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On May 16, 2017, the Fourth Circuit issued a decision in United States ex rel. Omar Badr v. Triple Canopy, holding that the Government had properly alleged an implied certification claim under the standard articulated by the Supreme Court in Universal Health Servs. v. United States ex rel. Escobar, 136 S. Ct. 1989 (2016).  In the eleven months following the Supreme Court’s landmark ruling on the implied certification theory of liability, Escobar has been cited in nearly 100 court opinions. (Our recent Feature Comment in the Government Contractor highlights some of the key cases and developing trends).

In Badr, the relator alleges that a security contractor responsible for ensuring the safety of an air base in a combat zone employed Ugandan guards who were unable to meet the required marksmanship scores on a U.S. Army qualification course. According to the relator, Triple Canopy knowingly falsified marksmanship scorecards and presented claims to the government for payment for those guards.

Continue Reading It’s the Cover-Up That Gets You

In United States ex rel. Vavra v. Kellogg Brown & Root, Inc. (Feb. 3, 2017), the Fifth Circuit held that under Section 8706(a)(1) of the Anti-Kickback Act — permitting recovery of twice the amount of each kickback plus $11,000 for each occurrence of a prohibited conduct — corporations are liable “for the knowing violations of those employees whose authority, responsibility, or managerial role within the corporation is such that their knowledge is imputable to the corporation.”  In applying this standard to the two Kellogg Brown & Root, Inc. (“KBR”) employees who had accepted meals and entertainment (on 33 occasions) from a supplier, the court found that one employee’s knowledge could be imputed to the corporation because the employee was responsible for supervising the subcontract at issue, for ensuring the supplier met its obligations, including contract performance, and for executing technical evaluations for rebidding the subcontract and therefore “had somewhat significant managerial authority over the sphere of activities in question.”  In contrast, the court found the other employee who was neither involved in nor had the authority to take any procurement action regarding the subcontract at issue during the relevant period had only “limited authority” that was not enough to impute his knowledge to KBR. 

With respect to whether numerous instances of meals, drinks, and other entertainment constituted “kickbacks” under the Act, the court concluded that “anything of value offered in order to subvert the ‘proper’ process for awarding contracts is a potential kickback,” noting that while merely seeking to develop good will or a good working relationship to gain more business would be insufficient, it was “enough to connect the gratuity with the specific kind of treatment sought in a way that establishes impropriety.”   The court found the connection was satisfied with testimony that the supplier provided gratuities, in part, to subvert proper procedures:  the supplier employee testified that the KBR employee “was the highest-ranking guy that we dealt with … [and] the most important [person at KBR] with regard to controlling service issues.”  When asked why he provided gratuities, the supplier employee answered that it was because the KBR employee “would bring service issues to us.  Specifically he knew me based on entertaining; so, if they had issues, he would bring them to me before they escalated out of control.”   The court found the testimony provided sufficient specificity to support a finding that the KBR employee received gratuities to overlook and/or forgive performance deficiencies in subversion of proper procedures and in violation of the Anti-Kickback Act.

 

Earlier this week, the Department of Veterans Affairs (“VA”) announced a seismic shift in policy that opens VA Schedule 65 IB to covered drugs that do not comply with the Trade Agreements Act (19 U.S.C. §2501 et seq.) (“TAA”).  While the VA’s prior policy prohibited contractors from offering TAA non-compliant drugs from on  a Federal Supply Schedule (“FSS”) contract, the VA’s new policy requires “that all covered drugs, regardless of county of substantial transformation, be available on a 65 I B FSS contract.”

TAA Overview

Under the TAA, the Buy American Act is waived for end products that are “substantially transformed” in so-called “designated countries”; i.e. those countries with which the U.S. is a party to bilateral and multilateral free trade agreements as well as certain other countries receiving preferential treatment (“Least Developed” and “Caribbean Basin” countries).  At the same time, the TAA prohibits the procurement of end products whose country of origin is a non-designated country (e.g., China, India, Malaysia).  The TAA has a “non-availability” exception where the end products required are not offered, or cannot be fulfilled by U.S. or designated country end products.   However, VA policy prohibited contracting officers from making non-availability determinations for FSS contracts – until now.

New Policy

The shift in policy empowers VA Contracting Officers to make individual non-availability determinations and waive TAA requirements when two hurdles are overcome (i) the offered drugs or similar drugs  are not TAA-compliant and (ii) the drug being offered is a covered drug under the Veterans Healthcare Act.  This policy change allows the VA to make available on 65 IB Schedule contracts those covered drugs formerly excluded due to the TAA non-compliant status.  Given the requirements under the new policy, it appears the VA intends to apply this non-availability exception to all covered drugs from non-designated countries, such as China and India.

Fast-Approaching Deadlines

The VA has set an aggressive timeline for implementing its new policy. The first deadline is this Tuesday– April 26, 2016.  By this date, pharmaceutical manufacturers must submit their Non-Federal Average Manufacturer’s Price (“Non-FAMP”) calculations to the VA’s Office of Pharmacy Benefits Management Services (“PBM”) for TAA non-compliant drugs.

By May 6, 2016, manufacturers currently holding VA FSS contracts must submit a Request for Modification (“RFM”) to add non-TAA compliant products to their existing FSS contracts.   Additionally, these contractors must execute a mass modification, which includes a “Trade Agreements Act Non-Availability Determination Request Letter”.  This letter requires contractors to list all non-TAA compliant covered drugs and verify that their currently marketed National Drug Codes (“NDC”) have no TAA compliant versions, including authorized generics.  The Contracting Officer may then make a non-availability determination based on this statement and its representations in the System for Award Management (“SAM”).

Manufacturers without a VA FSS contract, likely because their only covered drugs are TAA non-compliant, are required to at least enter into Interim Agreement (“IA”) by the May 6, 2016.  The purpose of the IA is to require the manufacturer to make its covered drugs available to the Government while negotiating a VA FSS contract – a process that can take several months.

All TAA non-compliant drugs must be on an existing FSS 65 IB contract or a new IA by June 6, 2016.

Impact on Manufacturers

This change in VA policy should be music to the ears of pharmaceutical companies that manufacture covered drugs in China, India and other non- designated countries.  By adding these products to VA FSS contracts, these manufacturers will have the opportunity for increased sales to various VA hospitals and other Government purchasers.

However, the VA’s ambitious deadlines may prove challenging for some manufacturers.  Manufacturers that are not already calculating Non-FAMP pricing information for TAA non-compliant drugs will need to perform these calculations right away.   Additionally, if a manufacturer prefers to dual-price, a calculation option under 38 U.S.C. 8126 that allows for the Big 4 (VA, Department of Defense, Public Health Service and Coast Guard) to be provided a lower price than other federal purchases under the FSS, it will likely require additional time and effort to negotiate the dual pricing under the FSS.  Because the new guidance provides no information on the impact of failing to make these deadlines, manufacturer should make every effort to meet these deadlines and alert the VA of its compliance efforts if a deadline may be missed.

On April 12, the DOJ and FTC issued a joint statement titled “Preserving Competition in the Defense Industry,” which reiterates the analytical framework for reviewing defense industry mergers and acquisitions set forth in the DOJ/FTC 2010 Horizontal Merger Guidelines, and emphasizes that the antitrust agencies will continue to give substantial weight to the DOD’s own internal assessment of such transactions – highlighting the need for companies in the defense industry to adopt a coordinated strategy when pursuing strategic transactions.  According to the accompanying press release, the agencies “thought it timely to reinforce [the] message” that they remain “committed to preserving competition for current and future defense procurement … [i]n light of recent speculation about possible future consolidation,” an indication to companies considering defense industry mergers and acquisitions that the cognizant oversight agencies are likely to remain active in reviewing such transactions.

On April 5, 2016, the Fraud Section of the Department of Justice’s Criminal Division launched a one-year pilot program under which companies can receive tangible credit for self-reporting violations of the Foreign Corrupt Practices Act. The rewards for self-reporting, cooperation and remediation can include avoidance of a corporate monitor, a substantial fine reduction, or declination of prosecution entirely.

In a memorandum released yesterday, Fraud Section Chief Andrew Weissmann highlighted recent enhanced enforcement efforts, including the 50% increase in FCPA Unit prosecutors, the establishment of three FBI International Corruption Unit squads devoted to FCPA investigations, and the further strengthening of cooperation with international law enforcement bodies.

Assistant Attorney General Leslie Caldwell said that incentivizing companies to self-report FCPA misconduct and cooperate by offering tangible benefits will also enhance the Fraud Section’s ability to prosecute culpable individuals. In this respect, the pilot program is a logical next step following the September 9, 2015, Individual Accountability memorandum issued by the Deputy Attorney General (“Yates Memorandum”).

In addition, AAG Caldwell stressed that the pilot program was part of DOJ’s ongoing effort to bring more transparency to the Department’s process of resolving FCPA cases, stating that transparency informs companies what conduct will result in what penalties and what sort of credit they can receive for self-disclosure and cooperation with an investigation. This, in turn, enables companies to make more rational decisions when they learn of foreign corrupt activity by their agents and employees.

Continue Reading And Now the Carrots: DOJ Announces FCPA Self-Reporting Pilot Program

By notice published in the Federal Register, the U.S. Trade Representative has confirmed that New Zealand has acceded to the WTO Agreement on Government Procurement and thereby, effective August 12, 2015, has become a “designated country” under the Trade Agreements Act.  Accordingly, products and services from New Zealand are now eligible to be procured under all contracts subject to the TAA, including GSA Schedule contracts.

The General Services Administration (“GSA”) is rolling out two modifications to its Contractor Assistance Visits (“CAVs”), in-person or virtual meetings between GSA’s Industrial Operations Analysts (“IOAs”) and GSA Schedule holders to assess compliance, identify potential problems, and test the contractor’s system controls and processes.  Tom Brady, the Director of the Supplier Management Division, GSA Office of Acquisition Management, presented on these changes during The Coalition for Government Procurement’s webinar on March 12, 2015.

First, GSA will no longer grade contractors on report cards.  GSA’s current practice is to issue a MAS Administrative Report Card following each CAV.  This grade was supposed to reflect how well a contractor was complying with its contract’s terms and conditions.  But contractors had expressed concern that some interpreted the grade more generally to contract performance.  In response to this concern, GSA will discontinue grading its contractors on report cards (and relatedly, commits to providing contractors feedback from the CAV more expeditiously). Continue Reading GSA Announces Changes in its Contractor Assistance Visits

At 1:00 pm (Eastern) on January 17, 2013, Crowell & Moring attorneys Alan Gourley, Stephen Byers, Janet Levine and Kelly Currie will conduct a webinar on behalf of L2 Federal Resources entitled "The DOJ/SEC Resource Guide on the FCPA: Considerations for Government Contractors." The FCPA guidance provides a description of the key enforcement agencies’ view of the statute’s reach and will be essential to government contractors facing the daily challenge of anti-corruption compliance. In this 90 minute webinar, subject matter experts will provide you with key takeaways from the FCPA guidance, as well as their take on the government’s views.

Further details and registration information are available at http://l2federalresources.com/2013/new-fcpa-guide-considerations-for-government-contractors/.

L2 Federal Resources requires a registration fee for its webinars.