Contractor Pays $940 Thousand to Settle False Claims Allegations

FAR (Federal Acquisition Regulations) 31.201-5 is a succinct statement on how Government contractors need to account for income derived from their Government contracts. It reads: "The applicable portion of any income, rebate, allowance or other credit relating to any allowable cost and received by or accruing to the contractor shall be credited to the Government either as a cost reduction or by cash refund. We've discussed this provision before. See for example, this one from 2010 or a somewhat related one from 2015. Examples of credits that should be deducted from costs charged to the Government might include prompt payment or cash discounts, airline refunds, sales of scrap, and tax refunds (e.g. state income taxes that are allowable under Government contracts).

But what happens if a contractor does not give the Government back its allocable share of credits? Here's a recent case where a contractor did not pass along discounts. A whistleblower took notice and filed a False Claims Act lawsuit. The Government enjoined and a settlement was just reached where the contractor agreed to pay $940 thousand (of which the whistleblower received $160 thousand).

International SOS is a provider of overseas healthcare services for the Government. Among the services it provided was aeromedical evacuations which, since it did not have its own aircraft, subcontracted with other companies. For more than four years, up until 2017, International SOS billed TRICARE for the full cost of these aeromedical evacuations. Unknown to the Government however, International SOS negotiated discounts from its third-party air ambulance providers. It should have passed those discounts  back to the Government but didn't. The company billed the full non-discounted cost to TRICARE.

We should also note here that failure to disclose the discounts could also result in defective pricing, i.e. violations of the Truth in Negotiations Act if the available discounts were not disclosed during contract negotiations.

Improper Business Practices - Subcontractor Kickbacks

FAR (Federal Acquisition Regulations) Part 3 is the source for information and guidance necessary to ensure the integrity of the Government's procurement system. It not only applies to Government agencies and employees but to contractors and subcontractors as well.

It includes sections on the prohibitions of gratuities to Government personnel, contingent fees, subcontractor kickbacks, "buying in"and anti-trust matters. Specific to contractors and subcontractors, FAR Part 3 covers whistleblower protections to contractor employees, requires codes of business ethics and conduct, and prevention of personal conflicts of interest for contractor employees performing acquisition functions. Its also the section that requires contractors and subcontractors to implement reasonable procedures to prevent and detect violations of the Anti-Kickback Act.

Over the next few posts, we will be examining some of these "improper business practices" with the idea that Government contractors and subcontractors will be in a better position to assess their own policies and procedures for compliance with the standards set by procurement regulations. We begin with the coverage in FAR 3.502, Subcontractor Kickbacks.

The term 'kickbacks' shouldn't really need to be defined - everyone knows intuitively what they are. But FAR includes a definition:

... means any money, fee, commission, credit, gift, gratuity, thing of value, or compensation of any kind ... for the purpose of improperly obtaining or rewarding favorable treatment ...

Under FAR 52.203-7 (and its statutory basis at 41 USC 87), any person (including legal entities) are prohibited from

1. providing or attempting to provide or offering to provide any kickback
2. soliciting, accepting, or attempting to accept any kickback, or
3. including, directly or indirectly, the amount of any kickback in the contract price charged by a prime contractor (or any level of subcontractor)

But the clause has other pro-active aspects. It requires contractors and subcontractors it have in place and follow reasonable procedures designed to prevent and detect possible violations of the anti-kickback prohibitions in its own operations and direct business relationships.

Procedures designed to prevent and detect kickbacks in an organization are not so obvious or easy to implement. Based on our experiences with many contractors, most of them have not implemented policies and procedures designed to detect and prevent kickbacks. Have you?

A Compendium of Labor Department Settlements with Government Contractors

The Department of Labor's Wage and Hour Division (WHD) and its Office of Federal Contract Compliance Programs (OFCCP) have been posting a lot of investigation results lately. We don't know how many investigators and auditors are employed there but there must be many based on the number of audits/investigations they're completing.

The WHD investigates contractor and subcontractor compliance with prevailing wage statutes such as the Davis-Bacon Act and the Service Contracting Act. The OFCCP focuses on contractor and subcontractor compliance with federal prohibitions against discriminatory hiring and promoting practices. Both the WHD and the OFCCP initiate their own randomly selected audits but also respond to hotline complaints, congressional inquiries, and other allegations of impropriety.

Monday, the OFCCP announced a settlement with Cintas Corp for $424 thousand because Cintas allegedly discrimnated against female production workers with regard to their compensation and discriminated against black and make applicants for garment inspector/hanger positions and against minority applicants for service sales representative positions.

Also Monday, the WHD announced a settlement with Lockheed Martin for $327 thousand for alleging classifying some employees as exempt from FLSA  overtime requirements. Lockheed also violated the record-keeping requirements of the FLSA.

A week ago Tuesday, the WHD announced a settlement of $1.3 million in back wages for 1,8534 employees to resolve alleged violations of the prevailing wage acts. These employees were engaged in disaster recovery efforts in Puerto Rico. The contractor failed to pay overtime.

Yesterday, the WHD announced a settlement with an electrical contractor working on a VA (Veterans Affairs) construction project. WHD found that the contractor had exceed the journeyman to apprentice ratio and should have classed some of the apprentices as journeymen. That cost the contractor $37 thousand.

It is very difficult for small contractors to know, understand, and implement the myriad labor regulations on the books just like its difficult for small contractors to know and understand procurement regulations. Contractors need to know what they're signing up to before entering into federal contracting.

Regulations Must Be Changed for the Government to use Email Instead of Regular Mail

The Government is proposing to amend its regulations in order to issue task orders or delivery orders to contractors via email. Right now, those must be mailed.

In today's business environment, the Government and federal contractors frequently use email or other electronic commerce methods to communicate with one another. In an effort to reflect current business practices and maintain speed and efficiency in the ordering process, the FAR (Federal Acquisition Regulation) Council is proposing to update a clause that requires contracting officers to use regular U.S. mail to issue task or delivery orders (unless specifically authorized in the contract to use electronic commerce or fax). If the proposed change is implemented, contracting officers will have the flexibility to use email, fax, or regular mail without special contract coverage to use other than regular mail. It seems unlikely that anyone (other than health professionals) use fax machines these days but leave it to the FAR folks to finally authorize fax machines as a means of issuing task and delivery orders.

The new provision also clarifies the date when a task or delivery order is considered "issued".

1. If sent by mail, a delivery order or task order is consider issued when the Government deposits the order in the mail.
2. If sent by fax, a delivery order or task order is considered issued when the Government transmits the order to the contractor's fax number.
3. If sent electronically, a delivery order or task order is considered issued when the Government either
• Posts a copy of the delivery order or task order to a Government document access system and notice is sent to the contractor, or
• Distributes the delivery order or task order via email to the contractor's email address.

Contractors need to ensure their proper 'company' email in SAM (System for Award Management)

The proposed regulation can be found here.

Sloppy Contracting or Wasted Money?

An article appearing in the Washington Times last week questioned some of the Pentagon's contracting processes, accusing it of wasting millions.

The Pentagon's Office of Net Assessment (ONA) awarded four fixed-price contracts worth more than $1 million to Stefan Halper, a foreign policy scholar and Senior Fellow at the University of Cambridge, to study relations among the U.S., Russia, China, and India.

Based on a request by Senator Grassley to look into a whistleblower complaint that the research performed under these contracts were shoddy, the DoD's Office of Inspector General (OIG) opened an investigation of the charges.

Under these contracts, Mr. Haler would travel to various countries, interview prominent people and organize round table discussions. The problem that the OIG found was that there was no evidence that Mr. Halper did any of this. That's not to say he didn't but that there was no evidence that he did.

The reports were characterized by some as 'derivative', 'college-level', and based heavily on secondary sources. One of the studies was literally cut and pasted from a World Bank report. One of the reports listed 43 contributors, many of who denied that they contributed to the report, had been interviewed by Mr. Halper, or even knew of him. Neither Mr. Halper nor the ONA could provide evidence that he even traveled to the locations he said he did. For example, the OIG reports states:

None of the 348 footnotes in the deliverables attributed source material to an interview conducted by (Halper). ONA personnel could not provide us with evidence to show that any of these high-ranking officials contributed to Professor Halper's ... study.

The OIG audit revealed significant flaws in ONG's contract management and oversight process. The OIG criticized ONA for not following the FAR (Federal Acquisition Regulations) in awarding and administering Mr. Halper's contracts. ONA, for its part, concurred with the OIG findings and promised to have corrective actions in place by October.

By the way, Professor Halper is the same person that's been in the news lately as the FBI informant hired to spy on the Trump campaign.

The full Washington Post article can be accessed here.

Performance-Based Payments No Longer Capped by the Amount of Incurred Costs

The Defense Department just issued a class deviation concerning performance-based payments and it marks a significant change from the existing DFARS (DoD FAR Supplement) regulations.

The current DFARS clause (DFARS 252.232-7012) states that "at no time shall cumulative performance-based payments exceed cumulative contract cost incurred under this contract. To ensure compliance with this requirement, the Contractor shall, in addition to providing the information required by FAR 52.232-32, submit supporting information for all payment requests using the following format:" The specified format is a schedule that, once you go through the calculations, limits performance-based payments to the cost incurred under the contract. 

The new clause removes that restriction. It does not limit performance-based payments to cost incurred although it still requires contractors to produce actual cost records upon request by the contracting officer. But it goes further:

An acceptable job order cost accounting system is not required for reporting of incurred costs under this clause. If the contractor's accounting system is not capable of tracking costs on a job order basis, the contractor shall provide a realistic approximation of the allocation of incurred costs attributable to this contract in accordance with Generally Accepted Accounting Principles (GAAP) and the contractor's accounting system. Contractors are not required to "certify" incurred costs.

The Government still needs some form of security for performance-based payments. Title to the property is the preferred security but the new clause also allows for (i) a paramount lien on assets, (ii) an irrevocable letter of credit from a federally insured financial institution, (iii) a performance bond, (iv) a guarantee of repayment from a person or corporation of demonstrated liquid net worth, connected by significant ownership interest to the contractor, or (v) title to identified contractor assets of adequate worth.

If the contractor fails to provide adequate security, no financing payment will be made. If the contracting officer determines that the security provided by the contractor is insufficient, the contractor must provide additional security. If the contractor fails to do that, the contracting officer may collect or liquidate such security that has been provided and suspend further payments.

In summary, performance-based payments on DoD contracts are no longer capped at the amount of incurred costs but contractors will need to provide some form of security in exchange for contract financing.

DoD's 'class deviation' letter and accompanying clauses can be accessed here.

Federal Fumbles - 4th Edition

Oklahoma Senator James Lankford has released the fourth volume in his Federal Fumbles series which focus on Government waste. This edition however focuses more on examples of Government policy that prevents the Government from working for the taxpayer - or, in the case of the longest shutdown in American history, working at all - than it does on examples of wasteful Government spending.

Here are just a few examples wasteful spending chronicled in the book:

• $50 thousand to a professor to study the Russian wine industry
• $725 thousand to teach kids how to play mariachi instruments
• $1.7 million to the City of Los Angeles for a series on "Craft in America" featuring Christmas decorations at the largest privately owned home in the US.
• $8.8 billion designated for telecommunication infrastructure in poorly connected, mostly rural areas that were instead, used to add 'features' to already existing infrastructure.

One area that should be of interest to Government contractors is the Government hiring process. This impacts many agencies that contractors interact with including contract procurement, administration, and oversight. According to the study, it takes an average of 106 days to hire a federal employee. This, of course, makes it difficult to attract, recruit, and hire the necessary talent for agencies to perform its mission. Most qualified candidates are not going to wait around four months without a paycheck. They'll find someplace else to work. By comparison, the average length of time it takes to hire 'professionals' in the private sector is just 23 days.

Here's an example that should put one particular contractor to shame. The VA (Veterans Administration) paid a contractor $30 million for IT upgrades that ultimately failed to solve whatever problem it was designed to cure. The upgrade failed but the contractor netted a tidy profit on the work.

Although significantly fewer regulations are being issued now than under previous administrations, the Federal Register is still 61,000 confusing pages. One recent Interior Department regulation took 2,500 words to say that the federal law for hinting on national park land in Alaska should be the same as the current State law.

You can read this latest edition of Federal Fumbles as well as the three previous editions here.

American Airlines to Pay $22 Million to Resolve False Claims Allegations

It doesn't matter how big or small the company, contract fraud happens.

The U.S. Postal Service (USPS) contracts with commercial airlines for the safeguarding and timely delivery of U.S. Mail to foreign posts, including the mail sent to deployed military. American Airlines is one of those USPS contractors. USPS contracted with American Airlines to "take possession of receptacles of United States mail at six locations in the United States or at various Department of Defense and State Department locations abroad, and then deliver that mail to numerous international and domestic destinations."

To receive payment under the contract, American Airlines was required to submit electronic scans of the mail receptacles to USPS reporting the time the mail was delivered at the specified destinations. If the mail was delivered late or delivered to the wrong location, American Airlines would be penalized.

Yesterday, the Justice Department announced a settlement to a long-running investigation into American Airlines performance under the contract. The USPS's Office of Inspector General's (OIG) investigation disclosed widespread falsification of the dates and times that American Airlines said that it transferred possession of US Mail to intended recipients. Based on this investigation, the Justice Department charged American Airlines with fraud under the False Claims Act.

Under the terms of the settlement, American Airlines agreed to pay $22.1 million to resolve its alleged liability under the False Claims Act. The Government's claims are allegations only, and there has been no determination of liability.

DoD Contractors Return $200 Million to Government through Mandatory Disclosure Program

For the past ten years or so, Government contractors and subcontractors have been required to self-disclose "credible evidence" of certain (i) violations of criminal law, (ii) violations of the civil False Claims Act, and (iii) significant overpayments on Government contracts (see FAR 52.203-13). Such disclosures are usually made to the Office of Inspector Generals' (OIG) office for the respective Agency awarding the contract. Within the Defense Department, the DoD-OIG is the Agency designated to receive disclosure from Defense contractors.

So how is the mandatory disclosure program working? The DoD-OIG recently reported that since the inception of mandatory disclosure rules, more than $200 million has been returned to the Government by Defense contractors under the mandatory disclosure program since inception.

Most of the disclosures and subsequent recoveries fall into two, somewhat related categories; labor mischarging (e.g. timecard fraud) and misclassification of costs resulting in inflated indirect rates. Other less significant recoveries included non-conforming or counterfeit parts, false certifications, and theft of Government property.

Typically, the resolution of self-disclosures, in addition to paying the Government back, involve commitments to strengthen internal controls including training.

The OIG also reported that many disclosures involving overpayments or false claims ultimately lead to additional recoveries than initially reported. Cost impact analysis by contractors are typically audited by contract auditors who tend to dig a bit deeper into the data than contractors are wont to do.

Prison Time for Construction Equipment 'Flipper'

Here's a type of contract fraud you don't see too often.

The Federal Surplus Property Donation Program allows qualifying non-profits, municipal agencies, and disadvantaged businesses to acquire Government surplus at special below-market rates. Sometimes surplus items are free. Recipients are required to demonstrate a legitimate need for the surplus, and they must agree not to sell, lease, or rent it.

Mark Jackson and his construction company Kingridge Enterprises, Inc. were accepted into the program by falsely claiming his disadvantaged nephew owned and operated Kingridge. However, the nephew never worked for Kentridge, drew no salary, exercised no operational control, and lived more than 100 miles from the office.

Once in the program, GSA (General Services Administration) who administers it, doesn't ask too many questions. Jackson took advantage of this lapse in oversight to acquire more than $1 million in surplus property that he in turn, sold at significant profits.

Jackson gave false justifications to acquire surplus property - mostly construction equipment. One example included a CAT 621B scraper that Jackson purchased for $12,000 and sold to an out-of-state equipment dealer for $18,500. Jackson claimed he needed the scraper for a Corps of Engineers contract he had been awarded. In a four-year period, Jackson flipped more than 100 items, netting him more than $1 million in the process.

In some cases, he had his buyers sign 'sham' joint venture agreements so conceal the fraud.

Mr. Jackson has now been sentenced to fie years in prison for his flipping scheme, ordered to forfeit his million dollar profit and pay an additional $350 thousand to settle related tax deficiencies.

The full Justice Department press release can be accessed here.

Does DCMA Effectively Resolve Audit Findings?

What is going on between the Defense Contract Management Agency (DCMA), the Defense organization that administers contracts and the Defense Contract Audit Agency (DCAA), the Defense organization that audits Defense contracts? DCAA audits the contracts but it is up to DCMA to resolve any findings that might arise as a result of the audit.

We ask this question because the Defense Department Office of Inspector General (DoD-OIG) recently announced that it would begin an evaluation of  "DoD Contracting Officer Actions Taken on Defense Contract Audit Agency Report Findings Involving Two of the Five Largest DoD Contractors." Those two contractors, as it turns out, happen to be Boeing and Lockheed Martin. Implicit in this announcement is that someone has not been at all pleased with how DCMA is resolving DCAA audit reports. Who? The OIG's announcement does not say. It could be that the OIG has been receiving hotline complaints concerning the manner in which audits are resolved. It could be that the OIG is tracking its own metrics on the percentages of audit exceptions sustained. Whatever the genesis, this is not a routine OIG evaluation.

The OIG has selected a sample of thirty audits for its evaluation. Many of the selections are audits of annual incurred cost submissions. There are several involving Cost Accounting Standards (noncompliances with disclosed cost accounting practices and cost impact when contractors fail to comply with CAS). Also on the OIG's list are audit reports on identified business system deficiencies (usually involving the accounting system) and estimating system deficiencies.

This might become interesting.

SBA Surety Bond Guarantees - Lower Fees Trial Extended Another Year

The SBA (Small Business Administration) just announced a one-year extension of the temporary decrease in the guarantee fees that it charges all Surety companies and Principals on each guaranteed bond issued in SBA's Surety Bond Guarantee (SBG) Program.

SBA's SBG program is a pretty good deal. Under this program, SBA guarantees a certain percentage of bid, payment, and performance bonds for small and emerging contractors who cannot obtain bonds through regular commercial channels. The SBA guarantee incentives sureties to provide bonding for small businesses and thereby assists small businesses in obtaining greater access to contracting opportunities. SBA gets to establish such fees for small business concerns and premiums for sureties as it deems reasonable and necessary. The guarantee fees are assessed against both the small business concern and the surety. These fees, in turn, are deposited into a revolving fund to cover the program's liabilities and certain program expenses.

Back in October 2018, the Surety fees were reduced from 26 to 20 percent of the bond premium, and the Principle fee decreased from $7.29 to $6 per thousand dollars of the contract amount. These lower fees were set to expire next month, September 2019 but SBA now believes it needs more data to fully evaluate the effect of the lower fees on the SBG program. What are the risks to the program? Do these lower fees generate enough money in the revolving fund to keep it afloat?

To acquire more data and provide more time to study it, the SBA has extended the trial period for the lower fee amounts another year. Its a good deal for small businesses.

Company Pays $175 Thousand to Settle Discrimination Allegations

A conciliation agreement is the result of a third party helping parties resolve a dispute. The process is similar to mediation in that a conciliator assists parties to reach an agreed resolution. However, a conciliator also expresses opinions about the merits of the dispute but does not decide the conflicts for the parties. It is useful if one side has unworkable beliefs about the fight; a pro-active approach to the advantages may help resolve the disagreement. The approach is advantageous if both sides want resolution by objective opinions concerning appropriate decision-making, rather than just mediation and settlement (online source).

The Labor Department's Office of Federal Contract Compliance Programs (OFCCP) and Conduent Commercial Solutions have entered into a conciliation agreement by which Conduent, a Federal contractor, has agreed to pay $175 thousand in back wages to resolve claims of systemic hiring discrimination at its Portland, Oregon facility.

During a routine compliance evaluation (note the word 'routine'), the OFCCP alleged (note the word 'alleged') that in 2012, Conduent discriminated against 1,121 female, African American and Asian applicants for its customer care assistant position. That's a huge number of applicants. OFCCP determined, based on its evaluation, that the company's hiring practices violated Federal prohibitions against discriminating in employment based on, among many other things, race.

This case has been going on for seven years and it sounds to us like Conduent was ready to throw some money at the situation and get the matter behind them. Actually, Conduent did not own the company back it 2012. It was part of Xerox. In its own statement on the settlement, Conduent stated that it entered into the agreement in order to "... put these legacy issues behind us." Under the terms of the conciliation agreement, Conduent agreed to pay $175 thousand in back wages and make 138 job offers to original applicants as positions become available. Also, Conduent committed to ensuring that its personnel and hiring practices comply with EEO laws and regulations.

The Labor Department press release did not detail the exact nature of Conduent's activities that gave rise to its allegations. Many of these cases involve insufficient documentation as to why an applicant was not considered for a position.

The full Labor Department press release can be accessed here.

Defense Contractor Pays $4 Million to Settle Overbilling Charges

Employees of civilian contractors in support of U.S. military forces stationed in Iraq and Afghanistan are normally entitled to 'uplifts' to their salaries in the form of danger pay and hazardous duty pay. Without such incentives, contractors would find it extremely difficult to meet staffing requirements in those areas - their compensation plans would not be competitive with those who do offer such benefits. Typically these uplifts are based on DSSR (Department of State Standardized Regulations) criteria (e.g. 25 percent for workers in Iraq) but in other cases, the rates are contract specific. Most of these types of contracts are cost-reimbursable so whatever allowable, allocable, and reasonable costs a contractor expends is reimbursed by the Government.

Mission First is a company providing program management, systems engineering, and information technology and communications services to the U.S. Military in Iraq and Afghanistan. Its contracts allowed the company to pay and get reimbursed for 'uplift' premiums paid to its employees stationed in those countries. As the contracts progressed, Mission First did indeed bill the Government for uplifts. However, as a subsequent audit disclosed, Mission First did not make those uplift payments to its employees.

After an investigation into the matter by the DCIS (Defense Criminal Investigative Services) and the Army CID (Criminal Investigation Division), Mission First agreed to reimburse the Government $4 million to resolve those allegations of improper billings. That amount also includes FICA (i.e. Social Security) that was billed for amounts that exceeded the statutory compensation cap for FICA calculations.

The Justice Department press release on this settlement can be viewed here.

CAS Board Gets a New Chair

The Senate recently confirmed an Administrator of the Office of Federal Procurement Policy (OFPP). He's Michael Wooten and as the Administrator, he's also the de facto Chair of the Cost Accounting Standards Board (CASB). Mr. Wooten replaces Lesley Field who had been the Acting Administrator for OFPP (Office of Federal Procurement Policy). The OFPP sets procurement policies and priorities for the Federal Government.

During his confirmation hearing last May, Mr. Wooten said he would focus on innovation, cost efficiency, cybersecurity protections, small business partnerships and category management (we're not sure what he means by category management. Category management is usually about bundling items. Buyers look for items purchased across the organization and consolidate disparate agreements into a single contract. A category is essentially any group of similar items which the organization wishes to buy under a single deal. We'll just have to wait and see how he intends to implement category management concepts within Government procurement).

Prior to taking over at the OFPP, Mr. Wooten was the senior adviser for federal student aid at the Education Department. Previous to that, he was deputy chief procurement officer for the District of Columbia, an instructor at the Defense Acquisition University, and at the University of the District of Columbia. He is also a retired Marine Corps officer. Nothing in this background indicates him having any accounting expertise or experience which would be a nice to have as CAS Board Chair. Guess he'll have to rely upon his staff and other Board members.

Other CAS Board members include Laurie Schmidgall, Director of Cost Policy at Boeing, Evan Farley, Deputy CFO at GSA (General Services Administration), Yvonne Hinson with the AICPA (American Institute of Certified Public Accountants) and Anita Bales, Director of DCAA (Defense Contract Audit Agency).

GSA Publishes 2020 Travel Per Diem Rates

The U.S. General Services Administration (GSA) recently released their fiscal year (FY) 2020 travel per diem rates, which will take effect on October 1, 2019. GSA sets these rates for the continental United States annually. Per diem rates provide caps, or maximums, to the amounts that can be reimbursed to federal employees for lodging and meals while on official travel. Lodging per diem rates are based on local market costs of mid-priced hotels.

But these rates don't just apply to federal employees. They also represent caps on what the Government is willing to reimburse contractors for their travel costs charged to Government contracts. Not only are they limits on what the Government will reimburse contractors under cost-type contract but also represent limits on what the Government will consider when negotiating fixed-price contracts.

These limitations or caps are found in FAR (Federal Acquisition Regulations) 31.205-46, Travel:

... costs incurred for lodging, meals, and incidental expenses (as defined in the [Federal Travel Regulations] shall be considered to be reasonable and allowable only to the extent that they do not exceed, on a daily basis, the maximum per diem rates in effect at the time of travel as set forth in ...

Those same regulations also provide examples of extenuating circumstances when those rates may be exceeded.

The 2020 rates did not change significantly from the 2019 rates. The standard rate for lodging increased by $2 per night, from $94 to $96. The standard rate for meals and incidental expenses remains the same at $55. However, the standard rates are rarely used because most cities, therefore most locations where contractor employees will travel to, have higher rates. The lodging rate for Los Angeles, for instance will be $181 (up from $180 per night in 2019) and the lodging rate for Washington DC ranges from $169 to $256 per night, depending upon the month of travel.

Contractors need to prepare to implement the new rate schedule beginning October 1st. To view the new per diem rates, go to the GSA website.

How Long Does it Take for the Government to Process Change Orders?

Last fiscal year (2018), federal agencies spent $36 billion on construction contracts. Almost half of that went to small businesses. Most construction projects involve some degree of change as the project progresses and small businesses have been complaining that delays in processing contract changes and making payments have created financial difficulties. With the 2019 NDAA (National Defense Authorization Act), agencies are now required to report information related to how quickly they finalize contract changes.

GAO performed a review to assess construction contract change processes and time-frames to (i) identify factors that affect the time it takes to finalize contract changes and (ii) assess the extent to which agencies monitor those time frames. Its review focused on GSA and the Army Corps of Engineers, two Agencies with large amounts of obligations on construction.

The GAO found that multiple factors affect the time it takes to finalize a construction contract change. For example, preparing cost estimates was time consuming. The Government needs adequate cost data to inform negotiations. The GAO found examples of miscommunication during the change process which led to unauthorized work to be undertaken.

Based on the data collected, about 55 percent of contract changes at the Corps of Engineers were finalized in 60 days or less. About 10 percent of changes however took more than six months to process - some took more than a year. GSA did not have comparable data.

GAO recommended that both GSA and Corps of Engineers develop a strategy to routinely collect information on and monitor time frames for contract changes at the headquarters level. Without such data, contracting officials are unaware of any existing or potential problems, such as long process times that may affect project schedules. Both Agencies concurred with the GAO recommendation.

The full GAO report can be accessed here.

New Regulation Formalizes Ombudsman Practice and Identity for IDIQ Contracts

An 'ombudsman' is an official charged with addressing and/or investigating the interests of individuals' or companies' complaints of maladministration or violations of rights. You can find them at all levels of governments; federal, state, local, and municipal. To be effective, ombudsmen must be independent of the aggrieving organization.

The FAR (Federal Acquisition Regulations) Councils have just issued a final rule implementing a requirement for contracting agencies to establish ombudsmen for multiple-award indefinite-delivery indefinite-quantity (IDIQ) contracts.

Under this new regulations,

1. Each agency that awards IDIQ contracts must designate a task-order and delivery-order ombudsman for the contract.
2. The ombudsman must review complaints from the contractor concerning all task-order and delivery-order actions for the contract
3. The ombudsman must ensure the contractor is afforded a fair opportunity for consideration in the award of orders, consistent with the procedures in the contract.
4. The contracting officer must include the name, address, telephone number and email address for the agency ombudsman.

The provision also provides that prior to consulting with the ombudsman, the contractor is encouraged to first address complaints with the contracting officer for resolution. Also, when requested by the contractor, the ombudsman will keep the identity of the concerned party confidential.

Some agencies have already established task-order and delivery-order ombudsmen however, they can be sometimes hard to find. This provision formalizes the practice across all agencies and requires the name and contact information be specifically spelled out in the contract.

The full regulation can be accessed here.

$435 Thousand Settlement for Violating Prevailing Wage Law

The Department of Labor's Wage and Hour Division (WHD) and Office of Federal Contract Compliance Programs (OFCCP) are two Departments that focus their compliance efforts and investigations almost entirely upon Government contractors. The WHD wants to ensure that contractors meet minimum compensation levels, especially those required by the Davis-Bacon and Service Contracting Acts while the OFCCP makes sure that contractors comply with laws and regulations requiring nondiscrimination in all its various forms.

We've reported on a number of Labor Department settlements where contractors have been found to be in noncompliance with one or more of the many labor related regulations. Most of these settlements have been small or have been a promise to correct a record-keeping deficiency, perhaps. And most of them, to us, have appeared to be the result of an oversight on the part of the contractor or a failure to know all the intricacies embedded into a particular regulation.

Sometimes however, we find examples where contractors intentionally violate labor laws. Take the case of Nagan Construction of New York where the Justice Department just announced the settlement of a civil fraud lawsuit against the company.

Nagan admitted to violating federal prevailing wage requirements (i.e. the Davis-Bacon Act) by paying 20 employees the wage rate applicable to 'laborer' work when in fact, the employees performed skilled work, such as carpentry and bricklayer tasks. Obviously, skilled workers will justify higher wages than common laborers. As part of a settlement with the Justice Department, Nagan agreed to pay the Government $435 thousand of which $242 thousand will be distributed to current and former Nagan employees who were underpaid. The remainder, we presume, was a penalty for violating the law. Nagan also agreed to implement specific measures designed to ensure future compliance with applicable federal prevailing waage laws, including internal compliance audits and training its supervisors on how to comply with federal labor standards.

One bit of irony here is that one of the federal construction projects for which Nagan submitted false certified payrolls for was a Department of Labor contract for renovating a Job Corps Center.

In this case, Nagan knew there were contractual requirements to pay workers prevailing wages but falsified payroll records when submitting invoices for payment. The settlement agreement pointed out that this was not an inadvertent oversight but a deliberate act. The implication here is that the company did so in order to enhance its profits.

The full Justice Department press release on this settlement can be accessed here.

GAO Rules Air Force's Past Performance Evaluation to be "Irrational"

The Government's evaluation of bidders' past performances sometimes seems murky. In submitting their proposals, bidders are given the opportunity to put their best foot forward -  to identify "relevant" past performance and objective assessments of how well they performed the work. But what if the Government ignores the past performance submissions and uses something else to evaluate past performance? That's what happened to JMark Services in a bid to provide intelligence instructor services for the Air Force.

The solicitation on which JMark was bidding required bidders to submit past performance information regarding recent and relevant contracts for the same or similar items.The solicitation also provided that the Air Force's evaluation of past performance could include a number of sources of information. JMark's proposal was one of sixteen quotations received by the Air Force - all sixteen were determined to be technically acceptable.

In evaluating vendors' past performance, the record reflected that the contracting officer disregarded all bidder submissions and relied exclusively upon information obtained CPARS (Contractor Performance Assessment Rating System). The Air Force explained that CPARS automatically generates an assessment chart listing the percentage of exceptional, very good, satisfactory, marginal, and unsatisfactory ratings that a contract has received while performing prior Government contracts.

After reviewing the assessment chart data from CPARS, the contracting officer concluded that the past performance of JMark and the winning bidder were roughly equal because "on the whole, these numbers are very similar".

JMark challenged the reasonableness of the Air Force's past performance evaluation and, more specifically, the Air Force's conclusion that the past performance of JMark and the winning bidder was roughly equal. JMark alleged that the Air Force failed to consider the relevancy of the vendors' past performance information. Had the Air Force done so, JMark contended that the record would show that it possessed extensive experience performing the exact services sought here and that it had received glowing reviews for its efforts including performance on the incumbent contract. By contrast, JMark pointed out that the winning bidder did not possess similarly relevant experience.

The GAO found that the Air Force did not review past performance information included in vendors' quotations nor did the Air Force review any specific CPARS reports. It relied solely on the CPARS assessment chart. Furthermore, the Air Force did not consider the relevancy of past performance.

The GAO noted that the CPARS assessment chart was incomplete and misleading because the chart includes instances in which a contractor's performance of a particular evaluation area was not rated for an effort.. Moreover the CPARS chart did not include ratings associated with two evaluation areas. More precisely, there are seven evaluation areas that can be rated by agency officials but only five evaluation ares were included in the assessment chart. The methodology employed by the Air Force failed to take into account the entirety of vendors' ratings on prior efforts. In one case, the CPARS report for the winning bidder cautioned that it should not be used for source selection purposes. All things considered, the GAO found that the Air Force's reliance on the CPARS chart to be irrational.

GAO sustained JMark's protest because the Air Force had no rational basis to concluded that these vendors were equal under the past performance evaluation factor . Instead, the record showed that the Air Force based its past performance evaluation upon information that was insufficient to allow the Air Force to assess a vendor's ability to successfully perform the service required.

The GAO recommended that the Air Force re-do its past performance rating and reimburse JMark its costs associated with filing and pursuing its protest, including attorney's fees.

GAO Bid Protests - Chances of Success

The Comptroller General's (i.e. Government Accountability Office or GAO) Office receives an average of eleven bid protests every day. Most of these are withdrawn before GAO needs to make a decision on the merits of the protest. In fiscal year 2018, three-quarters of these protests were withdrawn but that leaves about 600 or so cases that the GAO needs to decide upon (roughly 2.5 per day on average). What is the success rate for bid protests? Not too good. Only 15 percent are decided in favor of the bid protestor. Why so low of a rate? The short answer is that the Government, the contracting officers, have become much better over the years in justifying and documenting their award decisions and the GAO finds no bases to overturn those decisions.

With the GAO pumping out two and a half decisions a day, it would take a significant amount of time to follow and catalog those decisions. Perhaps there are firms in the business of representing bid protesters who do so. For the typical business who wants to represent itself in a bid protest case, it is a challenge to fully understand and look for precedents among all of these decisions.

Many challenges are based on the premise that the Government did not give adequate (or fair) consideration in rating the proposal submission against the stated evaluation factors or used unstated evaluation factors in its award decision. But these arguments rarely succeed because the GAO found that the solicitation instructions are clear. Clearly stated solicitation requirements are considered material to the needs of the Government and a proposal that fails to conform to material terms is unacceptable and may not form the basis for an award.

In cases involving unstated evaluation criteria, the GAO often cites a previous case (Northrop Grumman) where it held that "Although agencies are required to identify in a solicitation all major evaluation factors, they are not required to identify all areas of each factor that might be taken into account in an evaluation, provided that the unidentified areas are reasonably related to, or encompassed by, the stated factors.

Even though the chances of sustaining an appeal are slim, the cost (a couple of hundred dollars if you do it yourself), weighed against the potential rewards (a contract with profit) make it an easy decision for many to pursue the dispute process.

Proposed Legislation to Encourage Veteran Entrepreneurship

Two Senators have introduced legislation to make it easier for veterans to start businesses. Entitled the 'Veterans Small Business Ownership Improvement Act', the legislation, if passed, is designed to protect and enhance entrepreneurship training and programs for service members and veterans.

Veteran entrepreneurs employ more than 5.7 million workers across America. Well, maybe a little less than that if you back out the companies posing as veteran-owned. Nevertheless, its a significant number. The problem, as the senators see it is that as members of the armed forces transition from the military, they find it difficult to navigate civilian career options and resources available to sustain a business. Probably everyone experiences such difficulty, veteran or not. 

According to the Senators, more than 200 thousand veterans transition to civilian life every year and they're much more likely to be self-employed than those who have never served. Really? Never heard this statistic before. The legislation is designed to make sure veterans who wish to start a business are introduced to the skills, knowledge, and resources they need to live their dream and establish a successful business.

Roughly a third of new businesses exit within their first two years and half exit within their first five years. The survival rate of new businesses has been remarkably consistent over time. The Senators want to improve that survival rate for veterans who desire to be entrepreneurs.

The Veteran Small Business Ownership Improvement Act is designed to:

• Protect, improve, and strengthen SBA's (Small Business Administration) efforts to support transitioning service members, veteran entrepreneurs, and families.
• Empower the next generation of veteran entrepreneurs with training and instruction through the Boots to Business and Veterans' Business Outreach Center programs.
• Ensure veterans have a one-stop online resource for all the information on SBA entrepreneurship programs which support veterans
• Direct the SBA to foster veteran entrepreneur peer-to-peer mentorships.

Like most legislation, the details on how the SBA is to accomplish these objectives are somewhat vague and it will be up to the SBA to implement them through the regulatory processes. This idea of peer-to-peer mentorship seems like an oxymoron. If two entrepreneurs are peers, how can one of them be a mentor?