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The Defense Contract Audit Agency (“DCAA”) recently made public its Fiscal Year 2017 Report to Congress, which, among other things, provides an update on incurred cost audits.  Specifically, the report explains that DCAA:

  • Closed “6,786 incurred cost years” using a variety of methods, namely reports and memos, but also for other reasons (e.g., per the FY 2016 NDAA, DCAA was prohibited “from providing audit support to non-DoD agencies”);
  • Sustained audit exceptions for incurred costs audits 28.6% of the time;
  • Reduced the backlog related to incurred cost audits “to an average age of 14.3 months;” and
  • Is “on track to eliminate the backlog by the close of FY 2018” as it now has “under 3,000 incurred cost years in [such] backlog….”
  • “[W]ill be current on incurred cost based on a two-year inventory of audits” by FY 2018 and “will move to one year of inventory as required” in the FY 2018 NDAA.

Continue Reading The End is Near: DCAA Projects End of Incurred Cost Backlog by FY 2018

Contractors looking for updates to the statutory allowable cost limits on employee compensation may be looking in the wrong place.  But what was once lost can easily be found, at least for the moment, by simply navigating to a different website.

The Cost Principles and the Compensation Cap

FAR 31.205-6(p)(4) governs the allowable compensation of contractor and subcontractor employees.  It promulgates section 702 of the Bipartisan Budget Act of 2013 (“BBA”), which set an initial limit on allowable contractor and subcontractor employee compensation costs at $487,000 per year.  “Compensation” is defined broadly to include the total amount of wages, salary, bonuses, deferred compensation, and employer contributions to defined contribution pension plans.  According to the BBA, the cap is to be adjusted annually based on the Employment Cost Index calculated by the Bureau of Labor Statistics.  The BBA repealed the prior existing formula for determining the relevant compensation cap under 41 U.S.C. § 1127 and applies to contracts awarded on or after June 24, 2014.  It also provided agencies with the authority to establish “one or more narrowly targeted exceptions” for certain specialists.

Continue Reading Hidden in Plain Sight: Where, Oh Where, Have the Compensation Caps Gone?

On June 14, we presented a webinar titled “Frequently Asked Questions About Requests for Equitable Adjustment and Contract Disputes Act Claims.” The webinar featured some of the most common questions we encounter in the field regarding CDA claims and REAs, as well as a discussion of procedural, substantive, and business considerations that go into the decision to assert a claim or an REA.

The audience Q&A featured a remarkable 30 questions during the 1-hour webinar, so be on the lookout for a “sequel” Claims Recovery v2.0 webinar in the coming weeks, where we will address additional FAQs and new questions that attendees may submit in advance.

Finally, because part of the discussion focused on identifying and pursuing claims, attached here is a description of the Crowell & Moring Performance Review Offering, which describes available training and diagnostic reviews regarding recovery opportunities for clients in the government contracting industry.

Join us for a webinar titled “Government Contracts Recovery: ‘Frequently Asked Questions’ About Requests for Equitable Adjustments and CDA Claims.”  During the 60-minute webinar, a team of claims professionals from C&M’s Government Contractor Recovery Practice will address some FAQs that arise in the context of contractor claims / REAs, and solicit audience questions, as we delve into some of the procedural, substantive, legal, and business considerations that factor into whether to assert a claim or an REA.

We hope you can join us on Tuesday, June 14th, 2017 at 1 PM Eastern.  To register for this event, please click here.

 

The Armed Services Board of Contract Appeals published its FY16 Report of Transactions and Proceedings, which provides statistics regarding the adjudication of appeals between contractors and the Army, Navy, Air Force, Corps of Engineers, DLA, DCMA, CIA, NASA, other Defense agencies, and the Washington Metropolitan Area Transit Authority. This year’s report once again reflects the Board’s impressive success at resolving matters via alternative dispute resolution.  In total, 93% of ADRs concluded in FY16 – including binding ADR, non-binding ADR, and ADR of undocketed appeals – were successfully resolved.  The report also reflects a slight uptick in successful appeals at the Board, noting that the appellant prevailed in 57% the appeals decided in the merits (up from 53% in FY15).

On January 13, 2017, the FAR Council released a final rule (available here) that: (1) prohibits agencies from contracting with entities that require employees/subs to sign internal confidentiality agreements or statements that restrict the lawful reporting of waste, fraud, or abuse; and (2) requires bidders on federal contracts to certify that they do not utilize such agreements. Starting on January 19, 2017, the rule will apply to all solicitations and contracts using fiscal year 2015 funds and subsequent fiscal year funds, unless the solicitation or contract already contains a comparable provision/clause.
Continue Reading Final FAR Rule on Internal Confidentiality Agreements: Considerations for Contractors Before Employees Sign on the Dotted Line

ABS Development Corp. (ASBCA Nov. 17, 2016) highlights the importance of providing a fully-compliant certification for CDA claims over $100,000—which includes, according to the Board, the requirement for contractors to provide an identifiable and verifiable handwritten signature or digital e-signature. As the contractor in ABS discovered, the Board considers “typewritten” signatures, regardless of font, to be insufficient.

In ABS, the Board dismissed for lack of jurisdiction certain contractor claims that had been “certified” by means of typewritten names (in signature-font) because a typewritten name “cannot be authenticated, and, therefore, is not a signature.” The Board made clear that the CDA’s purpose is to bind contractors by means of a signed certificate that “cannot be easily disavowed by the purported author.” The Board explained that a signature “is a discrete, verifiable symbol that is sufficiently distinguishable to authenticate that the certification was issued with the purported author’s knowledge and consent or to establish his intent to certify.” Because anyone could type another person’s name on a signature block, the purported author could
disavow the certification and the signature would be nearly impossible to authenticate.

Continue Reading The Pen is Mightier: Typewritten Signature Invalidates CDA Claim

In AeroVironment, Inc. (Mar. 30, 2016), following an apparent settlement of the government’s cost disallowance claim, the ASBCA denied the government’s request to amend its answer (in order to “clarify” entitlement to additional quantum) because the proposed amendments constituted new “claims” that required new final decisions.  Acknowledging that parties may ordinarily revise quantum without running afoul of jurisdictional concerns, in this case the Board found that the proposed amendments (which were premised on a new interpretation of FAR Parts 3l and 42, a different calculation methodology, and greatly increased the monetary stakes), involved different “operative facts” and “would alter the ‘essential nature’ and fundamental basis of the claim asserted in the final decisions,” over which the Board lacked jurisdiction.

On March 22, the comment period is set to close on a new rule proposed by the FAR Council titled, “Federal Acquisition Regulation: Contractor Employee Internal Confidentiality Agreements.” This rule will prohibit federal dollars from going to companies that require employees or subcontractors to sign restrictive confidentiality agreements that could limit the ability of employees to report suspected fraud and abuse to the government. In “Walking The Line: Balancing Legitimate Interests And Compliance With New FAR Requirements For Confidentiality Agreements,” a “Feature Comment” published in the Government Contractor, C&M attorneys highlight the history and recent developments behind the new rule and explore the risks contractors face in light of the rule, such as contract termination, False Claims Act liability, and more.

On January 22, 2016, the FAR Council proposed adding a new rule (link here) prohibiting federal dollars from going to companies that require employees to sign confidentiality agreements that could limit the ability of employees to report suspected fraud and abuse to the government.

The proposed rule comes at a time of increased attention on the use of confidentiality agreements by government contractors. As described here, a 2015 Report by the Office of the Inspector General for the State Department found that almost half of the thirty-highest grossing contractors had policies containing provisions that could have a “chilling effect on employees who wish to report fraud, waste, or abuse to a Federal official.” In April, the SEC fined contractor KBR for requiring employees to sign confidentiality agreements that the SEC believed prevented potential whistleblowers from reporting concerns to government agencies.

The proposed FAR rule implements Section 743 of the 2015 Consolidated and Further Continuing Appropriations Act. The rule requires that each offeror, in order to be eligible for award, must represent by submission of its offer that it does not require employees or subcontractors to sign internal confidentiality agreements that could restrict employees from lawfully reporting waste, fraud, or abuse. The proposed rule would apply to all contracts, except those related to personal services contracts with individual workers, regardless of amount, even including ones below the simplified acquisition threshold. Contracts for the purchase of commercial items, both special-order and off-the-shelf, would also be subject to the rule. The proposed rule requires modification of existing contracts to include the new FAR clause before obtaining Fiscal Year (“FY”) 2015 or subsequent FY funds that are subject to the same prohibition on confidentiality agreements.

In light of the proposed rule — and the 2015 Department of Defense class deviation implementing the substance of the rule on DoD contracts — contractors will want to review their internal policies and confidentiality agreements. Companies have a legitimate interest in protecting privileged and confidential information in connection with internal investigations, but companies may need to revise the language in their agreements if the agreement could be construed as restricting employees from providing the government with information regarding potential violations of law.