Government Contracts Legal Forum : Government Contracts Lawyers & Attorneys for Litigation & Counseling

On September 20, hundreds of government contractors joined us for a webinar about the new executive compensation and first-tier subcontract award reporting requirements. It was a lively discussion and we explored some of the challenges relating to this new requirement. In case you missed it, the webinar is now available in its entirety by clicking here. Hope you enjoy it.

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On September 14, 2010, OMB issued two regulations implementing the Federal Funding Accountability and Transparency Act of 2006 requirements applicable to recipients of federal financial assistance. The first (pdf.) requires (among other things) that for any new award made after October 1, 2010, applicants and recipients of grants and cooperative agreements must register in the Central Contractor Registration ("CCR"), and the second (pdf.) requires (among other things) that recipients of grants and other forms of federal financial assistance must - subject to a few limitations that generally mirror those in the FAR - provide information about recipient executive compensation, first-tier subawards over $25,000, and subrecipient executive compensation.

It will be particularly interesting to see how State agencies and educational institutions handle these new requirements. According to the Preamble to the second regulation mentioned above, some State agencies have already expressed concern that the increased administration costs would deplete resources available for public purposes and some have suggested that the new requirement is an unfunded mandate. Similarly, some institutions of higher education noted that the limitation in OMB Circular A-21 on recovery of indirect costs could prevent them from recovering increased administration costs from their Federal awards sure to be incurred to comply with these new requirements.

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Please join us for a webinar on Monday, September 20 at 2 pm ET for a discussion of the new rules requiring many contractors to report information about executive compensation and awards to subcontractors.

During this webinar, we will cover many topics, including:

·        Which companies must report executive compensation information?

·        How is executive compensation calculated?

·        How do these rules apply to publicly traded companies?

·        How does the CCR form work?

·        How should companies collect information from subcontractors?

·        What companies are considered subcontractors?

·        What if a subcontractor refuses to provide the information or the information is subject to a confidentiality agreement?

·        How do companies input the information in FSRS?

·        What will be done with the information?

·        Who will have access to the information?

·        What risks will companies face, even if they comply with this rule?

It should be an interesting discussion, and we hope you can join us.

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By now, most government contractors are (or most certainly should be) aware of the Federal Acquisition Regulation (“FAR”) provisions governing organizational conflicts of interest. While OCIs have been a hot issue for some time in the federal procurement world, OCIs are becoming an increasing risk area in the state procurement arena as well.   

By way of background, pursuant to the FAR, an “OCI arises when, because of other relationships or circumstances, a contractor may be unable, or potentially unable, to render impartial advice or assistance to the government, the contractor’s objectivity in performing the contract work is or might be impaired, and/or the contractor would have an unfair competitive advantage.” FAR 2.101. There are three general categories of OCIs: biased ground rules; impaired objectivity; and, unequal access to information. If not adequately mitigated or, when necessary, avoided, an actual or potential OCI can result in a vendor’s disqualification.      

Many contractors have been surprised to learn that a growing number of states have adopted OCI rules that follow these FAR principles. Some states, such as Maryland, Virginia, Minnesota, and Illinois have codified OCI rules in their respective state administrative or procurement codes. In other states OCI rules have been adopted at the agency-level. For instance the California, Tennessee and Washington Departments of Transportation have adopted OCI rules. Some states, such as California, have also adopted OCI rules via standard state contract provisions. 

Even where there is no specific state OCI rule or standard contract clause,  state contractors are not necessarily off the OCI hook. For instance, where federal grant money is used at the state level, such as in healthcare and education procurements, federal regulations sometimes require that the state grantee consider OCI issues before making award.   Moreover, many state procurement codes have rules that mirror the general federal procurement requirements regarding competition and fair and equitable treatment. Thus, for instance, a disappointed bidder could argue in the context of a post-award state protest that an awardee with an unequal access OCI has an unfair competitive advantage that runs afoul of the general state requirements for competition. 

In short, OCIs are not simply a federal procurement matter. State contractors must also beware.     

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We have previously provided information about the interim FAR Rule implementing the Federal Funding Accountability Act of 2006, as amended by the Government Funding Transparency Act of 2008. The Rule, which is already in effect, requires many government contractors to report information about their executives’ compensation, their first-tier subcontractors’ executive compensation, and information about their first-tier subcontract awards. Since the Rule was published on July 8, 2010, government contractors have wrestled with difficult questions of interpretation and implementation issues. 

The comment period closed on September 7, 2010. Comments (pdf.) submitted by the Council of Defense and Space Industry Associations highlight some of the thorniest questions. Issues include:

1) Does the Rule compromise national security because of mandatory disclosure of information about products and services supplied to the US government?

2) Does the Rule cause competitive harm due to disclosure of subcontractor name and pricing information?

3) How should the executive compensation portion of this Rule be applied to publicly traded companies that have hundreds of DUNS numbers and CCR entries?

It will be interesting to see how the FAR Council addresses these - and other - questions that government contractors are raising.

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In MCR Federal, LLC, B-401954.2 (Aug. 17, 2010), GAO denied protester's challenge to the agency's decision, in the context of taking corrective action, to waive organizational conflicts of interest for two offerors. The agency - CIA - concluded that executing a waiver was in the government's best interest, because the pool of qualified contractors was so small that preclusion of an offeror (due to OCIs) would limit competition.

In denying the protest, GAO noted that "[w]here a procurement decision - such as whether an OCI should be waived - is committed by statute or regulation to the discretion of agency officials, our Office will not make an independent determination of the matter." GAO found that the agency complied with FAR 9.503, including approval by the agency head's designee and a written determination setting forth (i) the extent of the conflict and (ii) explanation for why application of the OCI rules would not be in the government's interests in the particular procurement. 

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