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.

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.

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.

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.

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. 

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.