Category Management: 3 Years Later

Tuesday, July 5, 2022

In 2019 The Pulse began to explore category management’s impact on the Government Contracting industry. The controversial policy was just picking up steam and starting to make inroads in industry.

Over the past three years, there have been a number of small victories, however Federal procurement buyers and industry still seem unable to move as one toward a common solution. While increased simplification of the acquisition process sounds promising, is category management proving to be the silver bullet we’ve all been waiting for? We think it’s time we revisit the topic and find out.

The Importance of Streamlining the Acquisition Process

Efficiency is the name of the game in the private sector. Companies strive to provide the best product on the shortest timeline and at the lowest production cost. Government, on the other hand, can only dream of such efficiency while it remains bogged down in bureaucracy and red tape. Simplifying the acquisition process sounds like a no-brainer, but few markets are as complex as Federal procurement. 

In Fiscal Year 2021 alone, the Federal Government managed, tracked, and reconciled ~$636B spent across 73,464,730 individual actions executed by 500 departments and agencies. To further complicate the Federal procurement landscape, agencies aren’t buying one thing over and over again, but rather are purchasing goods, services, and products from more than 90,000 vendors. In FY21 alone, contracting officers purchased from 2,630 unique product service codes, representing everything from toilet paper and printer ink to complex engineering and design services. The Federal market is vast and diverse, with myriad regulations that only complicate matters further. 

Each agency and department is composed of a dynamic workforce ranging in shape and size and with varying buying preferences, options, and resources. Contracts staff are rarely experts at buying under their own vehicles, and the processes, regulations, and procedures vary by agency. To make matters worse, most departments are not equipped with technology and tracking methodologies that are interoperable, well managed, and on the leading edge of innovation. 

This is where category management comes into the picture. Let’s refresh on the basics…

Category Management

In 2014, the category management initiative was launched to eliminate redundancies, increase efficiency, and deliver more value and savings from the Government’s acquisition programs. Government is tracking 7 Key Performance Indicators (KPIs) that range from cost savings to the number of civilian employees who have received category management training.

These KPIs are anchored on baselines set in FY16 and have been tracked annually since FY18. Of particular interest to those keeping score is what the Government is calling Spend Under Management (SUM) – that is, the percentage of an agency’s contract obligations that fall under management principles.

The management principles rely on a tiered model where spending in tiers 1-3 is considered as “managed” and tier 0 is not. Governmentwide contracts, including governmentwide contracts designed by the OMB as Best-in-Class (BIC), are at the highest levels of their and therefore are preferred contracting vehicles. Under this initiative, agencies are required to direct their spending to tiers 1-3 and, in particular, to increase their spending under BICs.

Best-in-Class or Biggest?

So what is a BIC? There is no clear-cut answer. Instead, industry is relying on Government blog postings, examples of pre-existing contracts, and general hearsay to come to their own understanding. And although BIC designation began in 2016, we are now halfway through 2022 and still do not have a formal definition of a BIC in the FAR. What is meant to simplify the government contracting market has instead created more confusion.

A majority of the 44 BIC vehicles include terms and conditions, data collection, and reporting requirements that support the internal collection of more transparent transactional data, facilitating an increase in accurate analysis of buying behavior. This is critical to implementing, driving and sustaining category management initiatives. Another important distinction for BIC vehicles is that they must have Government-wide or multi-agency availability. This is a change from the original BIC process and criteria released in 2014.

While the idea of BICs is promising, the execution has been riddled with issues. GSA simply says that BICs are “solutions that meet defined criteria for management maturity and data sharing”. If you’re wondering what those criteria are, you’re not alone. Although the footnotes of OMB’s 2019 memo about category management claim to offer more information about the selection process for BICs, readers are directed to a GSA link that does not work. 

Regardless, the Government has forged ahead – without a FAR definition or quantifiable selection metrics – by selecting BICs from among contract vehicles that are already in play and have been for years in many cases. 

Best practice would suggest starting from scratch with new vehicles designed specifically with BIC criteria in mind, but of course that is not what happened. Instead contracts were reclassified as BICs during and after the source selection process. These BICs have periods of performance as long as 10 years with few or no additional on-ramp periods. As a result, industry has largely been hung out to dry unless they were successful in predicting the vitality of these various contract vehicles. 

Why does this matter? From what we can tell, BICs are here to stay.

According to the Executive Summary Dashboard furnished by GSA, BIC utilization peaked at 27.5% in FY19 and has remained steady around 26% in the years following (26.6% FY20, 25.9% FY21). Category management is also a centerpiece of the Biden Administration’s President’s Management Agenda, with a particular emphasis on equity in GovCon. Industry is seeing new standards for small business goaling, increased use of FAR Part 8, and improved data transparency through dashboards like GSA’s Acquisition Gateway. As the Biden Administration continues working towards its aim of better managing “the business of Government,” we might expect the procurement landscape to continue evolving towards increased consolidation.

Industry vs. Category Management

The unintended consequences and challenges of category management aren’t only inside Civilian agencies either. The goal of SUM, strategic sourcing, and category management are concepts that are also gaining momentum within the Department of Defense. As of June 2022, a Category Management Credential is now available through the Defense Acquisition University (DAU) – a strong indicator that DoD plans to increase its use of category management and BIC vehicles. 

Regardless of the quality of their product, there are three skills that every Government Contractor must have in order to succeed in this market: 

  1. The ability to navigate the rules and regulations that shape procurement;
  2. An adeptness for building relationships both in Government and in industry; and 
  3. An understanding of where the market is headed.

Category management and the use of BIC contract vehicles are reshaping the Federal procurement landscape – forcing industry to rethink the way they approach these three critical elements. Understanding category management and its influence is essential. 

Multi-Billion, Multi-Year Contracts

In FY22, Federal agencies will be held accountable for funneling 12% of spending through BIC contracts. Using FY21 as a benchmark, this would mean something like $76 billion in spending on these 44 contract vehicles. And, as of June 2022, the Federal Government is 90.5% of the way towards meeting this target.

HHS NITAAC $40B CIO-SP4. CIO-SP4 has been mired in challenges since its initial draft release, with more than 24 RFP amendments being made between May 2021 and February 2022. These challenges have been further exacerbated by the 27 filed protests that have necessitated bidders revising and/or resubmitting proposals. There is no end in sight to the on-ramp process for CIO-SP4, but NITAAC’s March announcement that they have received DoD 801 Certification may be a signal that CIO-SP4 is on track to be one of the more heavily used vehicles across the Federal enterprise. 

GSA $15B Polaris. Polaris was first announced on November 17, 2020, with the RFP going live on March 25, 2022. The procurement was paused on April 8th, just 15 days after the RFP was released. Polaris has received more than 25 protests to date, with feedback largely focused on the contract’s past experience requirements. In its current form, successful firms must either be prolific in the IT market or must partner with enough other firms such that collective experience rivals that of large businesses. A draft amendment that addresses this and other concerns was released on May 13th for public comment. Per GSA, industry should expect a final amendment to drop before the end of this month.  

GSA $35B+ OASIS Plus. GSA’s OASIS+, colloquially known as “BIC-MAC”, is set to replace the highly-successful OASIS vehicle and is on track to be one of the largest services buying platforms in the Federal Government. GSA has issued drafts of the future RFP in sections, with their current focus on Sections L&M. We don’t yet know when the final RFP will drop, but we’re expecting a draft in FY23 Q1 with a final RFP coming shortly thereafter in Q2.

Consolidation and Emerging GovCons

Consolidation of the Federal market is particularly concerning for small and mid-tier companies, also known as Emerging GovCons. It’s hard to ignore the 40% reduction in the Small Business Industrial Base over the past decade. Consolidation and the unintended consequences of category management for businesses of all sizes impact the critical elements that sustain the government contracting ecosystem – competition, innovation, and economic stimulus.

The number of small businesses doing business with the Federal Government through category management is steadily declining. Agencies readily tout the increase in dollars obligated to small businesses, but the industrial base continues to shrink. This is not a good outcome for industry or Government. 

The situation is all the more dire when we look at small business participants on BIC vehicles. Of the nearly 65,000 small businesses that won awards in GWCM in FY21, fewer than 2,200 won awards on BIC vehicles – a participation rate of 3%. 35% of BIC-addressable dollars may have gone to small businesses in FY21, but only a limited number of firms are successfully accessing this market.

To put it simply, increased use of BICs actually restricts competition and creates greater barriers to entry for small businesses. Reduced competition may sound great in theory, but the further the pools shrink, the closer we get to an unfair game of Monopoly.

We know that keeping a diverse competitive industrial base serves both the taxpayers and industry – and we have decades of experience to prove it. The Cut to the Competition in Contracting Act (CICA) of 1984 is one of the more important laws for our marketplace. CICA establishes competition as the norm for Federal contracts, and sends the clear message to industry and Federal procurement personnel that, in buying goods and services, the Government will obtain them through competition. CICA sites some benefits of competition as:

  • Cost savings/competitive prices
  • Higher quality leading to better service
  • Enhanced solutions, which are the best solutions industry has to offer
  • Diversity of ideas as they exist in the marketplace
  • Promotion of fairness and openness, which is the key to earning the public trust

The current process for designating BICs has created a different barrier of entry that could lock non-traditional companies and future startups out of GovCon.

GSA Schedule Consolidation and e-Commerce Portal

GSA is continually looking for ways to improve how the Government sources, manages, and sells commercial products, with focus on buyer experience, products and services marketplaces, and supplier experience – all while protecting Government and supplier data and the Federal supply chain. The Commercial Platforms initiative is one of four projects in GSA’s Federal Marketplace Strategy to modernize and simplify the acquisition process for Government and industry alike. Commercial Platforms will enable Federal agencies to purchase commercial items through e-commerce portals, similar to the way consumers can order just about anything on Amazon. 

It is estimated that open market purchases on Government purchase cards total $6B each year. Moving these purchases to a regulated and secured e-commerce portal would leverage the Government’s buying power and increase supply chain security Governmentwide.

GSA is now seeking information on commercial practices such as onboarding management, market research, workflow capabilities, and supply chain risk management capabilities. A recent RFI sought to better understand the availability of product catalogs and the capacity of commercial platforms for tracking and furnishing data to the Government. 

Potential platforms are expected to provide comprehensive tracking information and meet minimum performance thresholds of two-to-five day delivery time, indicating significant progress since the start of the program. Responses from the RFI received in April 2022 indicated that industry expertise is strong, commercial practices are aligned with the identified program areas, and platform capabilities regularly exceed Government requirements. 

The RFI comes as a follow-on to the 2020 awarding no-cost contracts to Amazon Business, Fisher Scientific, and Overstock.com to execute a proof of concept for e-commerce portals. Industry feedback provided in the RFI also meets the requirements of Section 853 in the FY22 NDAA of testing other commercial models. GSA has been utilizing DHS’s Best Practices for E-Commerce Platforms and Third-Party Marketplaces throughout this project. GSA intends to continue soliciting stakeholder feedback as potential platforms are refined and implemented.

However, despite the notable wins in the past several years, one question from industry remains unanswered: how has this additional layer between the Government and industry affected fair and open competition? Only time will tell.

Mergers and Acquisitions

You may remember when The Pulse dove into GovCon M&A and how “Vehicle Valuation” was going to further impact the M&A landscape. As Federal procurement officials increasingly face pressure to contracts to BIC vehicles, and as BICs become favored, contract portfolios are becoming more important.

In response, some Government Contractors have explored the transfer or selling of a contract to a third party in order to generate revenue. 41 U.S.C. § 6305, better known as the “Contract Act”, essentially prohibits such activity from occurring…unless it is in the Government’s best interest. As though the risks inherent in a M&A were not enough to turn any BD professional prematurely gray, when one or both of the entities in play are GovCons, the risks become even greater. One of the primary sources of these additional risks is the Federal Government’s novation rules.

The contract novation process is guided by FAR Subpart 42.12 (specifically FAR 42.1204) and can only be done under certain circumstances (i.e., the sale of all the contractor’s assets) per US Code Title 41. Therefore, the method of sale such as an asset, must be for stock, the company or a division, i.e. selling all capabilities that got you to the award. As such, the cost of a contract might be the invested costs which include past performances, key personnel, certifications, and the work in managing and capturing the contract.

In short, and not in any legal terms whatsoever, this basically means you could work your BD & proposal shop to death to get on a game-changing contract with 80+ companies just like you (size, capability, etc.) — and then [insert giant multi-million dollar contractor name in here] could essentially end being your competitor because they paid the person sitting next to you for their seat.

Navigating Category Management as a Government Contractor

Federal Procurement is challenging and complex, and those who dive into its complexities often find more questions than answers. To help provide some clarity in an otherwise dizzying market, we’ve created a few suggestions for both Government and industry.

#1 – Standardization.  Standardize the criteria for what a BIC is, how it’s managed, and how GovCons get a spot – and individually define those for the Civilian and Defense markets. There is no consistency among existing BICs around important small business factors like size standard recertification, on/off-ramp timelines and procedures, and how the set asides are tracked. Standardizing this gives predictability and lowers the barriers of entry for those who aren’t experts in the nuances of GovCon.

#2 – Stop Double Counting. Currently, agencies are permitted to count the same prime contract dollars in as many small business categories as the awardee meets the criteria. While dollars are increasing, the number of small businesses winning awards is actually decreasing. The Pulse supports H.R.7685 which would allow a single prime contract to only be counted in two categories for the purposes of small business goal attainment. This would create increased transparency and greater accountability in the Government’s efforts to support the Emerging GovCon industrial base. 

#3 – Invite More Voices into the Conversation. Consolidation activities should not take place in a vacuum. Government should actively seek out the voices of small business owners, contracting officers, and the Small Business Administration to ensure that consolidation efforts aren’t having unintended negative effects on the small business base. 

#4 – Re-Evaluate the Small Business Size Standards. In March 2022, the Small Business Administration released updated size standards for a number of services categories. While some categories saw increases in the size standards, others saw decreases. Too-low size standards mean small businesses are thrust into competition with GovCon giants the moment their revenue exceeds the threshold by even a dollar. In reality, these businesses are not equipped to compete with the resources and experience of these giants. As a result, the Government is effectively punishing growth rather than rewarding it. Raising small business size standards across the board will reduce the number of small businesses that are immediately pushed out of the market after crossing the growth threshold.

Adjusting Your Capture Strategy as a GovCon Business Owner

While category management seems promising, much has been left open to interpretation.

That said, one thing is clear: category management won’t just change how the Government buys, it will change why the Government buys.

Industry should anticipate significant changes to their pipelines in coming fiscal years that are likely to shift business development efforts. Category management is going to require that both Government and industry understand the minutia of program operations to manage demands – otherwise, you run the risk of falling out of the market.

Webinar: What Category Management Means for Your Federal Contracts

Want to learn how to adjust our capture strategy as a GovCon business owner?

Join us on July 27th for a 1-hour lunch and learn session where we will discuss how you can use this knowledge to improve your sales process.

Click here to register today! 

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