The buying detective finds out how to use a fee to cover costs
- By Bob Little
- May 13, 1996
The Federal Middle-person Agency (FMpA) has announced the new fee schedule for access
to government buying activities. King Oxnard, procurement detective, was dispatched to
interview the head of FMpA.
This is his exclusive report:
KO: You are Constant Leigh Fleecum, acting director of FMpA, is that
CLF: Yes, and you're just in time to witness the unveiling of our
agency's new logo, voila!
KO: Goodness, it's a shorn sheep recumbent with a Latin motto that I
CLF: "You can fool some of the people all of the time."
KO: Which refers to...
CLF: Well, modesty does not permit ... Oh, what the heck! Somebody's
bound to figure it out anyway. You're not taking notes are you?
KO: I never take actual notes. (King Oxnard briefly adjusts his jacket
to conceal a tape recorder.)
CLF: Good. Anyway, FMpA is my idea. It started several years ago when
some of us noted that government vendors will pay for the privilege of doing business with
KO: Oh, you mean like a kickback?
CLF: Wash your mouth out with soap! This is no kickback scheme. It's
KO: I'll bite. How does this creative funding work?
CLF: Well, I can use a couple of actual examples. Take Federal
Acquisition Network, for instance. The government set up a system whereby it refused to
publish simplified purchase opportunities.
Instead, it handed out the information free to people who resell it to those who
actually need it, the vendors. The guys who get it free are value-added network providers.
Then, there's the non-mandatory ADP schedule with its pseudo-indefinite-delivery,
indefinite-quantity contracts. Vendors now must gather a 1 percent surcharge on each sale,
and the General Services Administration guarantees only $100 in sales. That was the first
time that an agency financed its own operations by selling "the privilege to do
business with the government."
That's when I knew that FMpA would be a winner. We did some research and determined
that there were some firms that would have no choice other than to pay a percentage of
their gross sales to the government for the privilege of doing business.
KO: How could you sell that idea?
CLF: Initially, we couldn't, but then came the Federal Acquisition
Streamlining Act, and life was good.
CLF: What FASA did was legitimize the open-ended contract, awarded on
a cost basis, allowing the negotiating and closing of contracts--called delivery
orders--at some later date.
Basically, it's a return to the Defense Department practices of the Vietnam War era,
when DOD used basic ordering agreements to buy virtually everything of any significance.
Anyway, as an example, we just negotiated an IDIQ contract with a well-known East Coast
shipbuilding company whose motto is: "We build good ships, at a profit if we can, at
a loss if we must, but always good ships." The contract, estimated at $15 billion
over the next 20 years, has a minimum order quantity of $100 worth of ships and can be
canceled by either party with 30 days notice. The Navy can order as many ships as it wants
and doesn't even have to think about running a procurement.
KO: What do you get out of this?
CLF: 1 percent of the gross.
KO: From whom?
CLF: The "good ships" guys, of course.
KO: How long did it take to negotiate the contract?
CLF: It's a cost-based, open-ended IDIQ. You figure it out.
KO: 12 minutes?
CLF: Too long.
KO: Goodness. Does the Navy care?
CLF: Heavens no! The kick--uh, funding fee is just another cost of
doing business, probably hiding in the "good ships" guys' overhead somewhere and
spread over all its government and commercial business. Even, if it's a direct charge to
the contract, it's still only 1 percent!
KO: What do you do with the money? (beep, beep)
CLF: What was that beeping!?!
(At this point, technical difficulties occasioned by King Oxnard's tape recorder
indicate that its battery is low. A scuffle ensues and the remainder of the tape is
Bob Little, an attorney who has worked for the General Accounting Office and a
Washington law firm, now teaches federal contract law.