Friday, June 29, 2018

When a "Claim" is Not a "Claim"

In 2014, the Army Corps of Engineers issued a fixed price task order to HCJ (a joint venture) to repair the roofs of two buildings. We don't know what happened in the meantime but two and a half years later, HCJ filed a REA (Request for Equitable Adjustment) for $225 thousand because it also had to remove, dispose, and replace rain gutters on the building.

The Corp of Engineers denied the contractor's REA and informed it of its right to submit a claim requesting a contracting officer final decision. Sometime after that, the contractor contacted the contracting officer by phone stating that it wished the REA to be treated as a claim. The contracting officer, citing the telephone conversation, proceeded to deny the claim and informed the contractor of its appeal rights.

The contractor appealed to the ASBCA (Armed Services Board of Contract Appeals). The result was surprising.

The Contract Disputes Act (CDA) provides that each claim shall be submitted to the contract officer for a decision. FAR defines a claim as a written demand or written assertion by one of the contracting parties seeking, as a matter of right, the payment of money in a sum certain, the adjustment or interpretation of contract terms, or other relief arising under or relating to the contract. Moreover, a claim exceeding $100,000 must be certified.

For the ASBCA to have jurisdiction under the CDA, the contractor must submit a proper claim, an element of which is a request for a contracting officer's final decision. The request for a final decision however, must be in writing and the contracting officer cannon waive this requirement by issuing a final decision.

The contracting officer's "final decision" was not issued in response to a written claim by the contractor and thus, there is no contracting officer decision from which an appeal could be take to the ASBCA.

The appeal was dismissed, not because the claim lacked merit, but because there was no written request for a contracting officer final decision.

You can read the full ASBCA decision here.

Thursday, June 28, 2018

New FAR Definitions for Emergency and Major Disasters

The FAR (Federal Acquisition Councils) recently published a proposed regulation designed to expand special emergency procurement authorities for acquisitions of supplies or services that facilitate defense against or recovery from cyber attack, provide international disaster assistance under the Foreign Assistance Act of 1961, or support response to an emergency of major disasters. This regulation is needed to implement provisions of the 2017 NDAA (National Defense Authorization Act).

Essentially, the regulation will allow for higher micro-purchase and simplified acquisition thresholds for acquisitions of supplies or services that facilitate defense against or recovery from cyber attack.

One of the key features of the new regulation is new definitions for "Emergency" and "Major Disaster". Although those terms have been intuitively understood, the definitions will help everyone to be act with more precision when higher purchasing threshholds are appropriate.
Emergency means any occasion or instance for which, in the determination of the President, Federal assistance is needed to supplement State and local efforts and capabilities to save lives and to protect property and public health and safety, or to lessen or avert the threat of a catastrophe in any part of the United States.
Major disaster means any natural catastrophe (including any hurricane, tornado, storm, high water, wind-driven water, tidal wave, tsunami, earthquake, volcanic eruption, landslide, mudslide, snowstorm, or drought), or regardless of cause, any fire, flood, or explosion, in any part of the United States, which, in the determination of the President, causes damage of sufficient severity and magnitude to warrant major disaster assistance under the Stafford Act to supplement the efforts and available resources of States, local governments, and disaster relief organizations in alleviating the damage, loss, hardship, or suffering caused thereby.
The increased thresholds are $20,000 and $750,000 for micro purchases and simplified acquisitions respectively. The amounts are higher than these if performed outside the U.S.

Wednesday, June 27, 2018

One Man, Many Names, Many Companies

How do you continue to contract with the Government when your company has been debarred? Easy. Take a new name and start a new company. Easy, that is, until you're caught.

One man, with four different names (Alter Stesel, Herman Stesel, Randy Stern, and Nehry Shtaisel) pleaded guilty yesterday in Federal District Court to committing Government contracting fraud.

His first company, A1 4 Electronics was placed in proposed debarment status by the Department of Homeland Security for providing counterfeit goods and for a history of failure to perform or unsatisfactory performance on Government contracts.

After learning of his proposed debarment, Mr. Stesel created a new company called A1 Tech Pal, Inc in order to continue obtaining Government contracts including contracts awarded by GSA (General Services Administration) and the State Department. He also used a fake alias to falsely certify to the Government that he was not currently proposed for debarment. That new company received 37 contracts valued at $245 thousand.

Later Stesel created another company called Pomegranate Office, Inc., and used another fake alias to falsely certify that he was not presently debarred, although by that time, his debarment was in effect. Pomegranate was awarded seven contracts valued at $60 thousand.

Stesel pleaded guilty to six counts of fraud and faces a maximum penalty of 20 years in prison. Sentencing is scheduled for September. His actual sentence will most likely be significantly less than the maximum penalty.

As usual, when the Justice Department announces a guilty plea and describes the fraud that was committed, the Department doesn't go into any details of how the fraud was uncovered. That information would be useful for contractors to consider when enhancing their policies and procedures for preventing and detecting internal fraud.

Tuesday, June 26, 2018

Wouldn't Contractors Love to Have This Contracting Officer Overseeing Its Government Contracts

Is DCAA (Defense Contract Audit Agency) irrelevant? DCMA (Defense Contract Management Agency) must think so. Here's a case that represents an egregious waste of taxpayer funds.

Back in 2009, the Air Force partially terminated a contract for convenience. The part that was terminated involved the purchase of titanium for F-22 aircraft fuselages from one of the contractor's subcontractors.

In 2012, the Air Force Termination Contracting Officer (TCO) requested that DCAA (Defense Contract Audit Agency) conduct an audit of the subcontractor's termination settlement proposal.

In 2014, DCAA finally issued its audit report on the subcontractor's termination settlement proposal. DCAA identified $826 thousand of the $1.9 million claimed as questionable for not complying with FAR (Federal Acquisition Regulations). $354 thousand of the questioned amount were costs incurred after the notice of termination and therefore unallowable. The remaining $472 thousand were unallowable according to other FAR provisions.

DCMA (Defense Contract Management Agency) - the Contracting Officer - was responsible for negotiating the termination settlement proposal and for addressing the $826 thousand questioned by DCAA.

In 2016, The DCMA contracting officer, without considering any of DCAA's questioned costs, authorized the full $1.9 million termination settlement proposal.

Later in 2016, a Hotline Complaint was filed with the DoD Office of Inspector General (DoD-IG) alleging that the DCMA contracting officer's settlement was improper because it did not consider the DCAA audit findings (wonder who might have filed this hotline complaint). After receiving the hotline complaint, the DoD-IG initiated an investigation.

The DoD-IG found that the DCMA contracting officer and her supervisor were negligent in negotiating proposed termination costs. For her part, the contracting officer,

  • did not have any experience in negotiating DCAA-questioned costs and prior to this termination settlement proposal, she performed only contract administrative tasks, such as maintaining spreadsheets of invoices billed by the contractor
  • did not have any experience with contracting actions greater than $750 thousand, which did not require negotiations involving DCAA audits and
  • was not aware of the requirements for appropriately considering and documenting her actions on DCAA-questioned costs.
That should not have happened with adequate supervision, correct? Didn't happen. The DoD-IG also found that the supervisor (since retired) was negligent as well: The supervisor did not
  • document why he approved the action
  • document whether he advised the contracting officer to sonsult with or engage DCAA during negotiations
  • document whether he advised the contracting officer to seek legal counsel given her decision not to uphold the DCAA audit
  • require the contracting officer to prepare a price negotiation memorandum documenting the reasons for not upholding the DCAA questioned costs.
DCMA, as part of corrective action, rescinded the contracting officer's warrant, sent her to more training, and reviewed all of her past actions. DCMA also asked for some money back but the subcontractor refused claiming that it had a signed contract modification.

If you want to read the full investigative report, click here.

Monday, June 25, 2018

Need a Contracting Preference? Open a Day-Care

Nine House Representatives have gotten together to introduce legislation that will require Executive Agencies to give priority to entities with on-site child care for employees when awarding certain contracts. We suppose that if companies are not eligible for any other type of contracting preference - the company is not in a HUBzone, is not veteran owned, is not woman-owned, is not minority-owned - it can open an on-premises day-care center for its employees and get a few bonus points when seeking Government contracts.

Specifically, the proposed legislation provides the following:
In awarding a contract for an amount exceeding $4 million, an executive agency shall give priority to any entity with on-site child care for the employees of the entity.
The proposed legislation also provides that this preference does not take priority to the preference given to small business concerns.

This legislation, if passed, will apply to all executive agencies meaning "an executive department or independent establishment in the executive branch of the Government (or a wholly-owned Government corporation).

The full text of the proposed legislation can be found here.

Friday, June 22, 2018

SBA Might Be Awarding Contracts to Ineligible Women-Owned Business

The SBA Women-Owned Small Business Program is intended to provide greater access to Federal contracting opportunities for firms that are women-owned small business (WOSBs) and economically disadvantaged women-owned small businesses (EDWOSBs) that meet program requirements. In the 2015 NDAA, Congress provided more access to the program by authorizing the sue of sole-source contracts for program set-aside contract but it also required that firms be certified by a Federal agency, a State government, the SBA Administrator, or a national certifying entity approved by SBA. In October 2015, SBA issued regulations that allowed contracting officers to award program contracts on a sole-source basis. According to the Inspector General of the SBA however, SBA did not implement the required certification process.

This month, the SBA Office of Inspector General (SBA-IG) issued its report on an audit to determine whether contractors awarded on a sole-source basis complied with the requirements of the program and whether firms that received set-aside contracts on a sole-source basis conformed to the self-certification requirements. The SBA-IG studied 56 contracts averaging about $1 million each that were awarded over a 16-month period ending April 2017. That was a pretty representative sample-size as it included 81 percent of all awards during that period.

The results of the SBA-IG's audit were not encouraging. Of the 56 contracts sampled, contracting officers and firms did not comply with Federal regulations for 50 of them. As a result, the U.S. Small Business Administration had no clue whether these contracts were awarded to firms that were eligible to receive sole-source contracts.

The SBA-IG recommended that SBA establish and implement a certification process as required by the NDAA and made several other recommendations designed to improve SBA's oversight of the program.

SBA agreed to make some changes in the program but the SBA-IG was not at all satisfied with SBA's proposed corrective actions. Although SBA agreed to implement a certification process, its time-frame for doing so was unreasonable, according to the SBA-IG. SBA did agree to review each and everyone of the 56 sole-source awards and conduct eligibility reviews and to initiate debarment proceedings on any contractor that falsified its status. If you are one of those 56 contractors, you can expect queries and data requests real soon.

The SBA-IG admonished the SBA for its lack of due diligence. It wrote: "SBA ... must ensure that it takes all necessary measures to ensure the integrity of the program. This includes conducting more frequent eligibility reviews, addressing incomplete data and errors, and coordinating with the Office of Federal Procurement Policy and the General Services Administration to strengthen controls ..."

You can read the full Inspector General's report here.

Thursday, June 21, 2018

2019 NDAA - Past Performance Evaluations for Subcontractors and Joint Venture Partners

Last Tuesday, the Senate passed its version of the Fiscal Year 2019 NDAA (National Defense Authorization Act). Its called the John S. McCain National Defense Authorization Act for Fiscal Year 2019. Now its on to negotiations with members of the House of Representatives to create a compromise bill to send to the President.

Title VIII is the section we are most interested in as it covers "Acquisition Policy, Acquisition Management, and Related Matters. Over the past couple of months, we've discussed various Title VIII provisions included in both the House and Senate versions of the 2019 NDAA. There's no certainty that the two bodies will reach consensus on any of these provisions but there is a strong likelihood that most of them will be preserved - perhaps watered down a bit - but preserved. Many times some of the more controversial provisions end up as a requirement to do more study and write a report. That's the situation with contract disputes. The House wants to limit bid protests while the Senate wants to study whether that is necessary.

Section 816 of the Senate NDAA tries to beef up the availability of past performance evaluations of contractors and subcontractors. It requires FAR changes to ensure that the best information regarding past performance is available when awarding DoD contracts. Specifically it will require performance evaluations, as part of a government-wide evaluation reporting tool, for first-tier subcontractors performing a portion of the contract valued at not less than 20 percent of the value of the prime contract. It will also require past performance evaluations of individual joint venture partners.

The Senate is concerned that some less than satisfactory companies are getting Government work as subcontractors or as members of a joint venture by hiding in the shadows of never having their past performance evaluated or passed up to the people awarding Government contracts.

Wednesday, June 20, 2018

Costs Related to Developing and Maintaining Company Websites

The following post is a repeat of one published nearly eight years ago. It was relevant then and continues to be relevant today. The reason we're re-publishing it today is because the question continues to arise as auditors seem to be taking a closer look at costs related to developing and maintaining company websites. Sometimes these costs are very very significant.

Not too long ago while conducting one of our training sessions, we were asked whether the cost of developing and maintaining contractor websites could be considered unallowable advertising under FAR 31.205-1. We hadn’t encountered this question before so we did not have a complete answer. The cost of developing and maintaining a company website is significant in many cases. Medium sized companies can spend tens of thousands of dollars and larger companies, significantly more. So, we sent the question on to DPAP (Defense Procurement Acquisition Policy), the DoD organization responsible for all acquisition and procurement policy matters in the Department of Defense (DoD). Here is the question and the response.
Question: Do company websites meet the FAR 31.205-1(b) definition of "advertising". The definition does not explicitly list "websites" as advertising media but the listing of included media is not an all-inclusive listing. If company websites meet the definition of advertising, it would have to meet the primary purpose criteria discussed in FAR 31.205-1(f) to be unallowable. It seems to us that most websites have multiple purposes. Advertising is certainly one purpose but there are others such as communications with shareholders, customer ordering, customer support, and contact information.

Response: FAR 31.205-1 defines advertising to mean:

the use of media to promote the sale of products or services and to accomplish the activities referred to in paragraph (d) of this subsection, regardless of the medium employed, when the advertiser has control over the form and content of what will appear, the media in which it will appear, and when it will appear. Advertising media include but are not limited to conventions, exhibits, free goods, samples, magazines, newspapers, trade papers, direct mail, dealer cards, window displays, outdoor advertising, radio, and television.

The phrase, “regardless of medium employed,” is sufficiently broad enough to make the definition of advertising include company websites. As stated by the questioner, “advertising is certainly one purpose” of company websites. In accordance with the requirement of FAR 31.204(d), the cost to develop and maintain company websites should be apportioned among the contractor’s accounts that best capture their essential nature to the extent company websites are used for multiple purposes. FAR 31.204(d) states:

When more than one subsection in 31.205 is relevant to a contractor cost, the cost shall be apportioned among the applicable subsections, and the determination of allowability of each portion shall be based on the guidance contained in the applicable subsection.
We recommend that contractors assess the purpose of their websites and if there is a component of advertising involved, apply a logical (defensible) method apportioning the costs between the relevant cost accounts.

This "apportioning" advise will necessarily require a high degree of judgment. Unfortunately there is not a set formula or criteria to apply in apportioning such costs. Contractors should devise a methodology that is logical and defensible. Also, documenting the methodology is critical.


Tuesday, June 19, 2018

Fair Pay and Safe Workplaces Legislation - Bill Introduced to Restore Repealed Executive Order

Senator Tina Smith (Minn) introduced legislation last week that would restore the Fair Pay and Safe Workplaces rules from the previous administration that were repealed last year. When we first read the Senator's press release, we thought "wait a minute, what?" But sure enough, there it was.

We covered the previous rules extensively on these pages, from the initial Executive Order to the Labor Department's rules to the FAR (Federal Acquisition Regulations) rules to the court battles that threw out a major portion of them, to the eventual demise.

Here's an extract from the Senator's press release. It reads, almost work for word, like the President Obama's Executive Order.
The Fair Pay and Safe Workplaces Act is based on President Obama's executive order of the same name. While the Obama-era rules were repealed in 2017, Sen. Smith's legislation would restore them. The bill would require the federal government to consider a company's history of labor law violations in awarding federal contracts to ensure that taxpayer funds don't go to companies that repeatedly violate the law. Companies with problematic records of mistreating their workers would be required to take steps to improve the treatment of workers or face the possibility of being barred from federal contracting. The bill would also ensure that workers for federal contractors receive pay stubs and aren't forced to give up their rights to go to court for sexual harassment or sexual assault. Further the bill would ensure that taxpayer funds aren't used for union-busting activity.
We can't imagine that this legislation will have any success of passing the Senate or the House, much less the President's signature.

Monday, June 18, 2018

Prohibition on Using Kaspersky Hardware/Software

Back in September of last year, the Department of Homeland Security (DHS) directed all civilian Government agencies to remove Kaspersky software from their systems within three months. The order did not apply to the Defense Department but the Department has just issued an interim rule following suit.

So what's wrong with Kaspersky anti-virus software? There is concern among the "experts" that Kaspersky software presents an information security risk because of Kaspersky's Russian connections. A report out of the University of Illinois College of Law provides the evidence:

  1. Russian law outlines a legal obligation by Kaspersky to assist Russian FSB (their Federal Security Service) in the execution of their duties including counterintelligence and intelligence activity.
  2. Russian law also permits FSB personnel to be embedded in private enterprises
  3. Because Kaspersky qualifies as an organizer of the dissemination of information on the Internet, it is required to provide the FSB with metadata and is also required to provide Russian officials with decryption keys for its data transmissions.
  4. Under Russian law, Kaspersky is required to install equipment for the FSB to monitor data transmissions.

Those facts raises concerns that the Kaspersky is too closely tied to the Russian Government and creates an unacceptable risk to the U.S. Government.

Kaspersky is suing the U.S. Government to remove the restrictions already in place.

Under the new FAR interim rule, which is a result of the 2018 NDAA (National Defense Authorization Act), the restrictions go into effect on July 16th, 2018 and prohibits contractors from providing any hardware, software, or services developed or provided by Kaspersky Lab or its related entities, or using any such hardware, software, or services in the development of data or deliverables first produced in the performance of the contract.

Contractors must also report any such hardware, software, or services discovered during contract performance. This requirement also flows down to subcontractors.

Contractors should be aware of the implications of this prohibition. If, for example, a contractor is developing software for a Government program, the contractor may not do so with any Kaspersky software installed on their development platforms, even though such software is not integrated into the deliverable.

To read the full interim rule, click here.

Friday, June 15, 2018

The Use of Estimates in Calculating a "Sum Certain" Does Not Automatically Disqualify a Claim

"Sum certain" is a legal term that refers to a fixed or specific amount of money, without any room for ambiguity. In the context of a claim against the Government, the claim must contain facts sufficient to permit the Government to understand the basis upon which liability is claimed. The claim shall also contain a specific amount for which the claim can be settled (i.e. sum certain) and the facts supporting the amount.

The ASBCA (Armed Services Board of Contract Appeals) has, over the years, listed a  number of qualifications that defeat the "sum certain" requirement. These include nomenclatures such as:

  • approximately
  • at least
  • no less than
  • well over
  • in excess of

Finding these qualifiers will render a claim null and void because there is no sum certain indicated.

Where does "estimated" fall within the sum certain

Estimated is not among the fatal qualifications listed above. The Board (i.e. ASBCA) has frequently accepted estimates in support of a sum certain. The Board has repeatedly held that the use of estimated or approximate costs in determining the value of a claim is permissible so long as the total overall demand is for a sum certain.

Recently, in a case brought by Fluor Federal Solutions, LLC (see ASBCA No. 61353), the Board ruled that Fluor's use of estimates that included a detailed explanation of how the estimate was calculated was an "unequivocal sum certain". This reiterates a previous decision by the Board in ASBCA No. 60367, Government Services Corp, where they also ruled that the use of estimated or approximate costs in determining the value of a claim was permissible as long as the total overall demand is for a sum certain.

Estimates are fine so long as they are supported and the resulting claim is for a sum certain.

Read the recent ASBCA decision concerning Fluor Federal Solutions here.

Thursday, June 14, 2018

Car Repairs are Expensive but $74 Thousand for Replacement Turn Signals?

Who in their right mind would pay $74,000 for two turn signals - turn signals to be mounted on a munitions trailer?

The purchasing agents at DLA (Defense Logistics Agency) believed they were getting a fair and reasonable price because that's exactly what they did - bought two turn signals for $74,000. Evidently no one in DLA compared the cost to the intrinsic value of what they ordered. The Navy however did take notice and challenged the price.

The Navy needed a couple of replacement turn signals for one of its munition trailers so they asked DLA to procure them. DLA issued a solicitation. There was one bidder, Shubhada Industries so DLA issued an order for two assemblies at $32,000 each.

Shubhada then went out to the OEM manufacturer and bought two assemblies from them at $675 each. Shubhada then relabeled the boxes to make it look like they manufactured the parts and shipped them off to the Government.

Someone at the Navy balked at the cost and challenged the price. That's when Shubhada began lying - at all times maintaining that thy manufactured the product in-house and telling Government representatives that they didn't understand and were not qualified to assess the methods and intricacies required to design, engineer, and manufacture these turn signals - a brazen assertion from a company of two people occupying a small office in a strip mall. The Court wrote:
(Shubhada) has not been forthright or cooperative in the Government's investigation of the claims alleged in the amended complaint. They shrug off the Government's investigation and this proceeding. In their amended answer, they state that "We can negotiate a refund over a cup of coffee instead of a court room, wasting everybody's time. Shubhada will buy the coffee!"
The case is significant because the Government obtained a judgment on the merits and without trial. Additionally, the Court's judgment was based in part on its conclusion that it could draw an adverse inference against the individual defendants who invoked their Fifth Amendment right against self-incrimination.

Shubhada was ordered to pay $233 thousand to the United States. It is uncertain that the United States will recover as Shubhada has since filed for bankruptcy.

Wednesday, June 13, 2018

New Definition for "Adequate Price Competition" Coming

The FAR (Federal Acquisition Regulation) Councils are proposing a change to the definition of "adequate price competition" applicable to DoD contracts only. This change is mandated by the 2017 NDAA (National Defense Authorization Act). As everyone knows, contracts awarded based on adequate price competition is exempt from the requirement to submit certified cost or pricing data. But a lot of people get tied up in knots trying to figure whether adequate price competition exists or existed. The is new definition should clear up a lot of confusion, as least insofar as DoD contracts go.

The current definition reads life this: Adequate price competition exists if two or more responsible offerors, competing independently, submit priced offers that satisfy the Government's expressed requirement and if award will be made to the offeror whose proposal represents the best value where price is a substantial factor in source selection and there is no finding that the price of the otherwise successful offeror is unreasonable. Or, there was a reasonable expectation, based on market research or other assessment, that two or more responsible offerors, competing independent, would submit priced offers in response to the solicitation's expressed requirement, even though only one offer is received from a responsible offeror and if based on the offer received, the contracting officer can reasonably conclude that the offer was submitted with the expectation of competition.

So you can see, with the "reasonable expectation that two or more offerors would submit offers" provision, a high degree of judgment is involved on the part the contracting officer. The Inspector General and GAO have, at various times, second-guessed these determinations.

The new definition is much simpler and removes the subjective element in determining whether adequate price competition exists. It reads as follows:
For DoD, NASA, and the Coast Guard, a price is based on adequate price competition only if two or more responsible offerors, competing independently, submit responsive and viable offers.
So, to have adequate price competition, contracting officers must have two or more proposals in hand - no more "reasonable expectation" that two or more offers would respond. This takes the guesswork out of the equation.

The old definition still applies to all other Government agencies.

Tuesday, June 12, 2018

2019 NDAA - Multiple Bid Protest Appeals of the Same Issue

The Defense Department recently floated a proposal to reduce frivolous protests or what some call "forum shopping" by limiting the ability of contractors who's protests were denied by GAO (General Accountability Office) to then continue their protest at the Court of Federal Claims. DoD wants to limit the so-called "second bit at the apple" to within 10 days of knowing they had a basis to protest.

The Professional Services Council (PSC) and others including a couple of Senators, have called the plan "premature" and warned that it would deny fair access to companies seeking relief from potentially unjustified awards.

In order to forestall DoD's push, the Senate included a provision in its version of the 2019 NDAA (National Defense Authorization Act) that, if passed, will require further study of the matter. Specifically, the provision (Section 811) would require DoD to carry out a study of the frequency and effects of bid protests involving the same DoD contract award or proposed award that have been filed at both the GAO and the Court of Federal Claims and to establish a data collection system to better track and analyze bid protest trends in the future.

The report must include

  1. the number of protests that have been filed with both tribunals and the results
  2. the number of such protests where the tribunals differed in denying or sustaining the action
  3. the length of time, in average time and median time for the intitial filing at the GAO to decision in the US Court o Claims
  4. if performance was stayed or enjoined, whether the requirement was obtained in the interim through another vehicle or in-house, or whether during the period of the stay or enjoining the requirement went unfulfilled
  5. separately for each tribunal, the number of protests where performance was stayed or enjoined and monetary damages were awarded which shall include for how long performance was stayed or enjoined and the amount of monetary damages
  6. whether the protestor was a large or small business
  7. whether the protestor was the incumbent in a prior contract for the same or similar product or service.

DoD will have six months to complete the study.

Monday, June 11, 2018

2019 NDAA - Consent to Subcontract Under Approved Purchasing Systems

What good is having an approved purchasing system if contracting officers keep second-guessing the results of the process? You know, like telling the contractor a subcontract price is too high based on nothing more than a desire to clout - to show who's boss.

The past month or so, we've spent a few of those days writing about provisions in the House's version of the 2019 NDAA (National Defense Authorization Act) involving acquisition related matters. Today we begin a series on the Senate's version of the NDAA. Ultimately these two versions get worked out in compromise committee so we can't know yet what the final NDAA will look like. Also, the White House has weighed in on the NDAA with provisions it disagrees with (or, in some cases, "strongly disagrees" with.

FAR (Federal Acquisition Regulations) Part 44 deals with subcontracting policies and procedures. Section 44.3 details CPSRs (Contractor's Purchasing System Reviews) and 44.305 discusses granting, withholding, and withdrawing approval of a contractor's purchasing system.

The ACO (Administrative Contracting Officer) is responsible for granting, withholding, or withdrawing approval of a contractor's purchasing system. Such approval can be given only after determining that the contractor's purchasing policies and practices are efficient and provide adequate protection of the Government's interest.

Once approved, the Government waives the contractual requirement for advance notification in fixed price contracts and waives the contractual requirement for consent to subcontracts in fixed-price contracts and for specified subcontracts in cost-reimbursement contracts if not called out for special surveillance.

Evidently, there have been more than a few cases where, notwithstanding an approved purchasing system, contracting officers have been withholding consent based solely on disagreement with a proposed subcontract price.

The Senate added Section 818 to its version of the 2019 NDAA to curtail such abuse. Under the new provision, if a contracting officer wants to withhold consent to subcontract where the contractor's purchasing system has been approved, the contracting officer must have a written approval from his or her program manager prior to withholding consent.

This seems to be a non-controversial provision and should probably remain in the final bill. Its really too bad though that the Government needs to come up with statutory language to force the Government to behave itself.

Friday, June 8, 2018

Settlement Reached on Contractor Use of Front Companies to Satisfy Small-Business Goals

The Tri-City Herald is reporting today that one of the (former) contractors engaged in cleaning up nuclear waste at DoE's Hanford facility Washington Closure Hanford (WCH), has reached a settlement with the Justice Department over its use of front companies to meet its small business subcontracting goals. WCH is owned by AECOM, Jacobs Engineering, and Bechtel. The reporting did not state the settlement amount. Previously, a subcontractor and two lower-tier subcontractors have settled their parts in the schemes for about $2.2 million.

Back in 2010, Savage Logistics, a small, woman-owned business doing work at Hanford, filed a whistleblower lawsuit against WCH and a couple of other firms, accusing them of awarding subcontracts reserved for small businesses (i.e. woman-owned) to front companies. The Justice Department enjoined the suit in 2013.

One of WCH's major subcontractors, FE&C (Federal Engineers & Constructors). FE&C was not a small business but it awarded lower-tier subcontracts to firms with dubious track records. For example, in 2009, WCH awarded a $4 million subcontract to Phoenix Enterprises Northwest (PEN) for hauling contaminated materials to a Hanford landfill. Problem was, PEN had been formed just four months before by an employee of FE&C and that employee remained a full-time employee at FE&C after the award.

Another lower-tier subcontractor, Sage Tec, a woman-owned small business, had no experience, equipment, or employees but proceeded to win nearly $20 million in work from FE&C. All it had to offer was its name and status as a woman-owned business. Since it had no assets, equipment, or experience, it relied heavily on FE&C for all of those things.

In 2017, FE&C settled with the Government for $2 million and shortly thereafter, Sage Tec settled for $235 thousand. Neither company admitted guilt or liability in the matter.

The Government's small business contracting (and subcontracting) goals leads contractors to sometimes be inventive and creative. After all, how many women-owned businesses are there in that very remote part of Washington State, that own a fleet of dump trucks capable of hauling contaminated materials to land-fills? Not many.

Thursday, June 7, 2018

Contracting Officer Decisions Must be Based on Facts, Not Innuendo

DHS (Department of Homeland Security) issued an RFP (Request for Proposal) for a company to help with management and support services. During the evaluation process, DHS eliminated one of the offerors, Archimedes Global, Inc (AGI) because of an "alleged" OCI (Organizational Conflict of Interest). AGI protested its elimination from consideration on the grounds the OCI did not exist.

By way of background, the predecessor contract required the contractor to have access to procurement sensitive information. Accordingly, the contract included a clause permitting DHS to disqualify the incumbent contractor from competing for follow-on work. The incumbent contractor was Ambit Group and everyone agreed that Ambit was precluded from competing for the current contract.

The OCI issue stemmed from the fact that AGI proposed to hire the senior and intermediate program managers currently working for Ambit. DHS found that Ambit employees could have provided AGI with unequal access to non-public, competitively useful information, and accordingly, that AGI had an apparent "unequal access" type of OCI. After an initial appeal of DHS's actions, DHS agreed to revisit its determination but once again, eliminated AGI for having an "appearance" of a conflict of interest. Note that DHS's opinion changed from an actual OCI to an appearance of an OCI but the results were the same, AGI was excluded from competition. Once again, AGI appealed the decision.

DHS disqualified AGI because the contracting officer believed that AGI may have had access to competitively useful, non-public information that may have been helpful in preparing its proposal.One of the two individuals AGI proposed to use, the intermediate program manager, had the capability to access files on DHS's computer system that contained competitively useful information, including an independent Government estimate, the statement of work, and budgetary information.

AGI submitted affidavits to DSH stating that neither of the Ambit employees that it proposed actually accessed competitively useful information during performance of the Ambit contract. Specifically, the proposed senior program manager represented that he was precluded from accessing the competitively useful information  because of a firewall. The intermediate program manager represented that, although theoretically he had access to non-public, competitively useful information, he did not, if fact, access the information during any relevant time.

Undeterred, the contracting officer reaffirmed that AGI was not eligible for award due to the appearance of conflict of interest.

AGI argued that it was unreasonable for DHS to disqualify it from consideration, principally because DHS's analysis ignored the fact that the individuals in question were not AGI employees and did not participate in the preparation of AGI's proposal. AGI merely offered them jobs in the event it was awarded the contract.

The GAO (Government Accountability Office) agreed with AGI and sustained its protest. The GAO ruled that DHS's decision to disqualify AGI was not based on hard facts, but, rather, on innuendo and supposition concerning the activities of the Ambit employees. The GAO wrote:
Chief amount our concerns is the fact that the contracting officer, without any underlying evidence, concluded that, because there was a possibility that the individuals in question may have had access to competitively useful, non-public information, that information necessarily was provided to AGI. However, the record shows that neither individual currently is employed by AGI, and there is no evidence to show that the individuals provided AGI with competitively useful, non-public information, or otherwise participated in preparing the AGI proposal.

Well, back to the drawing board for DHS. They will need to reconsider their exclusion of AGI's bid.

Wednesday, June 6, 2018

Plans for Reducing Acquisition Lead Time

Last October, the Secretary of Defense issued a memo identifying three lines of effort he felt necessary to maintain DoD's position as a preeminent fighting force. The third of those lines of effort focused on bringing business reforms, including streamlining of the requirements, identification, and acquisition processes to the Department.

One such practice that significantly contributes to the time-frame between price agreement and contract award relates to the contractor's submission of additional cost or pricing data (often referred to as "sweep data") concurrently with or after the submission of the Certificate of Current Cost or Pricing Data subsequent to price agreement.

Delays associated with contractor efforts to collect and submit cost or pricing data which should have been, but were not, provided to the Contracting Officer in a timely manner prior to agreement on price unnecessarily increases acquisition lead time both by delaying submission of the Certificate of Current Cost or Pricing Data, and by requiring the Contracting Officer to review the "sweep" data, assess the impact on the negotiated price, and come to an agreement with the contractor on the impact that the additional data had on the negotiated price.

There is not statutory or regulatory requirement for contractors to perform a cost and pricing data "sweep" after the date of agreement on price. The requirement is to submit the data prior to the conclusion of price negotiations. Contractors' desire to perform "sweeps" is to forestall subsequent defective pricing findings by a contract auditor. However, it could also be indicative of estimating system deficiencies where corrective action is needed.

DFARS (DoD FAR Supplement) 252.215-7002 defines an acceptable estimating system one that provides procedures to update cost estimates and notify the Contracting Officer in a timely manner throughout the negotiation process. It does not extend the requirement beyond the negotiation process.

Effective immediately, the DoD has instituted a policy that requires contractors to execute the Certificate of Current Cost or Pricing Data as soon as practicable, but no later than five business days after the date of agreement on price.

But what about sweep data submitted between price agreement and certificate date? Won't that lead to delays while contracting officers take time to consider its impact on price? Good question and here's DoD's guidance.
Contracting officers shall defer consideration of the impact of any cost or pricing data submitted by a contractor after price agreement is reached until after award of the contract action in order to avoid delays in the awarding of the contract. Any cost or pricing data submitted after price agreement shall be reviewed and dispositioned after award of the contract action to establish whether it is rendered that the certified cost or pricing data submitted up to the point of price agreement was defective, and to determine whether the Government is entitled to a price adjustment.
To avoid the consequences of finding cost or pricing data after the date of agreement on price, Contractors should focus on the adequacy of their estimating systems. 

The full policy memo can be read here.

Tuesday, June 5, 2018

New TINA Threshold Implementation Considerations

The threshold requirement for submitting certified cost or pricing data raises from $750 thousand to $2 million in less than a month (July 1, 2018). See "Its Official - TINA Threshold for All Government Contracts Will Increase to $2 Million" for a fuller explanation.

What about modifications made to a prime contract that was entered into before July 1st? Those contracts will still have the $750 thousand threshold clause.

In the case of a change or modification made to a prime contract that was entered into before July 1, 2008, the threshold for obtaining certified cost or pricing data remains at $750 thousand.

What about subcontracts by prime contractors under a pre-July 1, 2018 contract awarded after July 1, 2018? In this case, an exception is available" but you've got to ask.
Upon the request of a contractor that was required to submit certified cost or pricing data in connection with a prime contract entered into before July 1, 2018, contracting officers can modify the contract to reflect a $2 million threshold for obtaining certified cost or pricing data for subcontracts entered into after July 1, 2018. 
Such modification won't cost a contractor anything. According to the regulations, contracting officers shall make all such modifications without requiring consideration.

If you're ready to award a subcontract between $750 thousand and $2 million requiring the submission of certified cost or pricing data, hold off for a month so all parties can benefit from the higher threshold. If you're a subcontractor on the cusp of receiving a subcontract between $750 thousand and $2 million requiring the submission of certified cost or pricing data, talk to the prime contractor about deferring award until after July 1, 2018.

More information is available here.

Monday, June 4, 2018

Davis-Bacon Act Violations Cost Company $625 Thousand

The Davis-Bacon Act (in conjunction with the Contract Work Hours and Safety Standards Act) requires that contractors on Federal programs submit weekly payroll reports certifying that they correctly classified their workers according to work actually performed and that workers be paid not less than prevailing wages and benefits for each classification. Prevailing wages are determined by the U.S. Department of Labor.

A whistleblower accused James River Air Conditioning Company of underpaying its workers and submitting false certified payroll reports for work it performed on several federal construction and renovation projects. The Justice Department evidently saw merit in the whistleblower allegation and decided to initiate an investigation into the matter.

The investigation was coordinated among a gaggle of investigative agencies including including the Inspector Generals of the Labor Department, the Defense Department and the Veterans Affairs Department as well as the Army Criminal Investigation Command. Certainly all of those resources cost the Government more than the $625 thousand James River agreed to pay to get the matter behind them - especially after paying the whistleblower $106 thousand as his qui tam reward.

There was no determination of civil liability in this matter. The Government's claims settled by this agreement were allegations only. Certainly James River was glad to put this matter to rest.

Friday, June 1, 2018

$20 Million Settlement to Resolve False Claims Allegations

Earlier this week, several Inchape Shipping Services entities (Inchape) entered into a settlement agreement with the U.S. Department of Justice (and three qui tam whistleblowers). Inchape has agreed to pay $20 million to resolve allegations that the company violated the False Claims Act by knowingly over-billing the U.S. Navy under contracts for ship husbanding services. Inchape is a marine services contractor headquartered in UK.

Inchape provided goods and services to Navy ships at various international ports including food and other subsistence items, waste removal, telephone services, ship-to-shore transportation, force protection services and local transportation.

In 2014, three former employees of Inchape filed a Qui Tam or whistleblower suit alleging, among other things, that for nine years, from 2005 to 2014, Inchape

  • submitted invoices that overstated the quantity of goods and services provided
  • billed at rates in excess of applicable contract rates, and
  • double-billed for some goods and services

Inchape denied the charges. In its own press release, Inchape stated that it "remains confident in its legal positions, the action was filed eight years ago and yet remains in its earliest stages. Absent this settlement, the litigation would likely continue to distract Inchape personnel and drain resources for years to come".

Inchape further stated that it has determined to put this matter behind so that the company can focus on the future. The settlement agreement ending this matter does not find fault related to the disagreements that underlie the litigation.

Since this is a qui tam action, the three whistleblowers will share in $4.4 million of the $20 million settlement.