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GSA’s Power Grab Over DFTS Puts Critical Defense Transportation Contracts At Risk

The Pentagon. Image: Creative Commons.

For more than a decade, the Department of Defense (DoD) struggled to find the right contracting mechanism that would allow it to take advantage of the enormous logistics capabilities resident in the private sector. Third-party logistics providers have the experience, tools, databases, and procedures to support a network of transportation providers while minimizing both the cost and time involved in moving goods and materials. But just when the Pentagon got it right with its Defense Freight Transportation Services (DFTS) contract, the General Services Administration (GSA) made an unnecessary and possibly illegal power grab, claiming the right to conduct oversight of the DFTS contract. 

In its alleged oversight role, GSA has seen fit to re-interpret the contract’s provisions, contravening the express wishes of the contracting organization, Transportation Command (TRANSCOM). It has also imposed outrageous fines on the private sector team that has been successfully performing on DFTS for three years. 

If the GSA power grab for oversight of defense transportation contracts is allowed to stand, third-party logistics providers may shy away from bidding on future TRANSCOM contracts.

Making Government Contracts More Difficult

It is tough doing business with the federal government, perhaps DoD most of all. This truism applies not just to companies manufacturing unique military items but also to those providing the same kinds of services and support services as they do in the commercial marketplace. As the client, the government is not an easy customer. It does not pay well compared to rates considered standard in the private sector. The work is often very specialized, requiring unique skills, knowledge, and equipment. Contractors must adhere to a unique set of laws and regulations and operate with an accounting system entirely different than those in the commercial world. Performance metrics can change radically, depending on external circumstances. Contracts are often for a limited duration and the government, at its convenience, can cancel at any time. 

DoD, in particular, has also found it extremely difficult to contract with the private sector on anything other than a transactional basis. When the major defense components involved in moving material and equipment inside the United States, TRANSCOM and the Defense Logistics Agency (DLA), agree to consolidate all their domestic transportation activities into a single contract managed by one team of logistics specialists, it is a big deal.

Operating – Historically – as Usual

TRANSCOM/DLA began transferring management of domestic activities to the private sector more than a decade ago. The initial effort, the Defense Transportation Coordination Initiative (DCTI), was unsuccessful. The new contract signed in 2018 is the Defense Freight Transportation Services (DFTS) contract intended to support the Defense Logistics Agency (DLA), Defense Contract Management Agency (DCMA), and their 17,000 plus vendors located nationwide. The United States Transportation Command (USTRANSCOM), an agency under the defense department, awarded DFTS to Crowley Logistics in one of the country’s largest surface transportation contracts to date.

Both TRANSCOM and DLA worked very hard to ensure that the new contract incorporated lessons learned from the prior effort to consolidate defense logistics. These include visibility of pricing, a three-tier pricing strategy based on response times, and the tracking of key performance indicators at both enterprise and individual site levels. Also, the new contract promotes flexibility as well as efficiency. By all accounts, the team that won the contract, headed up by international transportation giant Crowley, has performed extremely well. 

Grabbing Oversight Mid-Contract

At the beginning of DFTS in 2018, GSA made a grab for power over the contract, insisting that it had jurisdiction under the 1940 Transportation Act’s amendments to the Interstate Commerce Act (ICA). Both Crowley and the contracting organization for DFTS insist that the 1978 Contracts Dispute ACT (CDA) and not the ICA is the relevant statute. 

The Transportation Act gives GSA the authority to make binding decisions regarding the final amount of payment owed. At the same time, the CDA gives the procuring agency’s contracting officers the authority to make final and binding decisions regarding the final amount of payment owed. 

GSA’s actions conflict with the Disputes clause in Federal Acquisition Regulation-based contracts. Also, there is a 1978 ruling that says GSA has no role to play in auditing transportation contracts that are FAR-based which DFTS is. GSA is not only asserting the right of oversight but the ability to impose fines and take fines out of payments made to the DGTS contract by the government, despite the issue of proper jurisdiction being in dispute on both legal and technical grounds.

GSA Taking Privileges

Were this not enough, GSA has decided to reinterpret the contracts against the explicit desires of the TRANSCOM contracting officer and to impose fines on the private companies for failing to adhere to mistaken interpretations. For example, while the contract calls on the service provider to consolidate shipments wherever possible to reduce costs, the decision to do so is reserved for the contracting officer. Defense goods often must move as needed, even when that means it cannot be done most cost-effectively. The contracting officer at TRANSCOM has issued three final decisions in response to GSA notices of infractions and impositions of fines, each time siding with the private company and against GSA. However, it has been to no avail.

GSA brought in a third-party private contractor, CT Logistics, to audit DFTS based on rules and algorithms not shared with the company performing the work. Were that not bad enough, CT Logistics earns a fee based on the fines imposed, giving it every incentive to find fault in order to make more money. The fines levied by GSA since 2018 now exceed the value of the bills submitted by Crowley.

Crowley is in an impossible situation. If it adheres to the terms of the contract as agreed to by both the company and the contracting officer, it will be declared deficient by GSA and fined. If it obeys GSA, it will fail its customer and consequently weaken national security.

TRANSCOM and DoD need to pay attention to this, which is now some three-year-old dispute. If GSA is allowed to succeed with its power grab, this places both the current DFTS and future efforts to contract with third-party logistics providers at risk – either a DFTS recompete or the new massive contract to privatize the movement of military household goods. What company would bid on a contract where it has to satisfy the incompatible demands of two different government agencies? 

Author Biography and Expertise: Dr. Daniel Goure, a 1945 Contributing Editor, is Senior Vice President with the Lexington Institute, a nonprofit public-policy research organization headquartered in Arlington, Virginia. He is involved in a wide range of issues as part of the institute’s national security program. Dr. Goure has held senior positions in both the private sector and the U.S. Government. Most recently, he was a member of the 2001 Department of Defense Transition Team. Dr. Goure spent two years in the U.S. Government as the director of the Office of Strategic Competitiveness in the Office of the Secretary of Defense. He also served as a senior analyst on national security and defense issues with the Center for Naval Analyses, Science Applications International Corporation, SRS Technologies, R&D Associates, and System Planning Corporation.

Written By

Dr. Goure is Senior Vice President with the Lexington Institute, a nonprofit public-policy research organization headquartered in Arlington, Virginia. He is involved in a wide range of issues as part of the institute’s national security program.