Seven Years to Insert a Single Word Into a Regulation

Back in October 2011, the Cost Accounting Standards Board (CASB) issued a proposed rule to clarify one of the CAS (Cost Accounting Standards) exemptions provided by FAR 9903.201. Since 2000, this provision has provided an exemption from CAS for Firm-Fixed-Price contracts and subcontracts awarded on the basis of adequate price competition without submission of cost or pricing data. The CASB proposed to add the word "certified" before "cost or pricing data".

At the time the CAS rule was promulgated in 2000, the term cost or pricing data was understood to mean certified cost or pricing data. However, as a result of changes mad to FAR (Federal Acquisition Regulations) in 2010, the term could also be read to mean cost or pricing data without the certification. Since 2000, there have been two categories of cost or pricing data; "certified cost or pricing data" and "data other than certified cost or pricing data".

To avoid confusion and provide clarity to the Government contractor community on its original intent, the CASB proposed to add the word "certified".  to wit, when certified cost or pricing data were not obtained for FFP contracts and subcontracts, the safeguards provided by CAS were likewise not necessary.

When this one-word modification was first proposed, the Space Shuttle was still flying, Osama Bin Laden was still alive, and the US had 15 million fewer people. In the meantime, we've had two Presidential election cycles. Good work guys.

Report on External Peer Review of DCAA Published

Last November, the Department of Defense, Office of Inspector General (OIG) issued a report on its latest peer review of the Defense Contract Audit Agency (DCAA). With respect to peer review ratings, audit organizations can receive a rating of 'pass', 'pass with deficiencies' or 'fail'. DCAA received a rating of 'pass with deficiencies'. DCAA's previous peer review rating was also 'pass with deficiencies'.

DCAA agreed with the 'pass with deficiencies' opinion and overall conclusions on the documentation and evidence deficiencies. However, DCAA disagreed that the reporting, supervision, and professional judgment deficiencies rose to the level of a system-reportable deficiency. DCAA noted that the OIG overstated the conclusions by citing the same finding under several deficiencies. For example, the OIG cited one assignment for a lack of evidence to an audit position but took the same deficiency and cited DCAA for supervision, reporting, and professional judgment deficiencies.

DCAA agreed to take corrective action that focused on specific findings but since the Agency did not consider the deficiencies to be systemic, that is, widespread throughout the Agency, did not generally agree with OIG recommendations that called for massive Agency-wide re-training efforts.

The OIG disagreed with the scope of DCAA's corrective action plan is some cases and left those findings 'open' in an unresolved state. You can download and read the full Peer Review report from either the OIG's website or the DCAA website.

Now comes Senator McCaskill in her position as Ranking Member of the Senate Committee on Homeland Security and Governmental Affairs asking DCAA to explain their inadequate responses to the OIG's peer review recommendations. In a February 5th letter to DCAA, McCaskill requested DCAA to explain why it did not agree with the OIG's recommendations and specifically, why it did not agree to "implement broader reforms in order to avoid a recurrence of these or similar problems". McCaskill wants DCAA to address the following questions:

1. Why does DCAA believe that these flawed audits indicated the need to improve the performance of audit staff, but not the performance of the supervisors reviewing the work of those staff members?
2. Why does DCAA believe that the deficiencies which led to flawed audits in four offices do not point to the need for additional training agency-wide?

You can read Senator McCaskill's letter here. We'll report on DCAA's response to the letter if we ever get a copy.

Update on One-Person Company Awarded $156 Million Contract

A couple of weeks ago, we reported on a one-person company that had been awarded a $156 million contract by FEMA (Federal Emergency Management Agency) to deliver 30 million emergency meals to victims of the recent Puerto Rico hurricane. From the beginning, the company was unable to deliver so FEMA terminated the contract for default. This contract award has come under scrutiny by the House Committee on Oversight and Government Reform who has asked FEMA why, given the poor track record of this company, it awarded this contract where time was of the essence.

Now the Senate Committee on Homeland Security and Government Affairs is weighing in on the debacle, after reviewing the actual contract. The Senate Committee writes,

Unfortunately, this contract appears to be further evidence of systemic weaknesses in FEMA's contracting practices. In particular, we are concerned that FEMA is not taking appropriate steps to evaluate vendors' qualifications before awarding contracts to provide critical disaster relief supplies. In November 2017, FEMA cancelled $30 million in contracts for emergency tarps and sheeting after Bronze Star, LLC (Bronze Star) - a two-person company with no past experience - failed to deliver. FEMA's awards to Bronze Star raised concerns about how FEMA is ensuring that contractors with limited performance records have sufficient capacity to meet a contract's requirements. FEMA's decision to award a $1456 million contract to Tribute underscores this concern, and raises additional questions about FEMA's contract award process.

The Committee goes on to note that Tribute had no experience delivering on a contract of such scale but its past performance on previous Government contracts should have raised red flags when FEMA was evaluating prospective contractors (see One Person Company is Awarded $156 Million Contract). Not only did the Senate note the same pattern of poor performance that the House did, but also questioned it integrity and business ethics based on an inspector general report finding that Tribute altered and submitted a false shipping document and failed to follow subcontracting rules.

Now the interesting part. The Committee found that Tribute's proposal contained numerous contradictory or unintelligible assertions. The overwhelming majority of Tribute's 9-page proposal was plagiarized from several sources readily available on the internet (amazing that a 9-page proposal would yield a $156 million contract). For example, language in Tribute's "Delivery Plan" section is nearly identical to sections found on the websites of a global logistics company and a Florida medical transportation company. The Senate letter details several of these plagiarisms. Not only was the content of Tribute's proposal plagiarized, but it was misleading. For example, Tribute using terms and phrases such as "our logistics professionals", "each ... employee", "management team" is very misleading given that it is a one-person company.

The Senate Committee is asking FEMA for an explanation of how this occurred. You can read the very interesting Senate report in its entirety here.

Materiality is Critical to a False Claims Allegation

A United States District Court (Middle District of Florida, Tampa Division) vacated a $350 million jury verdict against Salus Rehabilitation, an operator of specialized nursing facilities, under the Federal False Claims Act (FCA). The Judge ruled that the relator (a Qui Tam relator - the Government did not enjoin this particular suit) failed to establish that Salus' failure to (i) maintain comprehensive care plans and (ii) sign and date documents were material to payment decisions by Medicaid.

The Whistleblower alleged that Salus failed to maintain comprehensive care plans for each patient and failed to properly sign and date documents as required by the Medicaid program. A Jury agreed and the $350 million judgment was levied against Salus.

But wait a minute. Were these significant infractions? The Federal Judge ruled that the Whistleblower failed to offer evidence of materiality. Under a previous case, the Court ruled that an FCA claim on an implied false certification theory fails if the non-compliance is disclosed to, or discovered by, the United States; and if the United States pays notwithstanding the disclosed or discovered non-compliance. Thus, for a relator to prevail on an FCA claim, the defendant must know, or reasonable should know, that its non-compliance was material when it sought payment, and the defendant's misrepresentation must be material to the Government's decision to pay.

In the Salus case, the Court found no evidence on how the Government might have addressed the disputed practices and the lack of evidence left the jurors to guess. According to the Court, the Government was and is aware of the disputed practices, aware of this action, aware of the allegations, aware of the evidence, and aware of the judgments for the relator. But the Government never ceased to pay or even threatened to stop paying Salus for the services provided to patients.

The controlling question in this case is whether the Government would refuse to pay a provider on a large scale because of a dispute about the method or accuracy of payment after the Government  permitted the practice to remain in place for years without complaint or inquiry. Every day that the Government continues to pay for a good or service, the greater the practical impediment to proof of materiality.

You can read the full decision here.

Failure to Comply with Solicitation Results in Lost Opportunity

In 2016, GSA issued an RFP (Request for Proposal) for up to 70 IDIQ (Indefinite-delivery, indefinite-quantity) contracts to provide information technology (IT) services.

The RFP required offerors to assign themselves points in several categories. One of those categories concerned the offerors cost accounting system. In order to establish that an offeror was entitled to the points, the RFP stated that an offeror's supporting documents must include verification from the Defense Contract Audit Agency (DCAA), Defense Contract Management Agency (DCMA) or any Cognizant Federal Agency (CFA) of an acceptable accounting system that had been audited and determined adequate for determining costs applicable to the contract. Offerors were also required to provide contact information for the DCAA or DCMA and if available, a copy of the audit report. If not available, offerors were required to submit a letter from the auditing agency, on auditing agency letterhead, indicating unequivocally that the offerors' accounting system was audited and determined to be adequate for cost-reimbursement contracting. With respect to joint ventures, the RFP required documentation of a cost accounting system audit in the name of the joint venture itself or documentation in the name of each member of the joint venture.

SysVets, LLC, a service-disabled veteran-owned business (SDVOSB) joint venture comprised of Acquisition, Research and Logistics (ALR), Inc (the majority member), Information Management Resources (IMR), and Conception Solutions (CS) submitted a proposal in response to the solicitation and assigned itself the maximum number of points for having an audited accounting system. SysVets submitted a copy of the DCAA report that found the accounting system for its majority partner, ALR, to be adequate but did not provide any such documentation for the joint venture itself or the other two joint venture partners. So GSA deducted the points from SysVets score which lowered its overall score and consequently removed it from award consideration.

SysVets challenged GSA's evaluation to the Comptroller General (i.e. GAO). SysVets argued that GSA's deduction under the cost accounting system element was unreasonable. SysVets alleged that GSA should have concluded that ARL's audit documentation was sufficient because ARL is the majority member of the joint venture and is solely responsible for making all management and executive decisions. SysVets further argued that while it did not provide documentation for each of the joint venture partners, each partner did indeed have audited cost accounting systems.

The GAO did not sustain the protest. The RFP required offerors to submit specific documentation with their proposals. With respect to the cost accounting system audit, the solicitation required that the documentation be provided in the name of the joint venture or each joint venture member. SysVets failed to provide that documentation so GSA reasonably deducted the points from its evaluation. Documentation for just the majority joint venture member was not sufficient to comply with the clear and unambiguous terms of the solicitation.

You can read the full decision here.

Another "Rent-a-Vet" Scheme Uncovered and Prosecuted

The Justice Department announced last week that a business owner who falsely represented his company as owned and controlled by a service-disabled veteran was convicted of that crime. In this case, the "rent-a-vet" was the owner's own father-in-law who was disabled alright, but was in no condition to exert even a nominal amount of management responsibilities, much less 51 percent.

Stanley Raass of Utah, a former BYU football player, owned a construction company that provided general construction for the Federal Government. In 2009, he formed another company called RWT, named after his father-in-law's initials. Raass' father-in-law is a veteran with a 100 percent disability rating and was listed as the president and majority owner of RWT. Investigators however found that the father-in-law was physically incapable of manging RWT.

To meet SDVOSB requirements and be eligible for contracts set-aside for SDVOSBs, companies must be a small business and more than 50 percent owned by a service-disabled veteran, and daily operations of the business must be managed and controlled by the service-disabled veteran.

Raass represented that RWT was owned 51 percent by his father-in-law and 49 percent by himself. In reality, it was Raass himself that controlled the managerial and daily business operations of RWT. Ultimately, he was able to secure more than $16 million in construction contracts that should have gone to legitimate SDVOSBs.

Raass is expected to serve 24 months in prison and pay $640,000.