A professor of civil and environmental engineering from Washington State University (WSU) was arrested and charged with defrauding the Government out of $8 million in federal research fund last February. He has been charged with fabricating letters of support and investment, providing false information in research grant proposals and reports, and providing falsified reports and emails regarding how federal research funds were spent.
WSU, for its part, have initiated its own review of the evidence and will use that information to determine any disciplinary action it will pursue in this case. WSU officials said they were cooperating with federal investigators and working to help gather evidence for the investigators.
This professor received about 30 grants from the National Science Foundation (NSF) and the Energy, Transportation, and Agriculture Departments, to develop asphalt-composition technologies. The grant money was deposited into bank accounts and subsequently distributed for the professor's personal use, and not the technology development represented in their grant applications.
Grants and certain types of contracts such as research and development (e.g. Small Business Innovative Research), seem to be at risk for this type of fraud. The Government gives money to individuals or businesses with the hope of advancing the state of the art in various fields. Many times, the "experiments" fail or do not produce the intended result. That happens in research. The "deliverable" for these types of grants/contracts is typically a report summarizing the results of the research. If individuals or businesses are so inclined, it is easy to perpetrate fraud in these programs, especially if there is lax oversight.
Universities like grants for many reasons including financial reasons where the work on the grant helps absorb some of the overhead. WSU pulls in $330 million in grants every year. Universities sponsoring these grant-wielding professors however have a fiduciary duty to provide a certain level of oversight into what their staffs are doing and how they are performing,
You can read the full Department of Justice press release here.
Tuesday, May 31, 2016
Friday, May 27, 2016
Proposal Submissions that Exceed Page Limit Can Become Disqualified
The National Science Foundation (NSF) issued a solicitation for information technology services. Quotations were to be submitted in six volumes and the solicitation established page limit and format limitations for each volume. For example, Volume I had a limit of 35 pages, single-spaced, with stated font size and type. Bidders were instructed that NSF would evaluate only up to the page maximums as noted for each volume submission, and that any pages beyond the stated limits would not be considered.
After the initial offers and subsequent discussions with each offeror, NSF requested revisions from the competing vendors. In the request for revisions, NSF included the following instructions:
NSF is inviting your organization to submit a quote revision that is consistent with all instructions and requirements as noted in the [solicitation]. All quote revision material must be consistent with [the solicitation] instructions and requirements to be eligible for award consideration.
One of the bidders (Dell) asked for an additional page allocation in order to thoroughly address the concerns raised by NSF over the initial offer. The contracting officer denied the request.
One of the revised proposals (Tetra Tech) exceeded the page restriction. It's Volume I exceed the 35 page limit by 12 pages. So, NSF lopped off the final 12 pages of the proposal. As a result, the offeror's technical approach was considered unsatisfactory because NSF was not able to evaluate the bidder's response to the solicitation requirements.
Tetra Tech then filed a bid protest challenging NSF's decision to exclude from consideration the proposal pages that exceeded the page limitation. Tetra Tech alleged that NSF engaged in misleading discussions because it represented in its instructions to vendors that revisions to quotation submissions would not count against the page limit. NSF countered that the page limit instructions sent to all vendors were unambiguous. There was nothing in the instructions that conveyed a waiver of the page limits for the revised quotations.
The Comptroller General (GAO) agreed with NSF and denied the appeal. GAO concluded that there was no ambiguity in the instructions and that NSF properly excluded the portions of Tetra Tech's quotation that exceeded the page limitations stated in the solicitation.
You can read the full text of GAO decision here.
After the initial offers and subsequent discussions with each offeror, NSF requested revisions from the competing vendors. In the request for revisions, NSF included the following instructions:
NSF is inviting your organization to submit a quote revision that is consistent with all instructions and requirements as noted in the [solicitation]. All quote revision material must be consistent with [the solicitation] instructions and requirements to be eligible for award consideration.
One of the bidders (Dell) asked for an additional page allocation in order to thoroughly address the concerns raised by NSF over the initial offer. The contracting officer denied the request.
One of the revised proposals (Tetra Tech) exceeded the page restriction. It's Volume I exceed the 35 page limit by 12 pages. So, NSF lopped off the final 12 pages of the proposal. As a result, the offeror's technical approach was considered unsatisfactory because NSF was not able to evaluate the bidder's response to the solicitation requirements.
Tetra Tech then filed a bid protest challenging NSF's decision to exclude from consideration the proposal pages that exceeded the page limitation. Tetra Tech alleged that NSF engaged in misleading discussions because it represented in its instructions to vendors that revisions to quotation submissions would not count against the page limit. NSF countered that the page limit instructions sent to all vendors were unambiguous. There was nothing in the instructions that conveyed a waiver of the page limits for the revised quotations.
The Comptroller General (GAO) agreed with NSF and denied the appeal. GAO concluded that there was no ambiguity in the instructions and that NSF properly excluded the portions of Tetra Tech's quotation that exceeded the page limitations stated in the solicitation.
You can read the full text of GAO decision here.
Thursday, May 26, 2016
Buy American Act and Berry Amendment Act Violations
The Buy American Act is a law requiring the Federal Government to buy domestic articles, materials and supplies, primarily to protect American labor. The Berry Amendment prohibits the Defense Department from spending its funds on clothing, fabrics, fibers and yarns that are not grown, reprocessed, reused or produced in the United States. The purpose of the Berry Amendment is to protect the viability of the textile and clothing production base in the United States. The Buy American Act is included in contracts by FAR Clauses 52.225-10, -11, and -12 as applicable. If you have a DoD contract, the Berry Amendment is incorporated as DFARS (DoD FAR Supplement) 252-225-7012.
Unlike many contract clauses that are seemingly for "show", the Government takes these two prohibitions and restrictions very seriously, as one, Mr Burnett can now attest to.You see, Mr. Burnett was awarded contracts to supply the Army Recruiting Command to supply hundreds of thousands of baseball caps and backpacks for promotional items to be given to recruits. Between 2005 and 2009, Mr Burnett received three contracts worth $6.2 million. Not only were the Buy American Act and Berry Amendment Act clauses in Mr. Burnett's contracts but they also included the phrase, in capital letters, that the "Product must be 100% U.S. Made."
Once Mr. Burnett had his contracts, instead of providing American-made products, he negotiated and contracted directly with suppliers from China and with American companies who he knew were procuring the products from China. He used Chinese-made products to fill orders under all three contracts. Here's how he hid the fact that the baseball caps and backpacks were produced in China. He hired workers on a cash basis to remove all the Chinese labels and repackage the items that he sent to the Army recruiting command.
After the award of the second baseball cap contractor, a competitor protested the bid, claiming Burnett could only bid so low if he were using foreign suppliers. When the Government looked in to the matter, Burnett submitted documentation - fraudulent documentation - that he was using only American-made products and that he would comply with all aspects of the Buy American Act and the Berry Amendment.
Mr. Berry has now been indicted by a Grand Jury and the indictment seeks to have Burnett forfeit all $6.2 million the Government paid him as proceeds from illegal sales. He also faces a maximum penalty of 20 years in prison and a $250 thousand fine.
The Department of Justice press release on this matter can be read here. It does not mention how the suspected fraud came to the Government's attention.
Wednesday, May 25, 2016
GAO Denies Protest that Bid was Too Low
The GAO (Government Accountability Office) recently published its decision on a protest filed be URS Federal Services of an award made by the Army to VSE Corporation. URS, the incumbent contractor for the work, alleged that the Army should have rejected VSE's bid as unrealistically low-priced (among other charges). GAO denied the protest.
URS complained that VSE's price was unrealistically low, asserting that VSE's low price should have caused the Army to reject its proposal. URS asserted that the terms of the solicitation should be construed as requiring the Army to perform, and document, a price realism evaluation under which VSE's proposal should have been rejected as unacceptably low.
The Army responded that the terms of the solicitation neither contemplated nor permitted it to reject a proposal on the basis of its low price. More specifically, the Army noted that the solicitation did not contain any reference to a price realism evaluation. Instead, proposals would be evaluated based on (i) affordability, (ii) reasonableness, and (iii) completeness. In short, pursuant to the terms of the solicitation, a low price could not form a basis for rejection of a proposal.
The GAO agreed with the Army. The GAO noted that as a general rule in awarding fixed-price contracts, agencies are only required to determine that prices are not unreasonably high. While an agency may conduct a price realism analysis in awarding a fixed-price contract for the limited purposes of assessing whether an offeror's low price reflects a lack of technical understanding or risk, offerors must be advised that the agency will conduct such an analysis. That is, the solicitation must contain either an express price realism provision or a statement warning offerors that a business decision to express price realism provision or a statement warning offerors that a business decision to submit low pricing may form the basis for rejecting the low-priced offeror's proposal. Absent such provisions, agencies are neither required nor permitted to conduct a price realism analysis in awarding a fixed-price contract.
The GAO did not view any of the solicitation provisions as warning offerors that proposals may be rejected on the basis of low price. Therefore the protest was denied.
Many incumbent contractors have been faced with similar dilemmas as new bidders come in and significantly undercut what incumbents know what it takes to perform the contract. In some cases, the difference is so extreme that incumbents legitimately wonder how the new contractor will be able to perform to specification. A lot of bid protests have been levied as a result. Sometimes those protests are successful where the agency deviated from the evaluation criteria. Sometimes those victories are hollow as the agency re-evaluates offers but awards to the same contractor anyway.
URS complained that VSE's price was unrealistically low, asserting that VSE's low price should have caused the Army to reject its proposal. URS asserted that the terms of the solicitation should be construed as requiring the Army to perform, and document, a price realism evaluation under which VSE's proposal should have been rejected as unacceptably low.
The Army responded that the terms of the solicitation neither contemplated nor permitted it to reject a proposal on the basis of its low price. More specifically, the Army noted that the solicitation did not contain any reference to a price realism evaluation. Instead, proposals would be evaluated based on (i) affordability, (ii) reasonableness, and (iii) completeness. In short, pursuant to the terms of the solicitation, a low price could not form a basis for rejection of a proposal.
The GAO agreed with the Army. The GAO noted that as a general rule in awarding fixed-price contracts, agencies are only required to determine that prices are not unreasonably high. While an agency may conduct a price realism analysis in awarding a fixed-price contract for the limited purposes of assessing whether an offeror's low price reflects a lack of technical understanding or risk, offerors must be advised that the agency will conduct such an analysis. That is, the solicitation must contain either an express price realism provision or a statement warning offerors that a business decision to express price realism provision or a statement warning offerors that a business decision to submit low pricing may form the basis for rejecting the low-priced offeror's proposal. Absent such provisions, agencies are neither required nor permitted to conduct a price realism analysis in awarding a fixed-price contract.
The GAO did not view any of the solicitation provisions as warning offerors that proposals may be rejected on the basis of low price. Therefore the protest was denied.
Many incumbent contractors have been faced with similar dilemmas as new bidders come in and significantly undercut what incumbents know what it takes to perform the contract. In some cases, the difference is so extreme that incumbents legitimately wonder how the new contractor will be able to perform to specification. A lot of bid protests have been levied as a result. Sometimes those protests are successful where the agency deviated from the evaluation criteria. Sometimes those victories are hollow as the agency re-evaluates offers but awards to the same contractor anyway.
Tuesday, May 24, 2016
Will the use of Blended Labor Rates Create a CAS Noncompliance?
We spent a few postings last month discussing DoD's "blended rate" approach to implementing the lowered compensation cap that affects contracts awarded on or after June 24, 2014. There are different methodologies to calculating blended rates depending upon whether the rates are for forward pricing purposes or incurred cost purposes. Incurred cost blending is rather straight forward because all of the factors needed to blend two compensation caps are known. Forward pricing is not so straight forward as it requires an estimate of work to be performed in future periods. You can learn more about these blending methodologies by reading our previous coverage in Part 1, Part 2, Part 3, and Part 4.
A question was posted on DoD's official Q&A website concerning contractors who wished to implement the new $487,000 cap for forward pricing purposes in lieu of using the blended method but wished to use the blended method for incurred cost purposes. The question concerned whether such a practice would constitute a noncompliance with CAS (Cost Accounting Standard) 401, Consistency in Estimating, Accumulating and Reporting Costs.
We understand why a contractor might want to implement such a practice - its simpler and avoids Government auditors and contracting officers from tearing into and second-guessing assumptions as to how much work in future years will be on pre-June 24, 2014 contracts and post-June 24, 2014 contracts. Keep in mind however that the approach will most likely have a negative impact as fixed price contracts will be understated, cost-type contracts will have a lower fixed fee, and resulting overruns will be unfunded. Given these downsides, it might still be in a contractor's best interest to forego the forward pricing aspects of blended rates.
According to DoD, the use of a blended rate versus implementing the new cap from the outset is not a CAS 401 noncompliance because any inconsistency does not involve a cost accounting practice as defined by the CAS Board. According to CAS, a cost accounting practice is any disclosed or established accounting method or technique which is used for allocation of costs to cost objectives, assignment of cost to cost accounting periods, or measurement of cost. Either the blended rate approach or the specified amount approach is none of these three. It is not a method or technique used for allocation of costs to cost objectives, not a method or technique used for assignment of cost to cost accounting periods, and not a method or technique used for measurement of cost.
Keep in mind that the use of the blended rate methodology requires an advance agreement and potential inconsistencies such as the one described above will be sorted out during the advance agreement process.One thing it is not however, is a CAS 401 noncompliance.
A question was posted on DoD's official Q&A website concerning contractors who wished to implement the new $487,000 cap for forward pricing purposes in lieu of using the blended method but wished to use the blended method for incurred cost purposes. The question concerned whether such a practice would constitute a noncompliance with CAS (Cost Accounting Standard) 401, Consistency in Estimating, Accumulating and Reporting Costs.
We understand why a contractor might want to implement such a practice - its simpler and avoids Government auditors and contracting officers from tearing into and second-guessing assumptions as to how much work in future years will be on pre-June 24, 2014 contracts and post-June 24, 2014 contracts. Keep in mind however that the approach will most likely have a negative impact as fixed price contracts will be understated, cost-type contracts will have a lower fixed fee, and resulting overruns will be unfunded. Given these downsides, it might still be in a contractor's best interest to forego the forward pricing aspects of blended rates.
According to DoD, the use of a blended rate versus implementing the new cap from the outset is not a CAS 401 noncompliance because any inconsistency does not involve a cost accounting practice as defined by the CAS Board. According to CAS, a cost accounting practice is any disclosed or established accounting method or technique which is used for allocation of costs to cost objectives, assignment of cost to cost accounting periods, or measurement of cost. Either the blended rate approach or the specified amount approach is none of these three. It is not a method or technique used for allocation of costs to cost objectives, not a method or technique used for assignment of cost to cost accounting periods, and not a method or technique used for measurement of cost.
Keep in mind that the use of the blended rate methodology requires an advance agreement and potential inconsistencies such as the one described above will be sorted out during the advance agreement process.One thing it is not however, is a CAS 401 noncompliance.
Monday, May 23, 2016
Registering in SAM - Before Proposal Submission or Before Contract Award?
The language in FAR (Federal Acquisition Regulations) is inconsistent in terms of whether offerors need to be registered in SAM (System for Award Management) prior to submitting an offer, or prior to award of a contract.
FAR 52.204-8(b) and (d) states that if clause 52.204-7, System for Award Management, is included in the solicitation (and it almost always is included), the the offeror verifies by submission of the offer that the representations and certifications in SAM are current and accurate.
The aforementioned clause instructs offerors to complete representations and certifications by registering in SAM prior to the submission of offers.
On the other hand, FAR 4.1102, System for Award Management - Policy, states that SAM registration (which includes the online representations and certifications (reps and certs) must be completed by the time of award.
This inconsistency has created no small amount of confusion. While most offerors are duly registered in SAM, there have been some companies whose offers were deemed non-responsive because of their failure to register in SAM prior to submitting their offers.
The FAR Councils have issued a proposed rule to fix this inconsistency. The proposal is a modification to FAR 4.1102 and 4.1103 to require offerors to register in SAM prior to submission of an offer.
But companies interested in bidding on Government contracts, if they haven't already done so, should just go ahead and register in SAM. Its not that big of a deal and no one should be paying money to have someone do it for them. Set aside a couple of hours and get it done.
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