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Testimony of George Schutter on the Accessible and Transparent Procurement Amendment Act of 2017, the Government Contractor-Subcontractor Dispute Resolution Amendment Act of 2017, and the Quick Payment Amendment Act of 2017

Wednesday, November 1, 2017
Before the Committee of the Whole Council of the District of Columbia The Honorable Phil Mendelson, Chairperson

Good morning, Chairman Mendelson and members of the Committee of the Whole. I am George Schutter, and today I will offer testimony on Bill 22-395, the “Accessible and Transparent Procurement Amendment Act of 2017,” Bill 22-440, the “Government Contractor-Subcontractor Dispute Resolution Amendment Act of 2017,” and Bill 22-439, the “Quick Payment Amendment Act of 2017.”

The Executive supports the spirit and intent of Bill 22-395, the “Accessible and Transparent Procurement Amendment Act of 2017.” Most of the provisions in this bill are transparency efforts that OCP and agencies with independent authority are working toward. In fact, in the Fiscal Year 2018 budget, the Mayor allocated capital funds to enhance the Procurement Automated Support System (PASS) to accomplish much of what this bill requires. Therefore, while we do agree with the overall intent, we do have concerns with several provisions of this bill and their operational impact.

First, the bill lowers the threshold for publicly posting solicitations from $100,000 to $25,000. This change will create additional process that will negatively impact our procurement service delivery timelines. Currently, there is no requirement for public notice of solicitations valued under the small purchase threshold of $100,000. This gives the contracting officer flexibility to achieve competition in a streamlined manner so that these small purchases can be completed as quickly and efficiently as possible. If we were required to publicly notice purchases of $25,000 or greater, it would impede our flexibility and lead to a longer procurement process and required lead time. A change in this area could potentially make it more difficult to award a contract when a program agency has an immediate need.

We also have concerns around the implementation timeline. The proposed 120 days is not enough time to implement a change of this magnitude, not just in OCP, but in agencies with independent authority and those agencies that are not using PASS. We are in the early phases of enhancing our system capabilities to accommodate increased transparency and reporting. We will have to conduct a comprehensive assessment to ensure that all of the bill’s requirements are achievable within the constraints of PASS. For example, the search functionalities outlined in this bill are not standard in our system and will likely require customization that will take well beyond 120 days. In addition to the technical requirements, there will have to be significant coordination between OCP and agencies with independent contracting authority and each agency that is not currently using PASS. In collaboration with these agencies, we will have to determine from a technical and process perspective, how to implement these requirements without creating delays in posting time-sensitive solicitations and ensure that the information is kept up to date.

Since becoming Chief Procurement Officer in 2015, I have consistently advocated for and actively worked toward transparency in contracting and procurement in the District. I believe it is important for not only the business community, but also District residents to see how taxpayer dollars are spent. We look forward to working with the Council to refine the specific requirements of this bill.

Next, I will turn to Bill 22-440, the “Government Contractor-Subcontractor Dispute Resolution Amendment Act of 2017.” In general, we support the idea that subcontractors should be paid in a timely manner, however, we don’t believe that Bill 22-440 will accomplish that goal.

The bill adds a layered and cumbersome process to an already challenging process for some subcontractors to navigate. The proposed process adds an additional six months to resolve a dispute for payments. Additional time added to a process that some subcontractors already believe takes too long, could be detrimental to the District and the small businesses that would be directly impacted by a six-month delay in payment.

We believe that this bill, in its current form, will expose the District to a huge risk by establishing a relationship between the District and subcontractors, where one does not currently exist. According to the Quick Payment Act, a prime contractor and subcontractor cannot name the District as a party in a dispute. The bill, as written, does not repeal that section of the Quick Payment Act, ultimately contradicting its intended purpose.

The District, like many other jurisdictions, the federal government, and private industry, does not have privity of contract with subcontractors, meaning that the subcontractor’s relationship is directly with the prime contractor. Inserting the District in a dispute between a prime and subcontractor based on a contract that we did not negotiate, and to which the District is not a party, adds another layer of complexity to the contracting process.

As written, the bill also removes some of the contracting officer’s responsibility and latitude to administer contracts and may interfere with the role of the Contract Appeals Board to review and hear contract disputes. A concern is that this bill creates an additional role for the hearing officer and does not consistently reconcile the roles of the Contract Appeals Board, the hearing officer, and the contracting officer, specifically with regard to disputes between the prime contractor and subcontractor.

We recognize that the goal of this bill is to ensure on-time payment for timely delivery of goods and services. In our existing rules, regulations, and practice, the subcontractor has recourse in the event they are not being paid in a timely manner, including:

  • In our standard contract terms and conditions, we clearly outline the prime contractor’s responsibility to pay their subcontractors within seven days of receiving payment from the District. If the prime contractor fails to do so, the prime company is in breach of its contract with the District and is subject to a cure notice or a negative performance evaluation. If a subcontractor is having challenges getting paid, it should act in accordance with the terms of its contract with the prime, which should stipulate the steps the subcontractor takes in the event of nonpayment or any other dispute. While a subcontractor may contact the contracting officer, he or she will investigate the matter only insofar as the issue affects the District’s contract with the prime.
  • The Procurement Integrity, Transparency, Accountability Amendment Act of 2015 required OCP to have an Ombudsman. Part of the Ombudsman’s role is to help resolve matters involving disputes between the prime and subcontractors, which can include payment. OCP is in the final stages of the hiring process for this position and plans to make a formal announcement in the coming weeks.

I welcome the opportunity to continue working with the Council, the business community, and the OCFO to streamline the process of paying contractors in a timely manner.

Finally, I would like to briefly discuss some concerns regarding Bill 22-439, the “Quick Payment Amendment Act of 2017.” This measure would decrease the number of days the District has to make payment from 30 to 15 days. Although well intentioned, this measure does not conform to industry standards and would create serious challenges for District agencies.

In most other jurisdictions, including the federal government, 30 days is the standard. While it is possible to turnaround payments in less than 30 days, it is contingent on the type of goods, services, or construction that is being delivered. Contracts with more technical scopes require more time and effort to determine if the work is satisfactorily completed before a contract administrator certifies receipt of the goods or services so that the OCFO can process the invoice for payment. Based on data from contracts awarded by the Department of General Services in fiscal year 2017, it required an average of 13 days to review, approve, and submit payment data to OCFO. It requires another 12 days for OCFO to conduct their review and approval and five days to issue payment. Our concern is that anything shorter than 30 days will impede District agencies’ ability to perform proper due diligence and ensure goods, services, and construction are rendered according to the terms and conditions of the contract. As stewards of taxpayer dollars, we do not want to sacrifice quality, integrity, and accuracy of the goods, services, and construction we procure for speedier payment. The Executive will continue to drive operations toward timely and transparent payment.

I appreciate the opportunity to testify on Bill 22-395, “Accessible and Transparent Procurement Amendment Act of 2017,” Bill 22-440, the “Government Contractor-Subcontractor Dispute Resolution Amendment Act of 2017,” and Bill 22-439, the “Quick Payment Amendment Act of 2017.” This concludes my prepared testimony, and I am happy to answer any questions you may have.