Sorry I started this and then took over a month to get back, but I mistakenly thought I would receive an e-mail message whenever a reply was posted. I have sent a private e-mail to each of you who provided an e-mail address in your post. I definitely would like to explore this further.

This particular case began with a scheme to avoid repayment of retirement bonuses by hiring the organization's financial manager and operations manager as upper level systems analysts under a computer support Federal Supply Schedule. Later they expanded this to hiring Explosive Ordnance technicians under the same Information Technology Federal Supply Schedule and billing them as Systems Analysts. These schemes were so successful that they then found a distant 8(a) firm to hire "employees" to order in order to obtain commercial tractor trailer license drivers, backhoe operators and laborers who then worked on mixed contractor/Government crews under either Government or the IT contractor employees' supervision.

My goal is to either legalize or stamp out practices such as this.

Thank you.

By Eric Ottinger on Friday, February 4, 2000 - 09:15 am:

Vern and all,

Mostly agreeing with everybody--

We could write a book on this one--

As I understand the new wrinkle in the outsourcing push, it isn’t sufficient to go function by function. To make the goal, the outsourcing analysis is now going desk by desk.

In my experience, relationships between government agencies and corporate entities can be pretty hard-nosed and objective.

However, when the “contractor” is a person sitting at the next desk with a face, a family, and a personality; there is inevitably a human element to the equation.

The result can be a somewhat dysfunctional environment with mixed and confused loyalties, mixed and confused agendas.

To the matter at hand-- Past performance and award fee work if you do it right. T4D is normally so remote that it isn’t useful.

In a situation where communication is verbal, face-to-face, and ad hoc; tasking is not going to be as formal as it ought to be under a contract.

I guess, if you gave me truth serum and put a gun to my head, I would admit that the private side is generally more efficient than the Government. But I would insist on three caveats. First, the tax payer gets the best value for the dollar from elite, highly motivated government people in uniform and in the civil service. Second, the private side typically does well at routinized, high volume, standardized work which can be readily compartmentalized (think McDonalds hamburgers). Government work, in my experience, tends to the messy, volatile and unpredictable work, which can’t be very easily standardized or compartmentalized. Third, the private side is only efficient to the extent that competition keeps contractors and contractor people motivated. (In evolutionary terms, a dodo is an eagle that has lived too many years on an island without predators or other motivations to fly. Birds that don’t need to fly lose their wings and stop flying.)

Also, contracts are lousy vehicles for communication if you want the communication to happen in real time as much as possible. Either the communication waits for the negotiated contract change or the communication subverts the contract.

(Also, in my experience, communication between organizational elements is actually something that the Government does better than contractors.)

I don’t see how we are going to make competition work when our contractors are both entrenched and ingrained.

Most of this discussion seems to be in terms of lawn mowing, janitorial services, telephone operators, etc. Maybe the government buys a lot of this, but I doubt it is all that important as a percentage of the dollars. Also, we are finding efficient ways to contract for such services under broad scoped contract vehicles. Somebody buys a lot this, but my agency doesn’t, and it is hard for me to see this kind of low status contract as a paradigm for service contracts. Maybe the Government still does a lot of lawn mowing work with career Government people, but I doubt it.

There is a reluctance to discuss these issues in terms of professional services in a dynamic environment. This suggests to me that there is a reluctance to really think these issues through.

We are listening to a bumper sticker discussion of a very messy topic.

Lest I be misunderstood, I think some hybrid arrangement between government agencies and contractors is a fact of life and we should do our best to make it work. And, as long as we are doing this by contract, the contract should be used, as much as possible, in the proper way, to direct, motivate and set limits for the contractor.

Eric

By Vern Edwards on Friday, February 4, 2000 - 02:42 am:

As long as we hire contractors to perform a function but retain government personnel as the responsible functional area chiefs, government personnel are going to want to supervise contractor personnel.

I was in a meeting between a contractor and his government customer and witnessed the COTR ask the contractor to set up a cash award pool that she could use to reward "her" employees for good performance. The employees she was talking about worked for the contractor. The contracting officer was in the room, heard the request, and never said a word.

So, when the Chief of Security at a government installation is a government employee with a small staff of COTRs but the guards and other security staff are contractor employees, the Chief of Security and the COTRs are going to tell them what to do. In some cases the contracting officer will be able to stop the most serious abuses, but in many cases he or she won't be able to. It's that simple. I can come up with many more examples, as can many of you.

We need to decide what the problems are with this kind of relationship, if indeed there are any, because this problem is not new (and yet there has not been a lot of the litigation that John described). What is it we are trying to prevent?

(By the way, sexual harrassment works both ways. I know of a pending case in which a government employee has filed a sexual harrassment complaint against a contractor employee. The government folks are trying to figure out what to do about it. All they've got is the government employee's complaint and they aren't sure that they can require the contractor to remove its employee on that basis alone. They're afraid that the employee might sue the government if they ask the contractor to remove him and it costs him his job.)

When people work closely together in the same facility doing the same or related work, supervision, attempts to exercise some say-so over the hiring of key personnel, and inter-personal conflicts are going to happen.

In many, many government offices you can walk through the place and not be able to distinguish the civil servants from the contractor employees. I have been in meetings at government facilities in which contractor personnel were present and nobody bothered to tell me. I have taught source selection classes at government installations when incumbent contractor personnel were allowed to attend the class.

The nonpersonal services rule is one of the most widely flouted rules in all of government contracting.

I agree with Mr. Cohen. It's interesting to note that that when outsourcing is done in the commercial sector, the IRS considers workers to be dual employees of the staffing company and the client companies.

Compliance with the FAR becomes difficult as outsourcing becomes more popular, i.e. in an A-76 study where all the functional workers but not the supervisor are being studied.

By Steve Cohen on Thursday, February 3, 2000 - 10:06 am:

John, I was commenting on Vern's comment about "de facto personal services" which is "right on".  I don't want to quibble over whether the problem is with the FAR or with congress. The fact remains that in today's environment of outsourcing many technical services that in the past were thought to be core government competencies, the "indicia" in the FAR have been
OBE.

To your comments about receiving satisfactory service, I don't know of any requiring activity that is happy to receive only "satisfactory" returns on their investment. Most I know have expectations much higher than that. You and I know the definition of satisfactory is in the eye of the beholder and to say just don't pay or T4D is a rather naive response to a much more
complicated issue. To your point, certainly there are contract remedies one can employ to leverage the level of performance one receives but that is the point I was trying to make (obvioiusly not very well) that in many instances people would rather shortcut the "textbook" approach and use a quicker and simpler one albeit not necessarily the correct one per the FAR as presently written but nonetheless a very effective "real world" one.

Again, I'd like to say doing business as ususal or the way we've always done it just doesn't always work anymore. Services contracting has expanded its boundaries to areas not thought to be possible only a few years ago. The contract administration practices of working with contractors in these new environments have not caught up or changed in any manner to what is
happening in this new era of out-sourcing. To cope with this phenomena practices are being employed that might appear to be questionable or contrary to current FAR guidance. In my opinion FAR changes are over due to catch up to reality.

Steve

By John Ford on Wednesday, February 2, 2000 - 03:34 pm:

Steve, the problem is not with the FAR, except as it provides indicia of what are personal services. The problem, if there is one, is with Congress. The civil service system was created by Congress. The government can only obtain employees in accordance with that system. Further, agencies can only hire the number of employees for which Congress has appropriated money. If they go over that number, or exceed the appropriated amount, they are in a possible violation of the Anti-Deficiency Act, as well as the civil service statutes.
As regards agencies getting less than satisfactory performance from contractors unless they supervise the contractor, the simple answer is don't pay the contractor if your contract permits this action. The government is only obligated to accept satisfactory work. If the contractor does not perform satisfactorily, the government also has the T4D option, as well as the threat of a negative past performance rating. Finally, telling a contractor what to do, i.e., defining the task, is permissible. Telling the contractor how to do it, i.e., supervising the contractor, is not. If the contractor is looking for direction in how to do the job, the government should look at how well the tasks are defined in the SOW or ask itself if it selected the right contractor. Finally, caution would have to be exercised in providing this "direction" to avoid a constructive, if not formal, change claim.

By Steve Cohen on Wednesday, February 2, 2000 - 12:20 pm:

Since outsourcing non-core related competencies is not restricted to only the federal government perhaps the government can learn from industry what works and what doesn't. We all know that the rules and regualtions in the FAR have not caught
up to reality...perhaps they never reflected how things really are. Regardless, when you have contractor and direct hire personnel working side by side doing the same and similar work, lines of authority and responsibility will always get blurred. Due to expediency and the human factor of trying to get things done in the simplest and quickest fashion providing direction seems to
always trump evaluation against a generalized and vague statement of work. If the contracting party is receiving value for the effort it is buying maybe the fact it may be managed in a personal rather than a non-personal service manner is not very important. Does it make sense to pay more for the same effort and get less than satisfactory service just because you couldn't
tell a contractor employee, who's looking for direction anyway, what to do and what you want at the moment?

So, if everyone knows there is a problem in this area why doesn't the FAR change to reflect the needs of the warfighter and all other requiring activities??? Could politics, jobs, unions, careers in government be involved? My own feeling is the government won't change its policy and requiring activities will continue to employ smoke and mirrors in this area for a long
time to come.

Steve

By John Ford on Wednesday, February 2, 2000 - 10:56 am:

As usual, Vern has come up with some thought provoking statements. I have to agree with some and disagree with others. Let me start with the disagreements. I retired from Federal service in December 1997 with over 24 years of procurement experience in various components of DoD. In that time, I never heard of the practice of an agency participating in the interviewing and employee selection process for contractors. I would never permit this and I am surprised by it. Not only is it inconsistent with various regulations, it is plain stupid if you start to think about the possible consequences. More about this later. Next, I disagree that prohibitied personal services contracting is unavoidable because of the government's penchant for outsourcing. Now that I am working for a contractor, I am more convinced than ever that such an arrangement is not good for the government, and it is especially not good for contractor employees, particularly those who support DoD. Government personnel have to be careful not to create an employer/employee relationship with contractors and contractors have to be vigilent not to let it happen.
Now to my agreements. The factors for determining personal services need to be revised. The key to personal services contracting is the creation of the employer/employee relationship. The fundamental characteristics of this relationship are the abilities to hire, supervise and fire. The FAR does not make this clear, but focuses on many irrelevant factors.
As mentioned earlier, it is stupid for government personnel to create a prohibited personal services contract. A few years ago, a female contractor employee was successful in bringing a Federal sector sexual harassment complaint against the Navy because of such a contract. When you consider the D.C. Circuit Court of Appeals decision on whether Mrs. Clinton was a Federal employee, a can of worms concerning contractor employee rights and government liability can be opened when a personal services contract is created. Finally, personal services contracting blurs the lines between contractor personnel and government personnel and can cause ethical problems, particularly in regard to the exchange of gifts or receipt of gratuities.

By Vern Edwards on Tuesday, February 1, 2000 - 07:22 pm:

Hi Eric:

I teach them the rules in FAR 37.104 and discuss the problem of de facto personal services (which is the real problem anyway). However, I also try to be realistic: Given the government's policies about outsourcing, personal services contracting, as described in FAR 37.104(d), is unavoidable.

The "descriptive elements" for personnel services in FAR 37.104(d) were developed in the 1960s, before Federal agencies began to award long-term support service contracts on a wide-spread basis for work that was formerly done by civil servants and military personnel. However, every president since Carter has sought to replace civil servants with contractor personnel. (See The True Size of Government, by Paul Light (Washington, DC: Brookings Institution Press, 1999)). In light of this policy, the criteria in FAR 37.104(d) don't make much sense, especially criteria (1) through (5). The last criterion, Government direction or supervision of contractor employees, is usually a practical adaptation to the circumstances of the workplace rather than an intentional and systematic abuse. Once it sets in it becomes habitual, because it suits the needs of the government personnel, the contractor, and the contractor's employees.

I wrote about this in a recent edition of The Nash & Cibinic Report and discussed it with Dierdre Lee at OFPP. I told her that what we need is a policy review. We need to review what it is that we're trying to avoid and then see if the policy still makes sense in light of the world of government as it is today.

Having said all of this, I think that effectively hiring employees for a contractor goes beyond practical need. Maybe the folks at that agency were just trying to help a small disadvantaged business. No matter, they should stop.

Vern

By Eric Ottinger on Tuesday, February 1, 2000 - 05:20 pm:

Vern,

I don't disagree. But I am surprised that you are so blase. What do you advise your students?

Roger,

Where was your JAG or GC? How did they rationalize all of this?

Eric

By Stan Livingstone on Tuesday, February 1, 2000 - 03:26 pm:

By any chance, were the "hires" former welfare recipients? I bet the unemployment office identified people on welfare roles looking for jobs.

Many agencies are under pressure to promote the "Welfare to Work" program and providing incentives to contractors to hire is one way of ensuring success. However, what you described is an abuse.

By Vern Edwards on Tuesday, February 1, 2000 - 10:57 am:

That's pretty interesting. This is the first time that I've heard of an agency recruiting through a (state?) unemployment office and then referring the recruits to the contractor. (But I'll bet that it's not the first time that it's happened.)

The rest of what you describe, including government participation in the employment interviews and government supervision, is remarkably common. I doubt that very many people will be shocked by hearing that.

The non-personal services rule does not work well in today's contracting environment. I doubt that it's ever worked well.

By Roger Helbig on Tuesday, February 1, 2000 - 04:14 am:

My former activity "hired" blue collar employees by recruiting through the unemployment office, screening applications, participating in interviews and then telling the selected 8(a) contractor who to hire. The 8(a) contractor then hired the selected individuals and the Government assigned them to various projects under direct Government supervision. Government supervisors even signed the time sheets that were sent to the 8(a) firm half-way across the country which paid the employees. If this is not a classic example of prohibited "personal services" I do not know what is. I look forward to a lively discussion.