Friday, November 15, 2019

Capital Assets as Direct Contract Costs

According to the Defense Contract Audit Agency (DCAA), auditors have found, on many occasions, contractors who have included the cost of unamortized value of capital equipment in contract cost presentations. Unfortunately, the Agency isn't any more specific as to what transpires. Perhaps a contractor has bought something specific for its Government contracts and has been depreciating the cost but finds that the asset is no longer needed so it simply charges whatever has not yet been depreciated direct to a Government contract. Ours is a little bit of conjecture but the example seems to fit DCAA's cautionary note. In any event, the Agency is directing its auditors to question the costs - the undepreciated balance of capital equipment.

Not so fast. There could be situations where charging unamortized costs direct to a contract (or contracts) is appropriate. For example, a contracting officer might have approved the accounting practice. There might be specific contractual coverage that allows the practice. The costs could be related to special tooling and test equipment that was duly approved by the Government for allocation to Government contracts.

In the case of special tooling and test equipment, the Government has already approved the purchase and contractors are required to find an allocation methodology that allocates those costs to all benefiting contracts. If a contractor allocates the cost over the anticipated production run but production is curtailed for some reason, it might be totally appropriate to charge the remaining costs to the final contract.


Thursday, November 14, 2019

$18.8 Million Settlement for Winning a Contract Under False Pretense

The U.S. sells defense articles and services to foreign countries when the President finds that to do so will strengthen the security of the U.S. and promote world peace. These are called Foreign military sales or FMS for short. FMS contracts require prime contractors to be American companies and also, requires that the American companies perform a substantial portion of the work.

ABS Development Corporation is a Delaware corporation based in New York. It is also a subsidiary of Ashtrom International, Ltd. of Israel. The Army awarded an FMS contract to ABS for renovation of the Haifa shipyard in Israel without realizing that ABS was not American owned but instead owned by an Israeli conglomerate. It fact, ABS when out of its way to hide its true ownership.

To exacerbate matters, ABS didn't perform any of the work, allowing its parent company, Ashtrom, to do it all.

When the allegation of foreign ownership surfaced, investigators from DCIS (Defense Criminal Investigative Service) and from the Army CIC (Criminal Investigation Command) initiated investigations

As a result of these investigations, ABS agreed to pay $2.8 million and forgo $16 million in potential administrative claims to settle allegations it violated the False Claims Act by fraudulently obtaining FMS contracts. ABS agreed to the $18.8 million settlement without admitting liability.

More information on this case is available through the Justice Department press release.

Wednesday, November 13, 2019

Three Guilty Pleas in Bribery Scheme

Here's a guy that both paid and accepted bribes.

Last September, John Winslett, a construction manager for an unnamed contractor performing work at Schofield Barracks (Hawaii) pleaded guilty to paying bribes totaling more than $100,000 to two Army contracting officials in exchange in order to steer more than $19 million in contracts to his company. He also pleaded guilty to accepting $723 thousand in kickbacks from a subcontractor in exchange for assigning work to that subcontractor (online source).

The two Army contracting officials got nailed as well. Last May, an Army civilian at Schofield Barracks pleaded guilty to accepting "tens of thousands" of dollars in bribes from Mr. Winslett. in exchange for sensitive internal DoD procurement information and otherwise use his position to benefit Mr. Winslett's company (online source).

Then, most recently, a third person involved in this scheme also pleased guilty to accepting more than $100 thousand in bribes from Mr. Winslett consisting of automobiles, cash, and firearms, in exchange for favorable treatment toward the contractor (online source).

Do you know what your employees are up to? How much autonomy do you give employees to carry out the purposes of your company? Is there any accountability? Is there any oversight? Too often, company representatives that are "bringing in the business" are left alone and even heralded. Later, some of them are exposed for their less than honest dealings, like Mr. Winslett was.

The Government has similar problems - employees who accept 'gifts' or even outright bribes in exchange for steering work to a certain contractor and usually, these schemes flourish because of a lack of oversight.

Tuesday, November 12, 2019

Contract Awards based on Best-Value Trade-off Criteria


When a solicitation provides for a best-value trade-off, the source selection official retains discretion to select a higher-priced, but technically higher-rated submission, if doing so is in the Government's best interest and is consistent with the solicitation's stated evaluation and source selection scheme. The source selection official has broad discretion in determining the manner and extent to which he/she will make use of technical, past performance, and cost/price evaluation results, and this judgment is governed only by the tests of rationality and consistency with the stated evaluation criteria. A protester's disagreement with an agency's determinations as to the relative merits of competing proposals, or disagreement with its judgment as to which proposal offers the best value to the agency, does not establish that the source selection decision was unreasonable.

A recent GAO decision illustrates this point. GSA issued a solicitation for janitorial services. The award was to be made on a best-value trade-off basis considering two factors, price and past performance with past performance significantly more important than price. Ultimately, an award was made to Sparkle Janitorial Services whose bid was about a percent higher than the Government estimate and whose past performance rating was excellent. Another bidder, Richen Management LLC protested the award arguing that GSA's best-value trade-off and source selection decision was unreasonable. Richen's bid was significantly less than either the Government estimate or Sparkle's winning bid by 24 percent. However, its past performance rating, which according to the solicitation's evaluation criteria was only rated at satisfactory.

Sparkle had been assigned a past performance rating of excellent based on two reference ratings of excellent and one of very good. In contrast, Richen's past performance rating of satisfactory was based on two reference ratings of satisfactory, one of very good, and one unsatisfactory. The unsatisfactory rating was based on a contract that had been terminated for cause (usually meaning failure to perform).

Richen challenged GSA's best-value trade-off analysis, arguing that GSA failed to justify its decision to select a higher-rated, higher-priced proposal as the best value to the Government. GAO however did not agree and did not sustain the protest, citing the inherent judgmental and discretionary aspects to best-value trade-off procurements. GAO noted that GSA analyzed both price and past performance, and ultimately determined that it was willing to pay a higher price for a higher-rated past performance.

The full GAO decision can be accessed here.

Monday, November 11, 2019

Nondiscrimination Rules for Spouses of Protected Veterans

Here's something else to be mindful of when the Labor Department shows up to perform compliance reviews.

The Labor Department's Office of Federal Contract Compliance Program (OFCCP) released a new directive related to the employment of military spouses, to ensure that federal contractors are not discriminating against spouses of protected veterans.

Protected veteran are those who are disabled, recently separated, active duty wartime or campaign badge, or an Armed Forces service medal veteran.

Military service usually requires multiple and frequent relocation, often creating an employment history that can add challenges to a spouse's ability to obtain and maintain employment and to achieve career goals. While discrimination safeguards for spouses of protected veterans are not new, they can be overlooked. That is why the OFCCP will require its compliance officers to inquire with federal contractors during onsite investigations about their treatment of veteran spouses.

Here are the questions that employees of federal contractors can expect during a compliance examination.

  1. Are you a spouse of a protected veteran?
  2. Do you have any coworkers who are spouses of protected veterans?
  3. Do you have any observations concerning the treatment of spouses of protected veterans?

In addition, the OFCCP's compliance officer (CO) will offer compliance assistance with drafting a written policy and ensure that the contractor understands its obligations with respect to spouses of protected veterans.

The sample compliance policy provided with the new directive reads as follows:
It is [Federal Contractor, Inc.’s] policy not to discriminate because of a person’s relationship or association with a protected veteran. This includes spouses and other family members. Also, [Federal Contractor, Inc.] will safeguard the fair and equitable treatment of protected veteran spouses and family members with regard to all employment actions and prohibit harassment of applicants and employees because of their relationship or association with a protected veteran.