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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

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This week’s episode covers Supreme Court, NDAA, and ‘Fat Leonard’ news, and is hosted by partners David Robbins and Peter Eyre. Crowell & Moring’s “Fastest 5 Minutes” is a biweekly podcast that provides a brief summary of significant government contracts legal and regulatory developments that no government contracts lawyer or executive should be without.

ListenCrowell.com | PodBean | SoundCloud | iTunes 

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There is a substantial amount of confusion and concern about Section 1045 of the 2018 National Defense Authorization Act (NDAA), entitled “Prohibition on lobbying activities with respect to the Department of Defense by certain officers of the Armed Forces and civilian employees of the Department following separation from military service or employment with the Department.”  As with other acquisition-oriented, late breaking additions to the NDAA in years past (like acquisition prohibitions following felony convictions of companies or principals that were so broad that an executive speeding 15 miles an hour over the limit in Virginia, which is a felony, could eliminate the company from eligibility for contracts), guidance in Section 1045 is not as complete as industry would like.  But the rule is not terribly burdensome, either.

Very senior uniformed and civilian Department of Defense employees such as General Officers and their civilian equivalents (presumably members of the Senior Executive Service), face restrictions on “lobbying activities” and “lobbying contacts” with respect to the Department of Defense.  Section 1045 refers readers to the Lobbying Disclosure Act of 1995 (2 U.S.C. Section 1602) for definitions of relevant prohibitions, and exceptions from prohibitions.  And the Lobbying Disclosure Act offers comfort that substantial activities are still permissible.  Yes, representation back to the Department of Defense is more limited under Section 1045 of the 2018 NDAA than it was before, but not severely so.  And contractors already must monitor representation back to these officials’ former offices.  Section 1045 extends the monitoring requirement a bit farther.

It appears that industry is overly focused on the bolded and italicized wording of the Lobbying Disclosure Act’s definition of lobbying activity, ‘[t]he term “lobbying activities” means lobbying contacts and efforts in support of such contacts, including preparation and planning activities, research and other background work that is intended, at the time it is performed, for use in contacts, and coordination with the lobbying activities of others. The term “lobbying activities” means lobbying contacts and efforts in support of such contacts, including preparation and planning activities, research and other background work that is intended, at the time it is performed, for use in contacts, and coordination with the lobbying activities of others.’  This language poses a new compliance challenge for contractors because, in the post-employment context, behind the scenes work while waiting out a restriction is typically acceptable (putting aside for these purposes organizational conflicts of interest and other non-statutory considerations).  But for general officers and senior executive service members, Section 1045 presents an additional one- or two-year restriction (depending on their seniority) that can restrict even some “behind the scenes” work directly associated with lobbying.

But substantial lobbying related work is still permitted.  Indeed, there are 24 exceptions in the Lobbying Disclosure Act that permit lobbying related activity, including but not limited to: speeches, articles, publications, interviews, media appearances, meeting requests or similar administrative requests, service on advisory committees, responding to public notices in the Federal Register and other invitations for written submissions, written comment, public written petitions to an agency under certain circumstances, among other things.  In short, newly separated very senior Department of Defense Officials will not need to sit around doing nothing to wait out this restriction – plenty is still permitted.

Contractor concern may be driven by the merging of political law and government contracts law for this limited number of very senior, former Defense Department officials.  But the compliance steps are relatively straightforward, particularly if contractors already had a robust approach to complying with the restrictions in place before Section 1045 became effective.  Contractors are well advised to track for a year or two (depending on seniority) their former Defense Department general officers and equivalents, train them on these restrictions, and conduct a Lobbying Disclosure Rule driven analysis for communications back to “covered Executive Branch Officials.”

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Crowell & Moring’s “Fastest 5 Minutes” is a biweekly podcast that provides a brief summary of significant government contracts legal and regulatory developments that no government contracts lawyer or executive should be without. This latest edition is hosted by partners Peter Eyre and David Robbins and includes updates on NDAA FY 2018 provisions, GAO rulings, and the Semiannual Regulatory Agenda posted by DoD, NASA, and the GSA.

ListenCrowell.com | PodBean | SoundCloud | iTunes 

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Crowell & Moring’s “Fastest 5 Minutes” is a biweekly podcast that provides a brief summary of significant government contracts legal and regulatory developments that no government contracts lawyer or executive should be without. This latest edition is hosted by partners David Robbins and Peter Eyre and includes updates on Buy American Act guidance, the NDAA for fiscal year 2018, and a GAO denied protest.

Listen: Crowell.com | PodBean | SoundCloud | iTunes

 

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During the past year, we have continued to see developments on cost and pricing issues, particularly with respect to the 2017 National Defense Authorization Act (“NDAA”). On May 5, 2017 from 11:00 am – 12:00 pm, Crowell & Moring attorneys Terry Albertson, David Bodenheimer, Chris Haile, Steve McBrady and Liz Buehler will highlight some of the cost and pricing issues that government contracts are currently encountering with respect to commercial acquisitions, management of subcontractors, statute of limitations, intersegment pricing and DCAA audits, as well as the following regulatory developments:

  • 2017 NDAA Provisions Affecting DCAA and the Cost Accounting Standards (“CAS”) Board
  • Creation of a Defense CAS Board
  • 2016 NDAA Section 809 Panel Update, including CAS and other accounting issues.

For more information and to register for OOPS, please click here.

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The Small Business Administration’s (SBA) final rule, Small Business Government Contracting and National Defense Authorization Act of 2013 Amendments, implements changes regarding small business subcontracting plans contained in the National Defense Authorization Act of 2013 (FY2013 NDAA).  We discuss the key changes below.  This rule becomes effective June 30, 2016, but as some of the changes impact the proposal process which can involve planning and team selection months in advance of proposal submission, contractors need to focus on the new requirements now.

Continue Reading The SBA Final Rule Implementing the FY2013 NDAA Part II: The Changes to Small Business Subcontracting Plans Have Immediate Impacts on Small and Large Businesses

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The past twelve months have seen major developments on cost and pricing issues relevant to the “top of the ledger” – as well as the bottom line.  On May 26, 2016, at 11:00 am -12:00 pm, Crowell & Moring attorneys Terry Albertson, Steve McBrady, Rob Burton, and Skye Mathieson will highlight some of the most significant cost and pricing issues facing contractors in today’s marketplace, including an update on the application of the CDA statute of limitations to cost accounting disputes, the Raytheon decision and offsets among multiple simultaneous changes in cost accounting practice, as well as the following regulatory developments:

  • Growing Restrictions on Allowability of Independent Research and Development Costs
  • NDAA Provisions Affecting DCAA
    • DCAA Audit of Non-DOD Contracts Restricted
    • Required Identification of Materiality Standards Used by DCAA

Check back in the coming days for more updates as we count down to the events on May 18 (L.A.) and May 25th (in DC)! You can also check for updates on Twitter using the hashtag #cm2016oops, and at crowell.com/OOPS.

Click here to register for OOPS on May 25-26th in Washington, DC.

Click here to register for West Coast OOPS on May 18th in Los Angeles, California.

OOPS-2016

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The Department of Defense (DoD) Office of Inspector General (IG) recently released a July 6, 2015 Memorandum announcing that it will “immediately” begin the field work for its assessment of DoD compliance with Section 847 of the 2008 National Defense Authorization Act (NDAA), “Requirements for Senior Defense Officials Seeking Employment with Defense Contractors.” Section 847 mandated that, before a defense contractor may hire a “covered” current or former government official (generally, an official who has participated “personally and substantially” in the procurement or management of a DoD contract or program valued in excess of $10 million), the official must seek, and the contractor must review, “a written opinion from the appropriate ethics counselor regarding the applicability of post-employment restrictions to the activities that the former official is expected to undertake on behalf of the contractor.”  See 2008 NDAA § 847(a); see also DFARS § 203.171 (implementing § 847).  Section 847 also tasked the DoD IG with conducting periodic reviews to ensure that these written opinions (commonly known as “Designated Agency Ethics Official (DAEO) Letters” or simply “Ethics Letters”) are being provided and retained by DoD in a “central database or repository.”  See, e.g., Report No. DODIG-2014-050 (Mar. 31, 2014). Although the recent Memorandum addresses only the Government’s responsibilities under Section 847 (specifically the DoD IG’s objectives for its upcoming assessment), it is a good reminder that contractors, as well, should make the collection and retention of Ethics Letters a priority.  Hiring a former government official is often an effective way for a contractor to gain insight into a particular government program, or to simply bring a fresh perspective to the contractor’s operations.  However, such hiring decisions implicate a wide variety of statutory and regulatory provisions, and can expose contractors to substantial risk.  For example:

  • DFARS § 252.203-7000, which is included in DoD solicitations and contracts, prohibits a contractor from providing compensation to a covered current or former DoD official without first determining that the official has sought and received the appropriate Ethics Letter. Subsection (c) of that regulation provides that a contractor’s failure to abide by this prohibition may subject the contractor to rescission of its contract, suspension, or debarment in accordance with the Procurement Integrity Act (which also contains its own prohibitions on the compensation of specified current or former government officials, as well as civil, administrative, and even criminal penalties for “knowing” violations—see 41 U.S.C. §§ 2104, 2105).
  • Similarly, DFARS § 252.203-7005, which is included in DoD solicitations, requires a contractor to certify that: “all covered DoD officials employed by or otherwise receiving compensation from the [contractor], and who are expected to undertake activities on behalf of the [contractor] for any resulting contract, are presently in compliance with [a variety of post-employment restrictions].” This certification should not be taken lightly, as qui tam relators and some courts increasingly have taken an expansive approach to assessing False Claims Act liability based on theories of fraudulent inducement and false implied certifications.
  • Also, the Government Accountability Office has held that when a former government official participates in a contractor’s effort to obtain a contract, he/she is presumed to use any competitively useful non-public information to which he/she had access as a government employee. See, e.g., Health Net Fed. Servs., LLC, B-401652.3, Nov. 4, 2009, 2009 CPD ¶ 220 (sustaining protest based on awardee’s unfair competitive advantage stemming from employment of former government official).

These are just a few of the many potential risks when a contractor hires a former government official. However, in each case, the contractor may be able to avoid potential problems up front, or to defend against particular challenges on the back end, where it obtains and keeps handy a well-reasoned and supported Ethics Letter. While the Ethics Letter will not always be dispositive (and does not cover non-statutory issues, such as unfair competitive advantage and organizational conflicts of interest), and should be but one element among many in a contractor’s due diligence review in any hiring process, it is an element that should not be overlooked.

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On May 16, 2013, the Department of Defense (“DoD”) published long awaited proposed regulations regarding efforts contractors must take to prevent the entry of counterfeit electronics into the DoD supply chain. As previously discussed on this blog, Section 818 of the National Defense Authorization Act for FY2012 required DoD to revise its acquisition regulations to address the detection and avoidance of counterfeit parts. This blog discussed the scope of one interim measure, DoD Instruction No. 4140.67, earlier this month.

So what’s new? Thursday’s proposed regulations represent the self-described “partial implementation” of Section 818. Nevertheless, the revised regulations purport to accomplish several key changes to the Defense Acquisition Regulation Supplement in response to Section 818.

Definitions. First, the regulations propose several new definitions, including those of “counterfeit part,” “electronic part,” “legally authorized source,” and “suspect counterfeit part.”

Applicability. These proposed regulations extend only to contracts that are subject to the Cost Accounting Standards.

Contractors’ counterfeit electronic part avoidance and detection systems. The new proposed regulations (and corresponding DFARS clauses) outline the various required elements of an acceptable counterfeit electronic part avoidance and detection system. All such systems must, at a minimum, address the following items: the training of personnel; electronic part inspection and testing; processes to abolish counterfeit part proliferation; traceability of parts to suppliers; use and qualification of trusted suppliers; reporting and quarantining of counterfeit and suspect counterfeit electronic parts; methodologies to identify suspect counterfeit parts and to quickly determine if a suspect part is, in fact, counterfeit; the design, operation, and maintenance of systems to detect and avoid counterfeit and suspect counterfeit electronic parts; and the flow down of counterfeit detection and avoidance requirements to subcontractors. In the event a contractor fails to maintain an adequate purchasing system (which includes the detection and avoidance system requirements outlined above if applicable), the contracting officer is entitled to withhold payments, assuming the rule is implemented as proposed.

Unallowability of costs. Finally, the proposed regulations explain that contractors cannot recover the costs incurred for any rework or corrective action resulting from the inclusion of counterfeit electronic parts or suspect counterfeit electronic parts. Although a safe harbor exclusion exists, that exclusion is narrow, and limited to situations where the contractor has a DoD approved system to detect and avoid counterfeit and suspect counterfeit electronic parts, the counterfeit or suspect counterfeit electronic parts are Government-furnished property, and the contractor provides timely notice to the Government. Given the narrow scope of this exception, this so-called safe harbor is likely to raise some questions.

This blog will continue to discuss these new regulations and their impact on contractors in the coming weeks.