GAO To Begin Charging a Filing Fee for Bid Protests

Beginning sometime next year (2018), the GAO (Government Accountability Office) will begin charging $350 to anyone filing bid protests. Currently, there is no charge for filing. For some contractors, the cost may be even higher. There is a provision in the Senate version of the 2018 National Defense Authorization Act (NDAA) that would require unsuccessful bidders to pay the cost for unsuccessful protests filed against the Defense Department (this applies to companies with revenues in excess of $100 million).

The ostensible reason for levying this new fee is to help offset the cost of development, operations, and maintenance of a new electronic protest docket system (EPDS). $350 per filing will bring in about $1 million a year based on historical filing totals - not nearly enough to cover the costs but every little bit helps. Besides, Congress mandated that GAO begin charging fees.

Some cynics suggest that the real purpose behind the new filing fee is to discourage frivolous protests. You will recall that last August, the GAO took the unprecedented step of suspending a firm from filing protests for one year because it had filed 300 bid protests over a four-year period and 150 protests in fiscal year 2016 alone (see GAO Suspends Firm From Filing Bid Protests For a Year). None of these protests were sustained and most were dismissed without merit. Since that suspension was lifted, the formerly suspended firm has already filed five new bid protests. For a protestor filing hundreds of protests per year, a $350 filing fee may be a deterrent.

For most companies filing bid protests, a $350 filing fee will not be a deterrent to filing. When tallying up the costs of a bid protest, especially if outside counsel is engaged, $350 will be represent a very immaterial portion of the total costs.

Fair Pay and Safe Workplaces Rules - Dead

This week, the FAR (Federal Acquisition Regulation) Councils issued a final rule implementing a public law that disapproved a previous final rule. The rule, called Fair Pay and Safe Workplaces, was based on an Executive Order (EO) that was ultimately overturned by Congress. To read what the regulations would have required, see Fair Pay and Safe Workplaces).

In 2014, the President issued EO 13673, Fair Pay and Safe Workplaces. In August 2016, implementing rules were published. In October 2016, several industry organizations filed a lawsuit seeking to overturn the final rule. That same month, the Court issued a preliminary injunction against the Government preventing them from enforcing most of the rules.

In March 2017, under the Congressional Review Act, Congress passed House Joint Resolution 37 which disapproved the entire FAR rule that was published back in August 2016. The President signed the Resolution into law that same month. By statute, the rule was to be treated as if it had never taken effect.

Had the rules remained in effect, the cost to contractors and the Government would have been significant. The Regulatory Impact Analysis (RIA) that included a detailed discussion and explanation about he assumptions and methodology used to estimate the cost of the final rule, calculated the cost to be in excess of $470 million the first year, $458 of which was to be born by contractors and subcontractors. That figure doesn't include the defense of litigation, some of it frivolous, that most people figured would occur as a result of alleged noncompliances with the rules.

No contractor we know of is disappointed that these onerous rules have been abolished.

Failure to Submit "Responsive" Offer Leads to Lost Opportunity

Offerors must avail themselves of every reasonable opportunity to obtain solicitation documents. Otherwise, they risk being eliminated from consideration.

The Department of Homeland Security (DHS) issued an RFQ (Request for Quotation) to provide armed and unarmed detention officer services in California. Nu-Way security and Investigative Services (Nu-Way) was one of the bidders. DHS issued four solicitation amendments. Three of the four extended the deadline for proposal submissions. Amendment No. 2 made several changes including three modifications to the pricing spreadsheet including a transition period line item, a project manager for San Diego, and increased mileage reimbursement rates. All of these changes were summarized on page one of the amendment.

Nu-Way did not use the revised spreadsheet as its proposal submission. DHS noted that the proposal lacked a line item for the San Diego project manager and failed to update the mileage reimbursement quantities. The contracting officer then notified Nu-Way that its quotation had been found non-responsive and would not be evaluated for award.

Nu-Way protested to the GAO alleging that the revised pricing spreadsheet was not available for download. DHS responded that the modification description clearly stated changes were made to the pricing spreadsheet and other offerors were able to download and submit the revised pricing spreadsheet. Nu-Way argued that the front page of Amendment 2 did not explicitly state that there were changes made to the pricing spreadsheet such that a new pricing spreadsheet was required. Therefore, the requirement was ambiguous.

GAO did not sustain the appeal. GAO found that Amendment 2 specifically stated that changes were made to the pricing spreadsheet. Regardless of whether Nu-Way could download or received the revised pricing spreadsheet, the company was on notice that DHS had revised the spreadsheet. As a result, Nu-Way should have availed itself of every reasonable opportunity to obtain the spreadsheet.

DHS was correct (acted reasonably) in rejecting Nu-Way's proposal because it failed to acknowledge a material amendment.

Read the entire decision here.

Fraud Friday - Government Employee Solicited and Accepted Bribes from Contractor

Now they're both in a heap of trouble.

There is not that much different in the relationship between a Government contracting officer and his contractor and that of a purchasing agent and his suppliers. In both cases, management places a great deal of trust that the person will act with integrity in carrying out his duties - namely buying at the best possible prices and terms. Trust is crucial but is not a substitute for good internal controls.

One reason we discuss allegations of contract fraud on these pages is to examine what went wrong in a given situation, what internal controls were nonexistent or were not adequate to prevent. We know from research that within a five year period, most small businesses will be affected by occupational fraud. And we also know that where there is a financial need, an opportunity, and rationalization, fraud is more likely to occur. So one way to prevent (or reduce) the occurrence of fraud is to take away the opportunity and that means implementing a robust system of internal controls.

So consider the recent Justice Department press release announcing the arraignment of Elvis, a supervisor with the U.S. Food and Drug Administration (FDA) and a business owner named Ivan on charges of bribery and kickbacks. Although this occurred at the FDA, it could have occurred in any governmental or contractor organization.

Elvis was the senior facilities officer at FDA's Atlanta field office and in that role, influenced the selection of businesses that perform building maintenance work. Ivan was the owner of P&E Management, a firm that performed building maintenance work. Ivan need work to sustain his company and Elvis was there ready to give him work ... for a price.

According to the press release, Ivan gave Elvis a debit card tied to Ivan's bank. Elvis used this card for shopping sprees, vacations, and dining out. On one occasion, Elvis used the card to pay for official government business trip and later sought reimbursement from the Government for that trip. To top it off, Ivan bought Elvis a Cadillac Escalade worth somewhere in the neighborhood of $80 thousand.

This bribery/kickback scheme went on for six years before it was discovered. We don't know how it was discovered - whether someone blew the whistle or perhaps an internal audit review. For the same firm to win contracts time after time over an extended period of time is inherently a red flag. But we know that there was a massive breakdown in internal controls that allowed this to happen and to persist for such a long time. It seems that Elvis had the ability to spend the Government's money without any oversight at all. And, if we've come to understand Government procurement regulations at all, we know that is not the way procurement is supposed to be done. Government procurement is characterized by market research, solicitations, evaluations, selections, negotiations, review and approvals accompanied by mountains of paperwork. For one person to wield so much power and influence to circumvent all of these controls suggests an internal control breakdown.

So how did Elvis circumvent the controls? Elvis always kept his purchases of building maintenance services under the micro-purchase threshold (currently set at $5,000) where speed and efficiency can streamline the procurement process but can also be easily exploited by persons such as Elvis.

You can read the entire Justice Department press release here.

2018 NDAA - Public Comment Submitted to Congress

The Professional Services Council (PSC) has weighed in on some of the provisions of the 2018 National Defense Authorization Act (NDAA) now that the House and Senate bills have moved on to conference committee for reconciliation. Among their concerns is the provision in the Senate version requiring losing bid protesters to pay the processing costs incurred by DoD (see Large Contractors May Need to Reimburse DoD for Bid Protest Costs). The PSC "strongly objects" to this provision. But PSC's letter also covers major concerns over provisions related to DCAA's (Defense Contract Audit Agency's) incurred cost backlog. PSC writes:

The backlog of incurred cost audits under the Defense Contract Audit Agency (DCAA) has wide-ranging, consequential, and negative impacts for the government and the contractor community— both of whom have an interest in moving rapidly to close out contracts. For the contractor, the government commonly withholds significant funds that should be reconciled and paid in a more timely manner. The government should be able to collect any money that might be determined to be due from the contractor, while there is still time and funds available to be collected. Unfortunately, DCAA’s backlog—and improper accounting of the backlog—prevents either from meeting these goals. GAO’s September 2017 major report confirms the current unacceptable backlog still remains. 

PSC goes on to recommend that Congress take further actions to reduce the backlog of incurred cost audits by including targeted reforms that allow for the use of independent, third-party auditors. The House version repeals provisions of the 2017 NDAA that allowed for commercial auditor findings for certain DoD contractors to be submitted and accepted by DCAA if the audit adheres to Generally Accepted Government Auditing Standards (GAGAS). But, as PSC noted, that provision contradicts Section 802, the goal of which is to expand the use of supplemental audits performed by public accounting firms.

Whatever happens, it is obvious that no one has confidence that DCAA can reduce its backlog of incurred cost audits while diligently watching over the taxpayer dollar. Civilian agencies are not encumbered with contract audit arms and are free to go out and procure their own contract audit services from private/commercial firms. It seems like some parties would like the Defense Department to go the same way.

You can read the entire PSC letter here.

At Last, Some Relief for DOE Contractors

For the past few years, the Department of Energy (DOE) has taken an extremely literal approach to contractors claiming overtime for employee training purposes. FAR 31.205-44(a) , Training and Education Costs, states that overtime compensation for training and education is unallowable. DOE has taken the position that there can be no exceptions to this rule. It didn't matter whether a contractor could show that it was more cost effective to pay overtime for training than to hire additional staff to cover contract-required services. It didn't matter that certain training was specifically mandated by contract and not discretionary. It didn't matter that the training contributed significantly to contractor employee health and safety. Contractors had to find a way to do all of this without incurring overtime.

More than a few DOE contractors have conducted specific analyses showing that there are circumstances where incurring overtime cost the Government less in the long run. When presented to DOE contracting officers however, they have stood firm in their interpretation that overtime for any kind of training was unallowable. Actually, some contracting officers were sympathetic and wished that they had the discretion to authorize overtime for training thus saving taxpayer dollars but found that there was no way to satisfy their overseers if they broached the subject.

Someone in DOE headquarters finally took some initiative and authorized a Class Deviation to FAR 31.205-44(a). You can read all of the details here but essentially, it authorizes overtime for training purposes so long as the contractor has written approval from an agency approving official (typically a contracting officer). Additionally, approval is required before the costs are incurred. Contractors are expected to submit requests with sufficient justification to gain contracting officer approvals.

The Class Deviation applies to existing contracts as well as future contracts so that contractors in the midst of a multi-year contract will be able to benefit.

No word yet on whether other agencies will follow suit. Possibly not because we are not aware of any other agency that has taken similar positions to that of DOE rank and file.