Terry Gerton We continue to follow the DHS funding dilemma. Last week, the Senate sent a budget resolution to the House asking for funding for CBP and ICE. Over the weekend, the events at the White House Correspondents’ Dinner reminded us that the Secret Service is part of Homeland Security and still not officially funded. What is the status of contractors who are being affected by this long, long DHS lapse in funding?

Stephanie Kostro You know, Terry, it seems that we should be past talking about this at this point. You and I have had this conversation about the DHS, the status of DHS appropriations now, as we are well past the two month mark, right, of DHS operating under conditions of a shutdown. I would note a few things, Terry. One is, you know, the president signed out a memo wherein many civil servants who are working for the Department of Homeland Security are receiving at least partial paychecks. They are getting some funding flowing directly to the employees of the department. That said, we are still facing headwinds when it comes to payments on contracts and invoice payments. And so I would like to highlight for you a couple of different things. One is when we had the former now Homeland Security secretary, she would have to review any payment of $100,000 or more across the department, whether it was a contract or a grant. That obviously added additional time to contracting and to payments on contracts. That said, when you are in conditions of a shutdown, one of the easiest things to cut initially is invoice payments. And we have seen a lapse in prompt payments of DHS invoices that dates back well before the shutdown, all the way back to last summer. We are talking to some PSC member companies who provide important solutions, critical solutions for government missions at DHS that have not had invoices paid since last August. This is an issue, particularly for small businesses who just don’t have lines of credit or the fiscal wherewithal to sustain this over the long term. They are in a world of pain right now, Terry.

Terry Gerton Stephanie, you mentioned contractors performing mission essential functions. Many of DHS’s subordinate agencies are engaged in ongoing operations, combat operations. How is their inability to pay their own workforce affecting their ability to support these critical missions?

Stephanie Kostro That is a great question, Terry. You know, contractors are partners to their agency customers. And in that spirit of partnership, a lot of companies are doing everything they can to make sure that the work is being done, but it is disheartening to see that invoices are going unpaid, that it is taking quite a long time to get their employees paid and they are losing elements of their workforce simply because they can’t afford to stay in a government contract line of business any longer. You mentioned earlier the budget resolution that was passed by the Senate last week and that sent instructions to committees to go ahead and provide some funding for immigration and border security operations, where contractors do play an essential role. And the instructions that were given to the committees as they start to think about this, and I wanna just highlight for your listeners, Terry, the committees on the judiciary and on Homeland Security in the Senate have until May 15 to provide legislation that would fund immigration and border security operations to the tune of some $140 billion over the next 10 years. And so that money would cover ICE, Customs and Border Protection, et cetera, in the near term. And so our contractors are watching that very, very closely. That said, May 15 is still several weeks away. And as I mentioned, Small businesses are in some cases facing an existential question of whether they want to stay in this line of business.

Terry Gerton And that budget resolution only covers that mission area, customs and immigration. It does not cover Coast Guard, FEMA, CISA, other sorts of functions inside the Department of Homeland Security.

Stephanie Kostro Yeah, if you look at what comprises the Department of Homeland Security, there’s so many components in there. We talked about the TSA in the past about the Transportation Security Administration and what they’re doing at airports. I, for one, have been through airports recently and I did not face long lines, but I may be in the minority. I’m not sure. That said, you mentioned Secret Service and the active role they are always playing to protect and to serve. And this past weekend, they were called to do take actions that, you know, were horrible to see what happened at the White House Correspondents’ Dinner. And as we move forward, I think it’s important to recognize that we owe it to these civil servants and their contracting partners to get them paid so they can go grocery shopping, they can put fuel in their car, etc. I think that that can’t be understated.

Terry Gerton Stephanie, I mean, as we just said, these contractors are supporting wartime operations, critical national functions. Is there anything at this point that would break this logjam and help it move faster?

Stephanie Kostro So the instructions for the committees are, as I mentioned, to have them come back with proposed legislation by May 15th, we can fast track legislation after we get those and, you know, the committees can choose to provide that legislation before May 15 and so encouraging those committees to move quickly, I think is important. And then to have the House and the Senate move quickly thereafter. The president has set a June 1 deadline for this piece of legislation to get through. And my understanding is Once that is through and immigration and border security are set, then the Congress may then turn to the rest of the DHS appropriations. And so as soon as we can get these bills through, the better.

Terry Gerton Stephanie Kostro is president of the Professional Services Council. Stephanie, let’s turn our attention to something maybe less focused on national security, but no less of a focus for contractors. OMB released a memo earlier this month to the agencies on procurement of commercial items. There was a lot in this. Kind of walk us through the headlines and the things that your community is paying attention to.

Stephanie Kostro You know, it always amazes me, Terry, how much information and content there can be in a fairly short memo. And so just as a reminder to your listeners, last year there was an executive order on ensuring, and I’m just gonna, the name of it was Ensuring Commercial Cost-Effective Solutions in Federal Contracts. So a year has passed and this memo comes out specifically to help reinforce that executive order. And so on April 17th, OMB signed this out to agencies to really focus on what they can buy in commercial contracting and so it’s asking those agencies to scrub all of their contract awards over the last six months or so to say here’s what we bought and if it had been non-commercial here’s why we couldn’t buy it in a commercial way. This harkens back to a conversation Terry you and I had on the current executive branch’s focus on firm fixed price contracts where you know you buy in a commercial way, a widget, a solution, a service, and then you pay a specific price for it, as opposed to cost reimbursable. For your listeners who are in contracting, you know that is when the contractor is providing an invoice that says, here’s what it cost us, please reimburse us for the cost of it, and there may be an add-on margin there. The executive branch currently is really looking at moving everything to firm fixed price, more commerciality, more commercial solutions. And what OMB has done in this memo is not only asked for that scrub of recent contract awards. That information is due by May 4th, but it’s also instituting a new consultation process with OMB if agencies want to buy non-commercially. And so this adds a layer of bureaucracy, a layer of difficulty really in getting contracts out the door if they choose to go non-commercial. This of course is to encourage them to buy commercially.

Terry Gerton And there’s still question about what exactly commercial is.

Stephanie Kostro There is. I would say there is disagreement between the government and industry regarding some element of commercial contracts. And I’ll give you an example. If a company is providing a solution to, say, another company in support of a federal contract, they’re the subcontractor, right? The government considers that to be a commercial contract between the sub and the prime. However, there are flowdown requirements, so the subcontractor actually has to comply with federal requirements. So it’s not a purely commercial take on it. There are, you know, if you are in the defense space or the Department of War space, you have to be compliant with the Cybersecurity Maturity Model Certification Program, CMMC. That’s going to cost you as a subcontractor. So it is not really a commercial contract in the eyes of industry, but it is in the eye of the government. And so as we move forward, these are conversations we need to have.

Terry Gerton What is the contract community going to need to do to prepare to be compliant with the direction here?

Stephanie Kostro So we are watching this very, very closely to see how agencies are going to justify some of their non-commercial contracting decisions over the last six months. And moving forward, we’re gonna have to look as a community of contractors at, you know, how can we integrate commercial solutions as part of the overall solution as a prime contractor? What do the flow down requirements look like? And what happens when commercial off-the-shelf technology doesn’t fit the need of the mission and you really do have to go non-commercial because it has specific government requirements, how do we support acquisition professionals and the government in making those justifications? That’s going to add quite a bit of work, but we can roll up our sleeves and do this together.