2019 NDAA - Mandatory Arbitration Agreements

Nine or so years ago, the 2010 NDAA (National Defense Authorization Act) added new restrictions on the awards of contracts over $1 million to contractors that require employees to resolve disputes through arbitration. The provision was implemented in the DFARS (DoD FAR Supplement)at Section 222.74. Specifically, the policy states:

Departments and agencies are prohibited from entering into contracts greater than $1 million unless the contractor agrees not to enter into any agreement with any of its employees or independent contractors that requires, as a condition of employment, that he/she agree through arbitration any claim under the Civil Rights Act or any tort related to or arising out of sexual assault or harassment, including assault and battery, intentional infliction of emotional distress, false imprisonment, or negligent hiring, supervision, or retention

The policy also applies to existing agreements. In other words, contractors must agree to not enforce the provisions of agreements entered into prior to the effective date of the policy.

Fast forward nine years and now Congress wants to see how the Defense Department is monitoring this prohibition.

A provision in the 2019 NDAA will require (if passed) the Defense Department to provide a briefing to the House Armed Services Committee on steps the Department has taken to ensure compliance with DFARS 222.74 concerning the restrictions on contractor use of mandatory arbitration agreements.

The briefing must include steps taken by DoD to ensure it does not fund contracts with contractors that require, as a condition of employment, that employees enter into agreements to resolve certain claims and torts through arbitration. The briefing must also include steps taken by DoD to ensure the restriction is flowed-down to subcontractors. There's a third requirement to the briefing - potential ways for DoD to determine the prevalence of mandatory arbitration by DoD contractors compared to contractors that do not do business with DoD.

We suspect that other than the normal Representations and Certifications delineated in SAM (System for Award Management), DoD is not doing much at all to determine compliance with this provision. Wonder what prompted the House to include this provision? Evidently there must be some indication out there that contractors continue to insist upon mandatory arbitration agreements to settle complaints. A whistleblower perhaps?

DoD FAR Proposed Regulation to Expedite Closeout of Old Contracts

Earlier this month we reported DoD's class deviation to FAR 4.804-5(a)(3) that allows contracting officers to close out contracts (or groups of contracts) without completing a reconciliation audit or other corrective action under certain circumstances (see Special Closeout Authority for Old Contracts).

DoD has now followed that up with the publication of an amendment to DFARS that would make that provision a permanent part of DFARS (DoD FAR Supplement). This action is necessary to implement sections of the NDAA (National Defense Authorization Act) for Fiscal Years 2017 and 2918.

This new authority applies to contracts entered into on a date that is at least 17 fiscal years before the current fiscal year, that have no further supplies or services due, and for which a determination has been made that the contract records are not otherwise reconcilable because

• the contract or related payment records have been destroyed or lost; or
• although contracts records are available, the time or effort required to establish the exact amount owed to the U.S. Government or amount owed to the contractor is disproportionate to the amount at issue.

Negotiated settlements and offsets. To accomplish closeout of such contracts, the NDAAs further authorize the following

• a contract (or groups of contracts) be closed out through a negotiated settlement with the contractor
• the remaining contract balances to be offset with balances within the contract or on other contracts regardless of the year or type of appropriation obligated to fund each contract or contract line item, and regardless of whether the appropriation has closed.

The DoD estimates that about 11,300 contracts fall into this category of being awarded 17 years ago, or earlier and for which records are in such bad shape that the work to close them is not commensurate with the benefits. DoD also estimates that half of the 11,300 are awards to small businesses. Frankly, we were surprised to learn the number was so large.

Some contractors have bemoaned the fact that the period should be shorter than 17 years. That could happen in future NDAAs but first, it needs to be seen how effective this new rule will be in working off the current backlog of 11,300 contracts.

Note that this provision applies only to DoD contracts at this time.

Comments to the proposed rule are welcome. Click here for instructions on submitting your comments and to read more about the proposed rule.

2019 NDAA - Finally, a Definition for the term 'Subcontract'

Section 832 of the House version of the 2019 NDAA (which passed with an overwhelming majority) includes, at long last, a formalized (and precise) definition of the term 'subcontract'.

The House Armed Services Committee noted that there are multiple definitions of subcontract within the Federal Acquisition Regulations. The Section 809 Committee has made similar observations. Establishing a single definition of the term 'subcontract' will provide clarification, simplicity, and consistency for defense procurement actions.

Its long overdue.

Here is the proposed definition in two parts, what it means and what it does not include:

The term 'subcontract' means a contract entered into by a prime contractor or subcontractor for the purpose of obtaining supplies, materials, equipment, or services of any kind under a prime contract. The term includes a transfer of commercial product or commercial service between divisions, subsidiaries, or affiliates of a contractor or subcontractor.

The term 'subcontract' does not include

1. a contract the costs of which are applied to general and administrative expenses or indirect costs, or
2. an agreement entered into by a contractor or subcontractor for the supply of a commodity, a commercial product, or a commercial service that is intended for use in the performance of multiple contracts.

2019 NDAA - Expedited Hiring Authority for Procurement Positions

Over the past couple of weeks, we've provided updates on a few provisions in the House version of the 2019 National Defense Authorization Act (NDAA) which was approved by an overwhelming majority of Congressional members. Today we bring you another provision that, while not directly related to procurement regulations, will certainly have long-term impact on the efficacy in the Government procurement functions and responsibilities.

Section 875 of the 2019 NDAA would authorize direct-hire authority for acquisition professionals. Direct-hire authority (DHA) is a hiring authority that the OPM (Office of Personnel Management) can grant to Federal agencies for filing vacancies in specific occupations, grade levels, and locations when it can be proven that there is a critical hiring need or a severe shortage of candidates. DHA expedites the hiring process by eliminating veterans' preferences, ranking and rating, as well as other time-consuming and onerous selection procedures.

Currently, DHA is granted to IT positions (including cyber-security), veterinary medical officers, medical occupations, Iraqi reconstruction, and certain Federal acquisition positions. Sadly, there is no direct hire authority for contract auditors at this time.

The Government depends upon skilled acquisition and program personnel to

• understand complex market dynamics, 
• develop clear requirements, 
• negotiate in the best interest of the taxpayers, and 
• hold contractors to high performance standards.

The expediency that direct-hire authority allows can be helpful to an agency both in meeting critical initiatives that may require particular expertise, such as to support information technology modernization, cyber-security efforts, and real property acquisition and disposal, as well as supporting the Federal Government as it plans and executes on its agency and regulatory reform activities (e.g. Sectional 809 Panel).

DHA offers a distinct advantage to agencies in that they are able to recruit to fill vacant positions at universities.

2019 NDAA - More Funding for PTACs

The House yesterday passed its version of the 2019 National Defense Authorization Act (NDAA). The Senate is working on its version which is expected to easily pass. Then the bills are off to a joint committee to reconcile or resolve the differences.

Over the past few days, we have been writing about some of the procurement related provisions in the House version. We'll continue that today and for a few more days until we've covered the major procurement provisions. Today we will discuss funding of the Procurement Technical Assistance Centers (PTACs).

The Procurement Technical Assistance program was established to expand the number of businesses capable of participating in Government contracts. It is administered by DLA (Defense Logistics Agency) Office of Small Business in cooperation with states, local governments and nonprofit organizations.

Under the program, Procurement Technical Assistance Centeres (PTACs) help businesses pursue and perform under contracts with the Department of Defense, other federal agencies, state and local governments and with government prime contracts. The services provided by PTACs are free and include registration in SAM (System for Award Management), identification of contract opportunities, help in understanding requirements and in preparing and submitting bids.

Section 859 of the House version of the fiscal year 2019 NDAA would provide PTACs additional resources necessary to conduct greater outreach and provide expanded support to small businesses. It would increase the topline budget for the PTAC program to $50 million. It would increase the funding caps for PTACs operating on a statewide, less than statewide, and eligible tribal locations to $1 million, $750,000, and $450,000 thousand respectively, substantial increases in all categories.

Section 859 would also adjust the percentage of Federal funding for PTACs to 75 percent from 65 percent, and would adjust the community contribution to 25 percent from 35 percent.

For firms unfamiliar with the PTAC program, click here to find your local PTAC. Every state is covered.

Federal Government Achieves Small Business Contracting Goal in Fiscal Year 2017

The U.S. Small Business Administration (SBA) announced Tuesday that the Federal government met its small business federal contracting goal for the fifth consecutive year, awarding 23.88 percent of federal contracting dollars to small businesses. That 24 percent (rounded) works out to $105.7 billion, an increase of $6 billion over the previous year (fiscal year 2016) and the first time the total contracted amount surpassed $100 billion.

Of the five categories tracked (small business, small disadvantaged business, service disabled veteran owned small business, women owned small business and HUBZone business, the only two categories where the federal government did not meets its goal were women owned small business (5% goal vs. 4.7% actual) and the HUBZone designation (3% goal vs 1.7% actual).

Looking at the data by agency, eight of 25 or so agencies tracked received an 'A' score (or higher) including the big four: Defense Department, NASA, Homeland Security, and Energy. The Agency for International Development (AID) received only a 'C' rating.

If there was any disappointment in these scorecard numbers its the fact that while the dollars increased, the actual percentages went down from the previous fiscal year. Small businesses got a smaller percentage of a bigger pie. Of course one wouldn't know that by reading SBA's press release. It requires a little digging to uncover.

You can read more about SBA's report card here.

DCMA Criticized Over it Contract Administration Performance

Surely many contractors have had their issues with Government oversight from time to time. One of those oversight organizations is the Defense Contract Management Agency (DCMA). DCMA performs contract administration services for DoD and other Federal agencies and a limited number of foreign governments. Within DCMA is an IT (Information Technology) Directorate whose program managers, contracting officers representatives (CORs) contract specialists, and contracting officers are involved in awarding and administering DCMA IT service contracts. It seems that DCMA cannot effectively administer their own contracts.

The DoD Office of Inspector General (DoD-IG) recently issued an audit report on a review to determine with DCMA properly awarded and administered IT service contracts. The DoD-IG found several significant deficiencies. DCMA officials did not

1. properly define requirements that included measurable performance standards for eight of 14 contracts in the audit universe
2. develop an acquisition plan for one contract, and
3. submit offers for Small Business Administration acceptances for two contracts awarded through the 8(a) set-aside program.
4. DCMA officials used flexible ordering agreements to award 5 of the 14 contracts which violated relevant FAR (Federal Acquisition Regulation) requirements.

According to the DoD-IG report, these problems occurred because DCMA officials did not ensure that contracts were developed in accordance with FAR and DCMA guidance, use multi-functional teams to plan and manage IT service requirements, and perform pre- or post-award peer reviews of contracts.

As a result, DCMA contracting officials acquired $56 million in IT services on contracts with poorly defined or nonexistent performance work statements that may not meet the performance needs required to successfully execute the DCMA mission.

In addition to finding problems in the contract awards, the DoD-IG found additional problems in the way that DCMA contracting officials administered IT service contract. Specifically, DCMA officials did not properly monitor contractor performance, accept IT services, approve invoices or use DCAA (Defense Contract Audit Agency) to approve interim invoices.

These administrative issues occurred because DCMA officials did not

1. appoint CORs (Contracting Officer Representatives) in some cases
2. properly train the CORs in most cases,
3. develop QA surveillance plans in most cases and develop "adequate" plans in a few more cases.

As a result of these identified contract award and administration deficiencies, DCMA had no reasonable assurance that it received the $70 million in IT services it paid for.

The DoD-IG made several rather obvious recommendations that correlated to the audit findings. DCMA management concurred with the recommended corrective actions.

So the next time you feel put upon by over-aggressive contract oversight, take some solace in the fact that sometimes, the oversight agencies can't do things right themselves.

2019 NDAA Provisions - Accelerated Payments for Small Businesses

Small businesses will certainly welcome this item tucked away into the current version of the proposed 2019 NDAA (National Defense Authorization Act) - accelerated payments.

Section 852, Prompt Payments of Small Business Contractors benefits both small business prime contractors and small business subcontractors. It provides the following:

1. For a prime contractor that is a small business concern, the head of an agency shall (not "may"), to the fullest extent permitted by law, establish an accelerated payment date with a goal of 15 days after receipt of a proper invoice for the amount due if a specific payment date is not established by contract.
2. For a prime contractor that subcontracts with a small business concern, the head of an agency shall, to the fullest extent permitted by law, establish an accelerated payment date with a goal of 15 days after receipt of a proper invoice for the amount due if
• a specific payment date is not established by contract and
• the prime contractor agrees to make payments to the subcontractor in accordance with the accelerated payment date to the maximum extent practicable without any further consideration from or fees charged to the subcontractor.

This is not exactly new. DoD has been working, with varying success to expedite payments to small business for several years now. By giving expedited payments a statutory foothold and using the word "shall" instead of "may" should give the program some permanence and a better chance that small businesses will truly see expedited payments.

2019 National Defense Authorization Act

Details of the fiscal year 2019 National Defense Authorization Act (NDAA) are beginning to emerge but are no where near complete as representatives introduce amendments to the proposed legislation  almost daily. If past years are an indication, we won't see the 2019 NDAA signed into law until late fall.

From time to time, we will be bringing you updates on details within the proposed NDAA, including proposed amendments - especially provisions that pertain to Government acquisition. These provisions are usually found in NDAA's Section 800.  Today we want to begin with a provision that attempts to bring clarity to the definition of "commercial items".

The statutory definition of commercial item is located in 41 USC 103 and the regulatory definition is found in FAR 2.101. Both read the same. Briefly, a commercial item is an item, other than real property, that is of a type customarily used by the general public or by nongovernmental entities for purposes other than governmental purposes and has been sold, leased, or licensed, or offered for sale, lease, or license, to the general public. The definition also includes items that evolved from an item (defined above) through advances in technology or performance and is not yet available in the commercial marketplace but will be available in time to satisfy the delivery requirements under a Federal Government solicitation. The current definition also discusses installation services, maintenance services, repair services, training services and other services that meet the same basic requirements as "items".

Under the proposed 2019 NDAA, Congress giving commercial "services" its own specific definition and renaming "items" into "products". The result is separate definitions for Commercial Products (41 USC 103) and Commercial Services (41 USC 103a).

The definition of commercial products is the same as it was for commercial items except for sections (5) and (6) which dealt with services which have been dropped out of the new definition and are now part of the definition for commercial services.

The new definition for commercial services includes:

1. Installation services, maintenance services, repair services, training services and other services if those services are procured for support of a commercial product, regardless of whether the services are provided by the same source or at the same time as the commercial product and the source of the services provides similar services contemporaneously to the general public under terms and conditions similar to those offered to the federal Government. 
2. Services of a type offered and sold competitively, in substantial quantities in the commercial marketplace based on established catalog or market prices for specific tasks performed or specific outcomes to be achieved and under standard commercial terms and conditions.
3. A service described above even though the service is transferred between or among separate divisions, subsidiaries, or affiliates of a contract.

These proposed changes do not seem to be significant but do add clarity to a definition that is sometimes confusing and often times applied inconsistently.

Deficiencies in Small Business Subcontracting Goal Oversight

The Federal Government does a pretty good job of meeting its small and disadvantaged subcontracting goals. (See, for example, Proposed Legislation to Increase Small/Minority/Disadvantaged Subcontracting Goals). Prime contractors have not been doing as well and some of the blame has been pinned on Government contracting officers for inattention to what their prime contractors are doing.

In March 2018, the DoD Office of Inspector General (DoD-IG) issued an audit report on its review to determine whether contracting officers were taking appropriate actions to ensure that prime contractors met their small business subcontracting goals. The review focused on two Army contracting centers, Redstone and Warren and covered 50 contracts worth $1.6 billion.

The results were woeful. The DoD-IG found that, in general, contracting officers were not ensuring that its prime contractors were providing adequate subcontracting opportunities to small businesses.

The DoD-IG made a series of recommendations, largely related to the need for additional training.

These challenges existed because training and guidance provided to contracting officials were not adequate, and administering subcontracting plans was often not a high priority. Shortfalls also commonly existed with high turnover rates among contracting personnel negatively impacting transferring duties to administer subcontracting plans from one contracting official to another.

Contracting officers also did not consistently enter data correctly into the Federal procurement system databases that allowed contracting officials to monitor compliance with small business subcontracting plans or enable contractors to submit individual subcontracting reports in the Electronic Subcontracting Reporting System.

 One of the recurring problems pointed out in the report had to do with the disconnect between subcontracting plans and actual performance. Prime contractors dutifully developed their plans and submitted them to contracting officers but that became almost perfunctory with no subsequent oversight to determine whether contractors were fulfilling those plans or at least attempting to comply with those plans.

Contract Disputes - Briefly

It is the Government's policy to try to resolve all contractual issues by mutual agreement at the contracting officer's level without litigation. Often times, it does not seem like this is the Government's policy at all. There are a few contracting officers out there that fancy themselves as the supreme authority on contractual matters and rebuff any attempts at compromise or resolution. Likewise, there are contractors out there that view any questions or queries from Government officials as personal attacks on their character and integrity. When these two meet, there is little hope of resolution so contracting officers issue their final decision and contractors submit claims.

The Contract Disputes Act of 1078 (41, USC 7013) requires that claims exceeding $100,000 be accompanied by a certification. The certification has three elements:

1. The claim is made in good faith
2. Supporting data are accurate and complete, and
3. The amount requested accurately reflects the contract adjustment for which the contractor believes the Government is liable (sometimes referred to as a "sum certain".

The certification must be signed by a person authorized to bind the Contractor with respect to the claim. Usually this is an officer of the company.

The contracting officer has 60 days to decide the claim or 60 days in which to notify the contractor of the date by which the decision will be made. On complex issues, it usually takes much longer than 60 days for the contracting officer to render a final decision.

The contractor is entitled to interest from the date of the certified claim, should the dispute ultimately be decided in the contractor's favor.

Contractors still have a duty to proceed with contract performance while a claim is pending.

The Government estimates that contractors submit 13,500 claims requiring certification (i.e. those exceeding $100 thousand) per year. Only a tiny fraction of those are appealed to the ASBCA (Armed Services Board of Contract Appeals) or Federal Court. The ASBCA encourages the use of ADR (alternative disputes resolution) methods to settle prior to litigation.

See FAR 52.233-1, Disputes, for more information on filing claims against a contracting officer's final decision.

Fraud Conspiracies are Hard to Detect

Contractors are required by contract to have codes of ethical conduct, sound internal controls in business systems used in Government contracting, and procedures to detect and prevent fraudulent activities. Segregation of duties and levels of approvals are controls that will help prevent fraud. However, conspiracies (two or more people acting in concert to override existing internal control systems) are much more difficult to detect and tend to go on for a long time.

Consider the case of Clayton Pressley, a (former) Senior Chief Petty Officer in the Navy. Besides his full-time sailor duties, he owned or managed several businesses and was named the COO (Chief Operating Officer) of another company (referred to in Court documents as "Firm G". Mr. Pressley found himself three other conspirators (two contractors and one Navy) and together they created a scheme whereby they would order supplies under DLA's (Defense Logistics Agency's) Electronic Mall System (E-Mall) or DLA's Tailored Logistics Support Program (TLSP) for the Navy.

However, the supplies were never shipped to the Navy. The Navy conspirator falsified documentation saying the goods were received, the Navy would pay for the supplies, and the four conspirators would distribute the money. Before the scheme was halted, the conspirators got about $2.3 million. Mr. Pressley and the other Navy conspirator received the biggest chunk - 40% each.

Investigators were able to piece together some of Pressley's use of the ill-gotten money. Good times included hotels, expensive meals (one costing $938), Casinos, clothing, and of course, an expensive car (a Porsche).

We were unable to determine how the fraud was uncovered. Mr. Pressley was already serving time for using his position as a senior enlisted member to access personal identity information and identification documents of members of his command, using that information to secure several loans. Investigators also found identity documents for eight other members at Mr. Pressley's personal residence. Perhaps it was this that led investigators to dig a bit deeper into Mr. Pressley's activities.

There was one clue that could have, and perhaps should have, alerted someone to what was going on. The conspirators used a contractor that held legitimate E-Mall and TLSP contracts, directing the company to use a specific subcontractor for the supplies. This should never happen. The Government should not normally direct a contractor to utilize specific vendors because to do so, would require that contractor to violate its own purchasing policies and procedures.

Contractors Can File Claims Pertaining to Novated Contracts

The Government filed a motion to dismiss a claim filed by Cooper/Ports America (CPA) with the ASBCA (Armed Services Board of Contract Appeals) because the company was not the contractor within the meaning of the Contract Disputes Act at the time the claim accrued.

In 2015, the Government awarded a contract to Shippers Stevedoring Company (Shippers) for stevedoring and related terminal services. IN 2016, CPA acquired Shippers and entered into a novation agreement with the Government.

CPA opposed the Government's motion arguing that under the novation agreement executed by the Government, it has the legal right to assert claims that pre-date the novation agreement, i.e. as the successor in interest under the contract, has the right to assert a claim accruing prior to the novation agreement.

The Board did not sustain the Government's motion. The Board ruled that the Government expressly recognized CPA as the contractor in the novation agreement and recognized CPA as "entitled to all rights, titles and interest of the Transferor in and to the contracts as if the Transferee were the original party to the contracts.

To read this broad recognition as excluding the right to pursue a claim accruing to the original contractor, as the government urges us to do in this case, would do violence to the clear intent of the agreement.

If the tables were turned, and CPA had urged us to limit its assumption of "all obligations and liabilities of, and all claims against, the Transferor under the contracts as if the Transferee were the original party to the contracts" to those liabilities or claims expressly spelled out in the agreement by the Government, we doubt the Government would acquiesce.

The Government cannot have it both ways.

You can read the full decision by clicking here.

New DoD Rule on Review, Audit, and Approval of Electronic Parts Purchases

DoD issued a final rule last week that makes contractors and subcontractors subject to approval, review and audit by DoD officials when identifying a contractor-approved supplier of electronic parts.

DoD was quick to point out however that this new rule shouldn't be too much of a burden on contractors as the review, audit, and approval of contractor-approved suppliers will generally be in conjunction with a contractor purchasing system review (CPSR) or other surveillance of purchasing practices by the contract administration office. However, if the Government has credible evidence that a contractor-approved supplier has provided counterfeit parts, it can, and will initiate a separate review, audit, and approval.

This new process relate only to electronic parts that are not in production by the original manufacturer or an authorized aftermarket manufacturer and that are not currently available in stock from the original manufacturer, their authorized suppliers, or suppliers that obtain such parts exclusively from the original manufacturers.

Contractors have already been required to establish counterfeit electronic part detection and avoidance systems under DFARS 252.246-7007 (if that clause is included in a DoD contract) as part of their established purchasing systems. Any deficiencies in a purchasing system, including counterfeit electronic parts, will impact across the board to all contracts.

For contractors that already have approved purchasing systems, the prior approval remains in effect. That approval remains in effect for three years. After three years, the purchasing system is no longer approved. The status is listed as "not applicable" which means it is neither approved nor disapproved. It seems likely that such systems would have an increased chance of being subjected to review, audit and approval of electronic parts purchases.

To read more about the new rule, click here.

DCMA's Ombudsman

DCMA (Defense Contract Management Agency) has an ombudsman to investigate contractor complaints against maladministration. This ombudsman is not exactly a specific person but an email address that serves the same purpose.

DCMA's primary responsibility is to administer the contractual requirements of DoD contracts. DCMA works directly with its military "customers" and contractors to ensure quality products and services are delivered within cost and on schedule.

Depending upon contractual requirements, this could mean constant collaborations and interfaces between the DCMA functional organizations (contracting, quality, engineering, property, safety, transportation, earned value, etc) and contractor representatives.

DCMA believes that good working relationships with contractors is paramount for the successful performance of the contract. While it desires for DCMA/contractor collaborations and interfaces to always be perfect, the Agency fully acknowledges the realities and challenges associated with the performance of contractual requirements.

DCMA cannot guarantee its working relationships with contractors will always be perfect. However, they want to know when there are concerns with its ability to properly administer contractual requirements. Its hope is to resolve concerns at the functional level, which includes involving the Contract Management Office (CMO) chain of command.

When concerns cannot be resolved at the local level (i.e. the CMO level), they can be elevated to DCMA Headquarters in Ft. Lee, VA. Contractor instructions for elevating concerns to the HQ Ombudsman are buried rather deeply on DCMA's website. Here's a direct link to the instructions: DCMA Connect Point for Industry/Contractor Concerns.

We've known a few contractors who have bypassed this step by going directly to their Congressional representatives to seek redress. We don't know the success rate for that tactic but do know that it involves a lot more work for everyone involved. We recommend contractors give the ombudsman a try first.

Its Official - TINA Threshold for All Government Contracts Will Increase to $2 Million

Last month, the Defense Department issued a class deviation to the FAR that will raise the threshold for certified cost or pricing data from $750 thousand to $2 million (see TINA Threshold Rises to $2 Million on July 1st 2018). This class deviation was made to comply with Section 811 of the 2018 NDAA (National Defense Authorization Act).

Last week, the Civilian Agency Acquisition Council (CAAC) followed suit and issued its own class deviation for all other Federal agencies (see Class Deviation from the Federal Acquisition Regulation (FAR) to increase the threshold for requiring certified cost or pricing data dated May 3, 2018).

Like its DoD counterpart, the Civilian threshold increase to $2 million and also like DoD, the effective date is July 1, 2018.

The CAAC memo specifically cautions civilian agencies that contracts awarded on or before June 30, 2018 are excluded from the threshold increase.

This threshold increase also impacts other thresholds that are tied into the cost or pricing data threshold including:

• Cost Accounting Standards (FAR 30.201-45)
• Penalties for Unallowable Costs (FAR 42.709)

$3 Million Bribery Conviction and Sentencing

Mr. Miserendino accepted bribes from a Government contractor for six years. He's now been sentenced to seven years in federal prison. He's already serving an eight year sentence for an unrelated bribery conviction.

The Justice Department announced the sentencing of Mr. Miserendino for his role in a bribery and fraud conspiracy through which he received nearly $3 million in bribes. That amount of money really makes one wonder about the integrity of Government contracting. Does the Government really know what its buying? And if so, is the Government convinced that the prices are fair and reasonable?

Mr. Miserendino retired as a Navy Lieutenant and went to work as a Government contractor at the Military Sealift Command (MSC). Evidently MSC employs a few contractors among its predominantly military and civilian workforce. Mr. Miserendino didn't work alone however. He was working with Mr. Allen who owned another unnamed Government contractor. Mr. Allen has already been found guilty and is serving a five year sentence for his role in this conspiracy.

While working for an MSC contractor, Mr. Miserendino used his position to push work to Mr. Allen's company. Allen's company performed services including  who received "commissions" from a telecommunications company selling satellite services to the Navy. Allen "pushed" the particular satellite services company over competing companies. Allen received $6 million in "commissions" from the satellite services company and in turn, paid half of those commissions ($3 million) to Miserendino. Apparently, the satellite services company had no knowledge that Allen paid half of his commissions to Miserendino as bribes.

As is often the case in these Justice Department announcements, there is no mention as to how this bribery scheme was uncovered. Perhaps Mr. Miserendino was living way beyond his apparent means and someone took notice. Perhaps there was a whistleblower in Allen's organization. Perhaps, after the original bribery conviction, the investigators started digging a bit deeper into Mr. Miserendino's activities. We just don't know how the guy was caught.

Special Closeout Authority for Old Contracts

Closing out old contracts can be, and usually is, extremely time consuming for both the Government and contractors. Currently, contracting officers must have a complete history of contract and payment records in order to closeout a contract. Given that many contracts being closed these days are more than 10 years old, much of the information needed to close is difficult to find and in some cases, has been destroyed. A new class deviation however, will permit DoD to close out certain older contracts that no longer have the requisite documentation needed under the current closeout procedures.

The Department of Defense, last week, issued a class deviation to FAR 4.804-5(a)(3) through (15) to allow contracting officer to close out contracts (or groups of contracts) without completing a reconciliation audit or other corrective action under certain circumstances.

Each contract must meet the following requirements.

     1. Was entered into on a date that is at least 17 fiscal years before the current fiscal year (DoD should have really made that 10 fiscal years, or shorter);
     2. Has no further supplies or services due under the terms of the contract (hopefully DoD is not still buying decades-old technology); and
     3. Has been determined by an individual, at least one level above the contracting officer (that approval won't be hard to get), to be not otherwise reconcilable because,
          a. The contract or related payment records have been destroyed or lost (DoD paper shredders must really be humming right now); or
          b. Although contract or related payment records are available, the time or effort required to establish the exact amount owed to the U.S. Government or amount owed to the contractor is disproportionate to the amount at issue.

There's some related good news regarding the availability of offset funding. When closing out contracts under this authority, remaining contract balances,

     1. May be offset with balances in other contract line items within the same contract, regardless of the year or type of appropriation obligated to fund each contract line item and regardless of whether the appropriation obligated to fund such contract line item has closed and

     2. May be offset with balances on other contracts, regardless of the year or type of appropriations obligated to fund each contract and regardless of whether such appropriations have closed.

The class deviation announcement did not indicate the number of contracts that may qualify for this special closeout authority. To read the entire class deviation memo, click here.

Everybody Has a Mission Statement - Even DoD Procurement

One of the most useless provisions in last year's National Defense Authorization Act (NDAA) was a requirement to publish a statement of purpose for DoD acquisition in the DFARS (DoD FAR Supplement) (see Section 801 of Public Law 115-404).

The specific statement of purpose prescribed by the NDAA reads as follows:

The defense acquisition system exists to manage the investments of the United States in technologies, programs, and product support necessary to achieve the national security strategy prescribed by the President pursuant to section 108 of the National Security Act of 1947 and to support the United States Armed Forces.

The investment strategy of DoD shall be postured to support not only the current United States armed forces, but also future armed forces of the United States.

The primary objective of DoD acquisition is to acquire quality supplies and services that satisfy user needs with measurable improvements to mission capability and operational support at a fair and reasonable price.

Honestly, who comes up with this stuff? What good does it do? Will it facilitate DoD acquisition? Will anyone read it? Will they take action on it? What action is expected? Will it save money? Will it make acquisition more efficient? Less burdensome? Will it encourage non-traditional companies to enter the defense marketplace? Why is DoD unique among other Government agencies? Why do they get a purpose statement and not anyone else?

If someone thinks DoD acquisition needs a purpose statement, how about this one: "We buy things we need and try to get the best price". That ought to do it.

Wonder what the Section 809 Panel thinks of this addition to the DFARS?

You can read more about this new regulation here.

Voluntary Post-Award Disclosure Program of Defective Pricing

The Department of Defense is trying to encourage contractors to voluntarily disclose instances of defective pricing - situations where factual data did not get to the negotiating table for consideration in determining fair and reasonable pricing.

In the interest of promoting voluntary disclosures, the Department is revising its policy on requesting an audit on the voluntary disclosure. Heretofore, voluntary disclosures have been automatically referred to DCAA (Defense Contract Audit Agency) for a full audit. Under new procedures published today, contracting officers will be given discretion over whether to request an audit at all or limit the scope of an audit to just those areas affected by the voluntary disclosure.

Contractors have been requesting for years for DoD to change its policy that require repeated submissions of certified cost or pricing data. Sometimes, especially on major acquisitions, negotiations are protracted over several months and contractors find they need to continuously update their cost or pricing data to defend against subsequent defective pricing claims. This continual updating requires a lot of resources, which becomes very costly.

One of the initiatives under BBP 3.0 (Better Buying Power) was to look for ways to remove unproductive requirements imposed on industry. One of the specific actions under this initiative was to revise FAR 15.407-1(c) to eliminate the requirement that a contracting officer shall request an audit if a contractor voluntarily disclosed defective pricing (see BBP 3.0 - Removing Unproductive Requirements Imposed on Industry). This new policy accomplishes that goal.

Don't Audit, Discuss

The final rule removes the mandatory requirement to conduct an audit in all cases of a contractor's voluntary disclosure of defective pricing. However, in order to calculate appropriate price reductions as required by 10 USC 2306, it is necessary that contracting officers, at a minimum, discuss the disclosure with the Defense Contract Audit Agency (DCAA) to determine the completeness of the contractor's voluntary disclosure and the accuracy of the contractor's cost impact calculation for the affected contract, and the potential impact on existing contracts, task or delivery orders, or other proposals the contractor has submitted to the Government.

This discussion will assist the contracting officer in determining the involvement of DCAA, which could be no audit at all, a limited-scope audit (e.g., limited to the affected cost elements of the defective pricing disclosure), a full-scope audit, or technical assistance.

Here's the specific regulatory wording:

When a contractor voluntarily discloses defective pricing after contract award, the contracting officer shall discuss the disclosure with the Defense Contract Audit Agency (DCAA). This discussion will assist in the contracting officer determining the involvement of DCAA, which could be a limited scope audit (e.g., limited to the affected cost elements of the defective pricing disclosure), a full-scope audit, or technical assistance as appropriate for the circumstances (e.g., nature or dollar amount of the defective pricing disclosure). 

At a minimum, the contracting officer shall discuss with DCAA the following:
     (A) Completeness of the contractor’s voluntary disclosure on the affected contract.
     (B) Accuracy of the contractor’s cost impact calculation for the affected contract.
     (C) Potential impact on existing contracts, task or deliver orders, or other proposals the contractor has submitted to the Government. 

This new policy does not remove DCAA's ability to initiate its own defective pricing reviews. A voluntary disclosure on a particular contract however should reduce the risk factors that DCAA considers when deciding whether defective pricing audits need to be initiated.

What is the "Doctrine of Laches"?

The doctrine of laches means you are out of time.

In 2017, Anis Avasta Construction Company filed a claim with the ASBCA (Armed Services Board of Contract Appeals) claiming that the Air Force had not paid it for work performed in Afghanistan back in 2011. Anis Avasta Construction Company claimed that the Air Force awarded the company a contract to construct a water supply and storage facility and further claimed that it had fulfilled that contract but was not paid for the work.

There was a question as to whether a contract was ever executed and there was no contemporaneous evidence that work was ever performed. There was no communication between the Air Force and Anis Avasta between 2011 and 2017 by which time the deteriorating security situation in Afghanistan prevented the Government from verifying that Anis Avasta had, in fact, constructed the water supply and storage facility. Additionally, no one from the Air Force had any recollection of the contract or that work had been performed.

The ASBCA stated that it didn't even need to consider whether a contract existed because the "doctrine of lachese" applied as a result of Anis Avasta's delay in pursuing the claim. Laches is an equitable doctrine under which relief is denied to one who unreasonably and inexcusably delays in the assertion of a claim, thereby causing injury or prejudice to the adverse party.

In this case, Anis Avasta waited over five years after it "purportedly" performed work before seeking compensation from the Government. That was unreasonable and prejudicial because, by the time Anis Avasta sought compensation, the contracting officer and other Air Force personnel that might have been involved no longer had any memory of the events. More importantly, the deteriorating security situation in that particular area of Afghanistan precluded the Government from ev en verifying that work had been performed.

Because Anis Avasta's delay prevented the Government from verifying that Anis Avasta performed the construction work, the ASBCA denied relief under the doctrine of laches.

GAO Guide for Preparing and Submitting and Adjudicating Bid Protests

GAO (Government Accountability Office) recently published its 10th Edition of its guide for preparing, submitting, and resolving bid protests. See Bid Protests at GAO: A Descriptive Guide. When filing bid protests with the GAO, this is a great resource, whether you fly solo or retain professional help.

The laws and regulations that apply to Federal Government contracting are designed to ensure that procurement is conducted fairly. On occasion, bidders or other interested in Government procurement may have reason to believe that a contract has been, or is about to be, awarded improperly or illegally, or that they have been unfairly denied a contract or an opportunity to compete for a contract.

One avenue of relief for those concerned about the propriety of a contract award has been the GAO. The GAO provides an objective, independent, and impartial forum for the resolution of disputes concerning the awards of Government contracts.

The new edition of GAO's bid protest Guide incorporates administrative changes required by recent legislation - namely the requirement to establish an electronic filing system and charge protest filers a fee to cover the cost of that system. Click here for more information on the Electronic Protest Docketing System (EPDS).

Audit Threshold for Terminations to Increase from $100 Thousand to $750 Thousand

Termination settlement proposals have always had a low threshold for audit. It currently sits at $100,000 meaning that contracting officers are required by regulation to request an audit of any termination settlement proposal that exceeds $100,000. That is about to change.

A new regulation published today that becomes effective on May 31, 2018, raises that dollar threshold from $100,000 to whatever the threshold for obtaining certified cost or pricing data. Right now, that threshold sits at $750,000 but on July 1, 2018, raises to $2 million (for DoD contracts).

The FAR (Federal Acquisition Regulations) Council believes that contractors will save costs associated with the preparation and support for termination settlement audits and will enable faster final settlement and improve contractor cash flow. No doubt, doing away with audits will do all of those things but it may come at the cost of reimbursing contractors for costs that should not be included in settlement proposals. Evidently the Government is willing to take that risk.

The Council was quick to point out that this new threshold does not violate the President's freeze on new regulations as it is administrative in nature - it simply raises an already prescribed threshold. The rule imposes no reporting, record keeping, or other information collection requirements.

One final note. The new rule does not preclude the TCO (Terminating Contracting Officer) from requesting audits of settlement proposals below that threshold. If the TCO deems it warranted, the TCO can refer the proposal to the audit agency along with any specific information or data that the TCO considers relevant along with any other facts and circumstances that will assist the audit agency in performing its function. In other words, if for any reason the TCO thinks an audit needs to be performed, it has the authority to request one.