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It should come as no surprise to those involved in the federal procurement marketplace that, under the Obama administration, the Government has sought to strengthen accountability in government contracting, and, to that end, has resorted to a number of tools in the Government’s arsenal for combating fraud, waste, and abuse. The latest such effort is a new push to enhance the government’s existing suspension and debarment function.

In perhaps a telling sign of things to come, on November 15, 2011, the head of the Office of Management and Budget (“OMB”), Jacob Lew, issued a memorandum requiring the heads of executive departments and agencies to increase management attention on suspension and debarment, consistent with the policies and procedures in the FAR.  In particular, OMB directed departments and agencies to a appoint a senior accountable official, if one has not already been designated; assess the agency’s existing suspension and debarment resources; review internal suspension and debarment policies and procedures; and ensure that contractors on the Excluded Parties List System have not received, and do not receive, grants and contracts, and take corrective action if it is found that an award was improperly made to a suspended or debarred contractor. Further, OMB has directed agencies to increase participation on the Interagency Suspension and Debarment Committee (“ISDC”), which provides a support structure to assist departments and agencies in building and maintaining effective suspension and debarment programs.

On the heels of the OMB memorandum, the U.S. Senate’s Committee on Homeland Security and Governmental Affairs Congress convened hearings on November 16 on “Weeding Out Bad Contractors.” Among others, the witnesses for these hearings include Daniel Gordon, the Administrator for Federal Procurement Policy, and David Sims, the Chair of the ISDC, and Steven Shaw, the Air Force’s debarment and suspension official. The general message from this testimony is that, while some agencies have effective and robust suspension and debarment programs, many others have failed to adequately utilize the suspension and debarment tool. Although it does not appear that there are any new suspension and debarment rules on the horizon, contractors should take note and expect to see a rise in new suspension and debarment matters.
 

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We invite you to join us on November 16 at 3pm EST for a complimentary webinar, “Understanding and Implementing the New FAR Contractor Personal Conflict of Interest Provisions.” 

On November 2, 2011, the FAR Councils issued a final rule amending the Federal Acquisition Regulation (“FAR”) to include new provisions governing personal conflicts of interest of contractor and subcontractor employees supporting or performing certain government acquisition functions. Click here to find Crowell & Moring’s preliminary analysis of the rule.

These new personal conflict of interest regulations contain numerous contractor compliance requirements which will necessitate careful implementation prior to the December 2nd effective date for the rule. During the webinar, we will address these new compliance requirements, provide implementation tips, and help clarify the confusing picture of who is covered by these new rules. Click here to register.

On October 19, 2011, the Department of Defense (“DoD”) proposed a new rule to amend DFARS § 252.211-7007 to remove the $5000 threshold from reporting requirements for Government-furnished property.  The proposed rule would require contractors to report Government-furnished property to the DoD Item Unique Identification (“IUID”) registry regardless of value.  DoD states that the intent of the rule is to standardize and simplify reporting.  DoD’s goal is to move away from strict reporting by dollar value alone and toward reporting designed to increase traceability.  Non-serially managed material will be required to be reported to the IUID registry in the same unit of pack as acquired (e.g., box, container).

DoD does not intend to incorporate the proposed property management rule into existing contracts.  Therefore, the Government does not believe there will be any need for equitable adjustments in association with the rule.  Because the rule will not apply to existing programs, the rule should not require duplicate records either.  Reporting requirements under the proposed rule will not apply to: (1) contractor-acquired property that has not been delivered to, and accepted by the Government; (2) property under a statutory leasing authority; (3) property to which the Government has acquired a lien or title solely because of partial, advance, progress, or performance-based payments; (4) intellectual property or software; (5) real property; or (6) material released for work in process.

Some contractors have expressed concern that the rule could be burdensome as hundreds of thousands of new items are subjected to DoD reporting requirements.  If the rule is adopted, contractors will need to ensure that their employees are diligent in accounting for small, every-day items, that previously may have simply been discarded if broken or worn-out.  However, DoD states that it hopes that the rule will simplify overall reporting and result in greater efficiency and considerable cost savings to both government and industry.  A public meeting will be held on November 17, 2011, and comments are due on or before December 19, 2011.

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In September, I wrote about the Court of Federal Claims’ decision in MED Trends, Inc. v. United States, No. 11-420 (Fed. Cl. Sept. 13, 2011), where the Court concluded that it now enjoys jurisdiction over civilian task and delivery order procurements of any dollar value. Prior to this ruling, pursuant to 41 U.S.C. § 4106(f), protests of civilian task and delivery order procurements could be brought in the Court of Federal Claims only where the protest was based “on the ground that the order increases the scope, period or maximum value of the contract under which the order is issued.” § 4106(f)(1)(A). Under 41 U.S.C. § 4106(f), exclusive jurisdiction of all other task order protests rested with the U.S. Government Accountability Office (“GAO”). With the sunset of the task order jurisdictional provision of § 4106(f)(3), the Court confronted the question of whether their jurisdiction would regress to its pre-2008 Federal Acquisition Streamlining Act of 1994 (“FASA”) jurisdiction or whether it would follow the GAO’s conclusion that the sunset effectively reverted jurisdiction to the pre-FASA, Competition in Contracting Act of 1984 (“CICA”) jurisdiction, which made no distinction between contracts versus task or delivery orders.

Judge Bruggink concluded that the court’s jurisdiction defaulted to its general jurisdiction over bid protests under the Tucker Act (28 U.S.C, § 1491(b)(1)), which does not distinguish between protests of task order procurements and contract awards, and contains no language precluding the adjudication of protests of task order procurements. This meant that the Court of Federal Claims now enjoys jurisdiction over civilian task and delivery orders of any dollar amount, and under any otherwise cognizable basis of protest.  However, the Court denied MED Trends’ protest.

On August 24, 2011, MED Trends filed an appeal to the Federal Circuit of Judge Bruggink’s decision, which ultimately found for the Government on the merits. On October 24, 2011, the U.S. Department of Justice filed a cross-appeal in the case (No. 2011-5128). Although the documents are sealed, it seemly likely that the basis of the Government’s appeal is the determination by the Court of Federal Claims that the Court entertained jurisdiction over this procurement. As Judge Bruggink stated in his opinion, “There is no question that, had this protest been brought one month earlier, [prior to the sunset,] the court would not have been able to exercise jurisdiction.”  Notably, having won on the merits, the Department of Justice could not have appealed this decision had MED Trends not opted to file its own appeal first.

It will be interesting to see in the coming months whether the Federal Circuit accepts the Court of Federal Claims (and the GAO’s) reading of § 4106(f)(3). Because Congress has still not amended Title 41 to extend the 2008 NDAA grant of jurisdiction (as it has for Department of Defense task and delivery order procurements), the possibility exists that, if the Federal Circuit disagrees with the Court’s reading of its jurisdiction, the Federal Circuit and GAO could be operating under different interpretations of the same statute. It is likely though that, should the Federal Circuit interpret the sunset clause differently, GAO will modify its practice to conform to the Federal Circuit’s reading of the statute.

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This week, GAO released a decision in Power Connector, Inc., B-404916.2, Aug. 15, 2011, 2011 WL 5029615 that appears to introduce a significant change to the circumstances in which a procuring agency may limit the scope of proposal revisions during corrective action.

Prior GAO precedent indicated that there are certain instances where an agency could limit proposal revisions during corrective action and certain instances where such limitations were improper. On the one hand, in Honeywell Technology Solutions, Inc. (“Honeywell”), B-400771.6, Nov. 23, 2009, 2009 CPD ¶ 240, the procuring agency decided to accept updated past performance references as part of corrective action, but did not amend the RFP. When a protester challenged the agency’s decision to forbid pricing revisions, GAO denied the protest because agencies “have broad discretion” in the area of corrective action and “[GAO] will not question an agency’s decision to restrict proposal revisions when taking corrective action so long as it is reasonable in nature and remedies the established or suspected procurement impropriety.”

On the other hand, in Lockheed Martin Systems Integration-Owego et al. (“Lockheed”), B-299145.5 et al., Aug. 30, 2007, 2007 CPD ¶ 155, GAO sustained a protest where the procuring agency amended the way in which certain life cycle costs would be calculated during the cost reevaluation, yet forbade offerors from amending their technical proposals. GAO recognized that changes to the way costs will be tabulated can have a direct effect on the technical solution offered, and thus concluded that, when an agency amends its solicitation, it should allow offerors to amend proposals without restriction “unless [1] the agency offers evidence that the amendment could not reasonably have any effect on other aspects of proposals, or [2] that allowing such revisions would have a detrimental impact on the competitive process.” Id. at 5. Since the agency’s amendment had a clear connection to another aspect of Lockheed’s proposal, the limitation was deemed improper.

The intersection of these two legal principles is found in cases such as the recent decision in Intermarkets Global, B-400660.10, Feb. 2, 2011, 2011 CPD ¶ 30, where an agency revised two technical requirement in the RFP as part of corrective action and restricted proposal revisions to addressing the updated technical requirements. Specifically, the agency instructed: “Price revisions are prohibited unless you can provide documented evidence, including a narrative explanation, showing a direct link, with supporting cost-type information, between changes in your proposal resulting from these two clarifications and the proposed pricing.” Id. at 3. When this limitation to pricing revisions was challenged, GAO denied the protest and upheld the agency’s corrective action approach. Citing to both of the above decisions in Honeywell and Lockheed, GAO found that there was no abuse of discretion in the agency’s decision to limit proposal revisions because offerors could make any pricing revisions that reasonably related to the revised technical requirements. Id. GAO was unmoved by the protester’s desire to make wholesale pricing changes that had nothing to do with the revised solicitation.

However, just six months after the Intermarkets Global decision, GAO seems to have issued a conflicting opinion in the Power Connector that has called into question the viability of not only Intermarkets Global, but many of the cases upon which it relied. Continue Reading Chance to Change Pricing Generally Required After Corrective Action

GSA has now topped the $128 million settlement it reached in 2009 with NetApp – then the largest settlement reached in an FCA action against a GSA Schedule contractor – by settling with Oracle Corporation and Oracle America Inc. this past week in the amount of $199.5 million plus interest. The settlement resolves an FCA action brought by former Oracle employee, Paul Frascella, under the qui tam provisions of the statute, in which the Department of Justice intervened.

The Government’s and relator’s complaints had alleged that Oracle provided false, incomplete, and inaccurate information to the government during its negotiation of the Schedule contract; failed to disclose deep discounts given to the most favored commercial customers; and submitted false certifications. The Government’s complaint also alleged that Oracle actively took steps to ensure that its commercial sales to its basis of award customers did not trigger the Price Reduction Clause by means such as increasing the order size to exceed the contract’s maximum order threshold, arranging for the sale through a reseller rather than directly from Oracle, or changing the terms of the software license sold to the commercial customer so that it differed from the terms of the licenses on the GSA Schedule contract.

While it would have been interesting to watch the outcome of the case had it been litigated, given the unusual allegations of fraudulent schemes to circumvent the Price Reduction Clause, the settlement amount indicates there were sufficient facts supporting at least some of the allegations, such that the company chose to settle rather than fight the case.

How to avoid being GSA’s (or a whistleblower’s) next target for a fraud action:

  • Ensure your commercial pricing disclosures are current, accurate, and complete
  • Negotiate a Basis of Award customer that your company can competently and consistently monitor with respect to discounts and changes in commercial pricing
  • Implement a rigorous tracking system to ensure that price reductions given to the Basis of Award customer(s) are also given to Government customers
  • Ensure that any certifications signed and submitted to the Government are 100% accurate
  • Implement internal controls and policies that require company personnel – from the sales force to the managers of the Schedule contract – to comply with the contractual requirements
  • Require mandatory training of company personnel to educate individuals on the contractual requirements and the importance of compliance
  • Implement a reporting system that allows employees to report concerns about the company’s compliance with the contract requirements and that ensures such concerns are properly addressed and resolved.
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In June I wrote about GAO’s conclusion that its protest jurisdiction over agency task and delivery order procurements will not only continue after the May 27, 2011 sunset date, but will expand. At that time, I noted that, to the extent the Court of Federal Claims agreed with GAO’s interpretation of the 41 U.S.C. § 4106(f)(3) (formerly codified at 41 U.S.C § 253j(e)) sunset clause, the Court’s existing jurisdiction over bid protests under the Tucker Act would not prevent it from hearing protests of civilian agency task and delivery order procurements. Three months have passed, and legislation to extend the GAO’s protest jurisdiction over these procurements remains stalled in Congress, but the Court of Federal Claims has spoken and has agreed that the sunset provision means that it is free to hear all protests of civilian task and delivery order procurements under its Tucker Act jurisdiction.

Under 41 U.S.C. § 4106(f), protests of civilian task or delivery order procurements may be brought in both the Court of Federal Claims and the GAO where the protest is based “on the ground that the order increases the scope, period or maximum value of the contract under which the order is issued.” § 4106(f)(1)(A). Since the 2008 amendments to the Federal Acquisition Streamlining Act (“FASA”), GAO has additionally enjoyed exclusive jurisdiction over any protests of orders in excess of $10 million. 10 U.S.C. § 2304c(e)(4) (Department of Defense (“DoD”)); 41 U.S.C. § 4106(f)(1)(B) (civilian agency).  The 2008 amended clauses included sunset provisions with a date of May 27, 2011. While the FY 2011 NDAA extended Title 10’s grant of jurisdiction to September 30, 2016, no similar extension has been passed to extend Title 41 jurisdiction past the May 27 sunset date.

In June, in Technatomy Corp., B-405140, June 14, 2011, GAO ruled that the sunset provision in 41 U.S.C. § 4106(f) did not remove GAO’s jurisdiction over civilian agency order procurements. Instead, GAO ruled that all of 41 U.S.C. § 4106(f) sunsetted, thereby eliminating any restrictions on GAO’s civilian agency task order jurisdiction, effectively reverting back to its pre-FASA, Competition in Contracting Act of 1984 (“CICA”) jurisdiction. Under CICA, GAO’s authority to hear bid protests made no distinction between contracts versus task or delivery orders, and did not require such orders to exceed $10 million. Additionally, under CICA, jurisdiction of these protests was not exclusively limited to GAO.  By announcing a reversion to this CICA jurisdiction, this decision meant that GAO asserted that it could hear a challenge over any civilian task or delivery order award, regardless of dollar figure, and that GAO’s jurisdiction over these protests was no longer exclusive.

At that time, it was unclear whether the Court of Federal Claims would agree with GAO’s interpretation of the § 4106(f) sunset clause. Earlier this week, in MED Trends, Inc. v. United States, No. 11-420 (Fed. Cl. Sept. 13, 2011), Judge Bruggink addressed this in the affirmative.

On June 24, 2011, MED Trends challenged the award of a task order for information technology services issued by the DOL, acting through OSHA under the VETS GWAC vehicle. Shortly thereafter, the government moved to dismiss the protest asserting that the court lacked jurisdiction over this task order. Although the government conceded that a literal reading of the sunset provision meant that all of § 4106(f) was vacated, it argued that the legislative history demonstrated that Congress intended the sunset provision to repeal only the portion of that section granting jurisdiction to GAO over any protest of a FASA task order above $10,000,000 – the specific addition from the 2008 amendment. Based on a strict reading of the statute, Judge Bruggink disagreed, reading the term “subsection” to mean the entire division (f) of § 4106. In the absence of § 4106(f), Judge Bruggink concluded, the court’s jurisdiction defaulted to its general jurisdiction over bid protests under the Tucker Act (28 U.S.C, § 1491(b)(1)).  Unlike CICA, the Tucker Act does not distinguish between protests of task order procurements and contract awards and contains no language precluding the adjudication of protests of task order procurements.

Under this ruling, the Court of Federal Claims now enjoys jurisdiction over civilian task and delivery orders of any dollar amount and under any theory of law. Notably, since the previously parallel jurisdiction over DoD task and delivery orders under Title 10 was extended on January 7, 2011 to run through September 30, 2016, this means that – for the time being – the Court, with GAO, will have jurisdiction over all civilian task and delivery order procurements but will lack jurisdiction over DoD task order procurements protests not challenging the scope, period or value of the contract.

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On September 28, 2011, I will be participating in an American Bar Association webinar to discuss the impact of the Supreme Court’s June, 2011, decision in Stanford v. Roche. In Stanford v. Roche, the Supreme Court upheld a Federal Circuit decision finding that under the Bayh-Dole Act, a university does not automatically receive title to an invention, even where the invention was conceived or first reduced to practice in the performance of work under a federal funding agreement. Some believe that the Supreme Court’s decision has muddied the waters regarding how government contractors deal with their employee-inventors. The webinar panelists will discuss the Bayh-Dole Act, the Supreme Court’s decision, and how Stanford v. Roche impacts government contractors.

For registration information and more information on the program, please go to: http://apps.americanbar.org/cle/programs/t11tsv1.html.

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A memorandum issued by the Office of Management and Budget on Wednesday, September 14, 2011, establishes a new Executive Branch policy that agencies should pay small business government contractors within 15 days of receiving proper invoicing documents. Currently, agencies are required to pay contractors within 30 days of receiving proper documentation under the Prompt Payment Act (“PPA”), or they are subject to late-payment interest penalty provisions. For cash flow purposes, agencies generally do not pay contractors earlier than seven days in advance of the 30-day PPA requirement. However, the PPA does not prevent agencies from paying contractors earlier if it is “necessary,” and current OMB regulations allow agencies to pay small businesses “as quickly as possible.”

This new policy provides that agencies are required to use their PPA authority and establish an “earlier, accelerated date for their making payments to small business contractors” and that the goal should be to pay small business contractors within 15 days of receiving all required documentation necessary for payment. In outlining this new policy, OMB explains that the “acceleration of payments to small businesses is necessary because. . . .this acceleration improves cash flow. . . .and provides them with a more predictable stream of resources.”

Noticeably absent from the OMB memorandum, however, is any sort of carrot or stick to ensure agencies implement the spirit and letter of this new policy. Indeed, the policy does not change the operation of the PPA, so agencies will only be liable for late-payment interest if they fail to pay contractors by the required payment date which is usually 30 days after the receipt of all invoicing documents. As such, early payment to small businesses is a goal, and nothing more.

Thus, while this new policy is a first good step toward ensuring small businesses are promptly paid, it will be interesting to see how many agencies actually start paying small businesses on an accelerated basis.

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On September 16, 2011, DoD issued a final rule that requires contractors to prominently display fraud hotline posters prepared by the DoD Office of the Inspector General. These posters must be displayed in common work areas within business segments performing work on DoD contracts. The current posters from the DoD IG can be found here and here.

This requirement to display posters applies, unless the contract is for the acquisition of a commercial item, will be performed entirely outside the United States, or does not exceed $5 million. In addition, this requirement must be flowed down to all subcontracts that similarly qualify.

Some government contractors are concerned that this final rule will undermine the role that company hotline posters have in internal contractor compliance and ethics programs. For many in the industry, these company programs have a proven track record of indentifying and addressing improper conduct. There is a concern that the mandatory use of the DoD IG hotline posters may usurp the company’s position as the first line of defense against waste and fraud as well as health and safety issues and, instead, place the DoD IG in that role.