Broadcasting Board of Governors To: Members of the Board of Governors From: Marie Lennon, IBB Chief of Staff Ina Katherine Buckley, IBB Program Policy Analyst Date: December 9, 2013 Subject: Brie?ng Paper on Use of Contractors 1. Background/Context The procurement function is stiuctured to assist the Agency?s federal components with meeting its unique statutory mission. The Agency requires assistance from individuals with a wide variety of technical and journalistic talent many of whom are native speakers of the languages in which we broadcast and knowledgeable about the markets we serve. The BBG and its predecessor, the US. Information Agency, have greatly bene?ted from the broad range and diverse mix of contractors supporting its programs. The Voice of America (VOA) in particular has a long and successful history of using contractors. For example, Willis Conover, internationally renowned during the Cold War for his programs on American jazz, was a contractor not an employee. Throughout much of history, Purchase Order Vendors or such as Mr. Conover allowed the United States government to bene?t ?'om outside expertise and carry out the VOA Charter effectively and economically, in no small part due to having the capability to vary the program hours and content as needed. Recognizing a need to have a more direct supervisory role in a portion of its contract workforce, the BBG sought authority to employ Personal Services Contractors (PSCs). Unlike with POVs, the Agency can establish an employer?employee relationship with PSCs. Pursuant to an Administration request to Congress, limited PSC authority (not to exceed _6_g positions) was granted to the BBG in 2003. The BBG established a separate PSC program after gaining this statutory authority, and has mo nitored the number of PSCs employed in order to remain under the ceiling established by this legislation. Contractors, both POVs and PSCs, represent a substantial portion, 35%a of current workforce. Expenditures for contractors total approximately on an annual basis roughly 70% of an ual general operating expenditures (independent of salary funds). VOA relies on approxilnatel)? 660icontractors to support program production in 45 language services, the Central News func 1011, and in technical capacities for Broadcast Operations. In most circumstances, these contractors are performing the same mission critical work as federal employees. The majority of contractors work 40 hours a week, and some, roughly 15%, have contracted with BBG for 5 years or more. While contractors may work in similar circumstances as employees, they are not federal employees. Federal employees and contractors do not have the same legal status. Federal employees have rights and obligations that are speci?ed in regulations promulgated by the Office of Personnel Management. By contrast, the terms and conditions of a contractor?s work with the Agency are outlined in the terms of their individually-negotiated contract, which must be consistent with the Federal Acquisition Regulations (FAR). These distinctions and our capacity for maintaining them present several challenges for the Agency. Contracting Of?cers are responsible for ensuring that our contracts are solicited and administered in compliance with the FAR. Many of our contractors have been with the Agency for a long time and see their work suppmting the mission. They are constantly challenged to meet demand for contractor support, and when given the choice between executing mission critical contracts or strict compliance with federal procurement regulations, they have historically chosen the former. In their audit of acquisition functions, the Of?ce of Inspector General (OIG) team is critical of these choices. The OIG ?ndings will necessitate radical changes to our procurement strategy and processes. Any change will represent a signi?cant cultural shift among Agency personnel. IBB and VOA will need to be close partners in Aieveloping and implementing any solutions. 11. Contractors VValued Members of the Workforce I In 2012, the IBB director spearheaded an effort to make BBG a better business partner for our many contractors. This effort kicked off with a contractor questionnaire that identi?ed several concerns, namely slow payments, poor communication, and perceptions that contractors are ?second class citizens? despite the quality of work they provide in furthering the Agency?s mission. Based on these responses, the IBB Director and key senior staff held a series of brown bag lunches with contractors to discuss speci?c ways to improve our business relationship with them. Following these lunchtime meetings, we examined ways to improve communication and strengthen contracting processes. First, the Agency created and continues to maintain a ?Contractor Resources? page on our Agency intranet site. Recently, the Of?ce of Contracts began issuing a cover letter for every contract awarded (including renewals) that speci?cally identi?es the Contracting Of?cer and Contracting Of?cer?s Representative (COR), who are the primary points of contact for that contractor. For more general issues, or when follow?up is needed, the Of?ce of Contracts designated a contractor liaison who offers biweekly office hours to review the details of speci?c contracts and answer questions. In the IBB, Ina Katherine Buckley serves as the IBB Director?s liaison and as an additional contact person to whom contractors can bring concerns. Outreach to contractors and Agency managers on contracting policies, procedures, and expectations is a consistent practice. Several changes were also implemented to strengthen processes in the contracting lifecycle: - IBB developed an invoice template for contractors. Increased use of this template has signi?cantly reduced the number of impro er that are submitted (those with errors or missing information), which is major factor in delayed payment?s.? Broadcasting Board of Governors page is 3 a CFO identi?ed ways to prioritize payments for our self?employed contractors, ensuring these small businesses receive their payments in 15 days rather than 30 days. 0 Contractors who registered thelr ema11 addresses are recelvmg automatlc noti?cation when their payment has been approved by the Agency and sent to the US. Department of Treasury for disbursement. I The Agency is in the process of deploying a new system that allows for electronic invoice submission and processing, replacing our current paper?driven approach. While these changes have not addressed long?term strategic questions about our contracting approach, they are improving the day?to?day relationship with contractors. Contractors A Distinct Subset of the Workforce Our biggest challenges in relation to contractors are operational and strategic in nature. Media climates in EEG target markets change rapidly and often. Political instability, governmental repression, natural and man-made disasters, and signi?cant changes in use of technology worldwide can radically and abruptly alter our broadcasting priorities and our broadcast techno lo gy. non-transfen'able, skill sets. Federal recruitment and hiring procedures and work force reduction simply do not allow the Agency to move rapidly enough to appropriately expand and adjust its capacity to meet these shifting priorities. Given that our mission critical pro gramming is not considered an inherently governmental ?inction, BBG can rely on contractors to meet our ever? changing needs. I Both new broadcasting requirements and new technologies require highly specialized, and often 3 However, our current strategy of using hundreds of contracts with individuals to meet these needs creates signi?cant liabilities for the Agency and equity issues for the contractors. In any federal environment, there must remain clear distinctions between federal employees and contractors. These distinctions are primarily outlined in the FAR, which details Agency?s reSponsibilities while procuring and administering contracts. The extent to which we satisfy our 7 responsibilities determines our legal and tax liabilities the more we treat contractors like :55 federal employees, the greater the chance we will have to withhold and pay taxes as if they are AWL 1 employees, and that they can claim rights to Title VII federal employee bene?ts such as health insurance. In addition to OIG criticisms, the IRS has recently questioned the Agency?s withholding practices with regard to contractors. We have engaged a law ?rm with experience in this area to assist the Agency in addressing IRS concerns. Broadcasting Board of Page 3 Governors 1V. Solutions Short and Long Term After examining the challenges and liabilities of our current system, managers from all of the federal entities agree that the current contracting approach is unsustainable. The Agency has identi?ed three options for long?term, strategic improvements to our contracting practices. A. Staf?ng A gency/Extemal Firm: Currently, POV contracts are administered for each individual. Among federal agencies, it is more common to contract with a company to provide staff for a specific requirement in our case broadcast content in various languages or technical expertise in broadcast production. The companies employ individuals, who are then assigned to work with VOA based on our needs and their skills. Bene?ts and pay are the responsibility of the external ?rm, not BBG. This would dramatically reduce the Agency?s administrative burden for contracting, and reinforce distinctions between employees and contractors. However, program managers would have far less ?exibility and authority in choosing and dismissing contractors. Furthermore, these contracts would outline communications protocols for assignments and work?ows in each service, which would be a signi?cant change. Lastly, this type of contract would likely cost the Agency at least an additional 30% on average for each contractor due to overhead costs for the ?rm itself, as well as increased bargaining power and nrore competitive salary requirements for such a large number of contractors in de?ned labor categories. Currently, VOA expends an average of for POV contract services. A staf?ng agency would likely cost BBG a ditional annua . This optro' i'culai'ly attractive for technically oriented contract skills, such as those in our VOA Broadcast Operations Directorate and has been used in the past. VOA used a staf?ng agency to ful?ll the needs for TV studio crews. VOA Operations management was very happy with ?exibility that the staf?ng agency afforded, and the contract had relatively low overhead costs at 18%. However, the staffing agency contract ended when that Directorate needed to cut costs now VOA Operations administers each contract for TV studio technicians individually. B. Personal Services Contractors (PS Cs): BBG currently has special authority from Congress to award a limited number of PSCs to support VOA broadcast programming and operations in surge situations. PSCs are different than other contractors because they can be ?supervised? an employer?employee relationship exists between the. manager and the PSC and can perform inherently governmental functions. Agencies also have more ?exibility in allowing PSCs to use government facilities, equipment, and training opportunities. Awards may be made via contract, Blanket Purchase Agreement (EPA), or Purchase Order. Broadcasting Board of Page a 4 Governors The ?exibilities in regulations sun'ounding PSCs make thi entract 'most a1 alogous to talent contracts in the news industry, and they allow federal employees to overs 1 ality of PSCs work. The Agency is required to pay the em oyel? be?t?i?i? for PSCs, which have not done previously, and B86 can also provide PSCs limited bene?ts such as paid leave and health insurance. However, we have not . these i a - - 1 therefore, doing so in the future increase the cost per contractor by a minimum (not including bene?ts costs). The agency?s recent assessment of issues raised in the IRS audit found that the Agency will not be able to avoid paying these taxes in the future for PSCs. Additionally, the Agency needs to identify a payroll solution to remit these taxes, as our current provider only services federal employees. Increasing PSC authority, or rede?ning its purpose beyond surge situations, will require Congressional authorization, though recent oversight activity may help us justify such a request. While PSC contracts will allow us greater ?exibility to support programming needs within the guidelines of the FAR, unless we change the contract vehicle EPA or purchase order) for those PSCs, we will not reduce our administrative burden. C. Termed Employment: The last option for overhauling our contracting approach is the most radical because it advocates for hiring more federal employees rather than relying on contractors. BBG has the authority to hire employees on a term appointment basis for up to 4 years. Employees on term appointments receive all of the bene?ts of federal employment, but have ?xed dates after which they can no longer work for the Agency. In effect, the Agency would guarantee skills infusion by institutionalizing staff turnover. This option would reduce the number of vendors the Agency works with by roughly 30%, therein significantly reducing the administrative burden of contacts. Transitioning the Agency to increased reliance on termed employees also eliminates the perception of a two class system among staff by taking away the distinction. Additionally, in the current climate of ?scal uncertainty, termed employment allows greater ?exibility in staffing size through attrition, rather than through reductions in force. Perhaps the biggest drawback to this option is that the former cadre of contractors, revered for the ?exibility they afforded, would be subject to federal hiring (and potentially termination) processes. In most cases, equivalent employees cost the Agency signi?cantly more than contractors, even in base salary. Add federal employee bene?ts to that, and this becomes an effect' ive solution estimates tend toward 30?50% additional cost per person or annually. Broadcasting Board of Puget? 5 Governors D. Recommendation: The most appropriate solution appears to be a balance of all three strategies. Speci?cally, the Agency should focus on reducing the overall number contractors in language programming and news and hiring them as employees on 4-year term appointments; transition broadcast operations contractors to a staf?ng agency; and reserve our existing PSC ceiling for special talent for whom the Agency requires greater ?exibility to pay them for performance, for example on?air talent. at a total cost of just und illion. Speci?cally, the FY 2015 current services request factored in approximately $500,00 to comply with the tax requirements for 60 $2 million to transition contractors in 3 services (Pashto, Somali, and Zimbabwe) to employees on term appointments; and $2.5 million to test a staf?ng agency approach for contract support in Broadcast Operations and Persian News Network. The FY 2015 budget sub to OMB includes initial steps to implement these new strategies E. Next Steps and Board Assistance: To proceed with any of these options, BBG will need to evaluate skills and staf?ng requirements for all program of?ces that rely on contractors. This kind of evaluation is unprecedented, and would likely require a direct request from the Board. Additionally, implementing any of these solutions requires a signi?cant ?nancial commitment that the Board must approve. The creation of a special Board committee to review procurement strategy would be a strong indication to both contractors and oversight groups that the Agency is serious about making long term improvements. core Broadcasting Board of Page a a Governors Broadcasting Board of Governors n.7r? .3 To: Members of the Board of Governors From: Marie Lennon, IBB Chief of Staff Ina Katherine Buckley, IBB Program Policy Analyst Date: January 16, 2014 Subject: Recommendation for Contracting Reform 1. Recommendation for Board Approval Followmg an effort to evaluate large scale contracting reform opportunities, Agency leadership agreed to consolidate current contracted services performed by individual contractors under a large umbrella contract, to be ?ilfilled by a few external ?rms. This approach will address key issues that have been raised by the Internal Revenue Service (IRS) in its 2010 tax audit of BBC and by the Office of the Inspector General its ongoing acquisitions audit. While this strategy will ameliorate the most pressing concerns with our current contracting structure, it is an initial step in a larger process to identify a long?term human capital strategy that meets the Agency?s needs. 11. Strategic Considerations Currently, most of our journalism and broadcast technical support contracts are awarded to self- employed individuals (or ?purchase order vendors? This aspect of workforce structure presents both administrative concerns and potential legal liabilities, such as those identi?ed by the IRS and OIG. Potential liabilities may arise from the possible establishment of an "employer-employee? relationship between the Agency and each individual contractor. Aside from potential liabilities, procuring services from several hundred individual contractors has high administrative costs. The Of?ce of Contracts handles thousands of requisitions each quarter for journalism?related services, and the Payments Office processes invoices for each of these contracts every month. Lastly, the current contracting structure creates the perception of a ?class system? at BBG. According to this View, contractors perform the same work as employees but generally for significantly lower rates and without receiving access to benefits like health insurance, paid leave, or transit subsidies. The Agency initially identi?ed three options for long-term, strategic improvements to our contracting practices that would address these concerns. After more discussion, Agency leadership decided the best approach is to acquire the services of current POVs through one or more large contracts awarded to external service providers. Under the proposal, the Agency would create an Inde?nite Delivery/Inde?nite Quantity contract, or IDIQ, outlining service needs. A few or several ?rms will win the ability to bid on the task orders that speci?cally de?ne the services we need. All of the contractors fulfilling those services will be directly employed by the ?rm. In practice, we can consolidate a group of services, such as our broadcast technical support needs, into a task order, and the selected ?rms will bid to win that service provision and provide their staff to meet our needs. 111. Why We Chose the External Service Provider Option Agency leadership determined that this contracting approach would immediately limit the Agency?s potential liabilities, while retaining flexibility and reducing administrative costs. Flexibility is a key bene?t of this contract structure. Using an IDIQ allows BBG to issue task orders gradually, so we can progressively implement this new structure at a pace we can afford. Furthermore, this contract vehicle balances our need to consolidate our contractual relationships while retaining a competitive environment for services, so we are not faced with the risks of working with a single ?rm. Hiring an external service provider(s) will increase the per?contractor cost of procuring the services currently provided by the Agency?s POVs. Firms will pass along their overhead costs to BBG, which we anticipate in the range of 18-30% more than current expenditures, or $6?12 million. That said, working through external ?rms will streamline the Agency?s administrative costs. The workload in the Of?ce of Contracts will decrease as the Agency will be executing a few large contracts throughout the year, rather than nearly one thousand contracts each quarter. By structuring the contracts to include extensions based on performance, we will only have to compete the contract and awards every few years. Payments staff will also see a workload reduction as each of these contracts will generate a single invoice, as compared to roughly 600 invoices currently processed. The success of this new structure will depend on its administration. The Contracting Of?cers and Contracting Of?cer?s Representatives the technical liaison between the program of?ces requiring services and the acquisitions staff will be held to higher standards of responsibility in these roles than they have previously. With fewer contracts to administer, our contractng experts can focus their efforts on ensuring that the new structure is administered in strict compliance with the FAR and Appropriations Law. Relying on external ?rms may not address the perceptions of a two tier system that currently exist among contractors and employees. BBG may be seen as outsourcing the problem by formalizing the employment relationship between our contractors and a ?rm. Agency leadership plans to continue evaluating the viability of the other two strategic options amended and expanded use of Personal Service Contractors and unique employment Broadcasting Board of Governors Page# '3 mechanisms as part of a larger effort to de?ne a human capital strategy that supports our Agency strategic direction. If the Agency determines a strategic need for either PSCs or unique hiring mechanisms, leadership will need to secure the requisite authority (from Congress or the Of?ce of Personnel Management) to execute those strategies appropriately and successfully. IV. Initial Timelinc 0 February 1 Publish a Request for Information (RFl)and Sources Sought notice to get better cost estimates for large service contracts with several external service providers, and a sense of the ?rms that would likely bid on such a contract. The RF I will allow 1 month for responses. 0 May 1 Publish a Request for Proposal (RFP) to identify the ?rms we will allow to bid on the task orders for broadcast support services. The RFP will allow 1 month for responses. 0 July 1 First task order awarded. This will be the ?rst tranche of the consolidation. 0 Throughout this process, staff will conduct business process evaluations to identify changes that must be implemented under the new model. Additionally, we will identify a funding timeline to identify which services will be consolidated when. V. Impact on Ongoing Audits At the December 18, 2013 management brie?ng of the Board, Agency management of?cials reported on two (2) ongoing audits of the BBG which relate to the Agency?s use of contractors (referred to commonly as ?purchase order vendors? or an audit of Agency procurement practices by the OIG and a 2010 tax audit by the Internal Revenue Service (IRS). The external service provider option that management proposes to pursue over the course of 20 1 4 should permit BBG to address the major concerns raised by the OIG and IRS. The September 2013 preliminary report focused on a wide variety of Agency procurement practices and asserted, in particular, that the Agency?s use of POVs violates a prohibition in the Federal Acquisition Regulations against hiring ?personal services contractors? without statutory authorization. The personal services prohibition, however, turns on whether the administration of the contract creates an ?employer?employee relationship? between and individual contractor and the Agency based on a variety of enumerated factors. The external service provider option would address this OIG criticism because the Agency?s contractors would clearly be employees of the external ?rms, and would not be deemed to BBG employees. The ?nal report is expected to be published in February or March 2014, following which the Agency would refer to the external service provider proposal to respond to the relevant OIG recommendations. BS. The IRS undertook a 2010 tax audit of use ofPOVs and concluded that BBG should have treated its POVs as employees for tax reporting purposes, including by withholding income and Social Security taxes ??om POVs. The external service provider option would Broadcasting Board of Page# 3 Governors address this concern by establishing the external firm as the employer of the POVS, thereby shifting any responsibility to withhold taxes to the external firms. The Agency and IRS have agreed to ?nd a basis for settlin the ro er tax tre ent of POVs prior to December 2014. Use of a consolidated service contract will be a key component of B?a?s set?Ement position which will focus on prospective treatment contractors. Broadcasting Board of Page a 4 Governors