Tuesday, March 20, 2018

Limits on Micro-Purchases and Simplified Acquisition Thresholds Increased

The National Defense Authorization Act (NDAA) for 2018 increased the micro-purchase threshold from $3,000 to $10,000 and the simplified acquisition threshold (SAT) from $150,000 to $250,000 (see 2018 NDAA Sections 806 and 805 respectively). Until the Federal Acquisition Regulations (FAR) can be formally amended, Government agencies have been authorized to issue class deviations implementing these provision. The Energy Department has already issued its class deviation to raise these thresholds and most likely, other agencies will soon issue their own class deviations.

This is good news for both the Government and contractors because it will expedite the process and reduce the amount of work involved in procuring small dollar purchases. However, it comes at a risk as many have pointed out. We have reported on several instances of contract fraud where contracting officers and willing contractors have taken advantage of the reduced oversight that comes with purchases under the simplified acquisition threshold. These $250,000 purchases can add up to big money after awhile.

With micro-purchases, Federal agencies can bypass many of the ordinary competitive requirements under FAR. Authorized purchasers can make contract awards without soliciting competitive quotations. The FAR rules on micro-purchases are set form in FAR Subpart 13.2.

FAR Part 13 also governs purchasing below the simplified acquisition threshold. It sets forth shorter terms and conditions, especially in the areas of reporting requirement and subcontracts. Simplified acquisition transactions above the micro-purchase threshold are reserved for small businesses.

The new rules also provide for increased simplified-acquisition thresholds for contracts to support humanitarian or other peacekeeping operations and for contracts to be awarded and performed or purchases to be made outside the United States.

Monday, March 19, 2018

DHS' Suspension and Debarment Procedures Need Improvement

Last January, the Office of Inspector General (OIG) for the Department of Homeland Security (DHS) issued a report entitled "DHS Needs to Strengthen Its Suspension and Debarment Program". The report was requested by Congressman Bennie Thompson (Mississippi) in 2016. Here's what the OIG found.

We've discussed the Government's suspension and debarment processes several times on these pages. Essentially, suspensions and debarments are used to exclude individuals, companies, and organizations from receiving future contracts, subcontracts, grants, loans, and other Federal assistance. The Government does not like to refer to suspensions and debarments as punishments (though they are) but as tools to ensure that the Federal Government only does business with responsible entities.

Suspensions are temporary exclusions usually limited to 12 months while debarment can go on for up to three years. Debarment is used when an investigation or legal proceedings have concluded and there has been a civil judgment or a conviction, or, in the absence of a court decision, evidence leading a person to believe it is more probably  than not that the wrongdoing actually occurred. See FAR Subpart 9.4 for detailed information on the Government's suspension and debarment procedures.

Here is what the DHS OIG found in its audit:

  • DHS suspension and debarment instruction is outdated and is missing needed definitions, as well as detailed requirements and procedures for documenting decisions on administrative agreements, which mandate improvements rather than suspending or debarring companies and organizations.
  • DHS did not adequately document five of seven administrative agreements approved from fiscal years 2012 to 2017.
  • DHS does not have a centralized system to track suspension and debarment activities, which may have contributed to DHS' innacurate reporting of suspension and debarments
  • For an 8-month period Federal Emergency Management Agency (FEMA) suspension and debarment staff did not promptly update government-wide systems to reflect debarments and administrative agreements.
  • Department-level staffing issues may have hindered efficient and effective handling of suspensions and debarments.

The OIG made several obvious recommendations (e.g."do better") to which DHS concurred and by all accounts, has already begun to implement corrective action.

But that's not the end of the story.

Last week (March 16, 2018), Senator McCaskill under her position as the ranking member of the  Committee on Homeland Security and Governmental Affairs wrote a letter to DHS taking them to task for neglecting the suspension and debarment process thereby allowing the Government to enter into contracts with non-responsible contractors. Specifically noted in her letter was the situation we've discussed before where a one-person company was awarded a $156 million contract to provide 30 million emergency meals to victims of the recent Puerto Rico hurricane and the contract was terminated for default after providing only 50 thousand meals.

The Senate Committee found it "troubling" that DHS appears to neglect the suspension and debarment process. "The absence of coordination between components and headquarters to provide accurate information to contracting officials and other government agencies puts the government at serious risk for waste, fraud, and abuse." The Committee has requested DHS to provide it a report addressing the same deficiencies identified in the OIG's report including:

  1. A list of companies that have been suspended and debarred by DHS and how long it took DHS to initiate those actions
  2. Why DHS has not updated its procedures since 2012.
  3. The DHS officials responsible for ensuring that suspended and debarred contractors are not awarded new contracts (Senator McCaskill wants names).
  4. The reason why DHS declined to adopt a recommendation by TSA to debar a company.

That report is due back to the committee by April 4th.

Friday, March 16, 2018

Fewer Regulations Saved $913 Million for Small Businesses

Every year, the Small Business Administration (SBA) Office of Advocacy reports on efforts to relieve the burden of new regulations on small businesses. These efforts are the result of the Regulatory Flexibility Act (RFA) that requires federal agencies to evaluate the impact of new rules on small businesses and to consider flexible approaches to complying with those rules.

Here's the good news, according to the SBA. In fiscal year 2017, changes to proposed federal regulations saved small businesses $913 million in regulatory costs. How did they achieve such savings? The savings are explained in the Annual Report which you can download and read here. The report details how 16 regulatory and (more significantly) deregulatory actions by six agencies achieved the $913 million in savings.

Chief among the reasons really had nothing to do with SBA's. It was the result of a couple of executive orders (EOs) designed to reduce the number of new regulations (see below). Recall the President's order that every agencies must repeal two regulations for every new regulations that it proposes. Because of this EO, there have been only two changes to the Federal Acquisition Regulations under the current administration.

Whether you believe SBA's cost savings estimate or, like us, believe it to be based on subjective non-quantifiable estimate, the point is that fewer regulations will result is tangible cost savings and those cost savings are more significant to small businesses who typically lack economies of scale and do not have the resources of larger businesses to comply.

EO 13771 Reducing Regulation and Controlling Regulatory Costs: Whenever an executive department or agency publicly proposes for notice and comment or otherwise promulgates a new regulation, it shall identify at least two existing regulations to be repealed.

EO 13777 Enforcing the Regulatory Reform Agenda: The head of each agnecy shall designate an agency official as its Regulatory Reform Officer (RRO) Each RRO shall oversee the implementation of regulatory reform initiatives and policies to ensure that agencies effectively carry out  regulatory reform.

One of the first regulations to fall under the current administration was the onerous Fair Pay and Safe Wrokplaces rule, of which we have reported previously (see Fair Pay and Safe Workplaces Rules - Dead).

Thursday, March 15, 2018

What Does It Mean to "Abandon Your Protest"?

In a bid protest situation, if you don't respond to the arguments raised by an agency, you might be declared to have abandoned your protest.

The Air Force issued a solicitation for launch operations and infrastructure support services at Cape Canaveral. The resulting contract was awarded to ASRC Communications. One of the other bidders, Yang Enterprises protested the award, arguing that the Air Force "misevaluated" its proposal and therefore mad an unreasonable source selection decision.

The Air Force provided a detailed report responding to Yang's protest including documentation of its cost realism evaluation of the ultimate winning proposal. In response to this report, Yang wrote:
Protester has carefully reviewed the Agency Report. It is Protester's position that the Report, and supporting documentation, do not contain sufficient analysis of the relation of the technical portions of ASRC's proposal (the winning bidder) to the cost analysis to justify the conclusion that the cost realism analysis performed by the Air Force was thorough, complete and accurate. For that reason, Protester continues to maintain the position set forth in its protest to your Office and requests the relief set forth therein.
What is wrong with that response? Yang did not rebut - or even respond to - the Air Force's procedural arguments. In responding to an agency report, protesters are required to provide a substantive response to the arguments advanced by the agency. Where a protester merely references earlier arguments advanced in an initial protest without providing a substantive response to the agency's position, the GAO will dismiss the referenced allegations as abandoned. Similarly, a protester's statement, without elaboration, that its initial arguments are maintained also will result in the dismissal of the arguments as abandoned.

The GAO noted that Yang's failure to respond to the Air Force's arguments led it to question the legal sufficiency of its filing. Under the circumstances, the GAO concluded that Yang had abandoned its protest and therefore dismissed the protest without considering the merits of its arguments.

Click here to read the full GAO decision.

Wednesday, March 14, 2018

Overtime Charged to Government Contracts Requires Pre-Approval - Part 2

Yesterday in Part 1 of this series, we discussed the FAR requirements for overtime approval, the valid purposes and uses of overtime and the considerations that the contracting officer mulls over in deciding whether to approve overtime. If you missed that posting, click here to read. The contracting officer often requests the contract auditor to weigh in on whether to approve overtime and the DCAA (Defense Contract Audit Agency) manual provides auditors with guidance to follow when making recommendations to the contracting officer. This audit guidance is the the subject of this Part 2. If you make a request for overtime approval, you should be prepared to respond to these inquiries.

The first question from the contract auditor will be for your policies, procedures, and internal controls on overtime. Those policies and procedures should comply with FAR 22.103 and ensure that overtime will be limited to the actual need for the accomplishment of specific work. The second question will be how you account for, distribute, or charge the premium portion of overtime pay. The auditor will need to ascertain that the amount of work performed at premium rates is equitably divided between Government and commercial operations and within Government contracts, equitably divided between fixed, cost-type, and T&M (Time and Materials) contracts.

Specific audit objectives might include the following determinations:
  1. Is management is properly authorizing, scheduling, and controlling overtime, extra-shift, and multi-shift work?
  2. Does the contractor obtain contracting officer's written approval when required by contract provisions? And, were overtime costs incurred consistent with such approval?
  3. Are premium costs reasonable and properly allocable to the Government contracts?
  4. Are adequate control exercised over productivity when overtime is worked?
  5. Is compensatory overtime work by salaried personnel properly authorized, and application against subsequent working hours is properly monitored?
The auditor will, perhaps, be most interested in the accounting treatment accorded overtime premium pay. There are a lot of ways to account for overtime premium and the challenge is to find one that equitably distributes overtime premium to all work of the contractor. So for example, if an employee works two hours of overtime, that overtime should not be charged to the last job worked on that day. It should be pro-rated among all jobs worked on during that day.

Overtime premium pay may be treated as indirect expense or as a direct charge when it is the contractor's regularly established policy and when appropriate tests clearly demonstrate that this policy results in equitable cost allocations. Irrespective of disclosed practices, the question of whether or not, or the extent to which, overtime premium pay is allowable, allocable, and reasonable under a contract remains for consideration in each specific instance considering contractual requirements and applicable Government regulations.