Senate Bill 938 would require GSA (General Services Administration) in consultation with the Office of Management and Budget (OMB), to ensure that any direct communications with small businesses about providing goods and services to the Federal Government contain a notice that technical assistance from the Federal Government on the procurement process is available to small businesses at no cost.
We explained this bill in some detail back in May (see Proposed Legislation to Notify Small Businesses of Free Procurement Assistance). The intent is to help protect small businesses from falling victim to fraud when they register to sell their products and services to the Government. We're not sure what kind of procurement fraud that SAM (System for Award Management) registrants are susceptible to. Neither of the Senate sponsors (Peters and Collins) provided any studies or anecdotal evidence of procurement fraud. We know from personal experience that SAM registration will result in many offers of assistance for a fee. Sometimes such paid assistance is no better than what is available for free through DLA's Procurement Technical Assistance Centers (PTAC) or SBA assistance. However, we would not call that procurement fraud.
The Congressional Budget Office (CBO) reported that the Bill, if enacted, would have negligible impact on spending or revenues for the next 10 years, and would impose no costs on state, local, or tribal governments. That is intuitively obvious.
The Bill took another step toward enactment earlier this month when the Senate Committee on Homeland Security and Governmental Affairs reported favorably in support of the legislation.
Finding and utilizing free resources is a good place to start for small businesses just getting started in Government contracting. The PTACs in particular have a lot of resources and a good track record in helping companies through the maze of procurement regulations.
Tuesday, October 17, 2017
Monday, October 16, 2017
40 Months in Prison for Accepting $35,000 in Gratuities
We read this Justice Department Press Release from last Friday about a former Navy comptroller from the Norfolk Ship Support Activity being sentenced to 40 months in prison because he accepted $35,000 in gratuities over a four year period from a Government subcontractor. These gratuities were not paid in cash but consisted of cell phone service for he and his wife, and some other personal electronic items. We thought the punishment (3 plus years in prison plus restitution) seemed severe and certainly not typical of what we have come to expect based on similar prosecutions. That is, until we dug a little deeper than just the Justice Department's press release.
Why would a high-ranking Government employee, making somewhere around $150,000 a year, jeopardize his job, his career, his reputation, and his future by accepting a few thousand dollars of trinkets and junk jewelry? How does that even fit into the fraud triangle concept (perceived unshareable financial need, perceived opportunity, and rationalization)? Turns out, the case was not so much the gratuities he received but more about what he was setting himself up to receive after he retired from the Government.
The comptroller found a company that would collaborate with him to misuse Government funds; Global Services Corporation (GSC). He then directed that a certain (unnamed) prime contractor to award a subcontract to GSC. He then directed the prime contractor to pass Government funds to GSC. He then directed GSC to withhold unexpended funds that should have been returned to the Government via the prime contractor. Obviously, the Navy comptroller had a lot of undue influence over the operations and activities of GSC. The complaint called GSC a willing participant in the scheme.
When all was said and done, the Navy controller, through the prime contractor parked about $5 million with GSC for which no services were ever rendered. What did the Navy comptroller get out of it besides $35 thousand in electronics? The promise of post-retirement employment at $150,000 per year to be paid out of the $5 million slush fund. He never got there. The scheme was uncovered before he retired by a routine audit by the Naval Audit Service. Now he will be spending the next few years of his retirement in prison.
The President of Global Services Corporation (GSC) also pleaded guilty on related charges. He is set to be sentenced later this year.
Why would a high-ranking Government employee, making somewhere around $150,000 a year, jeopardize his job, his career, his reputation, and his future by accepting a few thousand dollars of trinkets and junk jewelry? How does that even fit into the fraud triangle concept (perceived unshareable financial need, perceived opportunity, and rationalization)? Turns out, the case was not so much the gratuities he received but more about what he was setting himself up to receive after he retired from the Government.
The comptroller found a company that would collaborate with him to misuse Government funds; Global Services Corporation (GSC). He then directed that a certain (unnamed) prime contractor to award a subcontract to GSC. He then directed the prime contractor to pass Government funds to GSC. He then directed GSC to withhold unexpended funds that should have been returned to the Government via the prime contractor. Obviously, the Navy comptroller had a lot of undue influence over the operations and activities of GSC. The complaint called GSC a willing participant in the scheme.
When all was said and done, the Navy controller, through the prime contractor parked about $5 million with GSC for which no services were ever rendered. What did the Navy comptroller get out of it besides $35 thousand in electronics? The promise of post-retirement employment at $150,000 per year to be paid out of the $5 million slush fund. He never got there. The scheme was uncovered before he retired by a routine audit by the Naval Audit Service. Now he will be spending the next few years of his retirement in prison.
The President of Global Services Corporation (GSC) also pleaded guilty on related charges. He is set to be sentenced later this year.
Friday, October 13, 2017
Company President Found Guilty of Fraud Against the Government
A jury has found the owner of Armet Armored Vehicles Inc. guilty of defrauding the U.S. Government on a contract for 32 Gurkha armored gun trucks. The company (and by extension the owner) lied about the ballistic and blast protection capabilities of their Gurkha gun trucks as well as only delivering seven of the promised 32 vehicles contracted for and delivering those seven vehicles long after the contract delivery date.
Evidence at trial demonstrated that the owner executed a scheme to defraud the United States by providing armored gun trucks that were deliberately under-armored. Although the gun trucks did not meet contractual specifications, the company and its employees represented that the trucks were adequately armored.
After the verdict, the Judge in the case took the unusual step of remanding the owner into custody pending a full bond hearing. Perhaps he was considered a flight risk. A sentencing date has not yet been scheduled.
This case began with a whistleblower suit by a company employee.
The Gurkha is an armored military and law enforcement vehicle. It is based on a Ford F550 chassis with a 6.7 liter diesel engine but is typically customized to the user's needs.
A previous civil action involving this incident was settled in favor of Armet. Read more about this case in the Justice Department press release.
Evidence at trial demonstrated that the owner executed a scheme to defraud the United States by providing armored gun trucks that were deliberately under-armored. Although the gun trucks did not meet contractual specifications, the company and its employees represented that the trucks were adequately armored.
After the verdict, the Judge in the case took the unusual step of remanding the owner into custody pending a full bond hearing. Perhaps he was considered a flight risk. A sentencing date has not yet been scheduled.
This case began with a whistleblower suit by a company employee.
The Gurkha is an armored military and law enforcement vehicle. It is based on a Ford F550 chassis with a 6.7 liter diesel engine but is typically customized to the user's needs.
A previous civil action involving this incident was settled in favor of Armet. Read more about this case in the Justice Department press release.
Thursday, October 12, 2017
Subcontractor Pays $235 Thousand to Settle False Claims Charges
Late last month, we wrote about a $2 million settlement involving a DOE (Department of Energy) subcontractor who subcontracted some of its work to a third company who, it turned out, was a small woman-owned business but had no employees or equipment (see $2 Million Settlement in Small Business Subcontracting Fraud).
This week, the Justice Department announced settlement with the other company, Sage Tec LLC. Sage Tec and its owner agreed to pay $235,000 to resolve allegations that it violated the False Claims Act (FCA) in connection with two small business subcontracts.
The prime contractor, responsible for environmental remediation at Hanford, was required to award a certain percentage of subcontracts to eligible and qualified small and disadvantaged businesses, including woman-owned small businesses. The requirement flowed down to its subcontractors as well. One of the subcontractors, FE&C (Federal Engineers and Constructors) awarded two subcontracts to Sage-Tec, an entity that purported to be a small, disadvantaged business.
Initially, a lawsuit was brought forth by a whistleblower. The Government later enjoined the suit. The basic charge was that the prime contractor, FE&C, and Sage Tec knowingly misrepresented Sage Tec to be a qualified disadvantaged small business in order to be eligible for two multi-million dollar subcontracts that were designated for truly qualified small disadvantaged businesses. Sage Tec, it turns out, was not a legitimate small, disadvantaged business; rather it was a pass-through front company for FE&C, which performed substantially all of the work that should have been performed by Sage Tec.
The Government continues to investigate the Prime contractor for its role in the matter. The original whistle-blower stands to make a lot of money. On this Sage Tec settlement, the whistleblower will receive $47 thousand. On the aforementioned FE&C settlement, the whistleblower earned $470 thousand. If the prime contractor settles, the whistleblower will probably get a cut of the settlement amount as well.
You can read the full Justice Department press release here.
Here's a link to a related article appearing in the local newspaper.
Wednesday, October 11, 2017
Contractor Recovers Termination Costs Even Without Receiving a Notice to Proceed
In 2011, the Corps of Engineers awarded a contract to Pro-Built Construction to build a police station in Afghanistan. The Corps did not issue a notice to proceed however, and in 2012 (about seven months later), issued a TforC (Termination for Convenience) due to "negative security conditions.. Pro-Built submitted a TforC claim for about $1.1 million. In a final decision, the Contracting Officer determined that Pro-Built was entitled to a mere $49 thousand. Pro-Built appealed to the ASBCA.
While waiting for the notice to proceed, Pro-Built prepared its pre-construction submittal, a quality control plan, accident prevention plan, and security plan. It also sent staff and subcontractors to see the site, talk with the local people and talk with the village elders, and considered elements for the design including building codes and specifications.
The Corp asked DCAA (Defense Contract Audit Agency) to audit Pro-Built's $1.1 million claim. DCAA questioned the entire amount because the company incurred the costs prior to receiving a notice to proceed (FAR 31.201-2 and FAR 52.211-10). DCAA piled on more allegations; it was unreasonable for Pro-Built to have incurred any costs, other than to meet bond, insurance, or administrative requirements prior to receiving the notice to proceed, that Pro-Build did not have a formal accounting system; the Pro-Built's proposal was not an acceptable basis for settlement, and that Pro-Built had not properly calculated its G&A (General and Administrative) rate.
Ultimately the Board awarded Pro-Built $339,000 for a variety of reasons but most importantly, because they found, given the labor market and security situation in Afghanistan, it was reasonable for Pro-Built to incur standby costs prior to the notice to proceed. The Board allowed three months of stand-by costs rather than the eight months proposed by Pro-Built. The Board also noted that the Corps strung Pro-Built along with multiple correspondences stating, to the effect, that it would be issuing a notice to proceed imminently.
The entire Board decision can be read here.
While waiting for the notice to proceed, Pro-Built prepared its pre-construction submittal, a quality control plan, accident prevention plan, and security plan. It also sent staff and subcontractors to see the site, talk with the local people and talk with the village elders, and considered elements for the design including building codes and specifications.
The Corp asked DCAA (Defense Contract Audit Agency) to audit Pro-Built's $1.1 million claim. DCAA questioned the entire amount because the company incurred the costs prior to receiving a notice to proceed (FAR 31.201-2 and FAR 52.211-10). DCAA piled on more allegations; it was unreasonable for Pro-Built to have incurred any costs, other than to meet bond, insurance, or administrative requirements prior to receiving the notice to proceed, that Pro-Build did not have a formal accounting system; the Pro-Built's proposal was not an acceptable basis for settlement, and that Pro-Built had not properly calculated its G&A (General and Administrative) rate.
Ultimately the Board awarded Pro-Built $339,000 for a variety of reasons but most importantly, because they found, given the labor market and security situation in Afghanistan, it was reasonable for Pro-Built to incur standby costs prior to the notice to proceed. The Board allowed three months of stand-by costs rather than the eight months proposed by Pro-Built. The Board also noted that the Corps strung Pro-Built along with multiple correspondences stating, to the effect, that it would be issuing a notice to proceed imminently.
The entire Board decision can be read here.
Tuesday, October 10, 2017
Whistle Blower Protections for Contractor Employees Extended
FAR (Federal Acquisition Regulation) 3.900(b) and 3.908 implemented a pilot program for the enhancement of whistleblower protections for contractor employees from July 1, 2013 to January 2, 2017. The pilot program was subsequently extended to July 2, 2017. Prior to expiring, the pilot program was made permanent by Public Law 114-261 on December 14, 2016.
The FAR Councils are presently processing FAR Case 2-005, Whistle blower Protection for Contractor Employees to revise the FAR to make the pilot program permanent. The FAR case will be finalized at some undetermined point in the future.
In the meantime, the Civilian Agency Acquisition Council (CAAC) has issued a letter authorizing agencies to issue deviations to FAR in order to continue the pilot program coverage and address potential confusion in the use of clauses in commercial contracts implementing the program.
Most civilian agencies are taking the necessary steps to implement the CAAC letter so that whistleblower protections for contractor employees remain viable. Additionally, the CAAC letter clarifies that the relevant contract clauses belong in commercial item contracts in addition to negotiated procurements.
You can read the full letter here.
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