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EPA/GSA action on IBM: An extraordinary measure

By now, your office is probably buzzing with the same news that's all over the wires and around the Beltway: GSA announced that top federal contractor IBM has been debarred from contracting with all federal agencies. While speculation on the causes of the debarment run rampant, let's put this into context.

Overall, there are 66,183 individuals and companies listed with in the Excluded Parties List maintained by GSA. Of those, 6,030 have debarments terminating after April 1, 2008. So about 10 percent of the listed companies will be eligible to do business with the government sometime between now and 2023 (the latest date in the system). So far this year, the government has debarred 786 companies and individuals (compared to 911 during the same period last year).

For the roughly half with defined reasons for debarment, the most common cause relates to healthcare payments: 34% of the individuals and companies listed relate to healthcare violations. Next on the top reasons relates to fraud, but fewer than 4% fall into that category. What about the reason for IBM's exclusion? Just 0.2 % share IBM's "Suspension by any Federal agency pursuant to Executive Order 12549 and the agency implementing regulations based on an indictment or other adequate evidence (a) to suspect the commission of an offense that is a cause for debarment or (b) that other causes for debarment under the agency regulations may exist." (It's possible this is a Clean Water/Air Act violation, since the exclusion was initiated by the EPA (1%).)

GovWin's Take: According to the EPA: "The action was taken by the EPA suspending official is a temporary measure while the agency reviews concerns raised about potential activities involving an EPA procurement. As the matter is currently pending before the suspending official, the agency will have no further comment at this time." IBM currently has over $1.4 billion in sixteen pending contract re-competes at agencies across the federal government. In the last year, IBM received $1.4 billion in federal obligations (up from the prior year's $1.2 billion). Since the date of expiration is undefined, this could expire tomorrow. In any case, the government has so many ways to tell companies they're unhappy, this seems like an extraordinary step to take.

UPDATE: April 1 -- The plot thickens...apparently this issue was a surprise to IBM as well. If IBM is correct, no conversations or negotiations occurred about the issues that led to the GSA's action. The controversy is around a protest of the award to CGI Group of the EPA's Financial Management System Modernization Project (GovWin Opp. ID 6115) in February, 2007.

Treasury Announces Plan for "Sweeping Changes"

It seems Senator Schumer's op-ed piece on Friday morning was a pre-emptory strike on a report from the Department of Treasury on reform of the Financial System. The Wall Street Journal reported Sunday that Treasury Secretary Henry Paulson "plans Monday to call for sweeping structural changes in the way the government monitors financial markets, capping a broad review aimed at revamping a system of regulatory oversight built piecemeal since the Civil War." The Treasury Department also announced Secretary Paulson's planned remarks on Monday, March 31, at 10am. Check treas.gov to view the event via webcast.

The Journal also released the Executive Summary of the report which provides a preview of the debates to come. In my reading of the summary, I wonder how a study begun in March 2007, before the current crises, may have been affected by current circumstances. Citing the same reasoning as Senator Schumer -- convergence, globilization, and increased information flows via modern IT -- the report provides "a series of 'short-term' and 'intermediate-term' recommendations that could immediately improve and reform the U.S. regulatory structure as well as a 'conceptual model' for an 'optimal' regulatory framework."

The short term recommendations seem to come straight out of a White House crisis managment briefing:

• Establishing a Presidential Working Group

• Analyzing and addressing Mortgage Origination issues, and

• Calling on the Federal Reserve to maintain market liquidity

The intermediate term recommendations call for a large scale consolidation of regulation of banking, insurance, and securities at the Federal level, likely pre-empting current structures in the States.

Finally, the long term "optimal" model for Financial Industry regulation calls for an "objectives-based regulatory approach" modeled after reforms in Australia and the Netherlands. Various members of Congress and even Presidential candidates have already assailed it. Paulson's plan would have three distinct regulators for three objectives:

• A "Market Stability regulator" -- the Federal Reserve with expanded powers and duties

• A "Prudential Financial regulator" (PFRA) "to address issues of limited market discipline caused by government guarantees" such as Federal Deposit Insurance and State established insurance guarantee funds, and

• A "Business Conduct regulator" (CBRA) which would address a broad range of issues such as institutional charters; rulemaking as to disclosure, sales and marketing practices (including laws and regulations addressing unfair and deceptive practices), and anti-discrimination laws; and professional standards such as operational ability, professional conduct, testing and training, fraud and manipulation, and duties to customers. Many of the latter are currently handled by self-regulatory organizations such as FINRA, and the plan calls for this model to be preserved in some fashion.

This tri-partite would be supported by two other "key authorities":

• A "federal insurance guarantor" -- an expanded FDIC with responsibility over both deposit and insurance guarantees, and

• A "corporate finance regulator" with vague duties and powers. Interestingly, the executive summary made no references to the Sarbanes-Oxley regulations.

I bring up this last point about SarbOx because it represents the preferred approach of Congress recently to crises in the financial markets. GovWin will follow developments in this area for its members, but we should keep a bit of perspective. Reforms such as those that either Secretary Paulson or Senator Schumer are advocating would require ambitious, aggressive legislation not seen in this arena since the Federal Reserve Act of 1913 and the two Securities & Exchange Acts of the 1930's. While the need for reform of our regulatory structure to match the market may be similar a century later, certainly neither our current crisis nor the accompanying political will match those seen in the Great Depression.

Financial Management Line of Business - A Market on the Move

The Lines of Business were developed to increase efficiencies in Government and to save tax payer money. The Financial Management Line of Business (FM LOB) addresses one of the most duplicated systems across the Government. Every Agency and Department has Financial Management obligations, but are these obligations something that every Department and Agency should allocate valuable resources to develop and maintain?

The FM LOB assumes the answer to this question is no. To save money and to offer the best and most modern solutions, the FM LOB goals are to reduce non-compliant systems (i.e., most legacy Financial Systems) and move the work to several dedicated public and private centers of excellence that would compete for the chance to host and maintain the Financial Management systems for Government Agencies.

Spend a Little, Save a Lot

In principle, this makes perfect sense. Billions of dollars can be saved by using economies of scale to maintain just a few common COTS Financial packages that offer uniform solutions to the whole Government. This would also free up resources that Departments/Agencies would have to devote to the maintenance of legacy financial systems, and really take away from the core mission the Departments were created to do.

So why is there is so much resistance to something that just makes sense? Control may be part of that answer. Many large Departments may not be willing to give up control of something they consider - "theirs." Additionally Federal Agencies may believe they have a unique mission, and it would be ludicrous for another Agency to understand their unique needs. An added facet of the problem is some Departments don't act in one voice; they still need agreement from all of their constituent Agencies before outsourcing their whole FM systems to a SSC.

All Roads Lead to Consolidation

Even with this resistance, the consolidation trend will continue, if not under the name FM LOB, then something similar. The cost savings and the access to common compliant solutions are too practical to simply ignore. The Office of Management and Budget is committed to this initiative and under their guidance, when the upgrade cycle for a legacy systems comes up, Agencies will have to take a look at the SSCs. We may not arrive at the end goal of the initiative in the currently anticipated time frame of just a few years, it may take a decade. But one thing is certain, the future is consolidated.

Download the full report: Financial Management Line of Business: Market on the Move

Does the Government Rely Too Much on Contractors?

In an article in The Washington Post this week with the headline "Report Faults Pentagon's Reliance on Contractors" discussed a GAO report released last week entitled "Army Case Study Delineates Concerns with Use of Contractors as Contract Specialists".

In the report, GAO auditors "found that the Pentagon relies too much on contractors who often work alongside their government counterparts, cost more and sometimes take on responsibilities they are not supposed to".

The reality is that federal agencies have incredible difficulty in hiring the quality and number of employees needed for it to support the expanded level of spending.

With federal employment flat and discretionary spending up 50% over the past five years, the math is pretty simple: agencies must either staff up or contract out to support the spending increase. The increase in contractors reflects the bias that Republicans in general have to contracting out government functions that are not inherently governmental. A Democratic President could bring forth a notable shift in that bias to bringing on more government employees. However, such a task would not be easy without a substantial change in government human capital policy leading to increased pay and a change in public perception.

I, for one, am very interested to hear the perspective of OPM Director, Linda Springer at GovWin's upcoming Federal MarketView 2008 Conference on April 24, 2008.

Does the Government Rely Too Much on Contractors?

In an article in The Washington Post this week with the headline "Report Faults Pentagon's Reliance on Contractors" discussed a GAO report released last week entitled "Army Case Study Delineates Concerns with Use of Contractors as Contract Specialists".

In the report, GAO auditors "found that the Pentagon relies too much on contractors who often work alongside their government counterparts, cost more and sometimes take on responsibilities they are not supposed to".

The reality is that federal agencies have incredible difficulty in hiring the quality and number of employees needed for it to support the expanded level of spending.

With federal employment flat and discretionary spending up 50% over the past five years, the math is pretty simple: agencies must either staff up or contract out to support the spending increase. The increase in contractors reflects the bias that Republicans in general have to contracting out government functions that are not inherently governmental. A Democratic President could bring forth a notable shift in that bias to bringing on more government employees. However, such a task would not be easy without a substantial change in government human capital policy leading to increased pay and a change in public perception.

I, for one, am very interested to hear the perspective of OPM Director, Linda Springer at GovWin's upcoming Federal MarketView 2008 Conference on April 24, 2008.

A Department of Financial Security?

Senator Charles Schumer wrote an interesting op-ed piece in today's Wall Street Journal about the state of regulation of the US financial markets. He discussed how our regulatory structure has not kept up with evolutions and changes in the entities it regulates. First, lines between areas of business such as commercial banking and investment banking in a large part no longer exist. Second, a large number of firms and products have emerged that "fall out of regulatory oversight." Also, markets are operating much faster and much more internationally. Saying that our regulatory structure has remained largely unchanged, Senator Schumer suggests that we "look closely at unifying and simplifying our regulatory structure, perhaps moving to a single regulator."

Senator Schumer takes a shot at the Bush administration and laments that our current financial crises may be the result of misguided "reliance on the ability of institutions to manage their own risks," which certainly tips his hand that he is looking for more and more stringent regulation. However, his idea of a single regulatory entity is interesting. It will certainly meet resistance from existing institutions such as the SEC and CFTC as well as a community that has been largely used to self-regulation through self regulatory organizations (SROs) such as FINRA, which was formed last summer from the merger of SRO NASD and the regulatory pieces of the New York Stock Exchange. More and more, however, financial market regulation requires technology as much as people and policy, especially in the area of derivative products. The creation of a consolidated Federal super regulatory agency would certainly mean investment in the modernization and expansion of these market watching tools.

Finally, one can't help sense that Congress desires more control over the revenues that "regulation" generates, from the transaction fees that the SEC collects (in amounts several times its budget) as well as member fees, professional registration fees, and fines collected annually by FINRA. Given Schumer's position on the Senate Banking committee and Economic Policy subcommittee, we should keep an eye out both for legislation and campaign rhetoric.

UPDATE: Sunday, March 30 -- it seems Senator Schumer's piece was a pre-emptory strike. Check out our latest post for the latest updates.

E9-1-1 Standards Shot Down but Next Generation 9-1-1 is on the Move

Recently proposed, stricter E9-1-1 standards have been halted and Texas launches a Next Generation 9-1-1 development plan. Opportunities will prevail as E9-1-1 standards approach a 'fine tuning' and Next Generation picks up steam. What should vendors focus on?

The Federal Communications Commission approved a movement in September that would require public safety workers to locate an individual who dialed 911 from a cell phone with better precision. The new standards would also change the way that compliance is measured which is currently from a regional perspective. The opposition came from vendors; most likely because they are lacking the ability to provide these enhancements. It seems almost inevitable that the FCC will succeed in implementing these standards; be ready to act as this draws near.

On the Next Generation 9-1-1 front, Texas has recently launched a development plan for statewide migration. This will enable PSAP's to receive voice and data from any potential source and have the ability to share the voice and data throughout the emergency response system. This improvement for Texas can serve as a model for other states as they look to implement this life saving technology. Similar plans will likely be continually released by other states as they strive to ensure the safety of their citizens.

Make sure you read the full reports: Court Stays FCC's New E911 Standards and Texas Launches Next Generation 9-1-1 Development Plan .

Green IT, Best Practice not Fad

Feds, states, and locals (in addition to private sector) are all talking about Green IT. Unlike other fast-burning trends in the IT market though, green IT brings together technological, social and economical factors to establish itself as a best practice rather than a fad.

In an effort to share these best practices at the local level, the National Association of Counties (NACo) has launched a Green Government Database that collects information on all things green including green programs, policies, plans, and staff descriptions. The creation of the database has been driven by the groundswell of interest and action in going green from local governments. Locals to a large extent have been adopting green practices independently of any federal or state guidance.

This again exemplifies the nature of the green movement; it is really about individual awareness of energy and ecological concerns. Fortunately for the IT industry, this socially driven shift is coupled with potential economic savings thus increasing adoption by governments with tight budgets. Great cost savings are achievable in the energy usage of the hundreds of thousands of desktops in federal, state, and local offices with simple power management tools. Speaking of desktops, organizations are asking themselves if a thin client environment will satisfy the end user needs while sipping energy in comparison to desktops. Agencies are also scrambling to streamline data centers, where usage of server virtualization software in combination with new higher performance servers and cooling technology can decrease hardware, energy and real estate costs by 80% or more.

The key for those wishing to help the public sector in adopting green best practices is to adopt these practices with their own organizations, live the changes and share the benefits with their public sector partners.

Health IT meets Medicaid -- will the savings begin?

Currently, 23% of Medicaid recipients are aged, blind or disabled but they account for 66% of the cost. That means senior citizens and the disabled will cost Medicaid $250.8 billion in 2009 and $475.2 billion by 2018. And let's face it, most seniors take more medication and have more issues with chronic disease than younger people. Perhaps one of the best ways to rein in costs is for states, in their role as health insurance payers, is to require doctors who see Medicaid patients to use health information technologies, such as electronic prescribing. Louisiana is doing just that.

A recent article in BayouBuzz.com indicates the state will launch a new electronic prescription system in April. The hand-held devices made by Gold Standard, Inc., cost about $2,350 per device and will be installed in the offices of 500 Medicaid providers, who write the most prescriptions. The devices will connect to computer applications that provide immediate access to 100 days of a patient's prescription history, the Medicaid preferred drug list, pharmacology information about each drug, and drug interaction screening tools. About 737,000 people are eligible for Medicaid pharmacy services and the state expects to spend about $537 million on prescription drugs for those patients. Using the electronic prescription devices, Louisiana expects to save $4.8 million annually.

In the aftermath of Katrina, Gold Standard deployed KatrinaHealth.org, a web site that enabled doctors to access evacuee prescription histories. Helping governments in time of need not only makes companies good corporate citizens but may also be good for business. Success in the state and local market is built upon replication and getting that first reference account is critical.

Well-Intentioned Bill with Unintended Consequences?

Some states may be hesitant to enforce the independent contractor reporting burden on employers for the fear of hindering profitability in private businesses and experiencing larger volumes of paperwork with tighter deadlines, fewer staff, and decreasing budgets. Also, lots of personal information will be included in the reports, which could potentially lead to identity theft and fraudulent uses of identity documents by employers.

Oklahoma state officials met this week to discuss their concerns regarding Senate Bill (SB) 1550, which was passed on February 25, 2008 when Oklahoma's Lieutenant Governor Jari Askins broke a 24-24 tie in the Senate by casting her vote in favor of the bill. The legislation was requested by the Oklahoma Department of Human Services (DHS), Child Support Enforcement Division (CSED), in an effort to collect unpaid child support as a result of people listing themselves as independent contractors in order to get around the Oklahoma Employment Security Commission (OESC) reporting requirements. Most notably, while the bill aims to improve child support collections, if passed, would require employers to report the hiring of any independent contractor that is expected to make more than $600 in a year to the OESC. The new information that would be reported and accessible by DHS to utilize in collecting unpaid child support contains the contractor's name, address, Social Security number, and date of employment.

Currently, when new employees are hired, companies send their information to the state, which uses the new-hire reporting system to determine whether or not these individuals owe child support; however, independent contractors are not reported because they are not considered employees. Although the bill has the benefits of facilitating custodial parents' timely receipt of child support and increasing collections, it also presents state agencies with burdensome and costly mandates. Furthermore, individuals and private businesses have raised concerns about the language of the bill which does not include penalties for businesses that do not comply. In fact, most independent contractors quickly perform a job, get paid, and move on, thus making it difficult to locate these contractors regardless of the reporting. According to Mike Means, Executive Vice President from the Oklahoma State Home Builders Association, Companies could find themselves in violation of contracts if they are forced to withhold money.

SB 1550 has been assigned to the House Economic Development and Financial Services Committee, where it remains a "work in progress." If the bill becomes a law, Oklahoma will be joining 14 other states that have similar laws.

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