Download Government Contracts--Opportunities

SECAF: Government Contracts
Opportunities & Obstacles
Grant H. Willis
February 11, 2014
Government Contracts--Opportunities
• U.S. -- World’s largest consumer of goods and
services
• In FY 13, $460 billion spent on contracts, $526 billion
on grants
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Government Contracts--Opportunities
• In FY 12, about $89.9 billion went to small and small
disadvantaged businesses
• SBA goal: 23% of prime contracting to small
businesses
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Government Contracts--Opportunities
• Estimated Top 20 Contracts in 2014 74% increase
over 2013 ($92 B$160 B)
• 73% Defense (mostly Army); 45% IT
• Cybersecurity, health care needs
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The Government is a Different Type of Buyer
• Special government policy concerns drive the buying and
contracting processes
• Unique requirements and contract provisions vary
depending upon the source of funds, the procuring
agency, the method of procurement, the nature of the
goods and services, and the nature of the contractor
• Risks different than commercial environment. Quite fluid.
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Unique Requirements and Risks
• Certifications concerning eligibility and compliance with laws designed
to protect the integrity of the procurement process
• Implied certification of strict compliance with all technical specifications
and testing requirements
• Special accounting, pricing and record-keeping requirements
• Unique disclosure obligations
• Increased government focus on audits, compliance and prosecution
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Key Areas of Risk
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Socio-economic program requirements
Domestic Preference Provisions
• Buy American/Buy America/ARRA
• Specialty Metals/Berry Amendment
Procurement Integrity Act/Anti-Kickback Act
Organizational Conflicts of Interest
Pricing
• Truth In Negotiations Act
• GSA/MFC
Cost Principles & CAS
Labor Charging
Product Substitution
Unique contracting rules (authority/funding/terminations)
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Consequence of Violations
• Audits & Investigations
• Negative Performance Record
• Disallowance of Costs
• Civil False Claims
• Rejection of Invoices
• Criminal False Statements and Fraud
• Reductions in Contract Price
• Substantial Fines, Penalties and
Damages
• Forfeiture of Claims and Contracts
• Exclusion from Future Contracts
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TRUTH IN NEGOTIATIONS ACT (TINA)
(FAR Part 15)
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TINA Requirements
• Statute Imposes a Unilateral, Affirmative Duty to Root
Out and Disclose All “Cost Or Pricing Data”
• Certification that “Cost or Pricing Data” Disclosed Are
Current, Accurate and Complete, as of the Date of
Price Agreement (“Sweeps”)
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Applicability of TINA
• Negotiated Prime Contract > $700,000
• Prime Contract Modification > $700,000
• Negotiated Subcontract > $700,000 at Any Tier, if Prime
Contract and Upper Tier Subcontract(s) Provided Cost or
Pricing Data
• Subcontract Modification > $700,000 at Any Tier, if the Prime
Contractor and Upper Tier Subcontractor(s) Provided Cost or
Pricing Data
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Exemptions from TINA
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Adequate Price Competition
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Prices Set by Law or Regulation
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“Commercial Item” Acquisition at Fixed Price
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Pricing Actions Less Than $700,000
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Exceptional Cases - Waiver by Head of Contracting
Activity
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FALSE CLAIMS ACT
(31 USC §3729 et. seq.)
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FCA Generally
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Enacted in 1863; amended in 1986, 2009 and 2010
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FCA collections in past 3 years: $8.8 billion (Holder)
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Applies broadly to cover:
– Submitting or causing a false claim to be submitted
– Making false statements or using false records to
get or keep government money
Government’s primary civil anti-fraud mechanism.
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FALSE CLAIMS ACT
Damages and Penalties
• Penalty of $5,500 to $11,000 per false claim (invoice)
• Treble actual damages
• Private plaintiffs may sue in the name of the Government. (Qui
Tam “relator”)
• Liability for “relator” attorneys fees and costs
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FALSE CLAIMS ACT
• Case filed under seal while DOJ investigates. DOJ can intervene
and prosecute, allow relator to prosecute, or dismiss
• Relator may be awarded a percentage of the recovery
– 15%-25% if DOJ intervenes
– 25%-30% if DOJ declines intervention
Usually Results In Debarment Proceedings
If Contractor Loses or Settles
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FALSE CLAIMS ACT
• Fraud Enforcement and Recovery Act (May 10, 2009)
• Patient Protection and Affordable Care Act (Mar. 23,
2010)
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PRESENT RESPONSIBILITY AND
SUSPENSION AND DEBARMENT
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Present Responsibility
• Contractors Must Qualify as “Presently Responsible” To
Do Business With the Government
• The Test of Responsibility Includes Not Only Adequate
Financial Resources and Technical Skills, But Also:
– A satisfactory performance record
– A satisfactory record of integrity & business ethics
– Adequate accounting and operational controls
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Present Responsibility
• Responsibility determination made by Contracting Officer
prior to each contract award.
• Global decision that a contractor is not responsible may be
made via Suspension and Debarment Process
• Prime contractors are responsible for ensuring present
responsibility of subcontractors
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Suspension and Debarment
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An agency may propose to "debar" a contractor from participation in all
future government procurements
A contractor is "suspended" pending administrative proceedings.
Debarment grounds include:
• commission of a fraud relating to a public contract or
subcontract
• violation of State or Federal antitrust laws
• commission of specified crimes indicating a lack of integrity, e.g.,
embezzlement, theft, forgery, bribery, obstruction, false statements,
tax evasion
• mislabeling origin of goods or products ("Made in America")
• any other offense indicating a lack of honesty or business
integrity (FAR 9.406)
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Suspension and Debarment
• Contractors also may be debarred for violations of the Davis-Bacon
Act, Contract Work Hours and Safety Standards Act, the Service
Contract Act, the Fair Labor Standards Act, and related Labor
Laws. (FAR 52.222-12)
• Corporations are responsible for the actions of officers, directors,
managers, employees and agents, and frauds, crimes and serious
misconduct may be imputed to joint venture partners (FAR 9.406-5)
• Congress has proposed legislation to debar any company convicted
of an FCPA violation (HR 5366)
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Suspension and Debarment
• Exclusions from all new procurements and “nonprocurements” Government-wide. (FAR 9.401)
• Debarments are for periods of 1 to 3 years (including any
suspension period)
• Contractor proposals must disclose and certify whether they
presently are debarred, or have been charged with specified
offenses with the past three years. (FAR 52.209-5) (FAR
52.209-7)
• Primes will not use debarred subcontractors absent unique
requirements and contracting officer approval
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Suspension and Debarment – Recent Changes
• As of December 2008, contractors face suspension or
debarment for “knowing” failure by a “principle” to
make “timely disclosure” when have “credible
evidence” of:
– A violation of federal criminal law involving fraud,
conflict of interest, bribery, or gratuity violations
– A violation of the civil False Claims Act; or
– A significant overpayment on a contract.
[In connection with one of its government contracts]
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COMPLIANCE PROGRAMS AND
DISCLOSURE REQUIREMENTS
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Mandatory Code of Conduct and Disclosures
for Contractors
• In December 2008, the FAR Council issued a new
rule regarding compliance programs and mandatory
disclosure
• All Covered Contractors “must” have a written Code
of Conduct; large businesses must have ongoing
compliance programs, training and effective internal
control systems
• Covered Contractors must “fully cooperate” with
investigations
• Covered Contractors must disclose wrongdoing
relating to their contracts 25
Mandatory Disclosure
• A Covered Contractor must “timely disclose” in writing to the
agency’s Inspector General and the contracting officer in
connection with the award, performance or closeout of the
contract, or a subcontract thereunder, “credible evidence” of:
– A violation of federal criminal law involving fraud, conflict of
interest, bribery, or gratuity violations; or
– A violation of the civil False Claims Act
• Applies to all contracts and subcontracts expected to exceed $5
million with a performance period of at least 120 days (but see
new debarment basis)
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CURRENT TRENDS & DEVELOPMENTS
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New Vet and Disability AA Rules
• New percentage goal-based requirement
• New reporting requirements
• New flow down requirements (specific text)
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Changes in Cost-Type Contracting?
• Risk shifting
• Reduced incentive to enter into cost-type contracts?
• Increased proposed fixed price contracts?
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Changes in Cost-Type Contracting?
• LOGCAP III Decisions (KBR)
• Fed Circuit rejected “best effort” test for allowability;
no reliance on “business judgment rule”
• Costs incurred by gross negligence not allowable
• Other negligent mistakes? Unclear
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Bid Protest Activity--2013
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Slight dip from high in 2012—2,429 new cases
More than doubled since 2001
More corrective actions
Sustained 17% of protests on merits—most victories
because of failure to follow procedures
• More task order protests
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Suspension/Debarment Activity on the
Rise?
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Areas of Debarment Risk
• Small Business
• Performance
• Labor Issues
• Veterans Certifications
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Suspension/Debarment—Affiliates at Risk
• Agility / Public Warehouse subsidiaries
• Suspended for over 4 years
• 11th Circuit—can continue past 18 months during
criminal proceedings against parent
• Agencies can suspend based on “adequate
evidence”—like “probably cause”
• Concern that parent will shift business to affiliate
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Contracting Officer Turnover
• Contracting officer positions change
• Uneven training / competence
• Written notification of changes. Written agreements
• No apparent authority
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Cybersecurity
• Recommendations from final DOD/GSA report
• Baseline cybersecurity requirements for certain
acquisitions (similar to proposed FAR rule)
• Common definitions
• Training
• Overall Cyber Risk Management Strategy
• OEM / “Trusted Reseller” Purchase Requirements
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PRACTICAL ADVICE
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Practical Advice
Strive for Commercial Item Status
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Fewer requirements
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Fewer flow-downs
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Exemption from TINA and CAS
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Dramatically reduce compliance risk
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Practical Advice
Commit to Market/Commit to Compliance
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Must invest in people, systems and procedures to
learn and follow rules of road
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Contract administration; accounting, finance, recordkeeping—key functions
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Practical Advice
Compliance Must Be a Core Value
• Code of Business Ethics and Code of Conduct
• Internal procedures and controls
• Independent/anonymous hotline
• Compliance Officer with access to Sr. Mgmt/audit
committee
• Ongoing training
• Ongoing internal audit and risk assessment
• Senior management commitment
• Part of annual evaluations
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Practical Advice
Manage Records
• Keep everything you need. Keep only what you need
• Assume everything you type, text, scribble or send will become
public
• Make it accessible
Mergers & Acquisitions
• Conduct thorough “due diligence” for unique government
contract risks
• Internal evaluations and corrective plans post acquisition
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Practical Advice
When Problems Happen
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Do triage; get counsel involved in potentially serious matters
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Do a thorough investigation and make required disclosures
ASAP
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Always keep the debarment issue in mind/prepare both the
defense and present responsibility case from the start
– Make restitution
– Discipline people
– Implement reform and safeguards
– Try to have it done before the agency asks for it
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