Friday, September 28, 2018

Guard Your Rubber Stamps

Penna Group, a roofing contractor for the Federal Bureau of Prisons, submitted a $146 thousand claim for costs performed under an expanded scope of work. The contracting officer denied the claim because Penna had signed a release of claims which released the United States from any and all claims arising under the contract. Moreover, on the "release" form, Penna had written "NONE" in the space to identify excepted claims and dollar amounts.

Penna argued that the "release" was of no force or effect because it was completed by one without the actual or apparent authority to do so, and also, the release can be invalidated because of economic duress and because of mutual mistake.

The CBCA (Civilian Board of Contract Appeals) concluded that the release was enforceable and it precluded the contractor from pursuing and prevailing upon the claim. The release bore the signature of the Penna's president. The president was aware that the individual who completed the release on behalf of the contract had his signature stamp; he thus had endowed her with actual and/or apparent authority to use the signature. The CBCA denied the claim. In its decision, the Board wrote:
A signature is binding if placed on a document by one with actual or apparent authority to do so. Negligent oversight regarding a signature stamp or electronic signature may result in the binding nature of the signature when appropriately relied upon by a party.
The Board went on to state that a company acts through its employees and agents. The president was aware that the employee had the signature stamp; this endowed her with the apparent, if not actual, authority to use it. The contractor proffered no support for a perceived limitation on the use of the stamp. Finally, the Board concluded that the Bureau of Prisons is not at fault for the president's failure to receive, review, or act on information included in its "release".

Read the complete decision here.

Thursday, September 27, 2018

Government Exempts Some Contracts from Minimum Wage Rules

Back in 2014, the President issued an Executive Order (EO) raising the minimum wage for workers performing work on Federal contracts. Later that year, the Labor Department issued regulations implementing the EO. In 2018, the current President issued his own EO which exempted contracts for recreational services on federal lands and for seasonal recreational services or seasonal recreational equipment rentals. The EO defined seasonal recreational services as river running, hunting, fishing, horseback riding, camping, mountaineering activities, recreational ski services, and youth camps. The EO specifically stated that the exemption does not apply to lodging and food services associated with seasonal recreational activities.

The Labor Department has not revised its regulations to implement the new EO (see Minimum Wage for Contractors; Updating Regulations To Reflect Executive Order 13838). In its promulgation comments, the Labor Department explained that because of the nature of the industry, seasonal recreational workers have irregular work schedules, a high incidence of overtime pay, and an unusually high turnover rate. Implementing the old EO threatened to significantly increase the cost of seasonal recreational services on Federal lands, while limiting the hours that recreational-service workers would be available to work. Exempting these services will help prevent job losses and ensure affordable guided tours for visitors to Federal lands.

Seems like that logic could apply to all minimum-wage jobs.

Wednesday, September 26, 2018

Government Contractors No Longer Need to Accept and Dispense Sacajaweas

Did you know that there is a clause in most Government contracts that require contractors involved in business operations (including vending machines) on any premises owned by the United States or under control of any agency  or instrumentality of the United States to be fully capable of:

  1. accepting $1 coins in connection with such operations; and
  2. dispensing $1 coins in connection with such operations
Why is it there? Because in 2007, Congress passed a law designed to remove barriers to the circulation of $1 coins. As part of that law, Congress made it mandatory for any business operating on Government premises to accept and dispense $1 coins, hence the FAR clause.

The Section 809 Panel, a congressionally mandated panel to streamline and improve the acquisition process by identifying and eliminating outdated acquisition provisions, made a recommendation to eliminate the requirement because the intention of the Act was to increase circulation of the $1 coin and was not directly related to agencies' missions. 

Congress acted on the Section 809 Panel's recommendation as part of the 2018 NDAA and exempted contractors, when performing under a Government contractor, for the requirements to accept and dispense $1 coins.

This week, the FAR (Federal Acquisition Regulations) councils acted and removed the requirements from FAR (Parts 37.116 and 52.212-5). 

Well, that's one useless regulation out of the way. Hopefully, Congress will begin adopting many of the other recommendations of the Section 809 Panel.

Tuesday, September 25, 2018

Contractor Inflates Billings - Gets Caught

We read a Justice Department press release yesterday about the conviction and sentencing of a man who falsified trip reports on a contract with the Postal Service for over-the-road mail transport. Over a seventeen month period, this individual made 10 trips totaling 1,538 miles but billed and was reimbursed by the Postal Service for 247 trips and about 55,000 miles. He did this by forging the approval signature of a Postal Service employee. At some point, the Postal Service employee noticed the forged signature, an investigation ensued, and the truck driver was charged, convicted, and sentenced.

As we often do when we hear about fraud, waste, and abuse, we attempt to determine the weakness in the internal control system that allowed this to happen. In this case, it is rather obvious. The Postal Service allowed this contractor to submit claims for reimbursement directly to the payment office. For those of you familiar with the Defense Department's billing system (iRAPT or WAWF), you know that after submitting a request for payment (e.g. progress payment, public voucher, or DD250) there are at least one or two "approval" steps before the payment office (i.e. DFAS) will process the payment. If its a public voucher for example, the request is cycled through DCAA (Defense Contract Audit Agency) for review and approval. There is simply no way for a contractor to submit a payment request directly to the payment office. Without the requisite approvals, the system will "bounce" the request.

In this case, the Postal Service violated a fundamental internal control principle by allowing the vendor (or contractor) to secure the approval signature and submit the payment request directly for payment. That should never have been allowed to happen. The Postal Service payment office should never have paid a bill that didn't come directly from the Postal Service "approver".

You might be able to draw parallels in your own organization. Does your Accounts Payable personnel perform a three-way match (purchase order, invoice, and receiving report) before paying an invoice? Is there any controls set up to prevent someone from "slipping in" an invoice for payment without the requisite supporting documentation and/or approvals? Can an employee submit a travel voucher for payment directly or do vouchers come from the approving official? Remember, fraud affects 85 percent of all companies and "trust" is not an internal control.

Monday, September 24, 2018

Are You Still Running Kasperksy Anti-Virus?

Government contractors have until October 1st to completely scrub their networks and computers of the Kasperksy software.

As we reported back in June (see Prohibition on Usinbg Kaspersky Hardware/Software), the Fiscal Year 2018 NDAA (National Defense Authorization Act) prohibits Government contractors from providing any hardware, software, or services developed or provided by Kaspersky Labs 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. Congress, among others believe that Kaspersky software presents an information security risk because of the Company's Russian connections.

We've recently come across a couple of articles stating that many contractors are unprepared for this deadline. In some cases, contractors are not even aware that Kaspersky is running on their networks because it came pre-installed with unrelated software. In other cases, contractors have attempted to remove Kaspersky but missed  some instances because complete removal is more complicated that simply uninstalling the program. There is even a concern that some contractors don't believe the ban applies to them, when it most certainly does.

DHS (Department of Homeland Security) has been worried about Kaspersky for some time and directed all civilian agencies to remove the software from their systems by last July. The NDAA added Government contractors to the list of entities whose use of Kaspersky is banned and gave them until October 1st to comply.

By the way, this ban also applies to subcontractors and makes it the prime contractors responsibility to ensure compliance. 

Friday, September 21, 2018

Proposed Changes to Progress Payment Rate - Public Meeting Scheduled

About a month ago, we brought you news about the Defense Department's proposed changes to progress billings (see Proposed Changes to Progress Payment Rate). Essentially, the proposed rule drops the standard progress payment rate from 80 percent to 50 percent, however, contractors have the opportunity to score a higher rate when they achieve certain goals, like having acceptable business systems with no deficiencies, meeting contract delivery dates, closing out corrective action requests, meeting small business subcontracting goals, etc.

The goal here is to incentivize contractors to "fix" things that would otherwise have no adverse consequences. The downside is that the proposed rule will require a significant amount of effort to implement and track. It goes without saying that if contractors cannot achieve the full 80 percent rate, there will be a significant impact on their cash flow and in some cases, their ability to continue as a Government contractor. Think about it. If you have a $5 million contract stretching over two years, you will be floating the Government an interest free loan of a few million. Do you have that kind of financial resources available?

This has been a highly controversial move by DoD and so the Department has decided to schedule a public meeting next month in the DC area to obtain the views of experts and interested parties in the private sector (that includes current and prospective Government contractors) regarding the proposed changes. To attend, one needs to be pre-registered. Instructions for registering are found here. If you have a vested interest in the outcome, attending might be worthwhile. We can't imagine that there will be too many in attendance that will have come in support of the proposed rule.

Thursday, September 20, 2018

DCAA "Slowness" Cost a Company a Contracting Opportunity

Back in June 2016, GSA (General Services Administration) issued a solicitation to procure IT services for various Governmental agencies. It was a multiple-award ID/IQ contract where awardees under the solicitation would become eligible to receive task orders under the contract.

One of the conditions that bidders needed to establish was the adequacy of their cost accounting systems (CAS). Bidders could provide evidence from DCAA (Defense Contract Audit Agency), DCMA (Defense Contract Management Agency) or another Cognizant Federal Agency. One of the bidders, Dynanet Corporation did not have such evidence so GSA requested DCAA to perform a pre-award accounting system survey.

On August 12, 2016, DCAA acknowledged GSA's request for the review so sometime after that, DCAA initiated its review.

Proposals were due to GSA on October 7th but by then, DCAA had not completed its audit. That was nearly two months after the audit request and should have been plenty of time to complete these rather perfunctory reviews. Two days and the day before proposals were due, Dynanet frantically communicated with DCAA as to the report status. Dynanet pleaded with DCAA, if they were not able to issue a report, to provide them at least a letter to the effect that their cost accounting system was adequate.

DCAA refused saying that the audit had to be reviewed by a supervisor and would be issued the following week. DCAA did issue the report the following week, October 14, 2016 and found Dynanet's accounting system to be adequate for Government contracting. But by then, it was too late. GSA deducted points from Dynanet's bid because the proposal did not include evidence that the accounting system had been approved by DCAA. That point reduction was enough to reduce Dynanet's score below the award cutoff. Specifically the contracting officer noted that Dynanet
did not provide evidence of an acceptable accounting system that has been audited and determined adequate for determining costs applicable to the contract. [Dynanet] provided a letter from DCAA dated August 12, 2016 that simply indicated that an audit request has been received. [Dynanet] also provided an [email] string from DCAA dated October 6, 2016 (one day before the [bidding window] closed) where [the DCAA] stated that the audit was in its final stages with a goal of having it completed by October 14, 2016 (7 days after the [bidding window] closed).
Dynanet appealed but that appeal failed (see CFC 18-795C) because the contracting officer had evaluated everything in strict accordance with the solicitation.

If only DCAA could have published its report one week sooner, Dynanet might have had a contract.

Wednesday, September 19, 2018

What Happens When a Contractor Files for Bankruptcy?

It doesn't happen frequently but contractor bankruptcy happens often enough to warrant a special contract clause that appears in every contract above the simplified acquisition threshold (currently set at $150 thousand). The Bankruptcy clause is found at FAR (Federal Acquisition Regulations) 52.242-13. and requires contractors entering into proceedings relating to bankruptcy, whether voluntary or involuntary, to furnish by certified mail (or electronic commerce method authorized by contract), written notification to the contracting officer responsible for administering the contract.

This notification is time sensitive. It must be furnished within five days of the initiation of the proceedings relating to bankruptcy filing. Additionally, the notification must include certain information:

  1. The date on which the bankruptcy petition was filed
  2. The identity of the court in which the bankruptcy petition was filed
  3. A listing of Government contract numbers and contracting offices for all Government contracts against which final payment has not been made.

Once notified, the contracting officer has certain responsibilities as well. These responsibilities are delineated in FAR 42.902. When notified of bankruptcy proceedings, the contracting officer must do the following:

  1. Furnish the notice of bankruptcy to legal counsel and other appropriate agency offices (e.g. contracting, financial, property) and affected buying activities
  2. Determine the amount of the Government's potential claim against the contractor (in assessing this impact, identify and review any contracts that have not been closed out, including those physically completed or terminated)
  3. Take actions necessary to protect the Government's financial interests and safeguard Government property, and
  4. Furnish pertinent contract information to the legal counsel representing the Government.

The Government's financial exposure to bankruptcy is highly dependent upon the goods or services being purchased. A bankruptcy of a  fuel supplier for example, will not be too disruptive. The Government can go to the next supplier standing. On the other hand, purchases of systems that take months to produce and where advance payments or progress payments have been advanced represent significant financial risk to the Government.

Some of you have been subjected to the Government's financial capability review process. These reviews are simply the Government's way of mitigating the risk that contracts will be awarded to companies that are in financial distress and could end up in bankruptcy. If the Government doesn't think a prospective contractor has the necessary financial resources to complete a contract, and the prospective contractor cannot convince the Government otherwise, there will probably be no contract.

Tuesday, September 18, 2018

Keeping It In the Family

The Justice Department issued a press release yesterday announcing the sentencing of a father and son duo for several contracting related frauds. The father was sentenced to nearly six years in prison while the son sentenced to 12 months. In addition, the two agreed to pay $3.2 million in restitution to the Government and to clients they had stolen from. In sentencing, the Judge told the father that it appeared that he'd made a life out of lying and cheating. And it does appear that history supports the Judge's observation.

Father/son sole nearly $600 thousand from three clients. They set up a consulting firm to help small businesses secure USDA (Agriculture) contracts. They then misused their position as the company's agents to change banking information in an online Government system so that when USDA paid on their client's contracts, the monies were diverted to Father/son accounts.

Is your firm vulnerable to this type of fraud? Do you know who has access to your SAM, iRAPT, and WAWF accounts?

After that scheme was uncovered, Father/son set up a new business (Worldwide Connect LLC) as an approved USDA contractor. To do that, they falsified financial information. They also falsified a certification that none of the principals had ever been debarred or suspended. In fact, the father had been suspended and debarred from all federal contracting due to conduct at his prior business.

The new company won over $4 million in USDA food service supply contracts. Four of the five contracts were terminated for default after WWC (Worldwide Connect) failed to deliver. The father/son admitted that they had caused their suppliers to lose more than $1.5 million in the process. The two also admitted to siphoning off company funds for nightclub charges, luxury hotel stays and other personal items.

After those contracts were terminated, the father/son applied to SBA to be readmitted to federal contracting. As part of that application, the father falsely claimed veteran status and submitted falsified tax returns.

The Justice press release did not provide any insight as to how the scheme was uncovered. It is likely however that investigations were initiated based on information from the clients that the two had defrauded.

Monday, September 17, 2018

AFCE's 2018 Report on Fraud

Frequent disclosures of fraud, waste, and abuse in Federal Government contracting tend to make headlines but certainly those nefarious activities are not limited to the Federal Government. States, municipalities, counties, and essentially every organization with fiduciary responsibility for public funds have their share of scandals. While such scandals might make a local news site, they rarely rise to the level of national interest. What makes a better story, the Air Force ordering two refrigerators for Air Force One for $24 million (since cancelled) or a city manager in Topeka taking an unauthorized trip to Wichita or a contractor in Twin Falls being the victim of embezzlement.

The ACFE (Association of Certified Fraud Examiners) periodically publishes an analysis of occupational fraud. Its not comprehensive because it is based on information that comes from its members who were involved in the investigations of the cases. Even with this limited population, the 2018 report covers nearly 2,700 investigations conducted between January 2016 and October 2017. Here are some highlights.

  • 40 percent of corruption cases were detected b y a tip. For organizations with a hotline, 46 percent of cases were detected by a tip. For those without a hotline, only 30 percent came from tips. Organizations must make a point of establishing mechanisms that encourage employees to come forward. Hotlines and guaranteed anonymity are good starting points.
  • Internal control weaknesses were responsible for nearly half of frauds. Now you Government contractors understand the Government's emphasis on strong internal controls.
  • Median losses are far greater when fraudsters collude.
  • Small businesses lost almost twice as much per scheme to fraud than large businesses ($104 thousand per scheme for large businesses vs $200 thousand per scheme for small businesses. This is not surprising as small business have fewer resources to invest in internal controls.
  • 85 percent of fraudsters displayed at least one behavioral red flag of fraud.
  • A majority of the victims recovered nothing.
  • Only four percent of perpetrators had a prior fraud conviction.

 If you're not taking the prospect of fraud within your organization seriously, you are at risk of financial loss. Can you afford a $200 thousand loss - the average loss for small businesses covered by this survey? The full report can be found here.

Friday, September 14, 2018

Solicitation Ambiguities Need to be Resolved Prior to the Closing Date

In a recently published Comptroller General decision, a complaint concerning an ambiguity in a solicitation was dismissed as untimely. The lack of clarity was evident from the face of the solicitation and therefore, should have been challenged prior to the solicitation's closing date.

An ambiguity exists where two or more reasonable interpretations of the terms or specifications of the solicitation are possible. A patent ambiguity exists where the solicitation contains an obvious, gross, or glaring error. In the case of a "patent ambiguity", an offeror may not simply make unilateral assumptions regarding the meaning of ambiguous terms and then expect relief when the agency does not act in the manner assumed. Rather, an offeror must challenge the alleged ambiguity prior to the time set for receipt of proposals.

The National Institute of Health (NIH) issued a solicitation for "IT solutions and services".  NIH received 552 proposals in response to the solicitation including one from PTP (People, Technology and Processes). After PTP was eliminated from contention, PTP filed a protest claiming that NIH used unstated evaluation criteria when evaluating proposals.

In its decision, GAO wrote:
Notwithstanding PTP's characterization of its protest as one challenging the agency's use of unstated evaluation criteria, we find that PTP essentially challenges an alleged defect in the solicitation that was apparent prior to the time for the submission of proposals. Our review of the record shows that both the instructions and the evaluation language in the solicitation were silent as to what the agency would utilize to evaluate the offeror's demonstration of its proposed technical approach and methodology. The solicitation does not indicate whether the agency would evaluate proposals through separate narratives or examples of experience and/or qualifications. 
Since the lack of clarity was evident from the face of the solicitation, the GAO found that the solicitation presented a patent ambiguity with regard to how proposals were to demonstrate the offeror's technical approach and specific methodology. Since the time to question a patent ambiguity was prior to the date of submission, the GAO denied the protest as untimely.

Thursday, September 13, 2018

Veterans Affairs - Revised Cost Principles for Education Contracts

Most of our readers have at least a passing familiarity with FAR (Federal Acquisition Regulations) cost principles (FAR Part 31). Less known are cost principles published by and unique to other executive agencies. For example, the Defense Department has added a few of its own cost principles. So has NASA, the Energy Department, and a few other agencies. Its always a good idea to familiarize yourself with those cost principles applicable to your specific contract.

The Department of Veterans Affairs has just amended its FAR Supplement (VAAR or VA Acquisition Regulations) to revise a few of its own cost principles. These particular cost principles, codified at 48 CFR 831.70000 address cost under vocational rehabilitation and education contracts. The areas covered include:

  • Tuition
  • Special services or courses
  • Books, supplies, and equipment required to be personally owned
  • Medical services and hospital care
  • Consumable instructional supplies
  • Reimbursement for other supplies and services.
So for example, to be allowable, tuition and enrollment fees must meet certain criteria:
  1. It cannot exceed the tuition charged to similarly circumstanced non-Veteran students.
  2. It must be equal to the lowest price offered or published for the entire course, semester, quarter, or term
  3. Costs must be offset by any amount waived by a State or other government authority
  4. Costs must be offset by any amounts the Veteran student receives from a fellowship, scholarship, grant etc.
If you are in the business of contracting with the VA for educational services, these changes are critical. You can read a summary of the changes here.

Wednesday, September 12, 2018

What are "Purchase Existence and Consumption" Audits?

This is an update to a posting we wrote more than six years ago. We are doing so because we just learned that DCAA (Defense Contract Audit Agency), the Pentagon's contract auditors have initiated "Purchase Existence and Consumption" audits some small business Government contractors. We don't know why. Perhaps the auditors have identified some "risk factors" in a contractor's material purchases. In one case, that wouldn't make sense because the contractor does research and buys very few materials. Perhaps the auditors just need something to do - its a pretty boring life out there for most contract auditors. You can read our earlier posting on the subject here.

PEC reviews (Purchasing Existence and Consumption) are not CPSRs (Contractor Purchasing System Reviews). CPSRs, performed by DCMA (Defense Contract Management Agency), not DCAA, are focused on internal controls over purchasing, especially subcontracting. A PEC review is focused on the specific materials purchased for a specific contract.

The purpose of a PEC review is to verify that purchased direct materials and services were, in fact received and (i) needed for the contract, (ii) purchased in reasonable quantities, (iii) purchased at prudent prices, (iv) used on the contract, and (v) properly accounted for as to initial charge, transfer in or out, and residual value.

Purchased materials are raw materials, purchased parts, sub assemblies, etc., which are physically incorporated into an end product. Equipment purchased for the Government's use on a flow-through basis, such as computer hardware, or commercially available items for the contractor's use in performing the contract such as trucks and other equipment, are not deemed to be incorporated in the end product.

Purchased services may include the performance of certain contract tasks by non-company personnel under the direction of the contractor or replacing entire functions within the contractor's organization. Services provided include purchased direct labor personnel to meet temporary requirements, who are supervised by the contractor, or purchasing specific types of services , such as engineers, technical writers and craftsmen, on a regular basis to perform contract requirements.

One unique aspect of PEC reviews is the request to physically locate all sampled material items. You can imagine that this might sometimes pose a problem. For example, how would you show the auditor an electronic component that has been assembled and sealed into a some kind of case? Or how do you prove to an auditor that a particular service was actually performed? There is no requirement for a work product in this case.

If you care to read DCAA's audit program for PEC audits, click here.

Tuesday, September 11, 2018

Companies Get Paid Multiple Times for the Same Work

Three corporations - Laserlith Corporation, Black Hills Nanosystems Corporation, and Blue Sky Engineering, Incorporated - were owned and controlled by one individual, Wallace Tang. Mr. Tang just pleaded guilty to defrauding NASA (National Aeronautics and Space Administration), NSF (National Science Foundation), and the Energy Department through their SBIR (Small Business Innovative Research) programs and has paid about $1.1 million in restitution back to the Government.

The SBIR program are designed to promote the progress of science by increasing opportunities for small businesses to undertake cutting-edge scientific research. Mr. Tank and his corporations unlawfully and knowingly conspired and agreed together to devise a scheme to defraud and obtain money and property from NASA, NSF, and DoE through false and fraudulent representations. The purpose of this conspiracy was to obtain federally-funded projects by and through material misrepresentations, statements, and omissions, thereby depriving the Agencies the ability to fund other legitimate research.

According to the affidavit, the corporations applied for and received federal awards for essentially equivalent work, or portions thereof, concealing the existence of the awards and the relationships between related companies from the awarding agencies. During the application process, the corporate-defendants misrepresented the existence and use of distinct company facilities, equipment, and operations in South Dakota and North Dakota, and elsewhere outside of California. These representations and statements were false in that of of the companies were co-located in a common facility in Richmond, California, sharing the same resources and performing essentially equivalent work, or portions thereof.

The fraudulent conduct included the preparation and submission of proposals for awards under NSF, NASA, and DoE SBIR programs, specifically involving costs, employees, the eligibility of principal investigators, suitability of facilities, location of facilities, subcontractors, consultants, letters of support, and certifications submitted to those Agencies.

Sentencing is scheduled for later this year. You can read more about this case in the Justice Department press release.

Monday, September 10, 2018

Unpaid Royalties Included in Government Contracts

Generally, royalties on a patent or amortization of the cost of purchasing a patent or patent rights necessary for the proper performance of a contract and applicable to contract products or processes are allowable.  There are some exceptions however when royalty costs are unallowable. For example, if the Government has a license or the right to a free use of the patent, the costs are unallowable. Sometimes there are situations where the patent has been adjudicated to be invalid, or  has been administratively determined to be invalid. The Government is not going to pay for royalties on invalid patents of course. Same goes for patents considered to be unenforceable or expired patents.

But what happens when royalty costs have been included in a proposal for a fixed price contract, the Government accepts such costs, but it turns out that the contractor didn't pay or didn't need to pay royalties after all? Well, we can assure you that the Government will want its money back. But a deal's a deal, right? Not so fast. In the case of unpaid royalties, most fixed price contracts include a provision that requires pay back.

Some contracts contain recapture provisions to become effective in the event actual royalty payments are less than those estimated and included in the negotiated prices. Specifically, FAR 52.227-9, Refund of Royalties, establishes procedures for the Government to recover royalties not paid by the contract when the royalties were included in the contractor's fixed price. You might want to check your contract(s) for that clause.

There's another FAR clause that may come into play. FAR 27.202-3 prescribes actions for the contracting officer to take to protect the Government's interests if royalties paid or to be paid to the contractor are excessive, improper, or not consistent with Government rights. This provision states that if, at any time, the contracting officer believes that any royalties paid, or to be paid, under a contract or subcontract are inconsistent with Government rights, excessive, or otherwise improper, the contracting officer shall promptly report the facts to the office having cognizance of patent matters for the contracting activity concerned, and then, if appropriate, demand a refund.

Who's going to find out whether a contractor has negotiated royalties but ultimately didn't have to pay? Contract auditors, for one, when performing defective pricing reviews (i.e. audits of compliance with the Truth in Negotiations Act). These unpaid royalties must be an issue from time to time because contract auditors have been specifically instructed to "... be alert to identify these circumstances and promptly notify the contracting officer."

Friday, September 7, 2018

Energy Department Improperly Rejected Bid That Did Not Include All Required Information

The Energy Department issued a solicitation back in April for the construction and completion of a capacitor bank at a substation in Arizona. Ten bids were received including one from Addison Construction Company. Addison was the low bidder.

Addison's bid requested an exception to the Buy American Act, on the basis that domestic products were unreasonably priced. It included the cost of foreign manufactured products in its bid. The DOE contracting officer however determined Addison's bid was non-responsive because it didn't include all of the information required by FAR 52.225-9 and 10.

Addison appealed the decision at the GAO (Government Accountability Office).

FAR 52.225-9 requires a contractor requesting an exception to the Buy American Act on the basis of unreasonable costs to include a rather extensive package of supporting information with its bid. Required information includes:

  • price
  • quantity
  • unit of measure
  • description of the foreign and domestic materials at issue
  • detailed justification for the use of foreign construction materials
  • a reasonable survey of the market
  • completed price comparison table
  • time of availability of the materials
  • location of the construction project
  • specific supplier information (including the name, address, and telephone number for the supplier)
  • supplier's response
  • other applicable supporting information
Addison's bid included all of these items except for the name, address, telephone number and contact information for the suppliers that had been surveyed.

DOE argued that Addison's bid was missing information required by FAR and that without that information, DOE could not determine whether a Buy American Act exception applied. Therefore, DOE rejected Addison's bid.

The GAO thought differently. The GAO found that based on the information provided in Addison's bid, the bid was responsive. While the bid did not include all of the information required under FAR, it nonetheless included sufficient information for DOE to understand the foreign material being provided, and the quantity and costs of such material. Thus while the bid was missing some documentation, the omission would not enable Addison to alter the price, or relative standing of its bid.

The GAO whet farther. The GAO stated that there was nothing in the relevant clauses that requires an agency to reject a requested exception simply because the bidder did not provide every piece of information listed. 

Thursday, September 6, 2018

Proposed Rule: Rental Cost Analysis in Equipment Acquisitions

When we first viewed the title of this proposed FAR (Federal Acquisition Regulation), our minds went immediately to the cost principle on Rental Costs (FAR 31.205-36) wondering whether the FAR Councils were planning to make some changes, particularly to Section (b)(3) dealing with leases between related parties, a section that frequently poses problems to contractors. But no, that's not the case. This change relates to equipment that the Government leases. If you are in the business of leasing equipment to the Government you need to be familiar with these proposed changes because they will become final. Most likely future Government's analyses will become much more rigorous than what you might be accustomed to.

The proposed change directs agencies to evaluate comparative costs and other factors when considering whether to lease or rent equipment versus purchase equipment. The rule also adds a link to a GSA site that provides additional guidance on renting and leasing equipment. Finally, it adds a link to a GSA office from which agencies may request information when making lease or purchase decisions. Finally it clarifies that the term "lease" applies to both the lease and rental of equipment to avoid confusion on whether there the differing terms are subject to different rules. They're not.

Based on Fiscal Year 2016 data, the Government issued approximately 34,925 contract actions for the rent, lease, or purchase of equipment. Of that amount, approximately 20,100 awards were made to 6,670 unique small business entities. The average award to small businesses was valued at approximately $700 thousand.

The new analysis requirements will apply to both the initial acquisition of equipment and the renewal or extension of existing equipment leases (and rentals). Rental agreements are typically for shorter periods of time than lease agreements. Additionally, maintenance requirements and financial terms differ between a lease and a rental agreement.

The GSA guidance that agencies will now need to follow and document can be found here.

Wednesday, September 5, 2018

Mandatory Antiterrorism Training for Government Contractors

The Defense Department just published a proposed rule that, if adopted and most certainly will be adopted, will require its contractors to conduct anti-terrorism training to personnel that require routine physical access to a Federally-controlled facility or military installation.

Routine physical access is considered more than intermittent access, such as when a contractor employee is required to obtain a CAC card (a common access card).

Once implemented, training will need to have been completed withing 30 days and annually thereafter. Training must be completed either through DoD-sponsored and certified computer or web-based distance learning instruction, or under the instruction of a qualified Level I anti-terrorism awareness instructor.

This requirement will apply to all types of contracts, cost-type, fixed price, commercial, simplified, etc. The criteria is not the type of contract but whether contractor employees will require routine physical access to military bases or other Federally-controlled facilities.

DoD does not believe the cost will be significant. The training materials will be developed and disseminated by DoD so contractors will not need to create their own training materials. Training duration at two hours per employee per year however are not specifically reimbursed by DoD. Under a cost-type contract, contractor employees will undoubtedly charge the contract. That doesn't work for other types of contracts. It would probably be prudent to include a provision for anti-terrorism training when putting together price proposals however.

You can get more information on Level 1 Antiterrorism Awareness Training at this website. Training topics include:

  • surveillance detection fundamentals
  • Government facility security fundamentals
  • insider threat
  • active shooter fundamentals
  • residential security
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Tuesday, September 4, 2018

Government Contractor Employees Earning Minimum Wage Will Receive a 2.4% Increase in January

Last week, the President's decision to forgo a cost of living pay raise for Federal Government employees in 2019 made national news. Other than the Federal workforce and related organizations (e.g. AFGE), not too many gave the decision a passing thought. These decisions however have a way of reverberating back to the public who need an efficient Government bureaucracy, including Government contractors who rely on Government employees to solicit, award, and administer their contracts. The impact may not be felt immediately but it impacts the Government's ability to attract and retain (emphasis on retain) a capable workforce. Spend any time at all with Government employees and you'll soon hear them bemoaning the loss of employees who left for better pay, better working conditions, and better appreciation. They too are looking for an exit. Who's going to fill their shoes? Someone with inexperience, likely. We recently encountered a contracting officer making million dollar decisions, with six months of experience under her belt.

Contractors certainly have their share of anxieties over Government foibles but one thing they don't have to worry about is the Government restricting pay raises (as long as the raises are reasonable). In fact, in some cases, the Government mandates certain pay raises. A few years back, the President issued an executive order setting a minimum wage for contractor employees working under Government contracts. The minimum wage adjusts every year based on a prescribed formula. It started at $10.10 per hour and is currently $10.35 per hour. Beginning in January 2019, the minimum wage increases to $10.60 per hour (a 2.4 percent increase).

Now we don't know how many contractor employees are affected by this Executive Order. We suspect that in the aggregate, the number of contractor employees earning minimum wages is significant but as a percentage of the contractor workforce, not significant. Employees on contracts covered by Davis-Bacon or the Services Contracting Act are already earning more than minimum wage. It seems most likely that minimum wage personnel are those paid for with non-appropriated funds, such as concessionaires on military bases. In any event, if you are a contractor with minimum wage employees, you will need to factor this pay raise into future budgets.