Tuesday, October 31, 2017

Memo to Employees: Save All Information Related to Time Charging

The Department of Energy is building a $17 billion vitrification plant at its Hanford site in order to turn 56 million gallons of radioactive waste into a stable glass form. The waste is left from the cold war production of plutonium for America's nuclear weapons program. The contract is cost reimbursable and projected costs have grown significantly over its initial budget.

A recent article appearing in the hometown newspaper, the Tri-City Herald, stated that the paper had obtained copies of emails sent to workers at the vitrification plant instructing them to preserve all information and emails regarding charging for labor, recording time worked, overtime and related matters. The article went on to not that the preservation request was related to a civil investigative demand issued by the Justice Department to the prime contractor on the project, Bechtel National (see Feds may be investigating timecard issues at Hanford vit plant for the complete article). We're not sure what types of timekeeping records might exist. The company uses an electronic timekeeping system and employees do not normally retain paper.

This sounds serious though. Another email from a Bechtel attorney instructed employees that if they were contract by federal investigators they could speak with them, they could decline to speak with them, they had a right to have their attorney present, or could request that a Bechtel attorney be present.

The Justice Department, the Department of Energy, and Bechtel all declined comment on the matter (of course).

There have been serious timecard problems among contractors at Hanford. In 2013, one contractor paid $18.5 million to resolve civil and criminal allegations of defrauding taxpayers through timecard fraud. Earlier this year, another contractor forked over $5.3 million to settle allegations of timecard fraud.

Monday, October 30, 2017

Whitefish Energy

Last week, it was announced (or revealed) that a tiny company in Montana called Whitefish Energy Holdings had been awarded a $300 million contract from the Puerto Rico Electric Power Authority (PREPA) to restore electricity on the island. That massive size of the contract given the experience and size of Whitefish, has been met with skepticism by Republicans and Democrats alike and amid the outcry, PREPA is now moving to cancel the contract (after a plea from the Governor of Puerto Rico).

Whitefish is a small company which according to reports has been in existence for two years and until recently, had just two full-time employees. Whitefish's CEO disputed that number claiming that the company had 20-40 full-time employees working projects in Arizona, Montana and Washington State. It now has 350 workers on site in Puerto Rico however most of these workers are actually subcontractors. It has been widely reported that the Interior Secretary, friends with Whitefish's CEO had something to do with the award. Whitefish denies this maintaining that contract was made with PREPA through Linked-In.

The contract which has now been made public, will make the controversy even more poignant.  Whitefish charges $240 per hour for a general foreman and $227 per hour for a lineman. Per diem allowances are set at $80 per day for meals and $332 per day for lodging. Airfare is billed at $1,000 each way. For subcontractors (most of the labor), the rates are even higher. A general foreman costs $336 per hour and a lineman $319 per hour. Given that the medium rate for electrical linemen is about $36 per hour, these contracted rates seem beyond the pale.

The contract also has a nice little "no audit clause". The clause reads:
In no event shall PREPA, the Commonwealth of Puerto Rico, the FEMA Administrator, the Comptroller General of the United States, or any of their authorized representatives have the right to audit or review the cost and profit estimates of the labor rates specified herein.
No doubt all Government contractors would like to have this clause in their contracts.

By the way, PREPA is $9 billion in debt, filed for bankruptcy last July and has had a long history of maintenance problems and corruption allegations.

This will be an interesting story to follow and events unfold. Obviously, there is a lot more to the story that what has been made available so far.

Friday, October 27, 2017

Senator Wonders How DCAA is Progressing in Reducing its Backlog of Incurred Cost Audits

On Monday of this week, Senator Clair McCaskill in her position as ranking member of the Senate Committee on Homeland Security and Governmental Affairs, sent a letter to the Defense Department requesting "detailed information regarding the audit backlog at the Defense Contract Audit Agency (DCAA)".

Last month, GAO (Government Accountability Office) issued a report that was somewhat critical of DCAA's progress in reducing the backlog of annual incurred cost proposals waiting for audit (see New GAO Report on DCAA Incurred Cost Audits).

In response to that report, DoD promised a number of corrective actions that did little more than resolve to study the issue. Specifically, DoD stated that it would (i) assess and implement options for reducing the length of time to begin incurred cost audit work and (ii) conduct a comprehensive analysis regarding the use and effect of multi-year audits.

This is a very non-committal response and everyone probably hoped the report would end up in a dead letter office somewhere.

But Senator McCaskill wasn't about to let that happen. She has asked for a status of DoD's implementation of the corrective actions it promised the GAO. Specifically, the Senator requested that the Defense Department provide the following data:

  1. The current inventory of incurred cost audits at DCAA.
  2. The plans and expedited timeline for reducing DCAA's audit backlog to 18 months of inventory.
  3. The current status and timeline for completion or previous promises (the was a specific reference to DoD's response to a GAO report critical of DCAA's timeliness that it plans to assess and implement options for reducing the length of time to begin incurred cost audit work and to conduct a comprehensive analysis regarding the use and effect of multi-year audits by March 31, 2018).
You can read more about the Senator's concerns here. A copy of the Senator's letter is here.

Thursday, October 26, 2017

Offeror Made three Attempts to Deliver its Proposal to Air Force - To No Avail

The Air Force issued a RFTOP (Request for Task Order Proposals) under its IDIQ contracts for cyber security and information systems technical tasks. Proposals were to be submitted electronically no later than 1:00 p.m. Central Time on July 17, 2017. The solicitation provided that proposal receipt would be acknowledged by return email.

ManTech Advanced Systems submitted a proposal in response to the RFTOP. In fact, ManTech submitted its proposal several times. The first time was at 1:25 p.m (EDT). ManTech received confirmation of completed delivery through its Outlook delivery receipt feature. Seven minutes later, ManTech, after not receiving an acknowledgement from the Air Force that it had received the proposal, contacted the Air Force and was told the proposal had not been received. So ManTech resent its proposal to the designated mailbox, the person it had spoken to, and the contract specialist. Again, ManTech received electronic confirmation that its email had gone through to its destination but once again, no email confirmation from the Air Force. ManTech sent it again at 1:59 p.m. (EDT) with the same result. At 2:01 p.m. the contracting officer instructed ManTech to forget about it - time for receipt had expired. Subsequently, the Air Force informed ManTech that since the Air Force had not received ManTech's proposal, ManTech was not considered for award.

ManTech filed a bid protest with the GAO, asserting that the Air Force should have considered its proposal because the proposal was timely sent to the Air Force's designated mail box and ManTech had received confirmation from its Outlook delivery system that it had been received.

The Air Force contended that ManTech's proposal was not received in the mailbox designated in the solicitation. The Air Force explained that when an email is sent to any recipient that is at an organization that is part of DoD, it is scanned by the enterprise email security gateway for malicious content. The email is then delivered to the recipient's email exchange server if no malicious content is found. The recipient's email exchange server then performs additional scans based on the specific policies of the recipient organization. The recipient's server can block, quarantine, drop, or deliver the email to the recipient's email box. The Air Force determined that based on content, ManTech's proposal was rejected by the Air Force server.

Was the GAO sympathetic to ManTech's plight? Not at all. The GAO wrote that it is an offeror's responsibility to deliver its proposal to the proper place at the proper time. Moreover, an offeror has the burden of showing that it timely delivered its proposal to the agency at the specified address. An agency is not required to consider a proposal where there is no evidence that the proposal was actually received. In this case, ManTech failed to establish that its proposal was actually delivered to the Air Force's designated email prior to the time set for the receipt of proposals, and thus, failed to meet its burden of showing that its proposal was timely delivered to the Air Force.

You can read the full decision here.

Wednesday, October 25, 2017

Get Your Voice Heard - Section 809 Panel Wants to Hear From You

Over the past several weeks, we've written a few times about the activities of the Section 809 Panel whose job is to figure out how to ensure the Defense Department (and by extension, Civilian agencies) to more consistently buy what it needs in a timely and cost-effective manner (see, for example, Update on Section 809 Panel).

The Panel sincerely wants to hear from people and organizations affected by the current state of procurement regulations and they've made it very easy to submit your dirty dozen (except that they call it the "50 Worst"). The Panel needs your help in identifying and tallying the 50 worst regulations, laws, and policies that frustrate you and must go.

The Panel has created an on-line form with two basic questions:

  1. What regulatory roadblock are you encountering? Is there a policy that frustrates you and must go? Know a law that doesn't make sense and costs you time and money? Describe it here
  2. How does it specifically get in your way? How would you change it, get rid of it, or make it simpler?
There is no limit to the number of contributions one can make to the "50 Worst" regulations, laws, and policies. The Section 809 Panel may be the best shot at improving the Government's procurement regulations for many many years so please contribute.

The 50 Worst on-line form can be accessed here.

Tuesday, October 24, 2017

GSA Drafting Guidance to Assist Civilian Agencies in Procuring Contract Audit Services

The General Services Administration (GSA) is leading an inter-agency working group to develop a guide to assist civilian executive agencies in selecting private firms to perform required contract audits. The inability of DCAA (Defense Contract Audit Agency) to perform timely audits has been reported here and elsewhere and the subject of several GAO (General Accountability Office) and Inspector General reports. Civilian agencies, unlike the Defense Department are not required to utilize DCAA for their contract audit services. Agencies that do utilize DCAA, reimburse DCAA for those services thus there has developed a strong consensus within civilian agencies that they can receive more timely services by contracting with commercial firms rather than relying upon DCAA. Some even contend that the cost for commercial audits are less than the cost for comparable DCAA audits. That contention is difficult to assess. The hourly rates charged by private firms are generally higher than the hourly rates charged by DCAA so the other variable is the number of hours it takes to perform the work. It might be that DCAA, unbound by a profit motive, spends too many hours while a private firm, needing to make a profit, spends too few hours. A number of years ago, the Energy Department moved away from DCAA and contracted with private firms for its contract audit services. Though we have not seen a comprehensive assessment of how that is working, we do know that in some circumstances, the Energy Department has been concerned with the cost growth of these services - especially when contracted firms are called upon to assist "extra-scope" activities such as helping to resolve audit issues that arose from their audits.

The GSA is now requesting feedback on their draft "Civilian Contract Audit Services Ordering Guide". One of the problems facing Civilian Agencies is to determine what contract audit services are required. Heretofore, those agencies have relied upon DCAA to tell them what audit services are needed. So the guide lays out the different audit services that may be needed including (i) audits of final indirect cost rate proposals, (ii) evaluation of provisional billing rate proposals, (iii) audits of forward pricing rate proposals, (iv) business system audits including accounting systems, (v) floorchecks, and more. The guide identifies best practices among Government agencies that have used or are currently using commercial auditors for their contract audit needs. The draft guide includes considerations for what makes for a quality audit, sample documents to attach to RFQs (Requests for Quotations), recommendations for evaluating contractor responses, and pricing considerations. It also includes examples of helpful non-price evaluation factors.

The time for submitting comments to the draft guidance ends October 27th. Instructions for submitting comments can be found under FedBizOps. The draft guide can be downloaded there as well.

Monday, October 23, 2017

ASBCA Reduced Its Backlog During Fiscal Year 2017

The Armed Services Board of Contract Appeals (ASBCA) recently published its annual report for fiscal year 2017. It shows that the backlog of pending cases has decreased by about 10 percent from the prior year, from 1,077 to 970 cases. During the year, 524 new cases were docketed, 47 cases were reinstated and 678 cases were dispositioned.

Of the 524 new cases, 57 percent originated from the Army and the Army Corps of Engineers. The second highest agency in terms of new cases was DCMA (Defense Contract Management Agency) coming in at 18 percent (92 new cases). This was the lowest number of new cases in the past five years for DCMA and less than half the number of cases from fiscal years 2014 and 2015.

Of the 678 dispositioned cases, 80 appeals were sustained (in whole or in part), 59 appeals were denied, while 539 cases were dismissed. Dismissed cases include those that were resolved by the parties prior to hearing, withdrawn by one of the two parties, or failure to meet the rules of the ASBCA.

The ASBCA is not necessarily the final authority in contract appeals but it has an excellent track record. Of the 139 cases sustained or denied, only eight were appealed to the U.S. Court of Appeals for the Federal Circuit (CAFC). Seven of those are still pending. The CAFC disposed of 10 appeals of ASBCA decisions during fiscal year 2017. Only one of the ASBCA decisions was reversed.

The Board's annual report did not provide statistics on how long a case takes to resolve. The quickest way to resolve contract disputes is to negotiate a fair and reasonable settlement with the contracting officer. Second quickest is to consider whether ASBCA Rule 12 proceedings (Optional Small Claims (Expedited) and Accelerated Procedures) might work. Rule 12 usually means that both parties will have to give up something in order to reach settlement. If the dispute goes to formal hearing, expect a the process to take a year or more.

Friday, October 20, 2017

What is the "Law of Bailment"?

The Navy leased three boats from Assessment and Training Solutions Consulting Corporation (ATSCC) for training purposes. The lease extended 18 months and required the contractor to provide routine preventative maintenance. Any repairs from damages that were the Government's fault would be paid for separately. At lease end, the Navy returned the boats in damaged condition. ATSCC tallied the damages and submitted a claim for about $58 thousand.

The Navy failed to issue a final decision on the claim for more than a year so ATSCC appealed to the ASBCA (Armed Services Board of Contract Appeals) based on a "deemed denial".

ATSCC argued that the nature of the damage was sufficient to prove negligence on the part of the Navy. However, the Board ruled that the record does not clearly show that the Navy operated the vessels negligently. That would normally resolve the appeal in favor of the Navy. However, ATSCC pointed to "common law bailment" and argued that it may rely on a presumption to meet its burden of proof. The Navy countered that since negligence is specifically addressed in the PWS (Performance Work Statement), common law bailment principles are inapplicable to ATSCC's claim.

The Board ruled that ATSCC was correct.

When the Government rents property from a contractor, a bailment for the mutual benefit of the parties is created. The law of bailment imposes upon the bailee (the Navy in this case) the duty to protect the property by exercising ordinary care and to return the property in substantially the same condition, ordinary wear and tear excepted. When the Government receives the property in good condition and returns it in a damaged condition, a presumption arises that the cause of the damage to the property was the Government's failure to exercise ordinary care or its negligence.

Overcoming the presumption requires a preponderance of the evidence. The Navy filed to overcome the presumption that the damages were caused by its negligence by a preponderance of the evidence. The Board stated: "The evidenced in the record, when fairly considered, produces the stronger impression, and has the greater weight, and even though not free of doubt, is more persuasive as to its truth when weighed against evidence in opposition thereto."

The Board ruled in favor of ATSCC. You can read the entire Board decision here.

Thursday, October 19, 2017

Government Employees are (Generally) a Happy and Contented Bunch

OMP (Office of Personnel Management), the Government's HR Department, recently published the results of its 2017 Federal Employee Viewpoint Survey. This survey measures how Government employees feel about their jobs, their supervisors, and their agencies. It also allowed employees to share their opinions on what matters most to them.

Nearly a half million employees responded to the survey representing 80 different agencies. Overall satisfaction rose 3 percentage points from 61 to 64 percent. The questions in the 2017 survey were identical to those in the 2016 survey.

The survey results have been published here and can be searched for additional details. It includes links to even more details, if one is so inclined to study them. Overall DoD agencies are right around the norm for overall satisfaction (64 percent). The Department of Energy is higher (68 percent) and NASA is much higher (80 percent).

From a Government contractor's point of view, its usually much better to deal with Government counterparts that enjoy their work, are helpful, solve problems, and seek better ways to do things.

Wednesday, October 18, 2017

Contractor Pays $2.6 Million to Settle False Claims Act Violation

What do you do when you are awarded a Government contract and you find that you are unable to find qualified applicants to fill the positions? Or, what do you do when you are awarded a Government contract and you find that qualified applicants cost a lot more than you bid for those positions? In one case, you risk defaulting under the contract. In the other, you put your company in financial jeopardy. Or, you could falsify employee qualification records and carry on.

Triple Canopy in Reston VA faced that dilemma with a security guard contract in Iraq. The company was to provide security support to the Government's relief and reconstruction efforts in Iraq by providing a variety of security services at the second largest air base in Iraq. However, the security guards it employed, did not meet the minimum qualifications specified by the Army.

Triple Canopy hired security guards who could not pass contractually required firearms proficiency tests. The tests were designed by the Army to ensure that the guards hired to protect U.S. and allied personnel were capable of firing their assigned weapons safely and accurately. To avoid getting caught, Triple Canopy created false test scorecards that it was required to maintain for Government review. Ultimately, the Government paid for the unqualified guards.

Triple Canopy's scheme fell apart when a company whistle-blower came forward and filed a Qui Tam action. The Government intervened and Triple Canopy agreed to pay $2.6 million to settle the suit. Of the $2.6 million, the whistleblower will receive approximately $500,000.


Tuesday, October 17, 2017

Procurement Fraud Prevention Act

Senate Bill 938 would require GSA (General Services Administration) in consultation with the Office of Management and Budget (OMB), to ensure that any direct communications with small businesses about providing goods and services to the Federal Government contain a notice that technical assistance from the Federal Government on the procurement process is available to small businesses at no cost.

We explained this bill in some detail back in May (see Proposed Legislation to Notify Small Businesses of Free Procurement Assistance). The intent is to help protect small businesses from falling victim to fraud when they register to sell their products and services to the Government. We're not sure what kind of procurement fraud that SAM (System for Award Management) registrants are susceptible to. Neither of the Senate sponsors (Peters and Collins) provided any studies or anecdotal evidence of procurement fraud. We know from personal experience that SAM registration will result in many offers of assistance for a fee. Sometimes such paid assistance is no better than what is available for free through DLA's Procurement Technical Assistance Centers (PTAC) or SBA assistance. However, we would not call that procurement fraud.

The Congressional Budget Office (CBO) reported that the Bill, if enacted, would have negligible impact on spending or revenues for the next 10 years, and would impose no costs on state, local, or tribal governments. That is intuitively obvious.

The Bill took another step toward enactment earlier this month when the Senate Committee on Homeland Security and Governmental Affairs reported favorably in support of the legislation.

Finding and utilizing free resources is a good place to start for small businesses just getting started in Government contracting. The PTACs in particular have a lot of resources and a good track record in helping companies through the maze of procurement regulations.

Monday, October 16, 2017

40 Months in Prison for Accepting $35,000 in Gratuities

We read this Justice Department Press Release from last Friday about a former Navy comptroller from the Norfolk Ship Support Activity being sentenced to 40 months in prison because he accepted $35,000 in gratuities over a four year period from a Government subcontractor. These gratuities were not paid in cash but consisted of cell phone service for he and his wife, and some other personal electronic items. We thought the punishment (3 plus years in prison plus restitution) seemed severe and certainly not typical of what we have come to expect based on similar prosecutions. That is, until we dug a little deeper than just the Justice Department's press release.

Why would a high-ranking Government employee, making somewhere around $150,000 a year, jeopardize his job, his career, his reputation, and his future by accepting a few thousand dollars of trinkets and junk jewelry? How does that even fit into the fraud triangle concept (perceived unshareable financial need, perceived opportunity, and rationalization)? Turns out, the case was not so much the gratuities he received but more about what he was setting himself up to receive after he retired from the Government.

The comptroller found a company that would collaborate with him to misuse Government funds; Global Services Corporation (GSC). He then directed that a certain (unnamed) prime contractor to award a subcontract to GSC. He then directed the prime contractor to pass Government funds to GSC. He then directed GSC to withhold unexpended funds that should have been returned to the  Government via the prime contractor. Obviously, the Navy comptroller had a lot of undue influence over the operations and activities of GSC. The complaint called GSC a willing participant in the scheme.

When all was said and done, the Navy controller, through the prime contractor parked about $5 million with GSC for which no services were ever rendered. What did the Navy comptroller get out of it besides $35 thousand in electronics? The promise of post-retirement employment at $150,000 per year to be paid out of the $5 million slush fund. He never got there. The scheme was uncovered before he retired by a routine audit by the Naval Audit Service. Now he will be spending the next few years of his retirement in prison.

The President of Global Services Corporation (GSC) also pleaded guilty on related charges. He is set to be sentenced later this year.

Friday, October 13, 2017

Company President Found Guilty of Fraud Against the Government

A jury has found the owner of Armet Armored Vehicles Inc. guilty of defrauding the U.S. Government on a contract for 32 Gurkha armored gun trucks. The company (and by extension the owner) lied about the ballistic and blast protection capabilities of their Gurkha gun trucks as well as only delivering seven of the promised 32 vehicles contracted for and delivering those seven vehicles long after the contract delivery date.

Evidence at trial demonstrated that the owner executed a scheme to defraud the United States by providing armored gun trucks that were deliberately under-armored. Although the gun trucks did not meet contractual specifications, the company and its employees represented that the trucks were adequately armored.

After the verdict, the Judge in the case took the unusual step of remanding the owner into custody pending a full bond hearing. Perhaps he was considered a flight risk. A sentencing date has not yet been scheduled.

This case began with a whistleblower suit by a company employee.

The Gurkha is an armored military and law enforcement vehicle. It is based on a Ford F550 chassis with a 6.7 liter diesel engine but is typically customized to the user's needs.

A previous civil action involving this incident was settled in favor of Armet. Read more about this case in the Justice Department press release.

Thursday, October 12, 2017

Subcontractor Pays $235 Thousand to Settle False Claims Charges

Late last month, we wrote about a $2 million settlement involving a DOE (Department of Energy) subcontractor who subcontracted some of its work to a third company who, it turned out, was a small  woman-owned business but had no employees or equipment (see $2 Million Settlement in Small Business Subcontracting Fraud).

This week, the Justice Department announced settlement with the other company, Sage Tec LLC. Sage Tec and its owner agreed to pay $235,000 to resolve allegations that it violated the False Claims Act (FCA) in connection with two small business subcontracts.

The prime contractor, responsible for environmental remediation at Hanford, was required to award a certain percentage of subcontracts to eligible and qualified small and disadvantaged businesses, including woman-owned small businesses. The requirement flowed down to its subcontractors as well. One of the subcontractors, FE&C (Federal Engineers and Constructors) awarded two subcontracts to Sage-Tec, an entity that purported to be a small, disadvantaged business. 

Initially, a lawsuit was brought forth by a whistleblower. The Government later enjoined the suit. The basic charge was that the prime contractor, FE&C, and Sage Tec knowingly misrepresented Sage Tec to be a qualified disadvantaged small business in order to be eligible for two multi-million  dollar subcontracts that were designated for truly qualified small disadvantaged businesses. Sage Tec, it turns out, was not a legitimate small, disadvantaged business; rather it was a pass-through front company for FE&C, which performed substantially all of the work that should have been performed by Sage Tec.

The Government continues to investigate the Prime contractor for its role in the matter. The original whistle-blower stands to make a lot of money. On this Sage Tec settlement, the whistleblower will receive $47 thousand. On the aforementioned FE&C settlement, the whistleblower earned $470 thousand. If the prime contractor settles, the whistleblower will probably get a cut of the settlement amount as well.

You can read the full Justice Department press release here.

Here's a link to a related article appearing in the local newspaper.

Wednesday, October 11, 2017

Contractor Recovers Termination Costs Even Without Receiving a Notice to Proceed

In 2011, the Corps of Engineers awarded a contract to Pro-Built Construction to build a police station in Afghanistan. The Corps did not issue a notice to proceed however, and in 2012 (about seven months later), issued a TforC (Termination for Convenience) due to "negative security conditions.. Pro-Built submitted a TforC claim for about $1.1 million. In a final decision, the Contracting Officer determined that Pro-Built was entitled to a mere $49 thousand. Pro-Built appealed to the ASBCA.

While waiting for the notice to proceed, Pro-Built prepared its pre-construction submittal, a quality control plan, accident prevention plan, and security plan. It also sent staff and subcontractors to see the site, talk with the local people and talk with the village elders, and considered elements for the design including building codes and specifications.

The Corp asked DCAA (Defense Contract Audit Agency) to audit Pro-Built's $1.1 million claim. DCAA questioned the entire amount because the company incurred the costs prior to receiving a notice to proceed (FAR 31.201-2 and FAR 52.211-10). DCAA piled on more allegations; it was unreasonable for Pro-Built to have incurred any costs, other than to meet bond, insurance, or administrative requirements prior to receiving the notice to proceed, that Pro-Build did not have a formal accounting system; the Pro-Built's proposal was not an acceptable basis for settlement, and that Pro-Built had not properly calculated its G&A (General and Administrative) rate.

Ultimately the Board awarded Pro-Built $339,000 for a variety of reasons but most importantly, because they found, given the labor market and security situation in Afghanistan, it was reasonable for Pro-Built to incur standby costs prior to the notice to proceed. The Board allowed three months of stand-by costs rather than the eight months proposed by Pro-Built. The Board also noted that the Corps strung Pro-Built along with multiple correspondences stating, to the effect, that it would be issuing a notice to proceed imminently.

The entire Board decision can be read here.

Tuesday, October 10, 2017

Whistle Blower Protections for Contractor Employees Extended

FAR (Federal Acquisition Regulation) 3.900(b) and 3.908 implemented a pilot program for the enhancement of whistleblower protections for contractor employees from July 1, 2013 to January 2, 2017. The pilot program was subsequently extended to July 2, 2017. Prior to expiring, the pilot program was made permanent by Public Law 114-261 on December 14, 2016.

The FAR Councils are presently processing FAR Case 2-005, Whistle blower Protection for Contractor Employees to revise the FAR to make the pilot program permanent. The FAR case will be finalized at some undetermined point in the future.

In the meantime, the Civilian Agency Acquisition Council (CAAC) has issued a letter authorizing agencies to issue deviations to FAR in order to continue the pilot program coverage and address potential confusion in the use of clauses in commercial contracts implementing the program.

Most civilian agencies are taking the necessary steps to implement the CAAC letter so that whistleblower protections for contractor employees remain viable. Additionally, the CAAC letter clarifies that the relevant contract clauses belong in commercial item contracts in addition to negotiated procurements.

You can read the full letter here.

Monday, October 9, 2017

Subcontractor Cost/Price Analyses Not Completed When Prime Proposal Submitted

DFARS (DoD FAR Supplement) 252.215-7009 is the Proposal Adequacy Checklist that companies should complete whenever a proposal to DoD requires the submission of cost or pricing data. The requirement is not mandatory, its only suggested as a means of facilitating submission of a thorough, accurate, and complete proposal (see DFARS 215.408(5). Although DFARS only suggests that it be prepared, often times procurement offices will make it a requirement for proposal submission thus making it effectively a mandatory document. Its a nice tool and we usually recommend contractors complete the checklist for any proposal. Whether prospective contractors choose to submit one or not, someone in the Government probably will prepare one so its best that contractors be prepared to respond to any queries that might result from a "no" answer.

One of the more problematic questions has been No. 17 which asks whether the prime contractor or higher-tier subcontractor has included the required cost or price analyses that establishes the reasonableness of each of its proposed subcontracts included with the Proposal. If not, the question further asks whether the offeror has included a matrix identifying (i) dates for receipt of subcontractor proposal, (ii) completion of fact finding for purposes of price/cost analysis, and (iii) submission of the price/cost analysis.

DCAA (Defense Contract Audit Agency) is playing hard-ball with this question. In recent guidance to its audit staff, it makes the following observation.
Question: If the prime contractor or higher-tier subcontractor has not completed the required cost or price analyses but has included a matrix identifying dates for receipt of subcontractor proposals, should Question No. 17 be marked as adequate or inadequate? Additionally, should the audit team consider the overall proposal adequate or inadequate for audit and proceed with the audit if this inadequacy exists?
Answer: FAR 15.404-3(b) requires the prime contractor or higher-tier subcontractor to conduct appropriate cost or price analyses to establish the reasonableness of the proposed subcontract prices and include the results of these analyses in the prime contractor’s proposal.
 As such, the inclusion of a matrix does not overcome the inadequacy of the prime contractor not submitting the cost or price analyses with the proposal. If the prime contractor or higher-tier subcontractor has not completed the cost or price analyses, as required by FAR 15.404-3(b), Question No. 17 ... should be marked as inadequate (i.e., answer “no” under “Adequate?”
We're not sure how the DCAA position serves any useful purpose. The DoD in its checklist has already allowed for a time-phased matrix when an offeror's cost/price analysis of subcontractor proposals cannot be completed by the proposal due date. If the offeror did not complete the cost/price analysis and did not supply a schedule for completing them, then the proposal might not be adequate for negotiating a price.

Friday, October 6, 2017

Contracting Officer's Alleged Misconduct Cost a Contractor $21 Million

L3 Technologies' Communication Systems-West Division (CSW) filed a suit against the Defense Contract Management Agency (DCMA) last month for $21 million alleging that DCMA's Divisional Administrative Contracting Officer (DACO) inappropriately directed the contractor to discontinue proposing its Material Adjustment Factor (MAF) on all proposals to the Government.

This case is about a DCMA DACO's unreasonable and improper administration of CSW's Government contracts and the "far-reaching harm" caused by that "maladministration". For more than two years, the DACO prohibited CSW from including otherwise allowable costs in its proposals for Government contracts. CSW, the complain alleges, had no viable choice but to accede to the DACO's directive because the DACO is the Government official with exclusive responsibility for determining CSW's compliance with Cost Accounting Standards (CAS), establishing final indirect cost rates and billing rates, and determining the adequacy of its accounting system and other contractor business systems (including estimating systems).

The MAF (Material Adjustment Factor) is a composite factor to propose material-related costs not included in any other bid element. It consists of four components: scrap, vendor rework, consumables, and residual material. From 1998 through 2006, CSW included the MAF factor in its negotiated Forward Pricing Rate Agreements (FPRAs). During those years, DCAA (Defense Contract Audit Agency) audited the factor numerous times and took no exception. During negotiations for a 2007-2011 FPRA, the Government and CSW could not come to agreement on one of the components of the MAF, residual materials. And so, the DACO excluded the MAF from the FPRA with the understanding that it would be included as an addendum to the FPRA when the parties resolved the residual material component.

In 2011, notwithstanding that the amount in dispute represented only a small part of the MAF and affected only certain contracts, the DACO directed CSW to discontinue proposing the MAF on all proposals until further notification. At no point prior to that did the DACO provide CSW written notice of any pontential noncompliances stemming from the use of the MAF nor did the DACO make any effort to reach a satisfactory settlement through discussions with CSW before peremptorily directing CSW to discontinue proposing the MAF. This action violated both FAR 30.605 and FAR 42.801.

The DACO compounded "her blunderbuss approach to the MAF with her erratic and unpredictable actions regarding the status of CSW's estimating system". The DACO disapproved the estimating system, then changed "disapproved" to "inadequate" and threatened CSW that it it proposed the MAF, she would consider the system to have a significant deficiency.

Because of the DACO's improper actions, CSW was unable to propose allocable, allowable, and reasonable costs totaling $21 million, the amount of the lawsuit.

Thursday, October 5, 2017

More Recommendations for the Section 809 Panel

From time to time, we provide updates to some of the activities of the Section 809 Panel, an advisory panel created by the 2016 NDAA (National Defense Authorization Act) to make recommendations on streamlining the Defense Department's acquisition regulations. The Section 809 Panel solicits recommendations and ideas from anyone that has an interest in Government procurement and wishes to offer up ideas for streamlining the acquisition process.

Last week, The Coalition for Government Procurement submitted a list of 30 specific recommendations for (i) reducing unnecessary regulations on industry, (ii) empowering successful acquisition management and (iii) strengthening inter-agency contracts to ensure that DoD contracting officers can make informed contracting choices. The Section 809 Panel is reviewing those recommendations now, The Coalition's report can be found here.

So what were some of their recommendations? Well, to be honest, we haven't read the full 94 page report ourselves. That seems a bit much to ask, no? But we did review the titles of the 30 recommendations, scanned through the document, and read the details of a few that sounded interesting. Here are some samples:

  1. There were a few suggestions that appear outside the scope of the Panel's mission. For example, the Coalition recommended that a change required by the 2017 NDAA - competition at the task order level - be expanded to civilian agencies as well.
  2. Permanent sun-setting - the Coalition recommend a procurement sun-setting on all procurement regulations not required by statute.
  3. Eliminating the requirement to report executive compensation - this will save contractors 55,000 hours every year and the requirement has dubious benefits.
  4. Increase the micro-purchase threshold to $10,000 (from $5,000). Affects only one percent of spending but would increase the speed of thousands of transactions.
  5. Streamline the cumbersome SAM (System for Award Management) registration process. The current process is intimidating for new businesses seeking to sell to the Government.
  6. More training for the acquisition workforce (a recommendation that comes up every year)
  7. Modernize FedBizOpps - it lacks many of the features found on comparable commercial market platforms.
  8. Change the auditing process - This recommendation is not a slam against DCAA.  Rather it is a recommendation that civilian agencies use organizations other than their own Inspector General offices to conduct contract audits.

You can read (or peruse) the full report here.

Wednesday, October 4, 2017

Another "Rent-a-Vet" Scheme Settlement

The New York Foundation for Fair Contracting (NYFFC) is a not-for-profit organization established to support, promote and encourage fair contracting by leveling the playing field in public works construction for the benefit of taxpayers, contractors and workers (online source). According to NYFFC, not all construction contractors play by the rules. Unfortunately a number of them skimp on safety, cheat workers out of wages and use shoddy materials. When this happens, the construction industry, the taxpayers and the local economy pay the price. The NYFFC works to ensure that only responsible contractors - contractors that pay the proper wages, perform quality  workmanship and complete projects on-time - are awarded the opportunity to perform wok on public works contracts.

The Foundation just became $450,000 richer. It blew the whistle on a couple of contractors who fraudulently obtained Federal Government contracts that were designated for service-disabled veteran-owned (SDVO) small businesses. The companies involved Zoladz Construction and Arsenal Contracting, and Alliance Contracting (along with the two owners, Zoladz and Lyons) service-disabled veterans and therefore were not eligible for the contracts.

Zoldaz recruited a service-disabled veteran to serve as a figurehead for Arsenal, which purported to be a legitimate SDVO small business but which was, in fact, managed and controlled by Zoladz and Lyons, neither of whom is a service-disabled veteran. The Government determined that Arsenal was a sham company that had scant employees of its own and instead relied on Alliance and Zoldaz employees to function. After receiving numerous SDVO small business contracts, Arsenal then subcontracted nearly all of the work to Alliance (owned by Zoladz and Lyons) and Zoladz (owned by Zoldaz). Neither Alliance nor Zoldaz were eligible to participate in SDVO small business contracting programs.

The principles agreed to pay $3 million to settle the allegations. NYFFC who blew the whistle in this case, will receive $450,000 of that amount. No word on the value of the contracts awarded to Zoladz or Alliance. Presumable, the $3 million was calculated to take away the profits that the companies made as a result of their false statements.

You can read more about this case in the Department of Justice's press release.

Tuesday, October 3, 2017

Former Contracting Officer Accused of Accepting $3 Million in Bribes

For the past 10 years, the U.S. Army has been upgrading Camp Humphreys to be its new flagship installation in South Korea. The bulk of U.S. forces and civilians stationed in South Korea, including those stationed at the current Eighth U.S. Army Headquarters in Yongson (Seoul) will be relocated to Camp Humphreys once the upgrades are completed. This will allow U.S. Forces to consolidate its footprint from more than 100 installations throughout South Korea to less than 50. Camp Humphreys has the added benefit of being located beyond the range of most of North Korea's 14,000 artillery pieces.

To call this project an upgrade significantly understates the scope of what is happening. The cost has been publicly acknowledged at  $13 billion but probably exceeds that by a significant amount. Its size exceeds that of Washington D.C. It will house 36,000 service members, dependents, civilian employees and contractors. It's an entire city with hospitals, schools, shopping, and recreation facilities including a golf course.

With a cost projected at $13 billion there are plenty of opportunities for fraud, waste, and abuse in and among contractors working on the project and the Army Corps of Engineers in charge of the project and related contracts. The Justice Department just announced charges in one case.

A former contracting officer for the Army Corps of Engineers and a former officer in the Korean Ministry of Defense were indicted for their roles in a scheme to direct over $400 million in DoD construction contracts to a South Korean construction company in exchange for $3 million in bribes. One has to believe that the expected profit on $400 million had to be significant in order to offset more than $3 million in bribes.

The former Corps of Engineers contracting officer, currently living the good life in Hawaii, has been charged in a nine-count indictment with mail and wire conspiracy, bribery, wire fraud, conspiracy to commit money laundering, and making false statements.

Between 2008 and 2012, the contracting officer solicited bribes from a large Korean engineering and construction company in exchange for directing contracts to the company related to the relocation and expansion of Camp Humphreys.

The former COE contracting officer hid the bribe money by purchasing real estate and putting it in bank accounts in the names of others, including two girlfriends. He quit his job with the Corps in 2012 and began lobbying the DoD for construction projects on behalf of the company that paid him the bribes.

You can read more in the Justice Department press release here.

Monday, October 2, 2017

The Bonus for Cost Cutters Act of 2017

A Bill that would authorize the head of a federal agency to pay a cash award to federal employees who identify unnecessary expenses (i.e. waste, fraud, and abuse) resulting in cost savings for the agency has been introduced in the House and referred to the Committee on Oversight and Government Reform. The maximum amount of the bonus would be $20,000 and certain Government employees would not be eligible including (i) an officer serving in a position at Level I of the Executive Schedule, (ii) the head of an agency, (iii) anyone employed by the Office of the Inspector General, and (iv) a commissioner, board member, or other voting member of an independent establishment.

The Congressional Budget Office (CBO) issued its report on this legislation, noting that there would be no significant additional cost to implement the bill since there are many tools at the Government's disposal under current law to report waste and mismanagement of funds. However, the CBO also said that it wouldn't do much to help reduce wasteful spending because there would be no significant reduction in federal spending because of increased identification of wasteful or fraudulent spending as a result of enacting the bill. The CBO is probably correct. The Government has a lot of priorities and if funds are not spent somewhere, they'll be spent somewhere else. The CBO failed to note however that money spent on wasteful projects means that something else will not get funding.

In the context of this bill, the term "unnecessary expense" means amounts identified by an employee as unnecessary that the CFO of the agency determines are not required for the purpose for which the amounts were made available and the rescission of which would not be detrimental to the full execution of the purposes for which the amounts were made available.

The "unnecessary expenses" would be deposited in the Federal Treasury to reduce the Federal deficit. The agency can retain up to 10 percent of the funds to pay for the cash awards or for other uses of the agency (consistent with other provisions of the law).

There is some concern that this bill, if enacted, could affect contract awards and contract funding - especially funds remaining at year end when the Government slips into its annual "spend it or lose it" ritual - where the Government will spend money on anything as long as it gets spent on something. Many of the "wasted" projects lambasted by Senator Flake in "Porkemon Go" or Senator McCain in "America's Most Wasted" or Senator Lankford in "Federal Fumbles - 2016 Edition" may not have received funding had a bonus incentive been in place at the time someone in the Government decided it was worthwhile to spend money to see if dinosaurs were able to sing.