DoD’s Contracting Initiative—Kicked to the Curb

May 10, 2019

This is the sixth in a series of op-eds that IAM is running to shed additional light on problems associated with privatizing the household goods program to a single source contractor.

The Risks of a Monopoly Managing the DOD Personal

The effects of the Global HHG contract on the local moving and storage companies that proudly serve our men and women in uniform.

“Quality service at the curb” and “increased capacity for the DoD” are the primary reasons given by U.S. Transcom (USTC) to move forward with the Global Household Goods contract (GHC). Since the Defense Personal Property Program (DP3) is a transportation service provider (TSP) based program, many have looked at what potential effect this change will have on the TSP, Van Line, and International Forwarder communities. It’s equally important that we explore the devastating effect it could have on local moving and storage companies; the backbone of our industry and the entity that actually shows up at the curb of the relocating family.

Many local moving and storage operations across the U.S. and worldwide are made up of generations of family members dedicated to the business. It’s an enormously difficult and emotional trade that literally gets into your blood. Once you are in, you generally stay in for life.

Taking a Look in the Movers’ Rearview Mirror

First, a little history on the DoD personal property program from the moving and storage agent perspective. As with the TSP community, local agents have endured many storms over the 50-plus years of the program. A majority of this time was spent under the TOPS Legacy program, with the primary framework being the Letter of Intent (LOI). This allowed the agent to have a direct agreement with the carrier/TSP as well as a relationship with their local transportation office. This more agent-centric program worked for many years before various re-engineering efforts came along that changed the LOI relationship, allowing an agent to work with any carrier/TSP it wanted to.

In 2010 we saw the full rollout of Families First (now known as DP3), which is partly a hybrid of previous test/pilot programs. Again, the LOI type structure was not used; it was replaced with a more TSP-centric program which many argue was a mistake that has eroded the agent community, both domestically and internationally. Others might argue that the current DP3 structure was key to continually improving customer satisfaction scores and offered scales of economy to the DoD as TSPs have consolidated under a managed concept. Whatever side you are on, the fact remains the agents have always been the entity that does indeed provide service at the doorstep and will continue to be so in an outsourced environment—we hope.

Who’s Your Master?

From the government side, we have heard, “What does it matter that a single entity will be awarded the GHC? They will still need the local agent.” That’s true. It’s likely, based on the size and breadth of this program, that the scope of this contract will preclude most or all current participants from being a prime bidder. This contract will require a large DoD contractor, who is likely not engaged in the program at all right now, to make a bid. But if that’s the case, the winning bid will bring no, or very little organic capacity to the program, so there will be no growth to organic capacity in the way of drivers, trucks, and packing/loading crews. That growth will fall to the current local agents, and it is already well documented that our industry faces a huge shortage of qualified drivers and crews. We’ll still need to grow capacity on the backs of the local agents. They’ll need to be enticed to do this and will have to see it as a smart business decision.

The concern from the agent side is that their current risk is spread out over several TSPs/management groups, or perhaps dozens of TSPs in the case of an overseas agent, who has multiple choices of companies to work with, and is able to align with companies that provide resources and most of all pay invoices timely. In an outsourced environment, the agent will not have any other TSPs competing for its limited resources and will now be beholden to the single controlling entity. Among other problems, the change could spell the end of timely payments (in the current DP3, payments made to TSPs are made through the U.S. Bank system, and results in a quick turn-around of payments to the agent) which may ultimately force agents out of business. Further, agents will have trouble getting operating lines of credit from any financial institution when all of its receivables are concentrated with one entity. 

In rural markets where many Army and Air Force installations are domiciled, agents rely 100% on DoD business; there is nothing else. The single source contractor may choose to work with a select few agents with whom they have a pre-existing relationship. Of course, all capacity is needed in the peak season, but the lopsided nature of the DoD volume will be felt even more strongly by a local agent who is not “in” with the contract winner.

The current condition of the moving and storage industry on the local level is one that is, and has been, teetering for years, particularly as the roaring economy claims qualified help in other business. In a single source environment, the local agent could be the first to hit rock bottom. This warning was heard loud and clear during the GHC Industry Day event hosted by USTC Acquisitions staff. A local mover relayed a common theme that we hear now. He was prepared to buy more trailers and hire drivers to better serve the DoD market during the current peak season, but is now backing away not knowing who his “master” will be in 2–3 years. Who can blame him?

Service Contract Act Concerns and the Impacts on Small Business

What is written into the RFP now leads the moving and forwarding industry down a completely new and different path in regards to the service contract act and wage determination.

The potential application and administration of the Service Contract Act (SCA) and its wage determination clauses could have a detrimental effect on the small businesses that continue to operate in the proposed DoD sole-source contracting environment. Right now, even DoD is unclear if the SCA will actually apply to sub-contractors in this new environment. USTRANSCOM has indicated that the SCA will definitely apply to the contract award winner, but is leaving it up to the contractor to determine if the SCA will apply to the myriad of small business they will need to engage as sub-contractors under the procurement. In response to a question posed at the contract Industry Day #2, USTRANSCOM indicated that “the Contractor will need to contact the Department of Labor (DOL) for guidance on any applicable exemptions.”

It appears to most that the SCA WILL apply across the contractor’s entire supply chain, meaning that the compensation levels paid to all employees that are utilized to service the contract will be controlled by the SCA’s Wage Determination requirements. This rule not only mandates minimum compensation for different employee levels, but also dictates other requirements such as medical insurance, paid leave and additional fringe benefits. Beyond those requirements, the most onerous issue may be in the record keeping necessary to document compliance with the SCA. The Department of Labor (DOL) is tasked with ensuring that all government contractors and their sub-contractors are in compliance with all requirements. A DOL audit can be painstaking and if an entity is found out of compliance, fines and other punitive actions may result.

The contract award winner will undoubtably be a very large company with the wherewithal to handle the compensation and administrative requirements mandated by the SCA. They also will have control of the contract pricing, so will be able to incorporate any costs associated with the SCA into their bid. However, most of the small businesses working as subcontractors in the new environment will have likely never worked in an environment regulated by the SCA. There are real questions regarding to what degree they will be able to adjust their pricing in a monopolistic environment. Will they be able to incorporate all of the employee compensation increases and the costs associated with the new SCA administrative/paperwork requirements into their rates and be able to have those increases accepted by the prime contractor?

The implementation of the Service Contract Act in this new single prime contracting environment will be a brave new world for the multitude of small businesses that have traditionally been the backbone of the DoD household goods program. The impact of all of these factors bring serious risks to the industry infrastructure that supports the DoD program. Small businesses stand to be huge losers in this environment and without them, this house of cards stands to implode on itself—taking the small business with it. 

Was the local mover on a better path with USTRANSCOM before Outsourcing was even a thing?

As the personal property program was moved out of SDDC and under direct control of the J5/4 at USTC, it underwent increased scrutiny. Some may argue this greater focus has its drawback, with the Global HHG contract being the most obvious. But wait a minute—have we seen some small victories recently that have helped the local agent? A few positives include the ability to refuse shipments (allowing the local mover to service what they are capable of); a declaration by USTC that accessorial type services (i.e., crating and labor) must be passed down to the agent; and, as small as it seems, lifting the requirement to pack plastic totes in cartons. Again, there is a long way to go to get the agent community back to where it once was, even operating under the current DP3, but demonstrable progress has been made.

The Global HHG initiative was created and pushed down from the top at USTC, something unprecedented in the personal property program; it’s on a fast track “get out of the way of the train” pace. Let’s just hope that this effort can make everyone understand that nothing happens on a DoD move until that local agent, the guy at the “curb,” makes it happen. Don’t let the guy at the bottom get squeezed out by the new guy at the top.