisition and sustainment on the effort.

Austin tasked the military departments of the DOD with the development, production and deployment of Replicator 2-related capabilities.

“The Replicator 2 Initiative will leverage the work of the Counter Uncrewed Systems Warfighter Senior Integration Group, and collaborate closely with other ongoing efforts,” the secretary added.

The Department of Defense’s Office of Strategic Capital has outlined eligibility criteria and started the application process for loans through the launch of its first notice of funding availability, or NOFA.

DOD said Monday the NOFA marks OSC’s first call for applications to scale production and speed up commercialization efforts for critical defense technologies.

“With this Notice of Funding Availability, OSC establishes itself as a credible lending partner for U.S.-based companies that manufacture and produce critical technology components,” said Deputy Secretary of Defense Kathleen Hicks.

“This demonstrates that DoD is dedicated to using every tool in our toolbox to secure America’s and our military’s enduring technological advantage,” added the 2024 Wash100 awardee.

OSC will fund the equipment needs of companies to help them advance production across 31 covered tech categories identified as promising critical technologies in the fiscal year 2024 National Defense Authorization Act.

In March, OSC received congressional appropriations, enabling it to loan up to $984 million to eligible commercial entities under NOFAs.

In December 2022, Defense Secretary and three-time Wash100 Award recipient Lloyd Austin formed OSC to help attract and scale private capital for national security priorities.

The FBI and the Defense Criminal Investigative Service’s search of Carahsoft Technology Corp.’s headquarters last week is sparking new questions and concerns about the long-term viability of vendors selling in the federal market and dependable access to specific technologies by agencies.

Former federal executives and industry experts said it may be time to rethink the IT value added reseller (ITVAR) approach as the FBI and DCIS raid shined a brighter light on supply chain risks that most vendors and agencies generally glossed over until now.

“I’m hearing a lot of client angst,” said one industry consultant, who like many others for this story requested anonymity for fear of hurting their relationship with Carahsoft. “A lot of them are asking questions about what is next and what does this mean. While I don’t think anyone knows yet because there isn’t a lot of information out there, it’s unclear what this means for my clients, for Carahsoft and for their government customers.”

One industry source, who works for a technology company, said almost all of their federal business goes through Carahsoft, causing them to ask more questions about how they sell to the federal market and whether they need to partner with other ITVARs.

“If they stop processing orders, even if for a day, we will lose money. So the question now that is coming up is should we allow that much business to go through one reseller?” said the source. “Even if this event didn’t happen at the end of the fiscal year, what do we do? I think the government and industry are asking that question now. I expect there to be fallout on the supply chain risk management side no matter what happens to Carahsoft. That is where everyone is freaking out.”

Single source of supply concerns

For several technology companies, Carahsoft is their main conduit to the federal agencies. In fiscal 2023, Carahsoft won $1.4 billion in federal contracts. The company had won more than $960 million so far in 2024, according to the USASpending.gov portal.

Additionally, Carahsoft says it works with more than 10,000 government contractors, value-added resellers, solution providers and system integrators. These include nearly every major technology supplier to the government from Adobe to AWS to Dell to Google to Microsoft to Splunk.

For many small and medium-sized businesses, Carahsoft is their best, and maybe only, route to the federal market.

“Having exclusive agreements and single sources of supply causes potential challenges to a lot of us and the government,” said an industry official, who is a former federal executive. “Agencies may not be able to access the best technology if something happens to one of these resellers. We all face a higher supply chain risk in events where certain companies or channels don’t become available.”

It’s unclear what actions, if any, the FBI or Justice Department will take next, but should the government decide to suspend or propose Carahsoft for debarment, the ripple effect would be immense.

As several industry sources said, the FBI and DCIS don’t raid companies if it’s just a civil matter. Without knowing any details of Carahsoft’s situation, sources said history has shown if the FBI shows up, there usually is something more serious and illegal going on.

Another industry source, who has been involved in civil False Claims Act cases in the past, said usually there are meetings with the Justice Department and the company, and eventually the company writes a check to settle the allegations.

FBI raids are “extreme”

But, the source said, when the FBI decides to arrive at your door unannounced, it’s usually an “extreme” situation.

“I’ve had clients who pushed back, delayed and then negotiated what the Justice Department really wanted. Then, you do a rolling release of documents, and even sometimes you will fall behind the schedule and the government isn’t happy, but I’ve never seen it get to the level of a raid,” the industry source said. “This had to be a massive non-compliance with a lot of missed deadlines and something criminal going on. It was our operating assumption that you try to narrow it to lessen your burden, but you couldn’t say ‘no’ to the [civil investigative demand].”

Other sources said the FBI and DCIS served Carahsoft on Sept. 24 with two criminal and one civil subpoenas.

Trey Hodgkins, a long-time federal procurement expert and now senior vice president at Phoenix Strategies, a government affairs firm, said he could see agencies looking for alternatives to Carahsoft until they know more about what’s going on.

“They will look at those contracts and see if they can this technology from somewhere else. If I was government employee and this was going on, part of my thinking would be how do I get what I need and not buy it here,” he said. “I would think companies also are examining whether they can partner with someone else, especially if an agency is not willing to use that company for now.”

The concerns expressed by several industry executives aren’t just about Carahsoft, but around the entire ITVAR approach.

Reseller model is worth revisiting

While many industry experts praised the role of value-added resellers, which also include companies like Red River, World Wide Technology and the Immix Group, they said the rise of these vendors as an easier path for how many companies go to the federal market is more a problem with government acquisition rules than with the companies themselves.

“Other equipment manufacturers are incentivized to go through one VAR and not many. There are things like deal registration and exclusive agreements that give them reason to work with only one or a limited number of companies,” said the former federal official, who is now in industry. “There are downstream risks from that are biproducts of the market and do not lead to healthy outcomes for the government.”

Aileen Black, a former executive with Google, VMWare and other federal contractors, said ITVARs provide a much needed service for many contractors and the government alike.

“Carahsoft, for example, provides infrastructure at reasonable cost to have all contract vehicles that allows the government to buy things especially from innovative companies,” she said. “Carahsoft does this at an extremely low margin compared to going through a big systems integrator. They do a great service and provide innovation.”

Additionally, industry officials say, ITVARs also reduce the risk and administrative burdens for companies to work with the government.

For example, one company looked at what it would cost to work directly with the government and their estimate is it would take 5-to-10 full-time employees to manage and oversee the entire effort. These employees would have to do everything from managing contracts to keeping up with pricing changes to keeping on top of all the legal and cybersecurity compliance requirements and much more.

For a small or medium-sized business, having to hire as many as 10 people is a huge cost that they either can’t afford or would rather use the money for business development or technical skills.

“This is an indication of the barriers that the government poses. I’m not faulting the government, but they have to understand why these barriers exist and why many companies can’t afford to overcome them,” said the former federal official. “Many large companies also support the ITVAR model. It’s not a mission critical effort for them to hire a team to manage contract vehicle access. Outsourcing this work to a VAR means they don’t have to worry about it. But it also means taxpayers are paying more than they have to for these technology services.”

Procurement rules are too burdensome

The challenge, Black and other industry executives say, is the ever-growing complexity of the federal acquisition system.

Alan Thomas, a former commissioner of the Federal Acquisition Service in the General Services Administration, said while there are good reasons for some of the complexities in the federal acquisition sector, this situation may be a catalyst for agencies and industry alike to revisit the question of whether the processes need to be so challenging.

“Carahsoft is a billion dollar company because the government requires companies to meet so many conditions,” said Thomas, who is now founder of AlphaTango Strategies. “The government must look at the root causes that require the use of these VARs. What are the requirements laid on vendors that causes folks to look for ways to reduce their risks? We need to look at those requirements and consider some pruning.”

The former federal executive added whatever the issue is with Carahsoft and the third party they have done business with, it’s a symptom of the larger issue around the increased risks of the supply chain.

If companies are unwilling or unable to work with the government, they will find alternative and less risky ways, in this case intermediaries like ITVARs.

“Why don’t companies want to work with the government directly? Why take the risk? Whether it’s the price reduction clause on the GSA schedules or the hassle of getting on and maintaining contracts, using an intermediary reduces their risk. They also see some legal and administrative benefits too,” the source said. “But there needs to be some accountability on the procurement ecosystem side too. If there is a limited number of suppliers that have captive market because it’s too hard to do business with the government, the government has to consider whether it can lower policy barriers, figure out ways to ensure flexible pricing and other common obstacles.”

There are some signs that the trend is starting to reverse. Microsoft recently reversed course and started selling directly to the federal market instead of going through resellers.

Sources credited GSA for trying to lower the risk to vendors by implementing new programs like the Transactional Data Reporting (TDR) initiative to replace the Price Reduction Clause.

Congress paying attention

Additionally, Congress is starting to pay more attention to this issue. Sens. Brian Schatz (D-Hawaii) and Pete Welch (D-Vermont) recently wrote to GSA Administrator Robin Carnahan wanting to know how the agency is mitigating the risks of relying on too few contractors to operate such a large share of the federal government’s IT systems.

“This is particularly true for software that has kernel access and high-level privileges to critical government systems,” Schatz and Welch wrote.

Lawmakers haven’t shown any public interest in the Carahsoft situation, spokespeople for both the Homeland Security and Governmental Affairs Committee and Rep. Gerry Connolly (D-Va.) said they had no comment on the current situation.

A former Hill staff member said they wouldn’t be surprised if certain lawmakers are watching this situation closely and starting to ask some questions, specifically of GSA to try to understand what the DOJ is going after.

“It definitely would’ve piqued my interest when I was on the Hill,” the former staff member said. “I don’t think the reseller issue is widely understood on the Hill so I wouldn’t be surprised to see some questions about how it works and how can GSA or any agency ensure access to technology they need.”

Copyright © 2024 Federal News Network. All rights reserved. This website is not intended for users located within the European Economic Area.

Tom Temin And this rule applies to a pretty specific slice of the whole question of organizational conflict of interest. Tell us more.

Stephanie Kostro Thanks, Tom, and it’s great to be speaking with you. So we have long anticipated a rule here from the Department of Defense in response to a section, specifically Section 812 of the fiscal year 2024 National Defense Authorization Act. And this is really targeted at consulting services provided by contractors to not only the Department of Defense, but potentially China, Russia, other countries that are on the lists of thou shalt not do business with for a State Department or the Department of Commerce. And so we’ve been eagerly anticipating to see what shape this proposed rule takes. And I’m grateful that it’s been released. We do see that it does apply to particular NAICS code, which is 5416, and that is management, scientific, technical, consulting services. And it does impact any company that might be doing business with those countries that I mentioned earlier. There is waiver authority, which we were eager to see sort of how the department couched that ability to apply for a waiver, to get a waiver and also a conflict of interest mitigation plan, which we are also grateful to see incorporated into the proposed rule.

Tom Temin Right. In other words, this would somehow give contracting officers a little bit more discretion and that the fact that a certain company is doing business, say, with China, is not I don’t know what the legal word is, prima fascia, that they cannot do business with the United States.

Stephanie Kostro Exactly. So when I look at language like a conflict of interest mitigation plan, it allows the company to take a look at the work that it’s doing for the department, but also for those other governments and saying, all right, so where is the potential for conflict of interest here? What am I, what steps are we taking to mitigate that COI, and is that mitigation plan acceptable to the contracting officer? I will say the threshold for getting the waiver is pretty high. It is the secretary of defense, the undersecretary or anybody within that chain who is Senate confirmed. And so it is a very high bar to get to that waiver. It’s not just the contracting officer. And so I appreciate that there are two elements here, the COI mitigation plan and the potential for waiver.

Tom Temin Right. And does this, in a practical sense, only apply to the large consulting firms, the giant ones that we all know their names that are also among some of the largest federal contractors, or are there small companies that also may have a niche work and they’re helping design a boat ramp in China somewhere?

Stephanie Kostro It’s a great question, Tom. So to unpack this proposed rule a little bit. So the offer has to certify that themselves, their subsidiaries and their affiliates don’t do these consulting services with the covered foreign entities. In addition, this does apply for contracts below the simplified acquisition threshold. So for services. And so as we move forward, it is going to impact not just the big guys, but anybody who does these kinds of services or provides these kinds of services within that NAICS code in particular.

Tom Temin All right. And what is PSC’s kind of official position representing so many services contractors that you’re okay with the high bar required?

Stephanie Kostro We appreciate the fact that the conflict of interest mitigation plan can be reviewed by the contracting officer. We very much like the fact that not everyone at the highest of levels needs to look at these in what can be very lengthy mitigation plans. The waiver authority, it’s a great question. I understand why it’s written this way. I suspect this is an area where we may say, can we have a little bit more discretion here? To be honest, this is a wait and see how often would a waiver be invoked? Who’s going to be the canary in the coal mine here, in terms of who’s going to get the first waiver and for what kinds of services? And so as this proposed rule makes its way through the process, and we’ve got 60 days to comment on it, PSC will pull our members like we usually do, and and see what they would like us to represent as far as comments.

Tom Temin We are speaking with Stephanie Kostro. She’s executive vice president for policy at the Professional Services Council. And as you noted, this was in the 2018 National Defense Authorization Act. You wonder what took them so long.

Stephanie Kostro So this particular proposed rule is a direct result of the 2024 Authorization Act. There was a similar, there was a foci mitigation and foci is that foreign ownership and control and influence. That was in the 2018 bill. This kind of is in parallel with not only that, but a broader act called the Preventing OCI in Federal Acquisition Act, which was the action items for that were headed to the Office of Management and Budget. So it’s the 2018 NDAA, the 2024 NDAA, and this preventing OCIs organizational conflicts of Interest and Federal Acquisition Act. And in fact, GAO, the Government Accountability Office, did an assessment of where we stood with all three of these acts, and released a report this summer. And I’m glad to see that we’re finally seeing action, this has been long anticipated. How is the government going to tackle these things? Is it just going to be China or are we going to add Russia? We now have answers to those questions. And again, the waiver authority and the conflict of interest mitigation plans, these are essential for us. So we appreciate that they were included.

Tom Temin I would think the complication comes from the fact that it’s unlikely that the big companies, and I don’t want to name anyone in particular, but it seems likely they would have a subsidiary overseas staffed by local nationals that would do the work there, and somehow the profits get back to the partners here, as opposed to sending Americans from the McLean office, over to Beijing and then from thence to some distant province where they’re designing underground bunkers to help them with the architecture. I’m making an extreme example. But isn’t that the reality you think of the practical quality of this?

Stephanie Kostro Yeah. When you mentioned earlier some of the smaller firms, and those are not the ones you’re giving in your examples here. The large firms oftentimes would have a subsidiary. You think of the large management consulting firms and you realize that they are global, and they have offices in all of the major cities around the world, Beijing, Shanghai to be included, Moscow even. And so what the expectation here is from the government, I understand the expectation is that those companies would have conflict of interest mitigation plans in place to make sure that there’s a bright line distinction between the work being performed by local hires in those capitols or elsewhere. And then the Americans who are doing work for the Department of Defense. And so it’s just a matter of laying out what’s in that mitigation plan, and making sure that there is that bright line distinction.

Tom Temin It works in reverse, too, for companies from countries that we’re actually friendly with. Even so, if they want to have a defense business, there’s all kinds of rules that create subsidiaries in effect with almost a firewall between the board running the U.S. piece, and the French or the Belgian or the Canadian piece. And it’s pretty common.

Stephanie Kostro It is common. And I mentioned earlier this FOCI, this foreign ownership control and influence. There are foreign companies that have U.S. subsidiaries, and there are U.S. companies that have foreign subsidiaries. And oftentimes it’s not just the U.S. law, but if you’re operating in a foreign country, they have their own laws about bright line distinctions. And so, again, global economy, global industry, making sure that we are being responsive to what the U.S. government wants, but in a common sense way.

Tom Temin So and again, in a practical sense, we’re more worried about China taking over Taiwan, than we are about Canada taking over Long Island.

Stephanie Kostro I don’t know. I’m a Long Islander, I don’t know if I agree with that assessment, but fair enough.

The Defense Department began its first interstate moves under an up-to-$17.9 billion contract meant to overhaul the military’s household goods moving system last week, a significant milestone toward what now appears to be an aggressive schedule to implement the Global Household Goods contract (GHC) after several years of delays.

The GHC contract is a controversial paradigm shift in how DoD handles household goods moves. Instead of its longstanding practice of contracting directly with moving companies, the department is buying all of its moving services through a single managed service provider. U.S. Transportation Command and that new vendor, HomeSafe, spent the summer testing the new approach and the new IT infrastructure it will require, with 212 short-distance local moves.

DoD issued its first task orders for interstate moves last week: 40 of those orders have been placed with HomeSafe so far. That’s a small drop in the bucket compared to the 300,000 military families DoD moves each year, but things are ramping up quickly, said Andy Dawson, the director of TRANSCOM’s Defense Personal Property Management Office

“All of the military services have had service members move under GHC, but based on the initial locations of where we started, the Navy has been a tremendous supporter of our transformation efforts,” he told reporters last week. “One-hundred and thirty-six out of those 212 task orders — roughly 64% — have been sailors and their families. GHC shipments awarded to HomeSafe have occurred and/or are planned to occur in eight states: Washington, California, North Dakota, Colorado, Virginia, North Carolina, Georgia and Florida.

Dawson said DoD plans to fully implement the new contract for the roughly 150,000 domestic moves it does each year by next May, just in time for the annual peak military moving season.

There are still some big questions about how achievable that is, partly because there are big questions about whether enough movers will sign on to work under the HomeSafe contract. So far, only a relative handful of moving companies have been willing to do that, and the vast majority of the large, established firms that currently work with DoD have said they won’t, largely because of what they say are rates that are so low that they would fail to turn a profit on most moves, and lose money on at least some.

‘Conditions-based’ phase-in

The rates DoD pays to HomeSafe, and that HomeSafe in turn pays to moving companies, are generally confidential, but TRANSCOM officials said they agreed to one upward adjustment in the government payments to account for higher costs in the moving industry after the COVID pandemic and the multi-year delay in implementing the contract because of numerous rounds of bid protests.

Dawson said DoD won’t rush the transition if HomeSafe isn’t ready with enough movers on hand to fully handle the military’s massive moving volume, but as of now, the department is confident in the schedule.

“First and foremost, the service member experience is at the forefront of all the decisions that we make. Whether that’s IT or business processes, how that impacts the relocation experience is factored into every decision we’re currently making,” he said. “As we move forward, we expect HomeSafe to have the capacity required to support the program. For those in industry that have participated in the [current] program, we’re very grateful for their participation. We’re very grateful for the feedback that they’re providing HomeSafe to make the program better, but at the same time, I think we recognize the size, magnitude and scale of this program, which is why we adopted a gradual phase-in over time, instead of a flip-the-switch approach.”

Legacy system will remain in place

And since there’s still some uncertainty about how the ramp-up of GHC will go over the next several months, DoD also plans to leave its legacy moving system, known as the Tender of Service program, in place so it can be used for at least the rest of 2025 on an as-needed basis.

TRANSCOM is asking its existing moving companies to file their rate proposals for next year and plans to announce 2025 rules for the tender system soon. Dawson said by the end of this calendar year, the command should be in a position to give industry a reasonable forecast of how many moves will be in GHC and how many will be in the legacy system.

If all goes according to plan, the next step would be to start transitioning international moves into the new contract starting next September.

Those shipments are significantly more complicated, Dawson said.

“When a service member moves overseas, they have not only their household goods shipment, but also an unaccompanied baggage shipment that they’re authorized to move, and some will have a personal vehicle. And then some, not all, elect to put some of their stuff in storage. So from the service member perspective, it requires a little bit more advanced planning. We have to have the functionality in the system to receive their requests,” he said. “The next piece is from the business process perspective — the counseling that occurs to ensure service members are aware of their entitlements. Some countries don’t want you to ship firearms, for example. And then finally, a lot of the development on the international side will be in the HomeSafe system, which is now responsible for the commercial move of that cargo from the United States to overseas — things like customs clearance and the advanced notifications. All those things that are behind the scenes in the business process, that functionality all has to be ready to go, which is why we’re working it now.”

Copyright © 2024 Federal News Network. All rights reserved. This website is not intended for users located within the European Economic Area.

Executive Mosaic’s GovCon Index increased by 1.36% last week, ending with an average of $5,366.84.

GovCon Index tracks and displays real-time stock market data on 30 major government contracting enterprises. Users can leverage this information to examine the performance of each individual company and assess the overall state of today’s GovCon marketplace.

Last week’s top gainer was Aerovironment, which grew by 8.27%. Jacobs (+4.43%) and Mercury Systems (+4.27%) were second and third, respectively. Accenture Federal Services recorded an increase of 3.85%, taking fourth place, and Parsons (+3.61%) came in fifth.

GovCon Index started last week off strong, rising by 1.31% on Monday. Despite losses on Tuesday and Wednesday, gains on Thursday and Friday locked in a second consecutive week of growth.

Check out last week’s market reports to get even more information on daily GovCon Index performance, and visit the GovCon Index website to view the complete list of tracked organizations.

The U.S. Marine Corps has demonstrated for the first time off-board drone control using Link 16 communication on its recent third test flight of the XQ-58A Valkyrie unmanned aerial system at Eglin Air Force Base, Florida. 

The test was accomplished in collaboration with the Office of the Under Secretary of Defense for Research and Engineering, the Naval Air Warfare Center Aircraft Division and industry representatives, the USMC said Thursday.   

The Marines added that the test’s results demonstrated that the prototype connection of Link 16 with Valkyrie meets the initial requirements for the needed autonomous tactical information exchange.

Using the satellite-based Link 16 significantly boosts the integrated and joint operations capability of the Marine Air-Ground Task Force, which supports the Marines’ mission to deter conflict while also offering the opportunity to foil adversaries in evolving battlefields.  

The USMC conducted the Link 16-Valkyrie test as part of the preparations for Emerald Flag 2024, a technology-focused multiservice and multidomain training exercise on joint warfare set for October. 

Kratos Defense & Security Solutions and the Air Force Research Laboratory previously co-developed the Valkyrie as part of the latter’s Autonomous Collaborative Enabling Technologies portfolio, which seeks to develop a collaborative combat aircraft and other autonomous platforms.

The USMC conducted the first Valkyrie test in October 2023 and the drone’s second demo in March.