Vendors Jostle and Profess Economic Stimulus Readiness - Part I

At Deltek’s Insight 2009 user conference last May, the host software vendor did a notable thing. Namely, besides merely putting on an all-too-common multi-day conference chock full of product announcements, functional breakout sessions, and industry best-practice discussions, Deltek decided to fill a market need by convening a separate “track” that was dedicated to navigating the maze of the American Recovery and Reinvestment Act of 2009 (ARRA), a.k.a. the Economic Stimulus Plan.

On paper (and as debated and discussed on TV channels ad nausuem), the goal of the Act was to stimulate the US economy and create (or save) jobs through a mix of increased federal appropriations, expanded mandatory spending, and tax cuts. Major policy objectives included in ARRA are the following:

  • mitigate the effects of the economic downturn on low-income and unemployed folks (via extending unemployment benefits, food stamps, etc.)

  • prevent state budget cuts in social and educational services (i.e., keep teachers, firemen, and policemen at work)

  • invest in transportation and water infrastructure

  • increase emphasis on renewable energy, conservation, and efficiency

  • implement the widespread use of electronic medical records (EMR) and health information technology (IT)

  • expand access to broadband services

But any stimulus money that a general contractor or manufacturer receives via US federal departments (e.g., Department of Transportation [DOT]) or agencies’ (e.g., Federal Highway Administration [FHWA]) contracts and competitive grants, as well as via US state/local government agencies’ contracts and competitive grants, comes with many strings attached, especially in terms of stringent reporting requirements. In other words, the money and funds that are envisioned to go towards infrastructure, computerizing Americans’ health records, renewable energy, the largest home and commercial building weatherization program in history, the education reform and college affordability and access, etc., are subject to an unprecedented focus on oversight, accountability, and transparency. 

There are reportedly 25 US federal agencies cited as having programs funded by ARRA. Each federal agency had to meet with the Office of the Inspector General (OIG)the Government Accountability Office (GAO), and the Office of Management and Budget (OMB) to develop agency specific policy documents, systems, and processes to track ARRA progress and funding.

You see, to that end, Deltek finds itself in an interesting (and quite advantageous) position. Namely, as a vendor that has long served both the architecture, engineering, and construction (AEC) marketplace and the Government Contracting (GovCon) sector, Deltek believes itself to be at the center of something it calls “accountability and opportunity.” But before I delve into Deltek’s ARRA-oriented offerings, let me first talk about what I learned at the abovementioned Deltek Insight 2009 track entitled “Stimulus & Beyond (Navigating the Brave New World)”.

The Background of ARRA

Indeed, the discussions about the effects of Obama’s stimulus plan still keep on raging, with opinions and claims almost as divided, disputed, and controversial as in the ongoing health care reform debate. At the time of Deltek’s user conference, the stimulus plan (ARRA) was just signed into law after narrowly passing in Congress, with only a few Republican “renegade” senators supporting it.

While I always have my own opinions and doubts about the exact number of jobs created (or saved), I am always open to hearing from someone who likely knows much more about the subject than I do. Therefore, I keenly attended the keynote speech by former Congressman Thomas M. Davis, a Republican who served seven terms in the US House of Representatives, serving Virginia's 11th Congressional district. During that time, Davis chaired the Committee on Government Reform and Subcommittee on Technology and Procurement Policy.

In a nutshell, I was impressed that (contrary to a vast majority of his fellow GOP [Grand Old Party] colleagues), Congressman Davis was more receptive to the idea of economic stimulus, rather than doing nothing (and letting the market sort itself out) in face of the grim economic meltdown. The Obama administration indeed inherited some of the greatest economic challenges the nation has encountered in two generations, and expectations for change were high.

In fact, Davis reminded us all of Obama’s 2008 presidential victory atmospherics: a highly unpopular president in his second term (i.e., “Bush fatigue”) with an unpopular war and an economy and financial institutions in shambles. While real wages have been falling since 2002, personal consumption has outrun the economy so much that the most recent housing bubble was a symptom rather than a cause.

The net impact of the above phenomena is a mind-boggling US$3 trillion in excess debt. In his late 2008 article, Michael Mandel, the Chief Economist of BusinessWeek suggested the following to absorb the excess debt in the US:

  • $1 trillion in investor write-offs

  • $1 trillion in government bailouts

  • $1 trillion for consumers to absorb

When one adds to that the three to one campaign spending advantage that Obama had over McCain, and continued cultural and demographic alignments, the results was the largest presidential win in 20 years and the largest congressional majorities by the Democrats in over 40 years. Just as it played a starring role in President Obama’s election campaign, IT is expected to remain at the top of the new administration’s agenda.

On the down side, however, Davis alleged that organized labor (trade unions) is playing a key role in Obama’s policies (as payback for its major campaign involvement and endorsements). He also pointed out the lack of bipartisanship despite Obama’s campaign pledges.

Sure, it is difficult to say whether the rabid partisan politics in the US is due to Obama not reaching out to the other side or Republicans deciding to clam up and say “no” to virtually everything, and obstruct at all costs (in order to derail or at least stall a once highly popular president). Still, the major role of every president is his/her power of persuasion, and no persuasion is yet in evidence under the current administration.

To back up his claims about the Obama administration’s concessions to unions, Davis outlined about a dozen current policy initiatives, some of which “sounded like Greek” to me. Some of those cited US labor-friendly initiatives in place are as follows:

Whether necessary and useful or not, these policies and laws will impose even more stringent reporting requirements on contractors in addition to the already stringent “regular” ARRA reporting requirements that will be discussed later in this blog post.

Other Major "Obama Platform" Items

Arguably related to stimulating the economy is the abovementioned highly emotional health care reform (and accompanying raging debate). The 2008 election results suggested an appetite for change in the long plagued US health care system, and the policymakers now in power were expected to leverage this sentiment to shift dollars and focus.

The mood of the public and politicians has since gone through some vacillation on the issue. Thus, while the bill in the US House of Representatives narrowly passed in early November 2007, the Senate bill’s version passage will happen who knows when and in what shape and form, if ever.

Some possible components of the reform bill are as follows: expanded Medicaid eligibility, mandated health coverage for children, the national health insurance exchange, and subsidies to low income families and small businesses. The sticking points and “show-stoppers” are the questions about the public insurance option (a plan run by the government), employer mandates, and how the bill will be paid.

Energy and the Environment

The new administration is tasked with defining a vision for the wholesale transformation of the US society: from reckless and wasteful to one that has a sensible long-term energy policy that is also clean and green. Some of the clean energy initiatives have been the fall-back to Renewable Electricity Standard (RES) and other incentives for using so-called green or environmentally friendly technologies.

Still, the energy and climate legislation has been put on a back burner in the Congress with the dim political mood and hopes for a cap-and-trade (emissions trading) regulation any time soon. The sticking issues have been potentially burdensome costs and the impact on industry in a middle of a recession, although some dispute these justifications as being myopic (if not even selfish).

On a positive note, out of the total US$787.2 billion amount of ARRA, US$130 billion was slated for the construction sector, within which there have been many smaller “green wins.” Namely, green has gotten some boost in the stimulus plan, since much of the public building dollars are earmarked to green renovation projects. For example, the US General Service Administration’s (GSA’s) $4.5 billionthe US Department of Defense’s (DOD’s) $4.2 billion, and the US Department of Veterans Affairs’ (VA) $1 billion for hospital renovations and federal facilities retrofits for energy efficiency.

Additionally, tax breaks for residential energy efficiency have been expanded and extended in the bill. Moreover, there is a big focus on related investments in renewable energy and conservation, such as the following:

There have also been incentives for manufacturers of green energy products, with the idea of creating so-called green collar jobs. Some of the stimulus bill’s labor specifics would be $3.95 billion for training and employment services that includes $500 million for job training in energy efficiency and $250 million toward creation of Job Corps Centers.  

Where Else Will the “Dough” Flow?

Approximately half of ARRA spending will flow to states and localities via several allocated funds. Some major chunks mentioned by Davis were the following: $288 billion in so-called middle-class tax relief, $144 billion for state and local fiscal relief, $111 billion for infrastructure and science, $81 billion to protect vulnerable families, $59 billion for healthcare, $53 billion for education and training, and $43 billion for energy (as mentioned earlier).

While ARRA features significant investments in transportation and water infrastructure, education reform, and college affordability and access, these initiatives will be active post-stimulus as well. Namely, the Surface Transportation Authorization Act of 2009 is a $500 billion bill financing road, bridge, and transit infrastructure.

The previous bill expired at the end of September 2009, and the new one has a renewed emphasis on projects of national significance, such as intercity and high-speed rail, air quality concerns, “livability” and so on. As usual, I don’t think it has passed the extremely backlogged Senate yet, as the sticking points here are the potential rise in the federal gas tax and a shift to a mileage-based road user charge financing system.

As for education reform, the idea is to end the private industry involvement in student lending, make Pell Grants a mandatory program and reward institutions that control costs. Reportedly, shifting all lending authority to the government through its Federal Direct Loan Program (FDLP) would save US$94 billion over 10 years.

Finally, financial regulation in terms of consumer-focused legislation on credit card practices and mortgages is another initiative on the new administration’s radar screen. I will not dwell on it now, but I can now understand some of the sentiments that this young president might have too much on his platter.

Slicing and Dicing the Stimulus Opportunities

As far as industry sectors are concerned, the Engineering News Record (ENR) article entitled “The Stimulus Bill Compromise, Sector by Sector” from early 2009 cites the following sectors as major recipients: transportation, schools and other buildings, energy (the smart grids investment), and water & the environment. With regards to the US states, of the 50 states (excluding territories), 46 have developed state-specific ARRA Web sites last time I checked.

According to American Public Works Associations (APWA), infrastructure-related initiatives have received strong voter support. For instance, transportation related initiatives have totaled to over $71 billion (improvements to roads, bridges, rail, and public transportation), while energy and the environment have also been popular.

The stimulus plan initially focused on so called “shovel-ready” projects that were "already in the pipeline” or on restarting stalled projects (i.e., those lacking the funding to proceed). According to Reuters, half the money allocated to roads and bridges had to be spent on projects deemed "ready to go" in the 120 days following the bill signing. While these touted shovel-ready projects have turned out to not be that, well, ready, I’ve at least noticed a few signs on Massachusetts and New Hampshire highways and ports that denoted an ongoing ARRA project.

Sixteen US states were identified as target states for which GAO will be focusing efforts as they represent over 65 percent of the US population and the majority of the receipt of ARRA funds. GAO has also reviewed local agencies within these states to test compliance with ARRA requirements, and has been performing bi-monthly reviews since April 2009. GAO has been using risk assessments as a means to identify other targeted reviews, and the office encourages the use of preventive controls for ensuring compliance, such as conducting reviews prior to payment as well as the continuous training of lessons learned.

(Overwhelming) ARRA Reporting Requirements

An excerpt from the Memo M-09-10 issued by the Executive Office of The President of the OMG on February 18, 2009 and entitled “Initial Implementing Guidance for the American Recovery and Reinvestment Act of 2009” cites the following:
  •  Funds are awarded and distributed in a prompt, fair, and reasonable manner
  • The recipients and uses of all funds are transparent to the public, and the public benefits of these funds are reported clearly, accurately, and in a timely manner
  • Funds are used for authorized purposes and instances of fraud, waste, error, and abuse are mitigated
  • Projects funded under this Act avoid unnecessary delays and cost overruns
  • Program goals are achieved, including specific program outcomes and improved results on broader economic indicators...

But while public sector organizations stand a chance to receive unprecedented amounts of economic stimulus funds, the catch is that they also need to provide unprecedented transparency into how those funds are spent while measuring the achievements of those programs. The experience teaches us that public works projects need strict oversight, as public works agencies have traditionally not done a good job of “doing more with less.”

The recent American Association of State Highway and Transportation Officials (AASHTO) study of over 26,000 transportation projects in 22 US states delivered over a five-year period found that more than 83 percent of the larger projects (with a value of over $5 million) exceeded bid price, while 30 percent of these exceeded over 10 percent of their bid. Most of these cost overruns were blamed on “construction surprises.”

Boy, wouldn’t I know something about that as a Boston metro area resident following the Boston’s "Big Dig" bottomless pit for years! To that end, below are some best practices that Michael Ellegood recommended in his article entitled “Seven Public Works Project, Management Best Practices” in late 2008:
  • Build a culture of project management within the organization – instill a culture that projects will be delivered to the public on time and within 5 percent of the low bid.
  • Integrate planning, design, and construction oversight into a seamless project delivery process - regular oversight of the design process by knowledgeable construction managers.
  • Develop and utilize a formal “Release for Construction Process.” Verify that quality checks have been made, utilities are out of the way, permits obtained, and right-of-way has been acquired.
  • Establish a “shadow” project management accounting system that is an effective tool for the project manager. Accounting systems do not work well as a tracking and control tool for a project manager...

Thus, companies will have to develop astute procedures on how to obtain and justify those funds from government agencies and departments. Under Section 1512 of ARRA, funding recipients must report the following information:

  • The total amount of recovery funds received from that agency

  • The amount of recovery funds received that were expended or obligated to projects or activities

  • A detailed list of all projects or activities for which recovery funds were expended or obligated, including:

    • The name of the project or activity

    • A description of the project or activity

    • An evaluation of the completion status of the project or activity

    • An estimate of the number of jobs created and retained by the project or activity

    • For infrastructure investments made by state and local governments, the purpose, total cost, and rationale of the agency for funding the infrastructure investment with funds made available under ARRA, and name of the person to contact at the agency if there are concerns with the infrastructure investment.

The site was built to help the new administration keep its pledge and to hold public officials accountable. The site allows citizens around the country with local knowledge about the proposed projects in their city to find, discuss, and rate those projects.

In summary, the public recovery money comes with a series of challenges for public sector organizations, as both government agencies and citizens who want to know how the stimulus funds are being used and what results are being achieved. To that end, the recipients of funds from ARRA must meet legal requirements to publish timely and accurate accounting, allocation, and results data for every dollar received. On a brighter side, these stringent requirements provide an opportunity for public sector organizations to become more efficient, as well as increase their political and public support.

Part 2 of this series will analyze why Deltek believes it can help government contractors and AEC firms in their endeavors to obtain ARRA funds and duly report on them. Your views, comments and opinions, etc. are customarily welcome in the meantime. If you are a recipient of ARRA funds, I would appreciate you sharing your experiences with dealing with federal or local agencies.
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