President Obama Signs Fraud Law With Broad Vendor Implications

According to a post today on www.mondaq.com, the Fraud Enforcement and Recovery Act, signed by President Obama last week, could have implications for vendors who may ultimately receive stimulus funds.

The major thrust of the legislation is aimed at giving the Feds more tools to investigate and prosecute mortgage and securities fraud.  However, language in the law makes its application broader to include “defrauding the federal government to fraudulent activities involving the Troubled Assets Relief Program (TARP) or a federal economic stimulus…” 

In effect, any vendor defrauding the government directly, and/or through other entities receiving government TARP or ARRA  funds (previously a gray area) can be prosecuted with greater vigor.  In addition, the law provides appropriation means to agencies such as the Department of Justice, HUD, U.S. Postal Service, Secret Service, and the SEC to investigate and prosecute fraud.

IMPLICATIONS

In some ways, it’s surprising laws relating to fraudulent vendor activity weren’t explicitly defined already.  Clearly, no vendor should ever engage in deceptive practices that waste taxpayers money; and blatant attempts to do so should be met with harsh and swift justice. 

What remains to be seen, however, is how far and wide such investigations and prosecutions will reach.  Expect to see “test cases” brought against companies that may have violated regulations unintentionally in the midst of a complex procurement process.  Also expect to see vendors shying away from certain contracts due to the perceived legal risk.  And, finally, continue to expect to see a handful of vendors cutting corners and pulling strings unethically (someone always does).

This environment of “transparency and accountability,” while potentially complicated, will also represent opportunity for vendors with a culture of openness, customer service, and integrity.  At the end of the day, good value and solid work will bear fruit and keep you out of trouble.

-LBB

RAT Oversight for Government Contracts

If you’ve not heard of the RAT Board, you will.  The RAT board is the Recovery Act Accountability and Transparency Board (and I suspect they have another name for themselves other than the RAT Board).  The RAT members are the Inspectors General of various federal agencies with the daunting job of watching for waste and fraud from the economic stimulus law. 

Government Executive says 7% of federal funding is wasted.  If that holds true, the economic stimulus law could result in 55-billion-dollars in waste.  Wow!  RAT member J. Russell Gregory of the Treasury Department told Government Executive’s Robert Brodsky that the board doesn’t expect a miracle of no waste from economic stimulus, but “Our task is to minimize it to the greatest extent practicable”.  Among other things, the Board is responsible for managing recovery.gov, the web site the administration has promised to be a tell-all for economic stimulus. 

With such a daunting task and so much ground to cover, the RAT board won’t get in direct sight of most government vendors.   But, you can be assured that the buyers you deal with will be stepping very carefully to avoid the wrath of the RAT board.  Be prepared to help your customers by making dang sure you are offering strong value.  You’ll be helping yourself, too.

Army’s Centralizing of Procurement Offers Lessons for Vendors

After years of utilizing outside contractors for virtually all of its engineering expertise, the Army is centralizing its acquisition and engineering organization according to a recent Nextgov article by Katherine McIntire Peters. 

According to Ross Guckert, Army Assistant Deputy for Acquisition and Systems Integration, it was determined there was no systems engineering function looking across and integrating all programs.  This was highlighted last summer when the Army realized it had 16 different “battle command systems” (systems used to communicate on the battlefield) that could not work together.  Guckert stated creating a unified communications system is now top priority. 

IMPLICATIONS

First, while this is just one example, it highlights what could be an emerging trend within government and DoD to centralize core functions (particularly at a strategic level).  While this may impact some vendors, overall this should be viewed favorably, as better high-level insight and accountability makes for greater efficiency, improved effectiveness, and a safer nation.  Also, as a practical matter, it is far less likely for a vendor’s project to be delayed or cancelled mid-stream if the ongoing initiative fits well within the comprehensive strategic framework.

Second, vendors should place themselves in a position to help drive the conversation about integration and cross-functional applications.  Interoperability in communications and other systems is a red hot topic across all levels of government.  In the past, vendors sought to create proprietary solutions in hopes they would become the defacto standard.  Today, a new mindset of open technologies and systems is making its way into government procurement.  While in practice, legacy systems and approaches still may be difficult to remove in the short-term, vendors with an “integration mindset” will be favored going forward.

-LBB

Stimulus-related Green Announcement Points to Opportunity for Services Business

According to Federal News Radio, some of the $4 billion stimulus plan that was budgeted to renovate public housing will be spent on “green inititatives”–mostly making these dwellings more energy efficient.  Also, an additional $500 million from the stimulus will be made available to train workers for these jobs.   Projects will include replacing windows, insulation, appliances and light bulbs.  Some of the money for public housing also would be used for basic repairs and maintenance.

While clear opportunity exists for manufacturers of these types of products, the news also highlights another area of opportunity related to services.  Training, for example, is woven throughout the stimulus as new initiatives are deployed.  Look for other possibilities related to system engineering, system integration, process consulting, and accounting, as agencies from top to bottom strive to meet transparency goals. 

Service-oriented vendors must learn to navigate government like their OEM counterparts in order to capitalize on stimulus and non-stimulus related projects.  Doing so might just help them see more “green.”

When is the money coming and where is it going?

Hardly a day goes by we are not asked the question, “When is the stimulus money coming and where is it going over the next few years?”  As stimulus spending plans roll in from across the country, interesting information has been released by the GAO  (General Accountability Office) regarding the timing and composition of expenditures.

The graph below from the GAO illustrates an expected 6% of the total $787 billion will be disbursed in 2009 and 14% in 2010.  Barring deadline extensions (which will happen), funds will be disbursed through 2016.

ARRA Disbursements by Year

Also interesting is the change in composition of expenditures over time.  The majority of 2009 dollars (64%) will go toward healthcare (specifically beefing up Medicaid).  Education is second at 18% (state stabilization funds), and transportation follows at 8% (highway and infrastructure improvements).  

This composition will change over the next two years as dollars are shifted into what the Administration considers to be more “long-run economic growth opportunities.”  The healthcare portion will diminish to almost nothing as the “one-time” injection of dollars into Medicaid dries up.  Transportation projects will grow from 8% to 30%.  Energy and Environment will grow from 1% to 17%.  And, the broad category of Community Development will grow from 3% to 16%.  Education remains nearly constant as a percentage of dollars.

 

IMPLICATIONS

For companies doing business with the government, market potential will begin maturing in the 2010 and 2011 time frame.  Companies offering services and products in Transportation and Energy (particularly green initiatives) will see opportunities unfold, as will companies targeting public safety and other “community development” initiatives.  Vendors in these markets should consider altering (or developing if non-existent) strategic plans that align themselves with this market potential. 

Now is also the time to conduct quantifiable market research to guide product development and lessen decision-making risk, as the margin for error over the next few years is going to be small. 

Real solutions will be needed–not hype, as government buyers will be inundated with companies trying to spin their stories (consider how many companies are now identifying themselves as being “green”).  Overall, strong value coupled with solid communications will win as the full potential of the stimulus is realized over time.

-LBB

Byrne/JAG Grant Application Deadline Extended

As reported on PoliceOne.com, the deadline for public safety Byrne/JAG grant applications has been extended from May 18 to June 17, 2009.  The full allocation for this program in the economic stimulus amounts to approximately $2 billion, with 60% of the allocation being directed to the states and 40% being directed locally.  As the article points out, these grants are formula-based, so the change does not affect the type or amount of grants available–only the time for agencies to respond.

This is likely welcome news for public safety agencies without the resources for responding as quickly as originally planned.  By the time all submission guidelines were released, agencies in effect had only a 30-day window to apply.  Galain’s own Rick Wimberly was quoted in the article as saying, “I think the JAG/Byrne extension is primarily an effort to take time pressure off everyone involved – both DOJ, which is quite busy, and the local agencies.  The original deadline was quite optimistic in the first place.” 

Stipulations in the application also require a “feedback” time to allow the public to respond to proposed expenditures.  While the application itself could be submitted prior to opening a public forum, agencies may have been leary to submit requests without taking this step first.

One also wonders if the “after effect” of these grants programs could also be causing hesitation.  For example, as reported in GovTech, there are strings attached to certain programs such as the COPS grant where local departments must commit to paying for the fourth year of salary and benefits for an officer, even though the grant pays for the first three years.  A similar situation apparently exists for the SAFER grants (Staffing for Adequate Fire and Emergency Response).  According to Larry Gorud, president of the International Association of Fire Chiefs, “… the full-burden cost of a new firefighter is $67,000 per year. “By the end of the second year, we would have to have some funding available,” he said. “If you let that firefighter go, you have to pay the money back…”  Such future requirements concerns may be spilling over into initiatives such as the Byrne/JAG program.

So, the signs continue to point to the stimulus plan becoming a longer-term program and not a short-term radar blip.  Vendors must leverage their government relationships to identify opportunities, then present a clear value proposition to buyers.  Illustrating how the vendor will help agencies navigate reporting requirements called for in the stimulus will also help.  Time is of the essence, but it hasn’t expired yet.

SBA Announces Emergency Funding for Small Business

Yesterday, the Small Business Administration announced a new loan program aimed at helping small businesses ride out the current economic storm. 

SBA director Karen Mills said the new American Recovery Capital (ARC) program will offer “viable” small businesses six-month loans of up to $35,000.  She said best candidates are businesses who can show prior profitability while illustrating recent struggles due to the economy.  She further stated the most typical use of these funds would be for businesses to pay existing principal and interest payments (the exception being for existing SBA loans).

The 100% SBA-backed loan is interest-free and must be used within six months.  Borrowers have six years to repay.  The program begins officially June 15 and will continue for as long as funding is available, or September 30, 2010, whichever comes first.

Federal Agencies Missed Reporting Deadlines

A key deadline for federal agencies to submit reports to Congress and make public certain program details has passed.  A significant number of these reports have yet to be released. 

As discussed in an article on Propublica, 7 of 17 agency report submission deadlines were not met.  The President himself, required to deliver a report to Congress on how agencies are complying with new environmental rules, “delegated” the responsibility to the chair of the Council on Environmental Quality on Friday.  The delegated report has also not been made public.

Be assured, the word will spread about the missed deadlines, pressure will mount, and the missing reports will appear soon.  The situation clearly points to the difficulty agencies are having meeting the tight time lines set about in the stimulus act.  Look for more slippage in deadlines and time frames as the scrambling for dollars continues.

Social Media in Government – Vendors Need to Jump on Board

Building in momentum over the past few months, the topic of utilizing social media to provide government transparency and enhance public safety is popping up on a regular basis.  Utilizing services such as Twitter and Facebook, along with technologies such as RSS and email, agencies are beginning to inform citizens of important or sometimes critical information using a variety of methods.

For example, an article on the Nebraska government site discusses how the Los Angeles Fire Department uses Twitter to “update..bulletins about structural fires,  the number of responding firefighters , and injuries and casualties.”  And an article in the Orlando Sentinel discusses the options of Facebook and Twitter being offered as a means of notifying students in the event of a crisis.

Outside of the notification arena, citizens can subscribe to feeds relating to congressional activities on sites such as www.govtrack.us; and many agencies are now blogging on a regular basis, particularly with regards to the use of stimulus funding.  Speaking of the stimulus, the Obama administration just concluded a social networking “open forum” period for citizens to provide feedback through the web regarding making funding information more transparent and useful.  Clearly, social media tools are here to stay with regards to government operations. 

So what does this mean for vendors?  First, while many of you have embraced these technologies, many more are still behind the curve.  It is imperative that vendors, while perhaps not committing to every form of social media, must at least learn about these emerging trends. 

Second, vendors need to embrace the underlying philosophy of social media.  The days of information silos and backroom deals are waning, being replaced by openness and widespread participation through a variety of stakeholders.  The speed at which information is disseminated through a social media network is staggering, and both agencies and vendors must be prepared to react to situations quickly. 

Third, vendors may find that social media is not simply a burden to be carried, but instead a differentiator that drives business.  Vendors who can actively participate in social media will potentially build a stronger brand overall while illustrating leadership in an area of increasing importance. 

Lessons in “Interesting” Environment

Greg Rothwell was in charge of procurement for the Department of Homeland Security when DHS was first formed and when Katrina hit.  What a job that must have been – standing up a new federal agency and re-building several states.  Despite these “extreme” experiences, asked today, Rothwell said we’re now in an “interesting environment”.  He said the American Recovery and Reinvestment Act (ARRA) is sending government buyers a mixed message of “Spend, spend, spend, yet save, save, save”, and do so with more measurement and discipline. 

Rothwell was part of a panel sponsored by the Harvard Kennedy School’s Government Innovators Network and the Pew Center on the States.  Fred Thompson of Pew (not to be confused with my home state’s actor and former U.S. Senator) said, “It’s a good time to be a buyer – better prices and better quality in what’s being bought”.  He warned procurement officials to take “extra care” when dealing with vendors to make sure they can deliver on contracts and have sufficient lines of credit.  (There was a long pause from the panelists when asked how to settle the conflict between ensuring that contractors have financial wherewithal and credit, when there’s little credit available.)

Ohio procurement chief Terry Tyler said his state is getting prepared for “extreme” reporting, accountability and transparency – and shorter timeframes.  He said Ohio will not be changing their procurement policies because of ARRA, but will be “streamlining the process”.  For example, what would have taken ninety days will be shortened to sixty days.  Sixty days will be shortened to thirty, etc. 

Lessons for vendors throughout the discussion.  Don’t expect procurement processes to change, just expect to react faster.  Don’t expect the need for speed to create sloppy vendor due diligence, just be prepared for withstanding the scrutiny.  Don’t expect to raise prices and skimp on quality, just make strong value propositions and do good work.