Friday, July 20, 2018

How Good Are Background Investigations for Security Clearances?

The National Background Investigations Bureau (NBIB) - part of OPM (Office of Personnel Management) provides background investigations for eligibility for access to classified information; eligibility to hold a sensitive position; suitability or fitness for government employment; fitness to perform work for or on behalf of Government as a contractor employee; and more.

NBIB has a staff of more than 9,900 federal and contract employees. Think of that. That number is more than double the number of contract auditors. Last fiscal year, according to the Justice Department, NBIB processed more than 2.5 million background investigations. That works out to more than 250 investigations per employee. That works out to an average of more than one investigation per day if the employee never took any vacation, sick leave or holidays. Is that even possible? Seems like NBIB employees might be overworked. Perhaps they are.

The Justice Department just announced a guilty plea by a background investigator who did work under contract for OPM. This contract worker falsified work on background investigations of federal employees and contractors. In 2014 and 2015, this investigator falsified information in more than two dozen "Reports of Investigations". She represented that she had interviewed a source or reviewed a rcord regarding the subject of the background investigation when in fact, she had not conducted the interview or obtained the records of interest. Her reports were utilized and relied upon by various agencies requesting the background investigations to determine whether the subjects were suitable for positions having access to classified information, for positions impacting national security, for receiving or retaining security clearances, or for positions of public trust.

The Government, of course, had to reopen those investigations and spent about $190 thousand to re-investigate. The Justice Department claims that OPM has "a robust integrity assurance program which utilizes a variety of methods to ensure the accuracy of reported information and that the falsification of investigative case work by this investigator was detected through the program. The Justice Department noted that since 2008, 24 other background investigators have been convicted of charges involving  false representations.

Thursday, July 19, 2018

Safe-Harbor Indirect Expense Rate for Transportation Projects

The Federal Highway Administration (FHWA) is proposing to expand the use of a "safe harbor" indirect rate beyond the 10-state pilot program.

The FHA (as well as state transportation departments) have long recognized that the process of establishing indirect rates is costly and a barrier to for firms wanting to participate in engineering and design service contracts.

Contractors providing services under cost-reimbursable contracts using FAHP (Federal-aid Highway Program) funds are required to account for, and bill, costs in accordance with FAR cost principles. In addition, Federal law and regulations for the FAHP require contracting agencies to accept indirect cost rates for the purposes of contract estimation, negotiation, administration, reporting, and contract payment. As such, contractors are required to develop indirect cost rates in accordance with the Federal cost principles on an annual basis. Similarly, contracting agencies must provide reasonable assurance that consulting firm costs are allowable in accordance with the Federal cost principles.

Adhering to these accounting requirements can place a significant burden on some consulting firms and may create a barrier for otherwise eligible and qualified firms to compete for FAHP-funded contracts. For example, small firms, including many disadvantaged business enterprise firms, may lack the financial expertise to develop an indirect cost rate that would be acceptable to a cognizant Federal or State government agency, or lack the resources to hire a Certified Public Accountant to conduct an audit to provide assurance as to the development of an indirect cost rate compliant with Federal requirements. Often, a CPA audit is cost-prohibitive given the size and scope of the federally funded contracts for which the firm could compete. In addition, new or start-up firms generally do not have a contract-related cost history to use as a base for development of an indirect cost rate. Other well-established firms may not have previous experience with federally funded contracts for which a compliant indirect cost rate could be developed. Currently, these firms are prohibited from participating in FAHP-funded contracts without the development and application of a provisional indirect cost rate for the specific contract, which is adjusted based upon a contracting agency conducted final audit at the completion of the contract. Even the smallest final audit requires a significant commitment of contracting agency audit resources.

To remove these barriers, the FHWA developed the Safe Harbor Indirect Cost Rate Test and Evaluation pilot giving firms the option of using a rate of 110 percent in lieu of establishing their own rate. The 110 percent rate is significantly lower than the industry average rate which means most companies would lose money by using the safe harbor rate. FHWA's logic here is that the safe-harbor rate provides an incentive for firms to develop their actual rate in accordance with Federal cost principles.

The FHWA is now looking to adopt the safe-harbor rate as a permanent tool in its oversight process and is seeking public comment on the expansion. Specifically, FHWA is interested in receiving quantifiable estimates of the burden associated with the annual development of an indirect cost rate, hiring a CPA to conduct necessary audits, and any other costs that owuld be avoided by a firm (or contracting agency) in utilizing a safe-harbor indirect cost rate.

Instructions for submitting comments can be found here.

Wednesday, July 18, 2018

CAS Board Published Final Rule on Exemption from CAS

The Cost Accounting Standards Board (CASB) published a final rule yesterday revising the exemption for contracts and subcontracts for the acquisition of commercial items. This final rule clarifies the types of contracts that are exempt from the application of CAS when acquiring commercial items. It becomes effective on August 16, 2018.

The new rule is designed to remove inconsistencies between the list of contract types recognized for use in acquiring commercial items in the CAS administration rules (48 CFR 9903.201-1(b)(6)) with the contract types reflected in FAR (48 CFR 12.207).

For example, FAR 12.207 allows the use of firm fixed price contracts in conjunction with award fee incentives or performance or delivery incentives known as FPI contracts when the award fee or incentive is based solely on factors other than costs. However, the CAS exemption does not expressly recognize FPI contracts on the enumerated list of exempt contracts.

Under the new rule, the CAS Board simply replaced the existing exemption language with a reference to the FAR reference covering contracts available for commercial items.
Old provision: Firm fixed-priced, fixed-price with economic price adjustments (provided that price adjustment is not based on actual costs incurred), time-and-materials, and labor hour contracts and subcontracts for the acquisition of commercial items.
New provision: Contracts and subcontracts authorized in 48 CFR 12.207 for the acquisition of commercial items.
Read more about the new rule including public comments and the Board's responses thereto here.

Tuesday, July 17, 2018

Proposed Legislation - Fitness Information Transparency Act

Last February at a hearing in front of the Oversight and Management Subcommittee of the House Homeland Security Committee, representatives of contractors for the Department of Homeland Security (DHS) complained about losing money while waiting for clearances form DHS. The contractors cited a number of problems including

  • differing security standards across components
  • opaque internal processes, and
  • slow communications from DHS to contractors
One contractor testified that his employees wait, on average, 213 days for a DHS fitness determination even though the company has worked with DHS for more than ten years. Another contractor complained that DHS had approved an employee in June but didn't bother conveying that information to the contractor until the following February, eight months later. Other contractors complained that different components within DHS had their own unique standards for clearing contractor employees. Many other anecdotal fumblings by DHS came out in that hearing.

Last week, as a direct result of that hearing, two Congressmen introduced a bill in the House that would require the Department of Homeland Security (DHS) to streamline "fitness determinations" for people working under contract for the Department. This is not a bill that addresses fitness as in physical fitness but one that addresses character and conduct.

This Bill, if passed, would require DHS to:

  1. coordinate with the heads of components of the Department to review and consolidate all Federal contractor fitness standards used by the Department and its components in order to issue a uniform set of fitness standards that reflect public trust concerns which correspond to each position risk level
  2. require the Department to use such uniform fitness standards that corresond to the relevant position risk level as the basis for fitness determinations for a contractor employee; and
  3. publish the standards that correspond to each such position risk level on the public website and the Federal Register.

You can read the full text of the proposed legislation here.

Monday, July 16, 2018

Hiccup in GAO's New Electronic Docketing System Resulted in Untimely Bid Protest

The Department of Housing and Urban Development (HUD) entered into a one year contract with P.K Management Group (PKMG) for field service management services and HUD managed properties in the Pacific Northwest. The contract was awarded on a sole source basis citing unusual and compelling urgency that had arising from HUD's decision not to exercise an option to extend the incumbent contractor. HUD need to provide continuous services so that approximately 500 HUD-owned properties in the Pacific Northwest could be marketed, preserved and protected, and so that the risk of adverse occupants, vandals, and thieves could be managed.

One company, CWIS LLC did not think that the sole source justification was adequate and that HUD lacked a valid legal and factual basis to award a contract to PKMG. CWIS argued that 12 months was too long and exceeded the time necessary to conduct a competition for the requirement and moreover, the unusual and compelling urgency cited by HUD is negated by its own failure of reasonable planning.

CWIS then filed a bid protest. At least it thought it filed a bid protest. One minute before the closing time for submitting protests, counsel for CWIS attempted to file a protest using EPDS (Electronic Protest Docketing System). The attempt was unsuccessful. One minute after the closing time, CWIS counsel notified the GAO by email that its attempt to file using EPDS had been unsuccessful and 15 minutes after closing time, CWIS counsel submitted the protest by email to the GAO protest inbox.

GAO showed no sympathy for CWIS stating that CWIS had, by regulation, 10 days to file its bid protest and 10 days should have been more than sufficient. Since the protest was untimely (by 15 minutes), GAO dismissed it.

Read the full decision here.