Tuesday, February 28, 2017

Government Official Sentenced to Two Years Prison for Accepting Bribe

An Air Force Master Sergeant has been sentenced to nearly two years in prison and ordered to pay $126 thousand in restitution for accepting bribes. That seems like a pretty stiff sentence compared to similar cases involving much larger sums of money.

The MSgt. was in charge of procuring specialized equipment in support of C-130 Special Operations Aircraft. The owner of Trans Global Storage Solutions approached the MSgt and offered him 45 percent of the profits from contract proceeds if the MSgt ensured that Trans Global won the contract.

The MSgt then issued a request to purchase the specialized equipment and because he was the requester, he was chosen to evaluate each proposal for technical acceptance. That, in itself, is poor internal controls.

After evaluating the various proposals, the MSgt determined that Trans Global was the only proposal technically acceptable for the Government requirement. That would be another red flag - it is rare that the Government, having performed market research, ends up with just one qualified bidder.

Trans Global was awarded the contract and the MSgt got his payday - until he was caught. Then, at least 10 years of service was flushed and he'll spend the next two years with lots of time on his hands to lament.

How was he caught. Well, like most Department of Justice press releases, they don't say. The case was investigated by the Air Force Office of Special Investigations and the Defense Criminal Investigative Service (part of the DoD Office of Inspector General) but we don't know from the information provided how the matter came to the investigators attention.

Monday, February 27, 2017

Executive Order on Enforcing Regulatory Reform

The President issued an Executive Order (EO) last Friday designed to add teeth to his regulatory reform agenda. The EO requires agencies to dedicate an individual and a task force infrastructure to enforce his previous EO concerning two for one offsets for any new regulations at zero cost.

To implement the new EO, every agency must designate an agency official as its Regulatory Reform Officer (RRO). They must also set up a task force to assist the RRO in implementing the EO.

Each RRO will oversee the implementation of regulatory reform initiatives and policies to ensure that agencies effectively carry out regulatory reforms consistent with applicable laws. These initiatives and policies include:

  • Executive Order 13771 (under President Trump) regarding offsetting the number and cost of new regulations (eliminating two existing regulations for every new regulation and at zero increased cost.
  • Executive Order 12866 (under President Clinton) regarding regulatory planning and review
  • Executive Order 13563 (under President Obama) regarding retrospective review
  • The termination of programs and activities that derive from or implement Executive Orders, guidance documents, policy memoranda, rule interpretations, and similar documents, or relevant portions thereof that have been rescinded (such as the Fair Pay and Safe Workplaces rules).

Each agency RRO must periodically report to the agency head and regularly consult with agency leadership. The definition of "periodically" and "regularly" is left up to the agencies.

The RRO, along with the Regulatory Reform Tax Force (RRTF), will be evaluating existing regulations and make recommendations to the agency head regarding their repeal, replacement, or modification, At a minimum, the Task Force must identify regulations that

  • eliminate jobs, or inhibit job creation
  • are outdated, unnecessary, or ineffective,
  • impose costs that exceed benefits
  • create a serious inconsistency or otherwise interfere with regulatory reform initiatives and policies
  • derive from or implement Executive Orders or other Presidential directives that have been subsequently rescinded or substantially modified.
Although not part of the EO, it would seem beneficial for the RRO and the RRTF to solicit public input on what regulations should be repealed, replaced, or modified. Perhaps the RRTF could begin with provisions in the Federal Acquisition Regulations (FAR) that are ignored or not enforced that have no consequences for noncompliance. 

Friday, February 24, 2017

Contract Close-Out Process - Part 5

This week we've been discussing the process for closing out Government cost-type (or flexibly-priced) contracts. If you've missed any of this series, you can follow these links:
    Part 1 - Describes tasks that must be completed to close out a contract.
    Part 2 - The Contractor Prepared "Completion Voucher"
    Part 3 - Defense Contract Audit Agency's (DCAA's) Involvement in the Process
    Part 4 - How Contractors Can Expedite the Process

The close-out process is not quick under even the best of circumstances. It can easily take a couple of years once a contract is physically completed. In the year a contract is physically completed, contractors must finalize applicable indirect rates. Contractors have six months after fiscal year end to submit their final rates. Then they need to be audited and that can, according to a recent published timeline, from 12 to 24 months. Once the audit is completed, negotiations begin if there are any audit exceptions to negotiate. Then, as we mentioned in an earlier post, contractors have up to four months to prepare their final voucher. After receiving the final voucher, the ACO reviews and processes it and sends it off to a Government finance office (DFAS in the case of DoD contracts) for payment. DFAS sometimes takes a long time themselves - especially on old contracts with expired funds.

One aspect of contract closing that has been getting a lot of attention lately is subcontract costs. Subcontracts must be "closed" before a prime contract is closed and contractors must develop internal procedures to do that. Many contract clauses are required to be flowed down to subcontracts so in the abstract, contractors must follow the same administrative procedures for their subcontractors as the ACOs (Administrative Contracting Officers) do to the primes. Nowhere have we seen as robust a process as what the Government employs - contractors would probably go broke if they tried. But, there has to be some form of assurance as to the propriety of costs claimed by the subcontractor and the prime contractors must also obtain the certifications and assurances relative to classified information, government property in the possession of the subcontractors, patents, assignment of refunds and rebates, etc for their own protections.

Contractors who do not perform the closeout process on their subcontractors may find it difficult to closeout the prime contract. Remember, it is the responsibility of the prime contractor to "administer" its subcontracts and while there is great flexibility given, there will be some expectation that something will be done.

T&M (Time and Materials) are a special class of flexibly priced contracts that we should mention. Although the labor rates are fixed, the labor hours are not. So, the Government needs to ensure that the hours claimed can be supported by timekeeping records and other evidential matter. Recently, auditors have begun making inquiries into the skill level of the person billed under specific categories. For example, if the contract calls for a Sr. Engineer and a Sr. Engineer is one defined as a Bachelor's Degree with ten years of experience in a particular field, contract auditors have been known to request personnel records to ensure that the person being billed meets the qualifications of that position. We have reported on criminal cases where contractors have provided staff that don't meet the requisite qualifications of the position yet billed at the higher rates.

Thursday, February 23, 2017

Contract Close-Out Process - Part 4

This week we've been discussing the contract closing process - the steps required to close out a flexibly-priced contract. It is not a simple, straight-forward or perfunctory process. The Government, especially administrative contracting officers spend a lot of time ensuring that all the paperwork is in order. Contractors should also be prepared to spend a fair amount of effort doing the same.

By the time it becomes necessary to prepare and submit a final voucher (or, a completion voucher), there should be no more costs left to bill on the contract. All the costs that are properly allocable and allowable under the contract should have already been billed. As contractor fiscal years are settled, contractors should be truing up costs for that year - whether it be an upward or downward adjustment representing differences between provisional billing rates and final negotiated or settled indirect rates. The only thing left to bill on a final voucher is whatever fee amounts have been retained by the Government.

Initially, the Government withholds 15 percent of the fee up to $100 thousand. After receipt of an adequate incurred cost proposal covering the year of physical completion of the contract, the contracting officer shall release 75 percent of the 15% withhold. That should prompt contractors to submit a voucher for payment. The contracting officer may then release up to 90 percent of fee withholds based on past performance related to the submission and settlement of final indirect cost rate proposals.

So, putting this into figures, assume a $1 million with a 10% fixed fee. The fee would be $10,000. The Government is going to withhold 15% of that fee or $1,500. After submitting all of the incurred cost proposals covering the years of performance, the contracting officer must release 75% of that $1,500 withhold or $1,125 leaving $375 yet to bill. Or, if past performance justifies such, the contracting officer may release 90% of the withhold or $1,350 leaving only $150 remaining to be billed. That's not very much on a $10,000 fee.

Here's the most important thing a contractor should do when submitting a final or completion voucher: (i) compare it to the amounts contained in the annual indirect rate submissions, (ii) identify and analyze any differences, (iii) correct the final voucher is that is necessary, or (iv) notify the Government as part of the transmittal of the differences and explain why those differences occurred. The Government will be making the same comparisons and any discrepancies will be kicked back to the contractor anyway so contractors need to be pro-active. It will speed up the contract closeout process. Contractors will have all of the information necessary to compare and analyze discrepancies so reliance on Government involvement is not necessary.

Tomorrow we will end this series with some final thoughts.

Wednesday, February 22, 2017

Contract Close-Out Process - Part 3

Back in the old days, DCAA (Defense Contract Audit Agency) audited final vouchers (or completion vouchers). These were not "audits" in the true sense of the word but auditors would trace direct costs back to contracts' job cost records and ensure that the contractor applied the appropriate indirect rates for each year. They would then check to see what the contractor had already been paid to date to ensure the difference between incurred and billed equaled the amount of the final voucher. DCAA would then issue a report to the ACO (Administrative Contracting Officer) stating that the amounts claimed on the final voucher agreed with the contractors books and records and it was up to the ACO to perform all of the other administrative closeout tasks, the most difficult usually being the reconciliation with Government disbursement records. Back then, Government finance records at anything below the contract level (e.g. CLIN, ACRN, etc) were notoriously inaccurate.

In 2011, FAR 52.216-7, Allowable Cost and Payment was revised to enhance the annual incurred cost reporting requirements. With the added submission requirements, the contractor annual incurred cost submissions contained all of the information necessary for the ACO to determine allowable, allocable, and reasonable costs charged to contracts. There was no longer any need for the contract auditors to perform specific close-out procedures for each contract ready to close. Schedules H, I, K, J, and O of the incurred cost submissions contained direct and indirect cost information and billing information. ACOs were told to refer to the incurred cost submissions for the data necessary to administratively close their contract(s).

So, while the reliance on incurred cost submissions worked well in theory, it hasn't worked well in practice. ACOs are finding that final vouchers (completion vouchers) seldom reconcile to the incurred cost submissions. There are many reasons for this but at the core, contractors and contract auditors have not paid too much attention to the accuracy of cumulative incurred costs. Audits generally focus on claimed indirect rates (indirect expense pools and their respective allocation bases) and very little effort is given to the build-up of cumulative allowable costs. Under DCAA's new policy of writing off low-risk incurred cost proposals, the problem is exacerbated because now, no one if validating the data. So, if a contractor fails to update cumulative costs for the impact of prior year negotiated indirect rates, no one on the Government side is the wiser.

Because of the discrepancies between final vouchers and incurred cost submissions, DCAA has found itself back in the business of assisting ACOs in closing out contracts. This assistance can range from helping the ACO understand the data already available in their files to full-blown reconciliations of contractor data. Perhaps that's a good thing because at least DCAA has something to do after having large chunks of their mission abrogated by DCMA (Defense Contract Management Agency) and other agencies over the past five years. Nevertheless, the final voucher work is administrative in nature and does not require the application of Generally Accepted Government Auditing Standards.

Tomorrow, what contractors can do to expedite the close-out process.

Tuesday, February 21, 2017

Contract Close-Out Process - Part 2

Yesterday in Part 1 of this series, we discussed the various tasks that the ACO (Administrative Contracting Officer) must complete before they can be considered "administratively complete". There are a lot of them. Today, we look at one of the tasks that contractors must perform in order to close out a contract - the "completion voucher".

Contractors must submit a completion voucher within 120 days after settlement of the final annual indirect costs rates for all years of the physically complete contract. So, for example, if a contract runs for three years - 2013, 2014, and 2015 - the contractor would submit its completion voucher when the rates for 2015 are settled.

A contractor can take more than 120 days to submit completion vouchers. The ACO (Administrative Contracting Officer) can approve an exception to the 120 day rule based on a written request citing exceptional circumstances. Usually, such approval is perfunctory and granted without good reasons on the contractors part but we have seen recent cases where the pressure to close old contracts makes such approval not so assured.

Final voucher are submitted via iRAPT (Invoicing, Receipt, Acceptance, and Property Transfer System). Formerly iRAPT was known as WAWF, a name still used and more recognizable to contractors.

We should note that if a contractor fails to submit a completion invoice or voucher within the time specified, the administrative contracting officer may determine the amounts due to the contractor under the contract and record the determination in a unilateral modification to the contract. We have seen unilateral modifications in cases where a contractor has gone out of business or has lost accounting records.

What happens after contractors submit completion vouchers depends upon the adequacy of existing records.

DCAA would like everyone to believe that the Schedule I - Schedule of Cumulative Direct and Indirect Costs Claimed and Billed - of contractors' annual incurred cost submissions is the only tool necessary to validate costs. We will discuss some of the pitfalls associated with relying on Incurred cost submissions tomorrow.

Monday, February 20, 2017

Contract Close-Out Process - Part 1

Now that DCAA (Defense Contract Audit Agency) has essentially caught up with auditing or administratively closing contractor incurred cost submissions, there is a flurry of activity by contracting officer to close out contracts needing final indirect rates.

FAR (Federal Acquisition Regulations) 4.804 covers the procedures for closing out flexibly priced Government contracts. Flexibly-priced includes just about everything that is not fixed-priced such as CPFF, CPIF, CPAF, T&M, and FPI to name the more common types.

Contracts can only be closed when they are physically complete and administratively complete. Physically complete means that deliveries and/or supplies are complete, inspected, and accepted, and services have been performed and accepted by the Government. Administratively complete means that all administrative actions are accomplished, all releases executed, and final payment has been made.

The administrative closeout procedures can be complex and often requires a lot of time. The administrative closeout procedures per FAR 4.804-5 include all of the following:

  • Disposition of classified material is completed
  • Final patent and final royalty report is cleared
  • There is no outstanding value engineering change proposal
  • Plan clearance report and property clearance is received
  • All interim or disallowed costs are settled
  • Price revision is completed
  • Subcontracts are settled by the prime contractor
  • Prior year indirect cost rates are settled and final invoice has been submitted
  • Termination docket is completed
  • Contract audit and Contractor's closing statement is completed
  • Contract funds review is completed and excess funds deobligated.

Don't worry if you don't know what a lot of these items entail. A lot of these items will be "not applicable" to many contracts. You don't need to be an expert because the contracting officer will advise you what you need to do. From the Government's perspective, they just want to ensure that there are no outstanding or potential liabilities or obligations arising from the contract. Once both parties are satisfied with their respective positions, the contract can be closed.

Tomorrow we will discuss the "Final Voucher" requirements.

Friday, February 17, 2017

Things to Consider With Company Issued Credit Cards

We have written frequently about credit card abuse. When it happens in the Government, it is often widely publicized, perhaps with the hope that publication will act as a deterrent to others who might be inclined to abuse the system. But credit card abuse is not just a Government problem. It happens with all too much frequency in private industry as well. Industry just doesn't have a Department of Justice to publicize the discoveries and resolutions. And just so everyone understands, the cost of credit card abuse - improper purchases - is not an allowable cost on Government contracts. The Government is not going to fund those losses.

The Government Accountability Office (GAO) has a program for reviewing credit card practices at various agencies. GAO focuses on the internal controls that have been established to ensure the proper use of Government issued credit cards, notably (i) clear instructions, (ii) training, and (iii) monitoring. Companies (including Government contractors) would do well to ensure that similar internal controls are in place and operating effectively in their own organizations.

Clear instructions. This would be the policy and procedure manual (or desk procedure) that assigns responsibilities and contains instructions and limitations on the use of the company credit card. The GAO's primary focus in this area is the documentation and approval process. Purchases need to be justified, the justification must be in writing and the justification must be approved by a supervisor or manager. In a recent audit of Government agencies, the GAO found that 22 percent of all purchases were not adequately documented. That failure, according to GAO increases the risk that fraud, charge card misuse and other abusive activity could occur without detection.

Training. Increased training seems to be a recommendation any time something goes wrong. We don't want to understate the importance of training but when it comes to credit card abuse, no amount of training is going to stop an employee inclined to do bad things. In fact, it might help them figure out the weaknesses in the internal control systems so that they can reduce the likelihood of being caught.

Monitoring. This, in our opinion, is the most important aspect of an effective internal control system. If there were no highway patrol officers, if the chance of getting stopped for speeding were zero, would anyone obey traffic laws? Many would not. The same goes for purchasing departments and employees entrusted with the company credit card. There must be some oversight on the use of those cards. Internal audits of credit card issuance and use should be regularly scheduled events. Someone needs to be asking the questions about whether the the right number of cards have been issued, whether the limitations are appropriate, whether documentation is adequate, and the requisite approvals are obtained.

A lot of companies have little, if any, controls over the use of company issued credit cards. Smaller companies in particular, operate on a degree of trust. But, as we have repeated many times, "trust" is not an internal control.

Thursday, February 16, 2017

Another Example Where Failure to Follow Clear Solicitation Instructions Leads to Lost Opportunities

Why do companies bother to appeal contract awards when they lost out on consideration because they couldn't follow clear solicitation instructions? And then they concoct some kind of scenario to make it look like the Government was at fault, or incompetent. We can't state that such appeals are never successful but we can't think of a case where such appeals were successful.

Here's the latest. Team Housing Solutions protested GSA's decision not to consider its quotation for long-term lodging services because its quotation was not submitted to the online portal identified in the solicitation.

The RFQ (Request for Quotation) required quotations to be submitted via GSA's Information Technology Solutions Shop (ITSS) by 4:00 pm on September 28, 2016. The RFQ cautioned that quotations would not be accepted as valid unless submitted to ITSS. The RFQ reiterated that failure to submit quotations Via ITSS may result in exclusion from consideration.

GSA received quotations from five bidders through its ITSS system. Team Housing was not one of the five. Instead Team Housing submitted their quotation through the Government's "e-buy" system.

Team Housing argued that its quotation was incorrectly submitted due to ambiguous and unclear solicitation instructions. GAO ruled that there was nothing ambiguous or unclear about the solicitation instructions and declared Team Housing's protest was without merit. GAO denied the protest.

This protest, to us, seems about as frivolous as they come. Think about all of the Government resources expended (wasted?) in responding to this appeal.

You can read the full decision here.

Wednesday, February 15, 2017

Know Your Contract Terms

The allowability of costs under Government contracts are generally covered by the cost principles contained in FAR Part 31 and the FAR supplements issued by various departments. For example, the DOD FAR Supplement (DFARS) adds additional coverage for public relations, compensation, independent research and development and bid and proposal costs, insurance and indemnification, legislative lobbying costs, external restructuring costs and most recently, costs related to counterfeit electronic parts and suspect counterfeit electronic parts. The Department of Energy FAR Supplement (DEAR) contains additional coverage for independent research and development and bid and proposal costs, insurance and indemnification, pre-contract costs, professional and consultant service costs, and costs relating to legal and other proceedings. The NASA FAR Supplement (NFS) adds additional coverage for compensation and pre-contract costs. And we could go on and discuss other agencies added requirements.

But if you stop at the FAR and the FAR Supplements, you might be setting yourself up for potential cost disallowances because often times, contracts will contain provisions that restrict contractors from claiming certain types of costs on Government contracts.

One of the first things a Government contract auditor will do upon commencing an audit, oddly enough, is to brief the Government contracts to determine whether there are any restrictions on costs that go beyond FAR Part 31 cost principles. And, such restrictions are not difficult to find. Take for example FAR 52.222-2 regarding the Government's willingness to pay overtime. The clause itself requires contracting officers to insert an amount. Usually the amount is zero and if its left blank, the wording of the clause means the amount is "zero".

Facilities Capital Cost of Money (FCCM) is generally allowable but there are certain contracts (SBIRs, for one) that do not allow contractors to claim FCCM. A lot of contractors are unaware such restrictions exist and indiscriminately apply FCCM to all of their contracts.

Some agencies set salary caps for key individuals working on their contracts (or allocated to their contracts) and when they set such caps, also require contractors to obtain pre-approval for any salary increases. In all cases, these caps are set well below the FAR ceiling limitations. Contractors are still free to pay whatever they want, they just can't claim the entire amount on Government contracts of the particular agency.

Another common restriction found in contractual documents involves insurance costs. Often times, the Government will indemnify contractors for certain risks making additional insurance coverage unnecessary. When that happens, contracts will specify that insurance is unallowable even though according to FAR, insurance costs are allowable. Sometimes however, insurance costs are still allocated to contracts through a home office allocation where details are not readily discernible. Contractors need to be aware of such prohibitions and need to understand the components that comprise home office allocations to avoid allocating unallowable costs to Government contracts.

Tuesday, February 14, 2017

DCAA Involvement in Contract Close-out Process

DCAA (Defense Contract Audit Agency) has made outstanding progress in reducing its incurred cost backlog - so much so that the prohibition against the Agency performing audits for non-DoD agencies until it caught up on its incurred cost backlog, was lifted last October. Most of this backlog reduction was a result of DCAA's new-found risk-based approach to auditing. Under a risk-based approach, DCAA uses certain criteria to categorize contractors into high risk or low risk. Those classified as low risk are dumpted into a nation-wide pool and only one percet get selected for audit. The remaining 99 percent are closed without audit. Clearing out the incurred cost backlog therefore was fairly easy because there were far fewer audits to perform.

Finalizing the incurred cost proposals however is only the first step to closing out contracts and that step can be problematic for many contractors. DCAA believes that Schedule 'I's (Cumulative Direct and Indirect Costs Claimed and Billed) included in the contractors' annual incurred cost submissions, once updated to reflect final agreed-to or negotiated rates can be used to facilitate the closeout process.
Generally, the CFAO (Cognizant Federal Agency Official) should have sufficient data to approve final vouchers to close contracts without requiring further assistance from DCAA, especially for contracts awarded after June 2011 requiring an updated Schedule I by the contractor. 
Contractors should be very wary about closing out contracts based on Schedule Is. Experience has shown that these schedules are often inaccurate - especially where they haven't been audit tested. Many times the schedules have not been updated to reflect settlement of rates in previous years. The same goes for subcontractor costs.

Where the Schedule Is cannot be relied upon, DCAA offers three levels of services to CFAOs.

  1. Providing specific information to the CFAO - DCAA will provide the CFAO information that is in the audit files that cannot be located in the CFAO's files.
  2. Final Voucher Services. In situations where the contractors' Schedule I is suspect and/or cannot be relied upon due to complexities that exist, DCAA can compile existing information to assist the CFAO.
  3. Final Voucher Audit. In situations where there is identified risk or concerns on specific contracts, DCAA can perform a full-audit of costs. 

It is in the interest of all parties to close out old contracts as expeditiously as possible. To that end, it is highly unlikely that CFAOs will request Level 3 audit services.

Monday, February 13, 2017

Protest Denied Where Contractor Failed to Follow Established Procedures

The Army Corps of Engineers (COE) issued a solicitation in 2016 for dredging services. The COE received three timely bids but after reviewing them, determined all three were unreasonably high priced compared to the Government estimate. The Government estimate was $14 million whereas the three bids were $18, $19, and $21 million. Because all three bids exceeded the Government estimate by more than 25 percent, the COE could not (or did not) make an award.

4H Construction protested COE's conclusion that all three bids were unreasonably high. Without specifying any factual matters, 4H stated that its bid would have been within 125 percent of the Government estimate if the Government estimate had been reasonable.

At this point, COE Acquisition Instructions call for an exchange of bid details between the Government and a protestor. But 4H refused to provide their cost bases. In what seems like a bit of gamesmanship, 4H stated:
My understanding of (COE Acquisition Instructions) is that the protestor must provide the details of its bid estimate in order to obtain a copy of the details of the independent government estimate ("IGE"). 4H had not requested a copy of the details of the IGE at this time, so I do not believe it is necessary or required that 4H provide you with the details of its bid estimate.
The Army COE when on to deny the protest.

4H then filed a protest with the Comptroller General arguing that the COE did not use a realistic price for diesel fuel in calculating its estimate. Until the COE denied 4H's first protest, 4H did not have the diesel fuel information. However, since 4H had earlier declined to avail itself of the opportunity presented by the COE to exchange the basis of its bid estimate for the government estimate, the Comptroller General concluded that 4H had failed to diligently pursue the information necessary to file its protest on this basis and so denied the protest.

The Comptroller General also chastised 4H for wasting its time.
Moreover, a timely exchange of information also could have prevented the expenditure of our Office's time and resources to resolve a matter that may well have been easily and expeditiously resolved by the parties without our involvement.
You can read the entire decision here.

Friday, February 10, 2017

Bills Introduced to Repeal the Davis-Bacon Act

Companion bills were introduced in the House and Senate to repeal the Davis-Bacon Act. In the House, H.R. 743 - Davis-Bacon Repeal Act was introduced by Rep Steve King (R-IA) and in the Senate, S. 244 - Davis Bacon Repeal Act was introduced by Sen Mike Lee (R-UT). Both bills, introduced on January 30, 2017 read the same.

The Davis-Bacon Act (a.k.a. prevailing wages) has been controversial ever since it became law. Critics argue that it raises wage levels, artificially boosting the cost of Federal construction project, and discriminates against nonunion workers. There is also considerable dispute concerning the methods used to determine the prevailing wage. Study after study have concluded that the Act's primary effect is to raise the wage and employment levels of union workers to the detriment of nonunion (and often minority) workers.

One study we read concluded that Davis-Bacon increased costs of Federal construction projects by 20 percent. That may be a very conservative estimate. Not long ago, we were talking to a plumber working on new housing construction (private sector) and he was quitting to take a temporary job on a construction project at a nearby military installation where he would earn more than double his current non-union wage.

We don't know how far these bill will go in Congress. Under previous administrations, they had no chance. However under the current Administration, some writers think it may have a shot at passing.

Thursday, February 9, 2017

Groups File Lawsuit Challenging the President's Two-for-One Order

On January 30th, the President signed an Executive Order (EO) that requires Agencies to cut two existing regulations for every new rule introduced. Yesterday, three public advocacy groups - The Natural Resources Defense Council (NRDC), the Communications Workers of America, and Public Citizen - joined together to file a lawsuit in the U.S. District Court for the District of Columbia alleging that Executive agencies cannot lawfully comply with the President's two for one order because doing so would violate the statutes under which agencies operate. The suit asks the court to issue a declaration that the order cannot be lawfully implemented and to bar Agencies from implementing the order.

According to these groups, the President's order "...would deny Americans the b asic protections they rightly expect. New efforts to stop pollution don't automatically make old ones unnecessary. When you make policy by tweet, it yields irrational rules. This order imposes a false choice between clean air, clean water, safe food and other environmental safeguards."

Another spokesperson stated: "It is unbelievable that the ... administration is demanding that workers trade off one set of job health and safety protections in order to get protection from another equally dangerous condition. This order means that the asbestos workplace standard, for example, could be discarded in order to adopt safeguards for nurses from infectious diseases in their workplaces. This violates the mission of the Occupational Safety and Health administration to protect workers' safety and health. It also violates common sense."

One of the attorneys representing these groups stated: "When presidents overreach, it is up to the courts to remind them no one is above the law and hold them to the U.S. Constitution. This is one of those times."

Fun times.

Wednesday, February 8, 2017

How Are Your Internal Controls Over Employee Travel Costs?

There are many ways to overstate travel costs. Employees can pad their travel claims. They can take unnecessary trips because they like to travel or need to build their airline miles to get preferred boarding and "free" class upgrades, or have other personal reasons. Employees can claim and charge off to the government higher than prescribed lodging and per diem maximums because of poor internal controls or because no one wants to challenge the claim of a person in authority. They can easily game the system requiring lowest available air fares. And so on. Most of these intrusions can be minimized with effective internal control systems. But what if the owners of a company are doing the padding? That's what a company called Para-Plus Translations was doing. And they got caught. Got turned in by a whistleblower.

Para-Plus had a number of contracts with federal and state agencies to provide interpretation, transcription and translation services. A whistleblower in Para-Plus's billing department (who had a conscious) came forth and reported that the two owners of the company were purposefully overstating the travel time and mileage incurred by its interpreters. Among the claims was the assertion that invoices for sign language services were routinely "upped" by 20 miles. Very few customers called to question the billing and when they did, the bill was lowered, with various excuses provided. Excuses included "typos, interpreter's invoice was wrong, new person in the billing department, etc.

This fraud went on for some time. The allegation asserted that it began in 2008 and continued through 2015. Although Para-Plus admitted no wrongdoing, it agreed to pay $1.5 million to settle the allegations. The whistleblower will receive $330,000 (22 percent) of that amount. Lest you think that's a big payday, consider that the whistleblower was fired from her job (for not going along with the scheme) two years ago so there are lost wages. Also consider that her attorney will receive part of that settlement amount.

You can read more about this case here.

Tuesday, February 7, 2017

DCAA Requests for Extra-Regulatory Data

Every Government contractor with cost-type contracts is familiar with the requirement at FAR 52.216-7(d)(2)(iii) that requires them to submit an indirect cost rate proposal within six months after their fiscal year ends. This requirement continues for the duration of the contract. That same FAR clause even specifies the elements that comprise an "adequate" indirect cost rate proposal. There are 15 items listed, delineated as (a) through (o). There are also a listing of 15 optional items - also delineated as (a) through (o) - most of which will be N/A (not applicable) to small Government contractors.

Most Government contractors with cost-type contracts are also familiar with DCAA's (Defense Contract Audit Agency) "ICE Model" for preparing the required indirect cost rate proposal. DCAA's ICE (Incurred Cost Electronically) Model is an Excel-based workbook with tabs that correspond to the required and optional components of FAR 52.216-7(d)(2)(iii) and (iv). The ICE Model is not mandatory for contractors - Government contractors can format their own indirect cost rate proposal so long as it adheres to the FAR requirements. For practical purposes however, most contractors utilize or modify the DCAA model.

DCAA periodically updates its ICE model. The current version is 2.0.1f dated October 2016. On its website, DCAA states that "Contractors should ensure they use the most current version of the ICE model when preparing their incurred cost proposals". That might make sense in some cases, especially where a calculation error or a "link" is corrected. However, DCAA also makes modifications to solicit information that is not specifically required by FAR.

For example, FAR 52.216-7(d)(2)(iii)(j) (corresponding to DCAA ICE Model Sechedule J) requires a listing of subcontracts awarded to companies for which the contract is the prime or upper-tier contractor. The listing should include

  • prime and subcontract numbers
  • subcontract value and award type
  • amount claimed during the fiscal year
  • subcontractor name, address, and point of contract information

In December 2015, DCAA published ICE Version 2.0.1e which modified Schedule J to "require" additional data elements that are not required by the FAR. These elements include the following:

  • subcontractor point of contact
  • subcontractor point of contact telephone number
  • subcontractor DUNS number
  • subcontract period of performance

Even though DCAA refers to the foregoing as "required" data elements, they are definitely not required by FAR and DCAA does not have the regulatory authority to make them so. Although there in nothing particularly objectionable to furnishing this information, it does create more work for the contractor that hasn't been vetted through the regulatory process.

Many contractors have had their annual indirect cost submissions declared inadequate by DCAA and returned for correction. We have found in many cases, the rejections related to optional schedules rather than mandatory schedules or schedules were not in a format that DCAA expected. Our advise to contractors receiving such rejections is to compare the reason(s) for the rejection to the specific delineated requirements of FAR 52.216.7(d)(2)(iii) and go from there.

Monday, February 6, 2017

DoD Fails to Issue Adequate or Timely Appraisals of Contractor Performance

The Federal Acquisition Regulation (FAR) requires Government officials to evaluate contractor performance in the Contractor Performance Assessment Reporting System (CPARS) (see FAR Part 42.15). CPARS is the Government-wide reporting tool for past performance on contracts. The primary purpose of CPARS is to ensure that current, complete, and accurate information on contractor performance is available for use in procurement source selections. Government officials evaluate contractors in CPARS by preparing a PAR (Performance Assessment Report). PARs are to be prepared at least annually and at the end of the contract.

Most Government contractors are familiar with the PAR process and everyone strives for good reports. However, as many contractors have experienced, the Government often neglects to prepare PARs. That could be a good thing in some cases if you're the contractor and your performance has been less than stellar. Conversely, if your performance has been outstanding and the Government fails to put that in a report, that performance will not be recognized the next time you submit a bid and the contracting officer queries his past performance database to see how well you performed in the past.

The Department of Defense Office of Inspector General (DoD-IG) was concerned about contracting officer compliance with FAR 42.15 so they initiated an audit to see if there truly was a systematic problem. The results were not encouraging. The IG reported, in their typical understated tone, that "Defense organization officials did not consistently comply with requirements for assessing contractor performance". Translation? There was a high failure rate. Fourty-nine of 53 PARs reviewed did not include sufficient written narrative to justify the ratings given.

The DoD-IG cited several conditions that led to the failures:

  1. organization-specific procedures did not have clear guidance for preparing PARs in a timely manner or did not address timeliness
  2. assessors did not understand PAR rating definitions or evaluation factors
  3. assessors did not take current training or properly implement training and
  4. organization-specific procedures did not require reviews of PARs to ensure compliance with the FAR.

Because of the noted deficiencies, the DoD-IG concluded that Federal source selection officials did not have access to timely, accurate, and complete past performance assessment information needed to make informed decisions related to contract awards.

You can read the entire DoD-IG report here.

Friday, February 3, 2017

What is the Procurement Integrity Act?

The Procurement Integrity Act was designed to prevent unfair competition when awarding Government contracts. Contractors cannot use source selection (or proprietary) information from a competitor, no matter how it was obtained.

The Procurement Integrity Act provides, among other things, that a Federal Government official shall not knowingly disclose contractor bid or proposal information or source selection information before the award of a Federal agency procurement contract to which the information relates. Additionally, the Procurement Integrity Act provides that a person shall not knowingly obtain contractor bid or proposal information or source selection information before the award of a Federal agency procurement contract to which the information relates. FAR 3.1 requires an agency to investigate allegations raised regarding potential violations of the Procurement Integrity Act.

FAR 3.1 further states that a contracting officer who receives or obtains information of a violation or possible violation of the Procurement Integrity Act must determine if the reported violation or possible violation has any impact on the pending award or selection of the contractor. If the contracting officer determines that there is no impact on the procurement, he or she must forward the information concerning the violation or possible violation and documentation supporting a determination that there is no impact on the procurement to an individual designated in accordance with the agency procedures. If that individual agrees with the contracting officer's analysis, the procurement may proceed. If that individual does not agree, the individual must forward the information to the Head of Contracting Activity (HCA) and advise the contracting officer not to proceed with the award.

There have been a number of bid protests over the years charging the Government with a failure to properly investigate alleged violations of the Procurement Integrity Act. Most of these fail; sometimes they are not filed timely and other times, the Government followed its procedures (and the Federal Acquisition Regulations) in determining whether reported violations impacted the procurement.

Thursday, February 2, 2017

Congress Issues Joint Resolution to Block Government Contractor Fair Pay and Safe Workspaces Rules

Last Monday, Rep. Virginia Foxx introduced a joint resolution of disapproval of the recently implemented (and more recently temporarily suspended by a Federal judge) of the so-called Fair Pay and Safe Workspaces rules. This joint resolution is provided by the Congressional Review Act (CRA). The CRA allows Congress a limited period of time in which to overrule a regulation through use of a joint resolution, essentially giving Congress a legislative veto. The resolution needs to be passed by both houses and then signed by the President or passed over the President's veto by two-thirds of the House and Senate.

The Fair Pay and Safe Workspaces rules have been controversial from the start and is commonly referred to as the "Blacklisting" rule because it requires contractors to report "alleged" labor violations that have not been adjudicated. For example, a "preliminary determination" by some obscure Governmental agency could prevent a contractor from being awarded a contract.

Given that both houses of Congress and the President are controlled by the same party, it seems likely that the resolution will pass. If it does pass, federal agencies will not be able to issue a substantially similar rule without specific authorization from Congress.

Last October, a Federal judge issued a temporary injunction halting the implementation of the Fair Pay and Safe Workspaces regulations. You can read more about that injunction here.

The text of the Joint Resolution reads as follows:
Resolved by the Senate and House of Representatives of the United States of America in Congress assembled, That Congress disapproves the rule submitted by the Department of Defense, the General Services Administration, and the National Aeronautics and Space Administration relating to the Federal Acquisition Regulation published at 81 Fed. Reg. 58562 (August 25, 2016), and such rule shall have no force or effect.

Wednesday, February 1, 2017

Conflict of Interest in Awarding Government Contracts

The Natural Resources Conservation Service (NRCS) is a small agency of the Department of Agriculture that provides technical assistance to farmers and other private landowners and managers to improve, protect, and conserve natural resources on private lands through a cooperative partnership with state and local agencies.

Mr. Dunkin was a contracting officer for the NRCS office in Little Rock, AR when he, according to the Department of Justice, awarded a contract (perhaps two contracts according to one source) to a company in which his wife had a direct financial interest. It didn't take much to raise suspicion. His wife's company, Young Enterprises, LLC, had the same address as the home where he and his wife lived.

Yesterday, Mr. Dunkin plead guilty to knowingly and wilfully awarding a contract to Young Enterprises, LLC, where multiple records showed that she was a part-owner of the company. When the contract was completed, the Agriculture Department transferred  money into a bank account jointly owned by Dunkin and his wife.

Mr. Dunkin is being charged with "Acts Affecting a Personal Financial Interest, more commonly known as "conflict of interest". When sentenced at a later date, Mr. Dunkin faces up to five years imprisonment, three years of supervised release and a fine up to $250 thousand. The actual sentencing will be significantly less. Regardless, its a sad ending to a career in Government service. Additionally, it will be the end of Government contracts for Young Enterprises LLC.

There is no indication that the work required by the contract was not adequately performed. The case seems to be a simple matter where the contracting officer found a way to enrich himself.

The DoJ Press Release did not specify how the "conflict of interest" was disclosed. Often times these cases are the result of concerns raised by whistleblowers or calls to a hotline.