"When we talk about small businesses being under a microscope, I do worry that the person looking through the lens isn't sure what they're looking for," PSC President Stephanie Kostro said. Fresh off the Professional Services Council annual conference, Stephanie joined Sam on the podcast to discuss the biggest policy issues for small businesses: fraud investigations and audits, the next stage of the FAR Overhaul, and acquisition reform in the military and at GSA.
She also imparted advice for contractors preparing for an audit or coping with the “messy middle,” this interim period between the FAR Overhaul’s publication as deviations and as final rules. Finally, she walked through the biggest legislative priorities for government contractors looking ahead to the FY27 NDAA, including the potential for action on the Rule of Two. A full transcript is online at http://www.govconintelligence.com.
Links
Stephanie Kostro bio https://www.pscouncil.org/a/Bios/PSC_Staff/Stephanie_Sanok_Kostro_Bio.aspx
About PSC https://www.pscouncil.org/psc/About/About/__p/ca/About.aspx
JD Vance’s Anti-Fraud Task Force Uncovers $6 Billion In Suspected Fraudulent Government Contracts https://dailycaller.com/2026/04/08/jd-vance-task-force-eliminate-fraud-six-billion-government-contracts-gsa-edward-forst-taxpayer-waste/
OneGov Saves Taxpayers $1.1 Billion in First Year https://www.gsa.gov/about-gsa/newsroom/news-releases/onegov-saves-taxpayers-11-billion-in-first-year-04292026
GSA Announces OneGov Agreement with Snowflake to Accelerate Data-Driven Technology Adoption https://www.gsa.gov/about-gsa/newsroom/news-releases/gsa-announces-onegov-agreement-with-snowflake-to-accelerate-datadriven-technolo-05212026
Promoting Efficiency, Accountability, and Performance in Federal Contracting (EO 14402) https://www.federalregister.gov/documents/2026/05/05/2026-08900/promoting-efficiency-accountability-and-performance-in-federal-contracting
H.R.2804 - Protecting Small Business Competitions Act of 2025 https://www.congress.gov/bill/119th-congress/house-bill/2804/text
PSC 2024 Federal Small Business Scorecard https://www.pscouncil.org/__p/cr/r/2024_Business_Forecast_Scorecard.aspx
Timestamps
Introduction: The State of Federal Contracting 00:00:00
Navigating Fraud Task Forces and Small Business Audits 00:03:33
The Burden on Small Businesses and the Shrinking Procurement Workforce 00:13:37
PSC’s Advocacy Priorities and Defense Acquisition Reform 00:15:27
Looking Ahead to the FY27 NDAA and Commercial Harmonization 00:19:20
Value-Added Resellers in a OneGov World 00:26:20
Mitigating Vendor Lock-In Risks 00:31:21
Anticipating the Revolutionary FAR Overhaul Proposed Rules 00:32:38
Critical FAR Parts for Small Businesses to Track 00:37:32
Navigating the Fixed-Price Contract Mandate 00:38:54
Risk Tolerance and Price Adjustments 00:44:45
Codifying the Rule of Two at the Task Order Level 00:48:00
Tracking Federal Market Forecasts and Scorecards 00:50:56
Conclusion: The Upcoming Federal Acquisition Conference 00:53:30
Transcript
Introduction: The State of Federal Contracting
Sam: Welcome to GovCon Intelligence. My guest today is Stephanie Kostro. Stephanie, welcome to the show.
Stephanie: Thanks so much, Sam, for having me.
Sam: Thanks for coming on. Stephanie Kostro is the president of the Professional Services Council, the leading trade association and voice of the federal contracting industry. As president, Stephanie guides PSC’s strategic direction, advocacy, and member engagement efforts across growing federal industry priorities. She has more than 20 years of experience in the U.S. government and industry, and brings a wealth of knowledge in federal procurement, policy and acquisition regulations, government processes and programs, and public-private partnerships.
And boy, you have been busy lately. There has been a lot happening. So what is the vibe among your members right now at PSC with this torrent of policy changes, the FAR overhaul, and small business action? Just generally, how have they fared through the last year to year and a half?
Stephanie: It is a great question, Sam. We have not rested in the last 15 months, it’s fair to say. Let me give a quick thumbnail sketch of who PSC is, if I could. We are, as you mentioned, a trade association. We represent more than 400 government services and solutions contractors. And by solutions, I mean technology, innovation, et cetera—so not manufacturers per se, but those who offer the other end of the spectrum of services and solutions.
I would also note that of our 400 member companies, a full 65% qualify in some way, shape, or form as a small business. And so I would love to talk specifically about how the last 15 months have touched on and impacted small businesses in particular. A lot of the executive orders that have come out have been unique; what’s different about this president is a lot of the executive orders have directly touched on federal contracting. It’s been an amazing tidal wave of what’s been coming over the transom for us. I think whether it’s consolidation of procurement at the General Services Administration or some of the sea changes that we’re seeing at the Department of War, there’s a lot in the mix over the last 15 months.
Sam: Yeah, that’s a really interesting point because I saw the executive order directing the FAR Council to issue deviations, and I thought, “Wow, somebody at the White House knows what a deviation is.” That’s interesting. And then you have Secretary Hegseth talking about the 8(a) program and the SBA. So it’s gotten more attention in the highest levels of government than I’ve seen in previous administrations.
Stephanie: That’s absolutely true. And we do have someone heading up the White House Office of Federal Procurement Policy—for those of your listeners who dork out like I do on this stuff, that’s OFPP—who has industry experience. I think that’s a critical component of what we’re seeing here, whether it’s the move towards fixed-price contracting or commercial solutions. I think it plays a big role that we have a lot of folks with experience in business now in the government.
Sam: And that’s Dr. Kevin Rhodes.
Stephanie: That is Dr. Kevin Rhodes, yes.
Sam: Did you have him recently at your conference?
Stephanie: We did have him at our annual conference. The Professional Services Council has a big event in West Virginia every year, and we had all of the FAR Council principals come on a panel and talk about what they’re doing with the revolutionary FAR overhaul, what they’re doing on contract consolidation, et cetera. Dr. Rhodes was one of our guest speakers alongside Jeff Koses from the GSA, Marvin Horne of NASA, and John Tenaglia of the Department of War.
Sam: Oh, what a great get to get all those people in one room together.
Stephanie: Yeah, I’ve warned them that this is going to be an annual thing. It’s an annual conference, and we should get them all in West Virginia every year.
Sam: Are they going to do a FAR overhaul every year? Let’s see what they have to say for next year.
Navigating Fraud Task Forces and Small Business Audits
Sam: Well, we’ll start at the top of government—not quite with President Trump, but we’ll go to the next level with Vice President J.D. Vance, who has started up a fraud task force. One of the first functions of that fraud task force, it appears, is to look at government contractors. Small businesses have been very familiar with this over the last year. We’ve been covering it a lot on GovCon Intelligence with audits in the 8(a) program, and then there was an audit by DoD—the Sledgehammer audit. It sounds from press reports that the GSA has begun to send out direct inquiries to contractors they view as fraudulent. It’s not really clear where they’re finding fraud here, but they’ve at least started to send out these letters. And then, of course, the SBA is continuing its 8(a) audit. The inspector general at the SBA is going to look closely at the WOSB and SDVOSB programs as well.
I’ve been working with many small businesses. All of them that I’ve worked with are above board; they’re doing their best to be compliant, but they’re very scared about getting caught up in these fraud investigations, audits, et cetera. How worried should small businesses, like that 65% you mentioned at PSC, be about this fraud task force and additional audits and investigations?
Stephanie: It’s a great question, Sam, because PSC’s mission as a trade association, like a lot of our brethren out in our space, exists for three main reasons. One is to advocate on behalf of our members. One is to educate—and in part, that is helping the broader American public know the value that contractors bring to the table, but it’s also to let executive branch and legislative branch folks know how important this segment of industry is. Then, finally, we exist to facilitate that networking, that meeting of minds, so that we can have a healthy discussion and candid back-and-forth between customers and industry.
So, how worried should small businesses be? We’re asked by a lot of our member companies what they should do, and it’s a fair question. Just to back up a little bit, the task force reportedly is investigating $6.3 billion worth of contracting dollars that have gone out. I’m not sure where that number comes from, but that net captures a lot of companies, large and small. What are they looking for, and what are these hundreds of letters that have gone out between the task force and the General Services Administration?
Just on the letters themselves: if you receive a letter, you have 30 days to respond. We are encouraging any business that receives such a letter to be responsive, to be timely, and to meet that 30-day requirement. But even before you get a letter—and this goes back to the 8(a) audit that was launched a year ago—the first thing you should do is look at your own house. Make sure everything inside your company is in order so that you can be responsive and ensure you have the documentation.
What is the task force and what are these GSA letters looking for? They are looking to see if you are a shell company or a legitimate small business. By “shell company,” I mean putting forward something where we consider it false ownership or control. Are you misrepresenting yourself as a small business when actually you’re not? What are the pass-through schemes?
I use that word “scheme” deliberately, Sam, because I think any reasonable government official would say, “Okay, we’ve awarded the contract, and your work share when you’re performing the work is different from what you proposed.” That is reality. When I was growing up professionally at the Department of Defense, the plan was great until it had first contact with reality, right? You have to shift resources, staffing shifts, et cetera. But the scheme aspect is important because they are looking at whether you are habitually going out with a large company, bidding in a certain way, and at the end of the day, as a small business, you’re claiming a fee and doing minimal work while the large business is getting the lion’s share. They’re looking for patterns like that. If you do your due diligence inside your company first and run your own internal reviews, you can mitigate your audit risk.
I’ve got five suggestions that we give to small businesses. The internal review is first. The second is that you should expect requests for evidence of eligibility. What does that mean? Do you have a physical location where you say you have a physical location? For example, are you trying to get a HUBZone award because you say you’re located in a HUBZone, but your headquarters isn’t there or you don’t have the number of employees you claimed were there? They’re looking for evidence of eligibility.
The third is to be prompt with your response; we went over that briefly. The fourth piece of advice is if you have a joint venture or subcontracting arrangement, that will receive scrutiny, so please ensure that your compliance and documentation are in order. JVs in particular and sole-source awards have come under additional scrutiny, certainly during the 8(a) program audit, but also in these other ways. Finally, it’s more prospective and less responsive: as a small business, you should expect strict eligibility reviews and recertification requirements coming down the pike to make sure that if it is a socioeconomic set-aside, it is going to someone who is legitimately eligible.
The Burden on Small Businesses and the Shrinking Procurement Workforce
Sam: Based on what you’re saying, it sounds like small businesses are even more under the microscope than large businesses because they have these additional compliance requirements with joint ventures, the limitations on subcontracting, and the HUBZone program you mentioned. Does it seem like it’s putting more of a burden on smalls than it would be on those that aren’t in those programs?
Stephanie: I’d say it’s under a microscope in terms of they are getting looked at. We do have folks on the Hill—and we can talk about this later on or now if you’d like—who are introducing legislation to remove some of these socioeconomic set-asides, whether it’s WOSB, et cetera. Will that see the light of day? What is that going to do? There’s a lot of conversation happening here.
I think if you also look at what has happened to the federal workforce in the last 15 months, it has undergone a sea change as well. OSDBUs—these Offices of Small and Disadvantaged Business Utilization—in a lot of the departments and agencies are much smaller than they used to be. That means the workload has increased on the few civil servants who are left in those offices. While I do think there might be heightened scrutiny, I’m not sure who’s going to be conducting that scrutiny because there are fewer civil servants, and to be honest, political appointees, in these jobs than there were 15 months ago.
Sam: From the small business perspective, the fear is that the people who are conducting these investigations or audits won’t have a full understanding of the programs. The HUBZone program you mentioned is very complex. The limitations on subcontracting and joint ventures are also very complex. You saw some of that with the ATI videos where people came out afterwards and said, “Actually, you can do some of these things that they’re talking about as being pass-through schemes.”
Stephanie: Yep.
Sam: So that’s a really good point. With OSDBUs on the decline in numbers, there may just not be the people with the substantive knowledge to understand what the actual rules are, and whether you’re right on the line of compliance or over into non-compliance.
Stephanie: I think that’s true. I think also when you look at the scrutiny coming from DOGE last year—the Department of Government Efficiency—a lot of the civil servants across the board, not just in acquisition roles or CO/KO roles, but across the entire civil service, either took voluntary early retirement or did that deferred resignation program that we heard so much about this time last year. They RIF’d people too; there were reductions in force as well. With all of that happening, the civil service across the board is smaller than it had been.
They did actually hire some people back, and they do have some new people at the table, but those people are generally not getting hired into OSDBU roles. I do think the numbers aren’t where they need to be in these offices, and I think as a result, you’ve got folks who are not particularly well-trained yet might be new to the role.
I can’t cite the specific department because this was in a meeting under the Chatham House Rule, but when I sat next to a senior procurement executive from a sizable department, she was telling me that as of September 30th of 2025, she had 600 contracting officers. At the beginning of the year, in January of 2025, she had 1,800. So she had a third of the workforce in 1102 billets—those contracting officer billets—than she did at the beginning of the year. If you’re a contracting officer and you’re looking to the seat to the left of you and the seat to the right of you, and they’re both empty, I’m not sure you’re going to sign up for a training course to understand HUBZone requirements better, right?
Sam: Right, you’ve got three times as much work anyway.
Stephanie: Exactly. You’re probably having heart palpitations while you’re sitting there going, “What am I doing? I’ve not managed this particular program before. I don’t know what is going on in this space, so let me just sort of copy and paste what my predecessor in this role had done.” I think there’s a bit of a learning curve for the new folks coming in. But again, I don’t think they’re coming into OSDBU roles. So when we talk about small businesses being under a microscope, I do worry that the person looking through the lens isn’t sure what they’re looking for.
PSC’s Advocacy Priorities and Defense Acquisition Reform
Sam: It sounds like your focus, either on your own, Stephanie, or through PSC, is very much on the procurement workforce—whether it be OSDBUs or contracting officers. We’re certainly seeing declining numbers in the 1102 ranks, and that impacts anybody the small businesses work with. You’re actually seeing that play itself out in bid protests and the decisions that are coming out, where it seems like the government is skipping steps potentially because of having fewer people around. How does that play into the work that PSC is doing on the Hill or advocacy within the agencies?
Stephanie: We have five priorities at PSC. One of them is to highlight the value of the federal contractor. The second is to make the government a smarter customer and a better buyer—a “smarter customer” knows what capabilities are out there, and a “better buyer” improves the way they access them. The third is access to tech and innovation, and the fourth is actually federal workforces.
When we talk about federal workforces as a priority area, it is not just contractor workforces when we focus on things like suitability requirements, security clearances, and recruitment pipelines from colleges and universities (or vocational schools, training programs, and apprenticeships if you’re in the manufacturing world). We also talk about contracting officers, contracting officer representatives, program managers—the entire suite of the acquisition profession.
When we go to the Hill, that is certainly one of the four prongs that we highlight. We are working closely with folks at my old job—I used to be on the House Armed Services Committee staff as the policy director—so we are working with the House and Senate Armed Services Committees. They have a must-pass bill every year: the National Defense Authorization Act. Last year, for FY26, there were a lot of provisions that were very helpful for acquisition and transformation. We saw a lot of that come out. You mentioned Secretary Hegseth talking about acquisition transformation, talking about the 8(a) program, and talking about program acquisition executives versus program executive offices. For those who don’t know the defense world, they sound the same, but they’re very different; it’s about portfolio management as opposed to just a specific program office. As we move forward with folks on the Hill, we are very interested in talking about acquisition workforce reform within the context of that larger transformation.
Sam: What was PSC’s view on how Hegseth was transforming the acquisition and workforce organization? People argue whether the revolutionary FAR overhaul is truly revolutionary or not, but this legitimately feels revolutionary.
Stephanie: PSC was one of the associations that attended, alongside 300 industry CEOs, the Arsenal of Freedom speech that Secretary Hegseth gave back last November. It was about 75 minutes of Secretary Hegseth speaking about acquisition. I never thought a secretary of defense would do something like that, but he was very conversant in what he was talking about. It was about acquisition transformation, reorganizing how they conduct the work they’re doing, and emphasizing commercial solutions. We’ve seen that in some executive orders and White House statements as well regarding access to commercial products and services through fixed-price contracts or what have you.
I was very interested in hearing about how they were structuring things at the Pentagon in terms of not just the acquisition tools they were using—whether it’s Other Transaction Agreements or Commercial Solutions Openings—but also how he was emphasizing having commercial components to an acquisition. You may have something that is very bespoke with military capabilities being acquired, but it can have commercial components to it, and he was emphasizing that.
The second leg to that stool, in addition to how things get acquired faster or cheaper, was the requirements process. I think that’s often a problem that is seen as too hard to resolve, so people kind of push it to the side. But the requirements process at the Pentagon and elsewhere is so lengthy, particularly in fast-evolving situations like emerging technology. Whether it’s quantum or artificial intelligence, if the requirements process takes two years, it is way too slow. I am thrilled to see that the Pentagon is relooking at and transforming that piece.
The third leg of that stool was the foreign military sales piece: how do we get capabilities and capacities into the hands of our friends, allies, and partners quicker? With those three legs of the stool, I really do think the Pentagon has a once-in-a-generation opportunity to make real change, and we are seeing activities.
The one caveat I would add, Sam, is that last I heard, they had 38 working groups at the Pentagon looking at this. That’s too many working groups. It’s too much of a bureaucracy to move quickly. I understand why they have the 38 working groups, and I hope a lot of them are reaching out to industry to see what is in the art of the possible. I’m hoping it can get rolled up in a very efficient way, but once I heard that number, that first little niggle of doubt came to my brain.
Sam: You can’t be the federal government without working groups and committees. That’s true. But you’ve got to give people something to do.
Stephanie: It’s always amazing to me though, because once you create something, it’s really hard to disband it. I always try to err on the side of streamlining things. Having five or six working groups is one thing, but 38 right out the gate seemed like a lot. I want to be wrong on this, and I hope that I am. I hope they roll things out very efficiently and quickly.
Sam: Yes, and it sounded like during that speech, this stuff was supposed to happen tomorrow, so having 38 working groups is going to prevent it from happening in the near future. You mentioned the NDAA, and some of the emphases of the FY26 NDAA were commercial buying and the revitalization of the workforce. What about the next route for this must-pass bill? What is PSC looking at there? What is industry interested in seeing in the FY27 NDAA?
Looking Ahead to the FY27 NDAA and Commercial Harmonization
Stephanie: New amendments are due in late May, at least for the House side, and the Armed Services Committees have their chairman markups coming up in a couple of weeks here in early June. As we move forward, I’m very interested to see what the personal offices have to say as part of that committee markup process.
Last year, the FY26 NDAA was very groundbreaking in its acquisition reform. A couple of things are noteworthy. One is their treatment of non-traditional contractors. That is a phrase that has been used repeatedly over the last decade or so, and there are some non-traditional contractors who have been classified as such for 20 years now. It’s kind of funny to say, given the definition of what non-traditional is, at what point do they cross the Rubicon and become traditional?
That said, what we’re hoping to avoid in the FY27 markup period and also in conference is anything that hints at a set-aside for non-traditionals. What do I mean by that? We are very supportive at PSC of socioeconomic set-asides. We have a lot of small businesses as part of PSC—women-owned, veteran-owned, et cetera. There was a movement afoot in the FY26 NDAA process to have a set of work set aside for non-traditionals, and I don’t know that that is a healthy way to think about how to leverage their capabilities.
What I appreciate about what they did last year is that they made things easier from a Cost Accounting Standards—the CAS requirements—standpoint for non-traditionals. I would like to see in the FY27 bill a shift toward GAAP, the Generally Accepted Accounting Principles, across the board for all contractors. I think that would be great, not just for non-traditionals. If we’re going to make things easier for one segment of the industrial population, I think we should do it for everybody. That’s what we’re looking to work on with HASC, SASC, and the appropriations committees as well.
I would also note one area that we talked about last year that we’re going to continue to talk about this year for the FY27 bill is intellectual property and tech data rights. We have licensing agreements that oftentimes will allow the department or the customer to have access to technical data and intellectual property, which is particularly important when the government has contributed the costs to develop that IP. The government has some ownership stake there. But I also want to make sure that we are protecting against intellectual property flight; it’s a matter of how we are going to protect that information if the government does have access to it.
Finally, one of the areas we want to work on with HASC, SASC, and others this year will be on that workforce issue we talked about, to make sure that if there are training modules going forward, industry can contribute to them or can actually receive the training itself. What I found really helpful from my conversations with the FAR Council principals about the FAR overhaul is that they are developing training for the new class deviations and proposed rules we’ll see at some point soon, hopefully. They’re going to have to train the acquisition workforce on that. I understand they are developing training modules that will be accessible by both government officials and industry officials so everyone’s hearing the same thing. I think that should be more of the rule than the exception going forward. To the extent that you’re going to explain industry to government officials taking these training courses, I’m happy as a trade association to help develop those materials so it’s an accurate representation of what industry is interested in.
Sam: You often hear from industry, from small business especially, that they sometimes have to educate their contracting officers themselves on what the authorities are and how far they can go. What should small businesses be looking for in this FY27 round of NDAA negotiations?
Stephanie: Because it’s a must-pass bill, the NDAA is often termed either a Christmas tree that ornaments get hung on or a tractor that’s pulling other things across the field. As we look at the FY27 NDAA, we should look at what is going on with the Rule of Two, and see if any language creeps into the NDAA to ensure there’s a statutory basis for the Rule of Two and how it’s applied, whether it’s at the contract level or at the task order level.
I think we should also look at whether or some of the authorities granted for the Department of War last year get extended to civilian agencies. Small businesses should keep an eye on that to make sure that if things are going to get easier—whether it’s Cost Accounting Standards, et cetera, for defense companies—those same rules apply to companies that support civilian agencies. We almost got there last year with applying some of those reforms to civilian agencies, but there was an outside jurisdiction issue, and the committees of jurisdiction decided not to let those move forward. We need to have these conversations, and I hope we have them in the next six months.
Sam: It’s very good, particularly for these non-traditional companies coming from the outside, to have consistency. If they’re working with Homeland Security as well as with the Department of War, they need to be able to predict what the IP rights are going to be or what the accounting standards are.
Stephanie: That’s a really good point, Sam. When we look at companies and what they’ve gone through over the last 15 months because of DOGE and a lot of the rescopings, descopings, and contract terminations, it has really forced a lot of government contractors to think differently about their customer base within the government. Some who were solely defense contractors are now also Homeland Security contractors. Or maybe if they worked for the Defense Health Agency, they’re now looking more at HHS and other health agencies. If we are making it easier for defense contractors, we should also be making it easier for folks who are sometimes defense contractors or would like to be defense contractors.
This goes back to things like the Cybersecurity Maturity Model Certification program, or CMMC, at Defense, where you have a certain cyber standard there but not for the rest of the industry that works with civilian agencies. You create a dichotomy where if you’re a defense contractor, you have this set of rules, and if you’re a civilian agency contractor, you have this other set of rules. I think that creates inefficiencies. If we could have similar, common-sense rules across the board, that would be helpful. That’s the kind of thing that when we have conversations about the NDAA—because it is legislation that gets signed into law every year—presents a really great opportunity to level that playing field and make it easier for companies to do business with the government.
Value-Added Resellers in a OneGov World
Sam: That’s true. It’s the one way that you can promote consistency—that the FAR is something everybody has to follow, ensuring everyone follows the same law and the same regulations.
Switching gears now to GSA’s OneGov initiative. GSA came out this week stating that it had saved $1.1 billion through the OneGov initiative. They also said earlier this week that they have reached a deal with Snowflake. I was a Snowflake user when I was at the SBA, and we had a value-added reseller that sold us Snowflake. They’re actually located down the hall. I wonder if they’re hearing this. I don’t know if they are going to continue doing that or, if they still use Snowflake, if they’re going to go straight to the OEM.
In addition to OneGov, GSA last year sent out these data calls about reseller markups too, and I imagine PSC was very involved hearing from the companies that received those markup letters. Value-added resellers have been concerned about OneGov. They’ve been advocating for their role in the marketplace. What is that role now in a OneGov world for value-added resellers?
Stephanie: To review for your listeners what OneGov is: it was announced just over a year ago as a way for the government to leverage its enterprise-wide power to work with vendors. I hesitate to say “monopsonistic,” because a lot of times it’s commercial goods and services, so they’re not a monopsony or the only user of these things. But they do have enterprise-wide sway over how they work with and gain access to capabilities.
IT is the first sector out of the gate for OneGov, but it’s not going to be limited to IT going forward. My understanding is they are going to look at how to leverage the federal government’s enterprise-wide power over things like hardware platforms, infrastructure, cybersecurity, et cetera. But on the IT front, the goals of OneGov were to negotiate directly with the original equipment manufacturers, or OEMs, to secure 70% to 90% discounts on software. I mean, that’s huge. A 90% discount from Google or Microsoft is enormous.
So that was one of the focuses. The others were to access prenegotiated agreements through value-added resellers on the Multiple Award Schedules. This speaks exactly to what you’re asking about: how are value-added resellers positioning themselves given the additional scrutiny that they’re coming under?
There was a rumor out there that the government wanted to limit the markup for value-added resellers to a certain, very low percentage. I think that reflected an unclear understanding of the value that value-added resellers bring to the table. We did talk to folks about that Request for Information to help respond to the government about what value-added resellers bring to the table.
There are a couple of things that they do, and this is how we advise companies to talk about themselves. They help with procurement efficiencies. They accelerate tech acquisition by using existing, pre-existing contract vehicles like the Multiple Award Schedules and NASA SEWP, so that you can bypass lengthy open-market bidding. You also have regulatory compliance support when you use a value-added reseller. They can do systems integration and customization.
I mention that one specifically because there was a memo coming out of the Pentagon just over a year ago that talked about the need to move systems integration into the civil service as a core competency. I don’t think they’ve gotten super far on that. I do think there is a real business case to be made to actually outsource systems integration to companies. Value-added resellers are part of that ecosystem that can offer the systems integration and the customization piece.
Sam: You would need really high technical expertise to be able to do that within government because the components of the system are changing all the time.
Stephanie: You do need to stay up to date. Not only that, but you have to have that agility to be able to go out into the marketplace, test things out, and bring the best solutions back to the job that you’re doing. I’m not sure currently that the government is structured to have that level of agility and flexibility within the civil service to go ahead and do that. I’m not saying they couldn’t get there; I’m just saying there’s a business case to be made for outsourcing that.
Value-added resellers can do that. They can also do some risk management and cybersecurity elements, and they provide life-cycle support. When we were talking to the government about what the value is that value-added resellers bring, and why they deserve more than a couple of percentage points of a markup, it’s because they bring these additional capabilities to the table, and it shifts some of the risk to the company.
I’ve mentioned a few times now this fixed-price executive order, and I think your listeners probably know that when you have a fixed-price contract, a lot of risk gets shifted to the contractor because they are tied to that price that they’ve negotiated. They don’t get reimbursed for additional costs that they might incur due to inflation or supply chain disruptions. I like to couch this value-added reseller conversation in a risk basis because you’re outsourcing some of the risk there.
Mitigating Vendor Lock-In Risks
Sam: That makes sense that now the contractor has to take all the risk. That’s the preference for a fixed price, and that’s why that executive order came out a couple of weeks ago.
One of the arguments against OneGov that I’ve heard—and I think it might have come up on this show—is that in negotiating these steep discounts, there could be vendor lock-in for the government. You’re basically having this OEM buy-in early, but then the government becomes dependent on that OEM once they are integrated into all the systems. Do you have that fear at PSC? Is this billion dollars going to continue to build on itself, or could you actually get some of that clawed back on the back end due to lock-in?
Stephanie: I do wonder if you could get some clawed back. I wonder also about the terms of these agreements: how long are they, and when do they have a little bit of flexibility to terminate and then renegotiate? From my understanding of some of these agreements, what I’ve been told is that they might have offered a 70% to 90% discount in year one, but not in the out-years. So then the question becomes: what are the long-term cost savings, and do you smooth out that discount as a company over the course of the entire agreement? If I were the company, I would try to do that, but I’m not sure what’s going on with the deal teams that are creating these on the government side.
Sam: Yeah. Well, $1.1 billion is a big splash in just a year. That’s a big amount of money.
Anticipating the Revolutionary FAR Overhaul Proposed Rules
Sam: You mentioned the FAR Council, having them at the conference, so you may be more in tune with the FAR overhaul process than others just hearing freshly from the FAR Council principals. We’re in a state right now where class deviations are out. They’ve been adopted by pretty much every agency, but we’re still waiting on the proposed rules to come out. At some point, there was a lot of talk they would come out in April. We’re now toward the end of May, so we are probably looking at June, maybe even later. They’re on the OIRA list right now. There’s speculation that the proposed rules might be different from the class deviations, which were essentially what was posted on the website. What do you expect to see from the proposed rules?
Stephanie: I’m going to be honest with you, Sam, I hope the proposed rules are different from the class deviations. It’s not because the class deviations are bad in any way, shape, or form. It’s the fact that there were comments submitted from industry and the broader public on those class deviations, and I understand that the FAR Council and others are incorporating some of that feedback. So I do hope that the proposed rules are not exactly the same as the class deviations.
But that does create an issue, right? Because you’ve got some legacy clauses—old FAR clauses—in existing contracts. You’ve got these class deviations in existing contracts, and you’re going to have new clauses incorporated into contracts. This is what some of the government folks have been calling the “messy middle”. How do you deal with legacy clauses, class deviations, and new FAR clauses going forward? It is going to be messy. It’s going to cost a lot to change some of these. On the contractor side, you’re going to have a lot of attorney costs—general counsel, outside counsel, et cetera—to help you understand, accept these new clauses into your contracts, and then comply both with legacy and new clauses.
There was a joke that the ones who are really benefiting from this FAR overhaul are the attorneys. I would say all of us are benefiting in the end, but we would really like to see these proposed rules come out. Just like you, I heard they were coming out. I was told it wasn’t going to be a holiday present, that it was going to come out in January, then it was going to come out in February, and now we’re marching towards the middle of the year. But I have confidence that they’ll clear OIRA, and then we’ll start to see them. Some, of course, will impact small businesses more than others, so I’m looking forward to seeing those.
Sam: In defense of the FAR drafting teams—because I was on a FAR drafting team—these things take time to write, especially if you have industry comments that address particular areas. These FAR drafting teams have people from many agencies. Definitely the FAR Council agencies, but the SBA is involved, and a lot of civilian agencies are involved. So you have different views on that, and you have to figure out where you’re going to come out, and handle people who dissent from the majority view on how it comes out. It takes a while to go through, especially when you have comments, to get the language right.
Stephanie: The adjudication process is always lengthy, and so I have a lot of sympathy. Having been a government civil servant myself, I understand how long these processes take. This is not an indictment of how long it’s taking; it’s just that I’m very eager to see what the FAR Council produces. If the product at the end of the day is better than it was because of this process, and I think it will be, take all the time you need.
I do think, though, when you talk about whether this is actually a revolutionary initiative, it is. But I also think a lot has been pushed into the companion guides, et cetera—the ecosystem that crops up around this FAR overhaul.
We mentioned earlier that sometimes you’ve got defense contractors who are now also in the Homeland Security space, or the VA, or HHS, et cetera, and they all have their own supplements. One of the issues that we’ve highlighted several times with the FAR Council—and they’re aware of it, it’s just going to be hard to deal with this piece—is that you’ve got the FAR proposed rules coming out, and then you’ve also got changes underway regarding each of the agency supplements. Each agency has its own team looking at the base FAR language and then coming up with its own supplement language. They may interpret something differently than their colleagues down the street in a different agency might.
If you are a contractor, and now you have a DFARS clause because you’re a defense contractor, and you also have the FAR supplement for HHS because you’re an HHS contractor, and they’re just slightly different, this is a compliance burden. Again, it’s the messy middle. It’s not just about the FAR overhaul; it’s about all of the supplements as well. The first thing out of the gate needs to be these proposed rules for the FAR itself, and then hopefully we can have a conversation about aligning all its supplements.
Critical FAR Parts for Small Businesses to Track
Sam: What about from the small business point of view? What sections of the FAR or potential changes should they be paying attention to?
Stephanie: It won’t come as a surprise: FAR Part 19, obviously, and any changes in that. Aside from the normal sorts of things to watch about the Rule of Two and how multiple-award contracts are being treated at the contract level and the task order level, one of the FAR parts that we are tracking very, very closely is actually FAR Part 10. One of the first class deviations that came out was, “let’s take a look at the market research piece,” because that is critical to determining whether or not the Rule of Two applies.
The market research phase is going to be critical. Documentation and transparency are needed to make sure we know what efforts the government undertook for market research in order to make a determination about which kind of acquisition approach they’re going to take. I think that is going to be critical.
We are also looking at FAR Part 12, which is commercial. We’re going to take a look at the simplified commercial buys and streamlined procurement procedures. We also look at FAR Part 33, which covers protests, suspensions, debarments, and all of that as a result of protest actions. Those are the ones that we’re watching out for. From a small business perspective, they have very specific concerns in our community about market research, commercial acquisition, and protests.
Sam: Market research was a big one. It’s like they took every mention of small business out of Part 10. It seemed like it was a find-and-delete exercise. Maybe there will be enough comments to put one or two of them back in.
Navigating the Fixed-Price Contract Mandate
Sam: Let’s go back to that executive order on fixed-price contracts. One thing that made a splash when it came out is this requirement that the agencies go back and look at their top 10 non-fixed-price contracts within 90 days to review them and potentially modify them into a fixed price. Even going forward, agencies have to award fixed-price contracts unless there’s a justification. What do small businesses do now in this new fixed-price regime? How does this impact them, and what sort of adjustments can they make?
Stephanie: Let’s unpack the top 10 requirement first. The executive order—which, for those of you following at home, I had the number here somewhere but now I don’t—did ask all of the agencies, presumably defined in Title 10 of the U.S. Code, to look at their top 10 non-fixed-price contracts by contract value. They have to modify or restructure them.
When I was talking to small businesses about it, I said, “Listen, for the top 10, chances are it’s not going to be a small business contract. However, it might be a subcontract or have some other relationship that is impacted by that contract review. So watch it very, very carefully.”
It’s also about how you define an agency, or how the agencies are going to implement guidance that presumably is coming out from OMB. Here, I believe the guidance is coming out on June 14th, if I have my math correct—45 days after the EO was signed. Is it going to be the top 10 contracts from each of the military services, the defense agencies, the operating divisions over at HHS, or the components of DHS? Is it going to mean more than just the top 10 at the department or agency level? Is it going to be the top 10 for everybody? Let’s take a look at that, because small businesses might be more impacted by that approach than the previously mentioned one.
In addition, what I found interesting is that this is going to require the potentially overworked contracting officer workforce to provide written justification for every non-fixed-price contract. According to FAR Part 16, a fixed-price contract could be one of five or six different kinds; it’s not just firm-fixed-price. It could be fixed-price ceiling, or fixed-price with economic price adjustments, et cetera. In talking to the FAR Council principals, they said they could have hybrid contracts, but there should be a fixed-price element somewhere. If it’s not the master contract, then maybe some large portion of it needs to be fixed-price.
But that written justification requirement is going to be a burden on that contracting officer. If it goes above certain thresholds, not only does the contracting officer have to provide written justification to the agency head, but the agency head has to approve it. Those thresholds, for the good of your audience, are $100 million at the Department of Defense, $35 million at NASA, $25 million at DHS, and $10 million for any other agency. The agency head, or whoever they designate—and the EO is clear that it has to be a political appointee—has to approve it above those thresholds. That is going to have a chilling effect on anything other than fixed-price contracts.
Sam: It’ll take weeks.
Stephanie: It’s going to be huge. As we move forward, they now have to report on their progress on all of this. The reporting requirements are due—the first one is due July 29th, if my math is correct, 90 days after the EO. Please don’t check me, but it should be July 29th.
Moving forward, I think it’s going to be interesting. I would note, however, there is something in the FAR already that expresses a preference for firm-fixed-price or fixed-price contracts. This is not a new movement, but it’s that risk conversation that we need to have. If you’re going to have a fixed-price contract, you’re asking the contractor to accept more of the risk, whether it’s inflation risk or supply chain disruptions. The cost might actually go up, and the government should understand that fixed-price contracts are not necessarily the cheapest kind of contract you can have. It is shifting the risk, but it comes at a cost. That’s a conversation I think we need to have more candidly and openly, with transparency. Much of industry is happy to do fixed-price contracts; they’ve been around since time immemorial, and they are used to it, but it’s not necessarily going to be the cheapest option.
Risk Tolerance and Economic Price Adjustments (EPA)
Sam: The concern for an individual small business might be, though, that some of that gets washed away in competition. You see some of these small business competitions where there are hundreds of companies coming in, and they’re going to have different risk tolerance levels. It’ll end up being the company most willing to take on the risk that wins, rather than the company that might provide the best value.
Stephanie: If you have a contract with the government—say it’s a long-term contract—what is the likelihood that you’re going to have a clearly defined statement of objectives or requirements on day one that is not going to change over the life of a 5- or 10-year contract? A lot of the costs come into play when there is a change order. How is this going to be addressed? That also comes into how willing contractors are to work on the fly, taking that risk initially, knowing that they’re going to have a whole bunch of change orders that the government is going to pay for later anyway. That’s part of the calculation as well.
Sam: One other item on my mind is the rising cost of everything. I’m headed to California this summer to drive from Yosemite to LA, where gas might be $7 a gallon when I’m up there. Small businesses are going to take some risks there as well if they enter into a long-term contract. Is there anything they can do in that scenario?
Stephanie: I’m encouraging folks to look at FAR Part 16 as currently formulated, and as it comes out in the new FAR overhaul. Do not conflate this executive order and call it the “firm-fixed-price executive order.” It’s not. It’s a fixed-price executive order. Avail yourself and talk to your contracting officer, or whoever is putting out the solicitation, about EPA clauses—economic price adjustments.
There are certain departments and agencies that are really used to having EPAs. The Navy, in shipbuilding, is very used to having EPA clauses as part of their contracts because the window for building an aircraft carrier, destroyer, or frigate is years long. They have built-in EPA clauses to adjust for inflation. I’m encouraging people to have conversations with their customers about whether a contract could be a fixed price with an EPA built in, so that you can address things like the rising price of fuel. Fuel is a huge issue. Coming from a Pentagon background, I know their entire budget display devotes significant attention to petroleum, oil, and lubricants. They have to plan for these price fluctuations over five years or longer.
Smaller agencies don’t have a FYDP—the Future Years Defense Program—which looks five years out. They may not realize that if we have 2% inflation now, but it goes up to 7% like it did a couple of years ago, you’re going to need an EPA clause in that contract, which is allowable under FAR Part 16.
Sam: Some other areas where that might be useful include technology; you can’t find a Mac Mini right now because of rising memory prices and graphic processors. I think the challenge from the agency point of view is how they obligate the funds for civilian agencies. Can they find the funds to obligate on an EPA, and how do they calculate it?
Stephanie: How do they calculate it, and how do they build it in? It’s going to really impact these multi-year contracts. If it is a short-term, one-year contract, there’s less of a risk of inflation going haywire. But over the longer term, you’re not entirely sure what it’s going to do. Historically, we’ve been between a 2% and 3% rate of inflation, but a few years ago it hit people like a load of bricks to realize it was at 6% to 7%. At that time, GSA started asking if they could start talking about EPA clauses and allowing companies to come and request equitable adjustments. As we have this conversation about fixed-price contracts—not firm-fixed-price, but fixed-price—let’s discuss some of the flexibilities that you can incorporate into those agreements.
Sam: So, not firm-fixed-price, but potentially leading to a fixed price with economic price adjustments.
Stephanie: As an option.
Codifying the Rule of Two at the Task Order Level
Sam: We’re talking today on the same week that the House Small Business Committee held a markup. On May 20th, the House Small Business Committee unanimously passed H.R. 2804, which was the Protecting Small Business Competitions Act. You mentioned this earlier, that it codifies the Rule of Two, but the markup added a major amendment exempting task and delivery orders. What is your view on the Rule of Two, its application to orders, and how this impacts small businesses looking at big multi-agency vehicles or IDIQ contracts?
Stephanie: The Rule of Two matters because it is widely viewed as essential to maintaining a competitive marketplace that allows for innovation, particularly among small businesses, and to preserving a meaningful ecosystem of set-asides.
The FAR overhaul took a similar approach of allowing Rule of Two certification at the contract level so you then didn’t have to recertify your small business eligibility for each individual task order. That is a common-sense thing; if you’re already on the master vehicle, why would you have to redo it for every task order? My sense is that amendment took the same approach: if you can do it at the master contract level, why do it at the task order level? I do think this is opening folks up for protests, and we will see how that is actualized. Of course, now this bill has to have a companion in the Senate to see what happens, or it can be folded into the NDAA. That’s something that we’re watching very closely.
Sam: So it really puts the Rule of Two in the same place that it is for the FAR overhaul, potentially making it easier to integrate into an NDAA as you go down the line.
Stephanie: What I appreciate very much about the small business committees on either side of the Hill is that they really do care about the community. Whether looking at changes from the 8(a) program audit, women-owned small businesses, or any of the others, we are looking at a congressional community that cares about small businesses. The idea of putting it into statute is not a bad one, considering that the FAR overhaul is trying to strip the FAR down to what is statutorily required. Having these conversations is helpful, and I’m glad they had that markup to show how much they care about the community.
We had Small Business Week not that long ago in May, and I would like to see more statements of clear administration policy on how they would like the treatment of small businesses to proceed going forward. It could help. I would also like to see dollars flowing to small businesses—not just rhetoric, but actual contracts going to them.
Sam: Yes. GSA has been very good about putting out the pools, and Oasis+ seems to be heating up. Polaris has been restarted too. Small businesses are getting work through those vehicles now, but you’re right that during Small Business Week, we did not hear very much about contracting. It would be nice to get more of an emphasis on small business contractors from the White House.
Tracking Federal Market Forecasts and Scorecards
Sam: What else on Capitol Hill might small businesses want to track besides the Rule of Two? Is there anything else from this markup or anything else that you’re looking at for the NDAA?
Stephanie: For the NDAA, it’s the whole host of issues. I would also mention that for six years straight, PSC put out a scorecard for federal market forecasts. We would look at the web-based procurement forecasts for all of these departments and agencies, and evaluate whether they were easily accessible, whether it was clear who to contact for certain solicitations, et cetera.
We didn’t have our scorecard last year in 2025 because a lot of the websites were paused or taken down due to DOGE and the changes underway. We are now taking a fresh look at what those scorecards and web-based forecasts will look like. A lot of times, those were required to be compiled by the OSDBUs. With shrinking OSDBUs, it’s not clear who might have the responsibility to put out these web-based forecasts going forward, but hopefully someone will.
Going forward, we want to work very closely with the White House and the Office of Federal Procurement Policy regarding what those forecasts look like, what the small business opportunities are, and what requirements are coming down the pipe for joint ventures or mentor-protege relationships. As we move forward, it’ll be critical to see what the next generation of federal contracting looks like given all of the change that we’ve seen in the last 15 months, and how it will shape up.
The White House is very interested in attracting more new entrants to the federal marketplace. One way to do that is to have a reliable, accurate, and accessible web-based forecast so companies thinking about doing work with the government can see what they might qualify for and what they might want to do. Working with OFPP to increase that industrial base to support federal missions is critical. We’re part of the conversation across the board, and those conversations are going to continue well into the future.
Conclusion: The Upcoming Federal Acquisition Conference
Sam: I love scorecards. I’m going to venture a prediction that your next forecast scorecard will have a different winner than your last forecast scorecard. We’ll see what happens.
Stephanie: Years ago, USAID was the winner, and considering that agency has been largely dismantled, you’re absolutely right that we’re going to have different folks going forward. But we’re also changing our approach. Our next forecast will come out in 2027, but we’re announcing that approach next month at our Federal Acquisition Conference, which will be on June 25th. I’m excited to get this ball rolling again because as part of the federal ecosystem, we’ve got military personnel, civil servants, and the federal contractor, and it is critical that all three of those function together.
Sam: All right. The next conference is right around the corner. Stephanie, how do people find you, and how do they learn more about PSC?
Stephanie: Thanks for asking. We are at pscouncil.org. We are located in Arlington, so we’re local. We have conferences; please check out our website at pscouncil.org. If you are interested in membership, emailing membership@pscouncil.org will take you directly to our VP in charge of membership, Matt Busby, and his team. You can also reach me personally, as well as the policy team, at policy@pscouncil.org.
Sam: Stephanie Kostro, thanks so much for being on the show.
Stephanie: Thanks, Sam.
Sam: Thanks, everybody.
With 20 years of Federal legal experience, Sam Le counsels small businesses through government contracting matters, including bid protests, contract compliance, small business certifications, and procurement disputes. Sam obtained his law degree from the University of Virginia and formerly served as SBA’s director of procurement policy. His website is www.samlelaw.com.
This video is for informational purposes only and does not constitute legal advice.
