As the Country Slowly Reopens, Opportunities to Do Business with the Government Look Increasingly Attractive

Opportunities through Government Schedules
Companies often start doing business with the Government for the first time in one of two ways—as subcontractors to a company with a Government contract, or through the General Services Administration (GSA) Federal Supply Schedule (FSS) Program. The Government procures a vast array of supplies and services through the FSS program, ranging from software and information technology services to building materials, office furnishings, accounting services, logistics, staffing and hospitality services.

An FSS contract (also commonly referred to as a “GSA Supply Schedule contract”) enables private sector vendors to market their commercially available goods and services to federal, state, and local government agencies. For that reason, FSS contracts are sometimes referred to as “hunting licenses.” Although the vast majority of schedule purchases are made by the U.S. Government, state and local agencies can also place orders on FSS contracts. Accordingly, such contracts can lead to a variety of new government customers.

FSS purchases are much more streamlined than the Government’s typical contracting processes. And, by law, these contracts generally contain only contract clauses that are “consistent with standard commercial practice.” 41 U.S.C. § 3307(e)(2)(B). The simplicity of the FSS process makes it an appealing contracting vehicle for Government purchasing agents. And the familiarity of the contract terms makes it an appealing vehicle for commercial companies. This simplicity and familiarity resulted in $32.5 billion in sales in fiscal year 2019. In view of the Government’s need to purchase commercial supplies and services quickly in response to our current public health crisis, it appears likely that this number will be even higher for fiscal year 2020.

Companies considering obtaining a GSA schedule contract can learn more about how to do so by visiting the GSA’s website. Because FSS contracts contain some Government-unique terms, companies should not rush into such contracts without first considering whether the benefits of an FSS contract outweigh its burdens and obligations. FSS contracts may not be a good fit for some companies, but for many, they provide a sensible way to enter the Government marketplace and generate new sources of revenue.

Opportunities to Enter into Other Transactions Agreements
Another contracting vehicle that appeals to many non-traditional government contractors is an opportunity referred to as an “Other Transaction Agreement” (OTA). OTAs allow certain agencies the flexibility to adopt and incorporate commercial business practices to: (1) acquire prototype projects; (2) conduct research; (3) and authorize the actual production of products. OTAs do this by allowing agencies to negotiate terms and conditions specific to a project without requiring them to comply with most federal regulations that apply to Government procurement contracts, including the Federal Acquisition Regulation. 

Of all the federal agencies, the Department of Defense (DoD) has taken the most action to reach out to companies not currently doing business with the Government. The GAO recently reported that in fiscal years 2016 – 2018, DoD’s use of OTAs totaled over $7.2 billion awarded in over 1,250 new awards, modifications, and orders. The GAO Report explained that companies that typically did not do business with DOD participated to a significant extent—receiving 88 percent of the transactions awarded during this time. 

While significant sums have been spent by the DoD using OTAs, this authority is not new and is not exclusive to the DoD. OTAs actually date to 1958, when the National Aeronautics and Space Administration first received this authority in the National Aeronautics and Space Act. In addition to the DoD and NASA, nine other federal agencies now also have OTA authority including, the National Institutes of Health and Federal Aviation Administration as well as the Departments of Energy, Health and Human Services (HHS), and Transportation.

Companies considering OTAs should be aware that while these agreements offer a streamlined path for non-traditional Government contractors to enter the federal marketplace, they still contain many nuances that are unfamiliar to commercial companies. Accordingly, companies are generally well served if they seek the advice of experienced counsel before entering into such agreements.

Opportunities Available through the Defense Innovation Unit
In addition to the use of OTAs, the DoD has continued to reach out to nontraditional defense contractors, especially in the technology sector through a specially designated unit called the Defense Innovation Unit (DIU). DIU concentrates on five technology areas where the commercial sector is operating at the leading edge: artificial intelligence, autonomy, cyber, human systems, and space. Within these five areas, DIU seeks to adopt commercial technology and grow the national security innovation base.

DIU is headquartered in Mountain View, Calif., with additional outposts in Austin, Boston and at the Pentagon. Since it began contracting with industry in 2016, DIU has awarded about 160 contracts to 122 nontraditional vendors and has helped facilitate the investment of nearly half-a-billion dollars in prototypes. Companies interested in learning more about the opportunities available through DIU can visit its website.

New Opportunities Helping the Government Respond to COVID-19
Additional opportunities also exist for companies in the medical field as the Government has mobilized to respond to the COVID-19 pandemic. While many agencies at both the state and federal level have sought to acquire medical resources to address COVID-19-related requirements, the DoD created a separate organization to centralize its COVID-19 related purchases. On March 25, 2020, the DoD established the COVID-19 Joint Acquisition Task Force (JATF). The JATF team includes acquisition professionals from the military departments and DoD agencies, and is synchronizing and supporting the acquisition execution of DoD’s COVID-19 response to interagency requests for medical resources (e.g., requests from the Federal Emergency Management Agency (FEMA) and HHS).

This nascent organization already has awarded more than $400 million in contracts for personal protective equipment for medical personnel. And, JATF is not only awarding contracts. It is also forecasting gaps and identifying opportunities for the industrial base to provide medical resources. Companies interested in providing goods and services to help combat COVID-19 should view the resources available on JATF’s Industry Portal to learn about JATF contracting opportunities. 

Opportunities for Leasing Real Property to the Government
The U.S. Government is one of the largest owners and lessees of real property in the country. Much of this activity takes place under the authority and utilizing the expertise of the GSA, which acts as real property manager for most Government agencies (especially the civilian ones). The GSA’s current website has an entire section devoted to its real estate holdings. The GSA’s current portfolio of properties is incredibly diverse, and includes undeveloped land, office buildings, courthouses, laboratories, warehouses and data processing centers. According to its website, GSA “owns and leases over 376.9 million square feet of space in 9,600 buildings in than 2,200 communities nationwide.” 

Uncertainties abound in the current real estate market, particularly in the commercial marketplace for office space, due to the effects of COVID-19 and the concomitant trend of many private sector employers allowing their employees to work at home. To the extent that trend continues—as appears likely for the foreseeable future—owners and managers of commercial office space may want to consider pursuing Government tenants through GSA leasing acquisitions. One practical way to get started is by reviewing on GSA’s website its “Inventory of GSA Owned and Leased Properties.” This helpful tool can be used to identify potential real property leasing opportunities by state or Congressional District and can target leases which are expiring and may be subject to competitive renewal.

Another potential opportunity for leasing real property outside of traditional commercial channels exists with the U.S. Postal Service. According to its website, the USPS utilizes more than 34,000 retail locations and generates annual operating revenue of more than $71 billion. The U.S. Postal Service enjoys leasing authority separate and distinct from GSA’s, and it leases many facilities across the country, ranging from warehouses to strip mall storefronts. Many of these leases are for shorter terms and smaller space requirements than typically sought by GSA, but they nonetheless can help fill “gaps” in private sector real estate portfolios.

Finally, it merits noting that one of the significant advantages of a long-term lease with GSA—i.e., one with a term of 10 or greater years—is that such leases typically do not contain a clause permitting advance termination of the lease for the Government’s convenience. In other words, once the GSA executes a long-term lease, the owner or manager of the property can typically rely on the full faith and credit of the U.S. to cover all rental payments for the full term of the lease. This facet of long-term leases with GSA makes them especially attractive in the COVID-19 world, where pandemic-related disruptions can adversely affect the payment stream from commercial leases.

Conclusion
Doing business with the Government can be extremely advantageous for companies that find themselves with excess capacity or that simply are searching for new customers to ease revenue losses attributable to COVID-19. Although many private companies have curtailed their expenditures, the Government has many ongoing obligations that cannot be reduced and must even be increased during times of crisis and economic uncertainty. Additionally, the risk that a Government customer will default on its payments is almost nonexistent. Moreover, under the Prompt Payment Act, the Government typically must pay contractors within 30 days of receiving accepting the goods or services provided or receiving a properly submitted invoices, whichever is later. While the Government’s invoicing requirements can be somewhat daunting and being a Government contractor can expose a company to  additional compliance obligations (which are not to be discounted), many companies find that having a customer with seemingly inexhaustible demand and whose purchases are backed by the full faith and credit of the Government to be well worth the administrative effort associated with securing such a contract.

For more information about how to tap into the Government marketplace, please contact the authors or your regular Pillsbury contact.

Pillsbury’s experienced multidisciplinary COVID-19 Task Force is closely monitoring the global threat of COVID-19 and providing real-time advice across industry sectors, drawing on the firm’s capabilities in crisis management, employment law, insurance recovery, real estate, supply chain management, cybersecurity, corporate and contracts law and other areas to provide critical guidance to clients in an urgent and quickly evolving situation. For more thought leadership on this rapidly developing topic, please visit our COVID-19 (Coronavirus) Resource Center.