The Coalition for Government Procurement

Healthcare Spotlight

By: Donna Lee Yesner, Partner, Morgan Lewis & Bockius LLP and Stephen E. Ruscus, Partner, Morgan Lewis & Bockius LLP

The U.S. Department of Veterans Affairs and Department of Defense are major buyers of medical devices and supplies. Companies wishing to sell in this multibillion dollar market, however, must be aware of an important federal procurement requirement regarding country of origin, which is inapplicable to nonfederal sales, and understand the risk of noncompliance.

Government contractors must agree that the products they sell to the U.S. government under contracts valued in excess of $204,000 comply with the Trade Agreements Act, unless the TAA requirement is waived by a federal agency. Failure to comply with this requirement has provided grounds for whistleblower actions under the False Claims Act, particularly against companies that sell commercial items under Federal Supply Schedule contracts or through Distribution and Pricing Agreements, which require compliance with the TAA.

Recently, Smith & Nephew Inc., a medical device manufacturer, settled what may be the first such case involving allegations that a company knowingly sold medical devices manufactured in a country not compliant with the TAA to the company’s government customers. See United States ex rel. Cox v. Smith & Nephew Inc., No. 2:08-cv-02832 (W.D. Tenn., order of dismissal, Sept. 4, 2014).

Trade Agreements Act Requirements

The TAA is intended to remove barriers to government procurement of foreign-sourced items and to incentivize countries to become signatories to the World Trade Organization Government Procurement Agreement and other international trade agreements. When a contract is subject to the TAA, the Buy American Act and its preference for end items manufactured in the U.S. is waived, creating more opportunity for companies selling foreign-made products. At the same time, the TAA prohibits the U.S. government from acquiring end items other than those made in the U.S. or countries that have signed the WTO GPA (referred to as “designated country end products”), unless the agency determines that offers of eligible items are unavailable or insufficient to fill the agency’s needs. If a contract is below the threshold amount, the agency may acquire an item made in a nondesignated country, such as India or China, under that contract. For contracts in which the quantity of items that may be ordered is indefinite, the estimated contract value is used in determining whether the applicable threshold has been exceeded. As a policy matter, the TAA applies to all FSS contracts, including those covering medical supplies and devices administered by the VA.

The TAA is implemented through mandatory contract clauses in government contracts over the threshold amount and country of origin representations and certifications made by companies responding to a federal contract solicitation, as prescribed by the Federal Acquisition Regulation Part 25.4 and FAR 52.225-3 through 52.225-6. A product’s country of origin must be disclosed when it is manufactured in a nondesignated country. If the TAA applies, the contracting agency, in its discretion, may make a nonavailability determination or may request a categorical waiver of the TAA from the Office of the U.S. Trade Representative. The agency also may order small amounts of the product under individual contracts below $204,000 in value without regard to the TAA. Unless the TAA has been waived or is, by law, inapplicable to a transaction, the acquisition of end items from a nondesignated country violates the TAA. Accurate representations by the contractor are thus necessary for a federal customer to adhere to procurement law and regulations.

The test the government uses for determining country of origin under the TAA is the “substantial transformation” test applied by U.S. Customs and Border Protection when assessing import duties under Section 304 of the Tariff Act of 1930, and implementing regulations. Customs’ regulations define “country of origin” as “the country of manufacture, production or growth of any article of foreign origin entering the United States” and also provide that “[f]urther work or material added to an article in another country must effect a substantial transformation in order to render such other country the ‘country of origin’ within the meaning of this part.” 19 C.F.R. 134.1(b). In general, a substantial transformation occurs when an article emerges from a process with a new name, character or use different from that possessed by the article prior to processing, but will not result from minor manufacturing or combining process that leaves the identity of the article intact. Determining where a product has been substantially transformed into the end item acquired by the government often requires a fact-intensive analysis of the manufacturing process.

For example, in a July 2014 decision regarding the country of origin of a medical device that interfaces with a breath monitor, Customs considered the country of origin of the item’s components, the extent of the processing that occurred within a country and whether such processing rendered a product with a new name, character and use. The device consisted primarily of tubing from Israel, cut to length in China and combined there with various connectors, filters and adaptors sourced from several countries. The decision noted that the “key issue is the extent of operations performed and whether the parts lose their identity and become an integral part of the new article,” that “factors such as the resources expended on product design and development, extent and nature of postassembly inspection and testing procedures and the degree of skill required during the actual manufacturing process may be relevant,” and that “assembly operations that are minimal or simple, as opposed to complex or meaningful, will generally not result in a substantial transformation.” Holding that the tubing imparted the essential character to the end product and that this tubing was not substantially transformed by the cutting and assembly operations in China, Customs, in this case, held that the country of origin of the finished product was Israel.

Although required to certify TAA compliance, a reseller of an item acquired from its manufacturer may be unable to validate country of origin independently. Recently, however, the D.C. Circuit affirmed in another whistleblower case that resellers may reasonably rely on their suppliers’ country of origin representations, and, absent evidence that would make such reliance unreasonable, need not conduct independent evaluations before they provide their own certifications in order to shield themselves from FCA liability. See United States ex rel. Folliard v. Gov’t Acquisitions Inc., No. 13-7049 (D.C. Cir. Aug. 29, 2014).

This was an important decision for wholesalers and distributors that contract directly with agencies like the DOD and VA to supply medical devices that they purchase from device manufacturers. In such cases, the contractor may not be liable if the product is a nondesignated country end item, but misrepresentation concerning country of origin by the manufacturer supplying the contractor could still be potentially actionable against the manufacturer.

Once a company represents that an item is a U.S. or designated country end product and it is placed on the company’s FSS contract, the company must ensure that units manufactured in nondesignated countries are not delivered to government customers ordering under the FSS. If a manufacturer of medical supplies sources a product in a nondesignated country for sale to commercial customers, because it is more economical to do so, it must have a second, designated-country source before it sells the product to the federal government under its FSS contracts and must have inventory controls designed to ensure that shipments to government customers conform to the representations and certification of TAA compliance. The VA has explicitly advised manufacturers sourcing from nondesignated countries of the need to implement such inventory controls. See Dear Manufacturer Letter here.

Smith & Nephew Settlement

In the Smith & Nephew case, the company allegedly imported items from Malaysia, a nondesignated country, repackaged them in the U.S. and failed to segregate them from products sourced in designated countries that could be sold to the government. Thus, the company could not ascertain whether units shipped to customers that ordered under its medical/surgical FSS contract or the GSA Advantage website were TAA compliant. The company voluntarily disclosed to the DOD Office of Inspector General and VA National Acquisition Center that it may have violated procurement law and the terms of its contracts and took corrective action. However, three months later, a former employee filed a whistleblower action against the company for knowingly violating the TAA, and the court declined to dismiss the case on the grounds that the FCA public disclosure bar applied to the voluntary disclosure.

Reducing the Risk of Liability in TAA Whistleblower Suits

The Smith & Nephew case highlights the vulnerability of device manufacturers that source products from nondesignated countries to potential FCA liability and the need not only for diligence in ascertaining country of origin, but also for controls to prevent products manufactured in nondesignated countries from being supplied to the government when such sales are not permitted.

Reasonable controls could include: (1) a system that identifies country of origin, and segregates and tracks inventory from import to shipment if items are purchased from both designated and nondesignated countries; (2) a system that monitors sourcing decisions before changes are made to ensure the item continues to be substantially transformed in the U.S. or a designated country; (3) a policy requiring country of origin representations of vendors if the components are not later substantially transformed into the delivered end item; and (4) a procedure for obtaining legal opinions when the country of origin is unclear or, in some cases, an opinion from Customs.

Purchasing items made in nondesignated countries may substantially reduce production costs and make economic sense, and a company’s sales to the federal government may be very small compared to its commercial business. However, the risk of exposure to a whistleblower suit and the consequences for failing to implement measures to avoid violating the TAA are likely considerably greater than the cost of compliance.

In the Smith & Nephew case, the company was forced to defend an action that settled for millions of dollars even though it disclosed the situation to the VA, and the department neither referred the matter to the U.S. Department of Justice nor intervened in the whistleblower case after it was unsealed.

Judicial precedent is currently divided over the application of the public disclosure bar to such voluntary disclosures. In the Smith & Nephew decision, it is unclear whether the company’s disclosure to the VA affected the settlement negotiations in which the VA participated, or the department’s decision not to intervene, but it is also noteworthy that the VA’s policy has been to encourage self-disclosure. Thus, although the company’s actions did not shield it from a whistleblower suit, they may have protected the company from greater harm.


Legal Corner

By: John Horan, Partner, McKenna Long & Aldridge LLP 

Contractors will have to provide another written representation to do business with the government.  On July 31, 2014, President Obama issued an Executive Order called Fair Pay and Safe Workplaces intended to ensure that contractors comply with the following labor laws:

  • Fair Labor Standards Act;
  • Occupational Safety and Health Act;
  • Migrant and Seasonal Agricultural Worker Protection Act;
  • National Labor Relations Act;
  • Davis-Bacon Act;
  • Service Contract Act;
  • Equal Employment Opportunity requirements (Executive Order 11246);
  • Rehabilitation Act (Section 503);
  • Vietnam Era Veterans’ Readjustment Assistance Act;
  • Family and Medical Leave Act;
  • Civil Rights Act (Title VII);
  • Americans with Disabilities Act;
  • Age Discrimination in Employment Act;
  • Federal Contractor Minimum Wage Requirements (Executive Order 13658); and
  • any equivalent State laws.

The less than stellar showing of government contractors in a Government Accountability Office study on whether contractors comply with labor laws likely provided at least some motivation for the President.  See FEDERAL CONTRACTING: Assessments and Citations of Federal Labor Law Violations by Selected Federal Contractors, GAO-10-1033 (Sep 17, 2010).  After reviewing Federal labor law actions from 2005 through 2009, GAO found that the Department of Labor made 25 of the 50 largest wage assessments against 20 contractors and OSHAassessed eight of the 50 largest workplace health and safety penalties against seven other contractors.  In addition, the government awarded fifteen contractors cited for violations of wage and hour determinations, OSHA laws, and National Labor Relations Board requirements over $6 billion in government contracts in 2009.

The President justified his Order by finding that complying with labor laws will “increase efficiency and cost savings in the work performed by government contractors” because compliant contractors are more likely to have “workplace practices that enhance productivity and increase the likelihood of timely, predictable, and satisfactory delivery of goods and services to the Federal Government.”  He determined that his Order would also help agencies “avoid distractions and complications that arise from contracting with contractors with track records of noncompliance.”

New Requirements for Contractors, Subcontractors, and Agencies

The Executive Order imposes the following additional requirements for contracts exceeding $500,000, currently without an exception for commercial items (GSA and VA FSS) contracts:

Pre-award Representation with Updates

A contractor will have to provide a representation prior to award of any contract exceeding $500,000 that, to the “best of the offeror’s knowledge and belief,” it has not had an administrative merits determination, arbitral award or decision, or civil judgment, within the preceding three-year period, for violations of labor laws listed above.  Where there has been a violation, the CO will provide the contractor with an opportunity to disclose any steps taken to correct the violations or improve compliance with the labor laws.  The CO must consider the violation and mitigation information provided by the contractor in making the responsibility determination required for award of the contract.  In addition, the contractor must also represent that it will require the same representation for subcontracts exceeding $500,000 (except subcontract for COTS items) and consider disclosure and any mitigating information prior to making any subcontracting decision.

A contractor must update its representations and information every six months for the duration of the contract.  Upon receiving an update of a violation, the CO must consider whether to require remedial measures and provide compliance assistance, and whether to exercise an option, terminate the contract, and refer the contractor to the agency suspension and debarment official.  In turn, the contractor must consider taking action against a subcontractor that has had a violation whether disclosed by subcontractor or “obtained through other sources.” Likely to ensure that contractors and subcontractors are providing accurate representations and to provide another source of information to COs, the Department of Labor must inform contracting agencies of its investigations of contractors and subcontractors.

Referral to Suspension and Debarment Officer

In addition to taking action under the contract, the CO must forward any adverse information of compliance with labor laws by contractors and subcontractors to the agency suspension and debarment officer.

“Transparency” Requirements

The Order also imposes two requirements on contractors that have a potential for significantly affecting a contractor’s exposure to litigation based on labor laws, which the Order describes as “transparency” requirements.  First, contractors must provide employees covered by any of the wage rate labor laws with a weekly statement of hours worked, overtime hours, pay, and any additions made to or deductions made from pay.  These disclosures ensure that covered employees have the information required to assess the contractor’s compliance with the wage rate requirements.

Second, for contracts exceeding $1 million, contractors are precluded from obtaining an agreement from employees or independent contractors to arbitrate claims arising under Title VII or any tort related to or arising out of sexual assault or harassment until after the claim arises.  Thus, contractors that view arbitration as a protection from costly litigation or verdicts will have a much more difficult time obtaining arbitration agreements from employees.

Flow Down Requirement

The Order also imposes representation requirements on subcontractors.  Prime contractors must include the pre-award representation requirement in subcontracts exceeding $500,000 (except subcontracts for COTS items).

Labor Compliance Advisor

The Order requires each agency to designate a senior agency official as a Labor Compliance Advisor.  The Labor Compliance Advisor has the responsibility to support the agency, COs, and contractors in complying with the Order, coordinating with the Department of Labor, assist in the development of regulations, send information to the agency suspension and debarment officer, and publicly report annually a summary of “agency actions taken to promote greater labor compliance.”

Regulations to Follow

The Order requires the FAR Council to propose “regulations, rules, and orders” required to carry out the requirements of the Order.  In addition, the FAR Council must “propose to amend the [FAR] to identify considerations for determining whether serious, repeated, willful, or pervasive violations of the labor laws . . . demonstrates a lack of integrity or business ethics.”  In short, the Order is placing primary responsibility on the FAR Council to ensure a uniform consideration of the effect of labor law violations on responsibility determinations government-wide.

What Does this Mean?

Although the Order does not create new labor law compliance obligations, it imposes obvious additional administrative obligations for contractors and subcontractors.  In addition, these requirements will likely create new, fertile grounds for False Claims Act cases.  31 U.S.C. §§ 3729 – 3733.  The required representations and potential for submission mitigation information (and continual updates) create new opportunities for contractors to make errors that will be subject to attack as false information submitted to the government knowingly, recklessly, or with deliberate ignorance of its accuracy under the False Claims Act.  Moreover, the explicit requirement that COs consider this information in award and administration decisions, such as responsibility determinations, option exercises, and terminations, will provide qui tam relators and the government with a basis to argue that this “false information” was material to the government’s decision to award the contract, permit the contractor to continue performance, and to pay the contractor for its performance.

FAR and Beyond Blog

In last week’s article I detailed our upcoming 35th Anniversary Black Tie Gala and Excellence in Partnership Awards (nominations close October 3rd!).  This week I want to go into a bit more detail about the tentative agenda for our 2014 Fall Training Conference, 35 Years of Commonsense in Government Procurement: Looking Back and Moving Forward, taking place at the JW Marriott in DC on November 6th.

Morning Session

Registration, breakfast,  and networking will begin at 7:00am and I will open the conference at 8:00am with an outline of the day’s events, thank you to our sponsors, and updates on current CGP initiatives.  Shortly after, we will hear from our keynote speaker, The Honorable Thomas M. Davis – former Virginia Congressman and Chairman of the House Government Reform Committee – who now serves as the Director of Federal Government Affairs for Deloitte where he continues his commitment to effective, common-sense solutions to government.  Mr. Davis will continue our conference theme and be discussing Looking Back and Moving Forward – Post Elections.

The mid morning sessions will include Jeff Koses, Senior Procurement Executive at GSA, discussing GSA Schedules – Retooling for the Future, as well as Brad Medairy, Senior Vice President of Booz Allen Hamilton, discussing Cybersecurity – A Game Changer. The morning will wrap up with our Town Hall session that will give attendees the opportunity to ask questions directly to our panel which will include Anne Rung, OFPP Administrator; Steve Schooner, Professor and Co-Director of the Government Procurement Law Program, George Washington University; Christine Harada, Associate Administrator for Government-wide Policy at the General Services Administration; and representatives from DPAP (Defense Procurement and Acquisition Policy), which is responsible for all Contracting and Procurement policy matters including e-Business in the Department of Defense (DoD).  The panel will be discussing a variety of topics such as Innovative, Streamlined, Cost Effective Acquisition – Where Are We, What Needs To Change And How Do We Get There?

Lunch Session

Lunch will begin at approximately 12:30, where we will be joined by our lunchtime speaker, Mike Causey.  Mike writes a daily column for Federal New Radio, Mike Causey’s Federal Report, and can be heard daily on the radio as well.  Mike’s presentation will be on The Changing Federal Workforce – what it means for government, industry and America.  As always, we fully expect his remarks to be  thought provoking, insightful, and entertaining!

Afternoon Breakout Sessions

We will be having our ever popular breakout sessions in the afternoon, offering four different topic areas you can choose between at 2:00 and 3:15.  Our 2:00 session will allow you the opportunity to attend one of the following:

1.)    Electronic Platforms and Social Media – From EMALL to GSA Advantage! to the Common Acquisition Platform – an explanation of how current systems connect and where the government is headed with electronic platforms and the use of social media in the acquisition process.

2.)    Global Supply Update – Update on strategic sourcing initiatives ,transitioning from GSA warehouse to Direct Delivery, and more!  This breakout will be lead by Shaloy Castle-Higgins, Director, Greater Southwest Acquisition Center; Janet Haynes, Acting, Schedules Acquisition Director, Center for Facilities Maintenance and Hardware (CFMH); Peter Han, Director, National Administrative Services and Office Supplies Acquisition Center; and Brian Knapp, Director, GSA, Integrated Workplace Acquisition Center (IWAC).

3.)    Customer Users of Government-wide Vehicles – How do major customers use government-wide vehicles?  What are the opportunities and challenges of various vehicles?

4.)    OASIS and beyond – Changes in the Acquisition of Professional Services – Topics will include Consolidated Schedules and the future of GSA Schedules, pricing tools, update on OASIS, and use of OASIS as a model for future acquisitions – what works and what doesn’t?  Jim Ghiloni, Acting Director of Acquisition Operations, will be leading this breakout, among others.

Our 3:15 session will allow you the opportunity to attend one of the following:

1.)    DOD Acquisition Update – Impact of the DOD waiver for Schedules Pricing, changes to commercial acquisition, and significant acquisitions of the military services.

2.)    Update on Government-wide IT Acquisitions – A highlight of major acquisition programs supporting the acquisition of government wide IT programs, including CIO-SP3, Alliant, NASA SEWP and more.  Don’t miss this opportunity for information and best practices that helps enhance your performance in the IT market.  This breakout will be led by Casey Kelly & Team, Integrated Technology Service, GSA; Joanne Woytek, Program Manager, NASA SEWP; Robert Coen, Acting Director, NIH Information Technology Acquisition and Assessment Center (NITAAC); and Kay Ely, Director, IT Schedules Acquisition Center.

3.)    Strategic Sourcing –  What’s ahead in furniture, managed print services, OPM Training and Management Assistance (TMA), and  IT FSSI.

4.)    Coming Soon in the Federal Market – Business Analysis.  This breakout will be led by Ray Bjorklund, President, Birchgrove  Consulting, and Cameron Leuthy, Bloomberg Government.

We will wrap up the day back in the main ballroom for a quick report out from the afternoon breakout sessions and be done around 5:00.

We will have more announcements in the near future regarding newly confirmed speakers, but it is certainly shaping up to be a must attend event and we hope to see you there!  Plan on attending?  Please visit our website or click here to register– we look forward to your participation!  Lastly, thank you again to AvKARE for being our Title Sponsor at this year’s Fall Conference!  For a list of sponsorship opportunities, please click here.

Thanks,

Roger Waldron

President

A November to Remember!

September 12th, 2014

Registration is officially open for our exciting two day event on November 5-6, which includes our 2014 Fall Training Conference at the JW Marriott., Excellence in Partnership Awards and 35th Anniversary Black Tie Gala at The Reagan Building.

As many of you are aware, in honor of our 35th Anniversary, we have created the Coalition for Government Procurement Endowed Government Procurement Scholarship/Fellowship Fund with The George Washington UniversityThe Coalition has made it a priority to fund and endow a scholarship/fellowship to provide financial support to a deserving veteran concentrating their studies in the field of US Government procurement and pursuing the JD or LLM degree in Government Procurement Law or the interdisciplinary Masters of Science in Government Contracting degree (MSGC) at GWU.   This Scholarship/Fellowship represents the two pillars of all that we do at the Coalition—- promoting common sense acquisition and supporting our veterans!!   Common sense in acquisition starts with starts with education and the students, including the veterans, enrolled in these programs will become the next generation of skilled professionals leading this critically important sector of the US economy.

This year’s 35 Anniversary event is special.  In order to raise funds for the scholarship/fellowship, we will be holding a silent auction the night of the Gala where all net profits will be dedicated to endowing the scholarship/fellowship.  We kindly ask that you and/or your company support our endowment efforts by donating an item for this special occasion.

Thank you to the companies and individuals below for leading the charge and jumping on board right away!

  1. Suite at the Verizon Center for February 3rd at 7:00 p.m. when the Caps play the Kings (Stanley Cup Champions) – donated by Lockheed Martin
  2. Box Seats at Nationals Park – donated by Baker Tilly
  3. Golf Lessons and a Foursome – donated by Whiskey Creek Golf Club
  4. Patriotic Quilt – made and donated by Robin Klonarides of Raytheon
  5. Football Memorabilia signed by Ron “Jaws” Jaworski – donated by the Judge Group

You can see from the above list of committed items the types of donations we are seeking to make this silent auction a huge success.  Please contact Matt Cahill at mcahill@thecgp.org or 202-315-1054 to discuss your possible donations today!

Additionally, sponsorships are now available for the Fall Conference, EIPs and the Gala  Thank you to our first committed sponsors!!

Gala & EIPs: BDO will be a GOLD Sponsor

Fall Conference: AvKARE will be out TITLE Sponsor

There are opportunities at all sponsorship levels and we will greatly appreciate your support.  Once again, please direct any questions or commitments to Matt at the contact information listed above.

Roger Waldron

President


Healthcare Spotlight

By: John Horan, Partner, McKenna Long & Aldridge LLP 

Contractors will have to provide another written representation to do business with the government.  On July 31, 2014, President Obama issued an Executive Order called Fair Pay and Safe Workplaces intended to ensure that contractors comply with the following labor laws:

  • Fair Labor Standards Act;
  • Occupational Safety and Health Act;
  • Migrant and Seasonal Agricultural Worker Protection Act;
  • National Labor Relations Act;
  • Davis-Bacon Act;
  • Service Contract Act;
  • Equal Employment Opportunity requirements (Executive Order 11246);
  • Rehabilitation Act (Section 503);
  • Vietnam Era Veterans’ Readjustment Assistance Act;
  • Family and Medical Leave Act;
  • Civil Rights Act (Title VII);
  • Americans with Disabilities Act;
  • Age Discrimination in Employment Act;
  • Federal Contractor Minimum Wage Requirements (Executive Order 13658); and
  • any equivalent State laws.

The less than stellar showing of government contractors in a Government Accountability Office study on whether contractors comply with labor laws likely provided at least some motivation for the President.  See FEDERAL CONTRACTING: Assessments and Citations of Federal Labor Law Violations by Selected Federal Contractors, GAO-10-1033 (Sep 17, 2010).  After reviewing Federal labor law actions from 2005 through 2009, GAO found that the Department of Labor made 25 of the 50 largest wage assessments against 20 contractors and OSHAassessed eight of the 50 largest workplace health and safety penalties against seven other contractors.  In addition, the government awarded fifteen contractors cited for violations of wage and hour determinations, OSHA laws, and National Labor Relations Board requirements over $6 billion in government contracts in 2009.

The President justified his Order by finding that complying with labor laws will “increase efficiency and cost savings in the work performed by government contractors” because compliant contractors are more likely to have “workplace practices that enhance productivity and increase the likelihood of timely, predictable, and satisfactory delivery of goods and services to the Federal Government.”  He determined that his Order would also help agencies “avoid distractions and complications that arise from contracting with contractors with track records of noncompliance.”

New Requirements for Contractors, Subcontractors, and Agencies

The Executive Order imposes the following additional requirements for contracts exceeding $500,000, currently without an exception for commercial items (GA and VA FSS) contracts:

Pre-award Representation with Updates

A contractor will have to provide a representation prior to award of any contract exceeding $500,000 that, to the “best of the offeror’s knowledge and belief,” it has not had an administrative merits determination, arbitral award or decision, or civil judgment, within the preceding three-year period, for violations of labor laws listed above.  Where there has been a violation, the CO will provide the contractor with an opportunity to disclose any steps taken to correct the violations or improve compliance with the labor laws.  The CO must consider the violation and mitigation information provided by the contractor in making the responsibility determination required for award of the contract.  In addition, the contractor must also represent that it will require the same representation for subcontracts exceeding $500,000 (except subcontract for COTS items) and consider disclosure and any mitigating information prior to making any subcontracting decision.

A contractor must update its representations and information every six months for the duration of the contract.  Upon receiving an update of a violation, the CO must consider whether to require remedial measures and provide compliance assistance, and whether to exercise an option, terminate the contract, and refer the contractor to the agency suspension and debarment official.  In turn, the contractor must consider taking action against a subcontractor that has had a violation whether disclosed by subcontractor or “obtained through other sources.” Likely to ensure that contractors and subcontractors are providing accurate representations and to provide another source of information to COs, the Department of Labor must inform contracting agencies of its investigations of contractors and subcontractors.

Referral to Suspension and Debarment Officer

In addition to taking action under the contract, the CO must forward any adverse information of compliance with labor laws by contractors and subcontractors to the agency suspension and debarment officer.

“Transparency” Requirements

The Order also imposes two requirements on contractors that have a potential for significantly affecting a contractor’s exposure to litigation based on labor laws, which the Order describes as “transparency” requirements.  First, contractors must provide employees covered by any of the wage rate labor laws with a weekly statement of hours worked, overtime hours, pay, and any additions made to or deductions made from pay.  These disclosures ensure that covered employees have the information required to assess the contractor’s compliance with the wage rate requirements.

Second, for contracts exceeding $1 million, contractors are precluded from obtaining an agreement from employees or independent contractors to arbitrate claims arising under Title VII or any tort related to or arising out of sexual assault or harassment until after the claim arises.  Thus, contractors that view arbitration as a protection from costly litigation or verdicts will have a much more difficult time obtaining arbitration agreements from employees.

Flow Down Requirement

The Order also imposes representation requirements on subcontractors.  Prime contractors must include the pre-award representation requirement in subcontracts exceeding $500,000 (except subcontracts for COTS items).

Labor Compliance Advisor

The Order requires each agency to designate a senior agency official as a Labor Compliance Advisor.  The Labor Compliance Advisor has the responsibility to support the agency, COs, and contractors in complying with the Order, coordinating with the Department of Labor, assist in the development of regulations, send information to the agency suspension and debarment officer, and publicly report annually a summary of “agency actions taken to promote greater labor compliance.”

Regulations to Follow

The Order requires the FAR Council to propose “regulations, rules, and orders” required to carry out the requirements of the Order.  In addition, the FAR Council must “propose to amend the [FAR] to identify considerations for determining whether serious, repeated, willful, or pervasive violations of the labor laws . . . demonstrates a lack of integrity or business ethics.”  In short, the Order is placing primary responsibility on the FAR Council to ensure a uniform consideration of the effect of labor law violations on responsibility determinations government-wide.

What Does this Mean?

Although the Order does not create new labor law compliance obligations, it imposes obvious additional administrative obligations for contractors and subcontractors.  In addition, these requirements will likely create new, fertile grounds for False Claims Act cases.  31 U.S.C. §§ 3729 – 3733.  The required representations and potential for submission mitigation information (and continual updates) create new opportunities for contractors to make errors that will be subject to attack as false information submitted to the government knowingly, recklessly, or with deliberate ignorance of its accuracy under the False Claims Act.  Moreover, the explicit requirement that COs consider this information in award and administration decisions, such as responsibility determinations, option exercises, and terminations, will provide qui tam relators and the government with a basis to argue that this “false information” was material to the government’s decision to award the contract, permit the contractor to continue performance, and to pay the contractor for its performance.

For this week’s comment I wanted to share with you a blog post first published on the Federal Times’ Acquisition Blog (www.federaltimes.com). The post highlights GSA’s recent Federal Strategic Sourcing Initiative (FSSI) Office Supply 3 (OS3) and contract duplication. 

GSA increases contract duplication one solicitation at a time

A little over two weeks ago GSA awarded the Federal Strategic Sourcing Initiative (FSSI) Office Supply 3 (OS3) Indefinite-Quantity-Indefinite Delivery (IDIQ) contracts—the third generation FSSI for office supplies. These new OS3 IDIQ contracts duplicate the current GSA Schedule 75 for office supplies—so much so that the OS3 solicitation used GSA Schedule 75 pricing as a benchmark. Moreover, for those GSA Schedule 75 contractors who now have OS3 contracts—the OS3 contract terms require pricing consistency across both vehicles, essentially incorporating by reference the operative GSA Schedule 75 contract terms!

As a result of this effort, GSA and the firms competing OS3 together spent millions of bid and proposal dollars for a duplicative contract vehicle. Time and money could have been saved through the competitive establishment of BPAs under the GSA Schedule 75. More importantly, task order competitions using the GSA Schedule 75 would have leveraged individual agency requirements in a cost effective and efficient manner.

Now comes the latest effort in contract duplication, GSA’s new solicitation seeking a set of commercial office furniture IDIQ contracts for the Total Workplace Furniture and Information Technology (FIT) program. The FIT program is GSA’s new offering to customer agencies to minimize initial capital investments for furniture and IT. Through FIT, GSA will offer customer agencies an installment program to spread the cost of the furniture purchase over a five-year period. The FIT solicitation includes five functional areas covering commercial workplace furniture, tables, high density and rotary filing, seating and demountable walls. Functional Area 1 provides for multiple awards. Functional Areas 2-5 are single-award.

The parallels between the FIT solicitation and GSA Schedule 71 for commercial office furniture are striking. They cover the same types of commercial office furniture. They both establish IDIQ contracts with a $2,500 guaranteed minimum (the FIT solicitation provides a $2,500 minimum for each functional area).

They both use FAR Part 12 commercial item provisions and clauses. As IDIQ contracts, they are both designed to meet agency specific commercial office furniture requirements at the task order level—specific agency requirements that are unknown at the time of award.

If these parallels were not enough, the FIT solicitation goes a step further and makes GSA Schedule 71 pricing a benchmark stating in part that “Pricing Forms must be equal to or less than the price for the same offering on the Offeror’s current Schedule after discounting for any GSA or other Government fee such as the 0.75% GSA fee.”

GSA cannot have it both ways. GSA complains about agencies creating their own contract vehicles that duplicate GSA’s governmentwide contract vehicles, when it is doing the very same thing. It is disheartening. Rather than expending significant time, talent and taxpayer dollars on creating duplicative contract vehicles; GSA can and should improve the efficiency and effectiveness for the acquisition of commercial products and services under the GSA schedules program. It is time to make a good commercial products and services schedules program great.

Finally, and most troubling, is GSA’s decision that Functional Areas 2-5 should be single-award. Under the FIT solicitation, the subsequent agency specific requirements for Functional Areas 2-5 are unknown and unarticulated over the potential five-year life of the single award contracts. As such, the contracts for each Functional Area will result in de-facto sole source procurements for each subsequent task order issued over the life of the contracts. This makes no business or procurement sense for customer agencies or the American people. Competition for agency specific requirements is vital to achieving best value for customer agencies. There is an alternative. GSA Schedule 71 contractors stand ready each and every day to compete, like they do in the commercial market, for the very agency specific requirements that GSA will be “sole sourcing” under the FIT solicitation.

Roger Waldron

President

Wow, what a day!  Nice weather, beautiful course, exceptional cause, and great camaraderie all accurately sum up Wednesday’s Joseph P. Caggiano Memorial tournament.  It was a very special day in honor of Joe Caggiano and veterans, a cause he was extremely passionate about.  We were fortunate to have Joe’s wife Kathleen, along with his parents Sue and Paul, and brother Michael, join us in the morning to personally present the donation to The George Washington University.  As you are hopefully aware, in honor of our 35th anniversary, and in conjunction with The George Washington University, we have made it a priority to fund and endow a scholarship to provide financial support to a deserving veteran who is concentrating their studies in the field of US Government procurement and pursuing the JD or LLM degree in Government Procurement Law or the Masters of Science in Government Contracting degree (MSGC) at GWU.

golf

Due to our generous sponsors and participants in Joe’s tournament, I am proud to announce we will be able to contribute more than $25,000 to the scholarship fund from this event alone!  I would especially like to thank our Title Sponsor, The Gormley Group; our Lunch Sponsor, CohnReznick; our Reception Sponsors, AvKARE and CACI; and our Beverage Cart Sponsors, EY and Integrity Consulting.

Additionally, I would like to thank our Driving Range Sponsor, Baker Tilly; our Putting Green Sponsor, Brocade; our bag sponsor, Senoda; and all our Hole Sponsors: 3MAllen Federal Business PartnersBerkeley Research GroupBooz Allen HamiltonCGICoalition for Government ProcurementDeltekGeneral Dynamics Information Technology (x2), George Washington UniversityHONJudge GroupKoniagL-3MarkitectureRendely FamilySAP, and TORO.  We look forward to your participation again next year!

Thank you to Steve Schooner from George Washington University for making opening remarks at the reception and coming out to witness firsthand how we, as the government contracting community, can come together and raise awareness and funds for charitable and educational causes such as this one.  On that note, a big thank you to the team at the Coalition, as well as the staff at Whiskey Creek Golf Club, for running a smooth and efficient tournament.

Thanks again and congratulations to all the players and companies involved.  We look forward to seeing you again at next year’s tournament!

Roger Waldron

President

golf gw

Last week the General Services Administration (GSA) announced the award of 21 Federal Strategic Sourcing Initiative (FSSI) Office Supply 3 (OS3) Indefinite-Delivery-Indefinite-Quantity (IDIQ) contracts.  The awards went to 20 small businesses and one other than small business. The number of awardees raises significant questions regarding the long term supply chain for office supplies.  The small number of contract awards reflects a GSA goal of reducing the number of office supply contractors in the federal marketplace.  Indeed, GSA’s Federal Acquisition Service (FAS) has described FSSI OS3 as a form of “supplier suppression.”  It is an approach that detaches customer agencies from contractors, limits choice and value for customer agencies; and reduces competition over the long term.

On January 31, 2014, GSA issued a separate OS3 solicitation seeking to award a set of IDIQ contracts covering four different CLINs:

CLIN 0001: General Office Supplies Full Catalog;

CLIN 0002:  Office Paper;

CLIN 0003: Toner/Ink; and

CLIN 0004: GSA On the Go

Unlike OS2, GSA chose not to use the GSA’s Schedule 75 as the platform for establishing a set of FSSI Office Supply Blanket Purchase Agreements (BPAs).  GSA cited the prior closure of the schedule to new offers as a primary reason for not using Schedule 75.  GSA explained that those firms who were precluded from submitting an offer as a result of the Schedule 75 closure would be precluded from a schedule based OS3 FSSI solution.  Therefore, to allow those firms an opportunity to compete, GSA chose to establish a new IDIQ contract.  In essence, GSA closed Schedule 75 because it believed it had too many contractors on schedule (remember Demand Management).  It then chose to conduct an acquisition to create a new set of contracts duplicating Schedule 75 because it did not have enough Schedule 75 contractors.  The irony is that the result is another set of contracts that severely limits the office supply market—thereby increasing barriers to entry, limiting opportunities for small businesses and reducing long term competition.

GSA’s press release announcing OS3 states in part that “[t]his initiative builds upon the success of OS2, which generated more than $370 million in savings and achieved a small business utilization rate of 75 percent.”  To the extent GSA is measuring savings based on discounts off the schedule contract price, it is an unremarkable claim.  The GSA schedules program is designed to foster competition at the task order level and for BPAs—competition that leverages agency specific requirements and seeks price reductions.  That is why individual agencies can and have competed task orders and/or established BPAs for their specific requirements at pricing better than FSSI pricing.  More fundamentally, where is the data on savings??  To the extent information on savings has been shared publicly, it reflects a methodology largely based on measuring the discounts off the schedule contract price.  It is a methodology that fails to address the ability of customer agencies to achieve as good or better savings when competing specific requirements via task orders or BPAs under the schedules program—an approach that would also provide greater opportunities for small business across the federal enterprise.

In touting OS3 savings, the critical questions are: (1) What prices were paid prior to the FSSI vehicles? (2) How do the FSSI prices compare?  and (3) What are the administrative costs to the taxpayer of establishing and administering these duplicative contract vehicles? Moreover, a true item price comparison for OS3 involves GSA comparing OS3 pricing against OS2 competitive pricing (task orders) not the GSA schedule contract pricing! That is the most accurate comparison.

Finally, it is important to note that on February 3, 2014 a Freedom of Information Act (FOIA) request was submitted to GSA seeking among other documents, all documents relating to all public statements by GSA regarding savings resulting from the FSSI. It should be noted that this FOIA request was initiated as a single request with the objective of reducing GSA workload and strain on resources by having to respond once versus multiple FOIA requests from GSA schedule contractors.  To date, there has been no responsive documents provided other than information on GSA’s FSSI websites.  In June of this year, the FOIA request was narrowed in response to a GSA request.  Since then there has been no further communication or response from GSA.  This delay in responding raises significant questions:  What analysis was done, or not done, to ascertain any savings?  How was it done?  Do we have all the results?  What has FSSI cost GSA operations?  What has it cost Government?  Where is the analysis of the data FSSI contractors have been mandated to report?  What are the fees collected to date by GSA for the OS2 BPAs?

In the name of transparency and accountability, we look forward to the release of all documents relating to the FSSI program.

Roger Waldron

President

 

Legal Corner

By Michelle E. Litteken, Associate, Mayer Brown LLP and Luke Levasseur, Counsel, Mayer Brown LLP 

Originally Posted in Claims and Disputes (Mayer Brown Meaningful Discussions Blog) on August 19, 2014

Editor’s note: This is the first post in a series of posts focused on protest allegations related to discussions with offerors. Planned future posts will cover what qualifies as meaningful discussions, what constitutes unequal discussions, and a round up of recent protests involving discussions.

In a bid protest, the disappointed offeror often alleges that the agency failed to conduct meaningful discussions or engaged in unequal discussions. A threshold inquiry is whether the agency engaged in discussions. The CFC and GAO approach the question of whether agency communications constitute discussions differently, and a protester may want to consider that difference when selecting a protest forum.

FAR 15.306 defines clarifications as “limited exchanges, between the Government and offerors, that may occur when award without discussions is contemplated.” The FAR does not expressly define “discussions,” but it explains that “discussions” include negotiations that “are undertaken with the intent of allowing the offeror to revise its proposal.” The FAR used to limit clarifications to communications about relatively small matters, such as eliminating clerical mistakes or minor irregularities. However, the rules were revised in 1997 to allow a free exchange of information without requiring discussions. Decisions from the GAO and CFC reveal that the two protest forums apply the FAR provisions differently, with the CFC appearing to embrace a more substantial exchange of information that can still be characterized as clarifications.

Both GAO and the CFC recognize that, if an offeror is given an opportunity to revise its proposal, the agency has engaged in discussions. Several GAO and CFC cases refer to this as the “acid test.” The tough cases come when either (i) questions (often called “clarifications” by the agency) seek information that is necessary to determine technical acceptability of the proposal, or (2) the agency seeks a substantial amount of “clarify[ing]” information and an offeror’s response approaches (or crosses) the line of changing the proposal.

GAO has ruled that, when an agency uses information received from an offeror after submission of a proposal to determine the technical acceptability of a proposal, “discussions” occurred. For example, in Evergreen Helicopters of Alaska, Inc., GAO analyzed the “acquisition of fixed-wing aircraft services in the central region of Africa,” and considered an EN requesting information about the aircraft type and tail numbers. Such a request could be seen as soliciting information inadvertently omitted from the proposal, but GAO ruled that the communications constituted discussions because the information was necessary to determine technical acceptability. In contrast, in Tetra Tech, Inc., GAO held that the agency’s email to the awardee asking the awardee to confirm that it was accepting the end-state performance objective (as opposed to the technical approach) qualified as a clarification because the awardee was confirming information already in the proposal, not providing information that constituted a modification or revision of its proposal in response to the email.

Importantly, GAO doesn’t necessarily accept the agency’s characterization of the communications—but, instead, analyzes the parties’ actions. This lack of deference is illustrated in Evergreen Helicopters, in which GAO rejected the agency’s characterization and argument that the evaluation notices were clarifications because the offerors were not allowed to revise their proposals. Similarly, in Kardex Remstar, LLC, the agency sent an offeror a spreadsheet with spaces for the offeror to explain how its proposal satisfied the agency’s requirements. The agency characterized the communications as “clarifications” and expressly prohibited the offeror from changing its proposal. GAO rejected the agency’s characterization because the information was used to determine technical acceptability–even though the offeror could not revise its proposal.

In contrast, CFC decisions generally find that discussions occur only when an offeror is given the opportunity to revise its proposal, and the court is less likely to characterize the provision of information related to a technical acceptability determination as “discussions.” For example, in Mil-Mar Century Corp. v. U.S., the protester argued that an email asking the awardee to substantiate its proposed price, clarify its costs for an item, address a discrepancy in its labor hours, and clarify the adequacy of its proposed labor hours qualified as discussions. Although the agency included a disclaimer on the emails that the communications did not constitute discussions, the protester argued that the exchanges were discussions because the information the awardee provided was required by the RFP and essential to determine acceptability. The court deferred to the agency’s characterization and found the information was not a material requirement. The court also noted that “an exchange can constitute a clarification, and not a discussion, even whe[n] the information provided was ‘essential to evaluation criteria.’”Evergreen Helicopters and Kardex suggest that GAO would have agreed with the protester because the agency used the information to determine technical acceptability. 

With respect to the amount of deference the CFC should give to an agency’s characterization of the communications, the Federal Circuit has held that the court should defer to the agency’s interpretation of the FAR’s definition if the agency’s interpretation is permissible. In Davis Boat Works, Inc., the CFC applied that reasoning to hold that a 7-page letter with a 25-page “process guide” the awardee submitted during the first round of evaluation constituted clarifications because neither the letter nor the guide substantially revised the offeror’s proposal. Instead, the court found that the Process Guide explained how the offeror would satisfy the RFP’s management approach requirements. The court was not concerned with the amount of information that the offeror provided, observing “any clarification must necessarily convey new information to the agency.” The court further stated: “in close cases, it is well-established that the government’s classification of a particular communication as a clarification or a discussion ‘is entitled to deference from the court,’ as long as that classification is permissible and reasonable.”  In contrast, GAO has stated: “the agency’s characterization of the exchange is not controlling, as it is the actions of the parties that determine whether discussions have been held.”

Although there are many issues to consider when deciding where to file a bid protest, contractors might not sufficiently consider the different approaches that GAO and CFC take to determining whether discussions occurred. If a contractor anticipates that a discussions-related issue may become important in a protest being considered, subtle differences between the way the CFC and GAO evaluate these issues should be analyzed carefully.

 

For this week’s comment I wanted to share with you a blog post first published on the Federal Times’ Acquisition Blog (www.federaltimes.com). The post highlights GSA’s current cloud RFI. The Coalition appreciates GSA’s decision to extend the comment period to next Thursday, August 21 and will be submitting a response.

Price Reduction Clause could slow cloud on Schedule 70

Last week GSA’s Federal Acquisition Service (FAS) Office of Schedule Programs issued a Request for Information (RFI) seeking feedback on the “GSA Proposed Change to Add a Cloud Computing Special Item Number (SIN) on IT Schedule 70.”

The RFI indicates that the purpose of the new Cloud Computing SIN “would be to improve the way GSA offers cloud computing services through IT Schedule 70, increase visibility and access of cloud computing services to customer agencies, and to provide industry partners the opportunity to differentiate their cloud computing services from other IT related products and services. “ The RFI notes that the proposed change “would support OMB’s ‘Cloud First’ policy by enabling agencies to take advantage of cloud computing benefits to maximize capacity utilization, improve IT flexibility and responsiveness and minimize cost.”

The goals of the RFI are to:

(1)   Gain feedback from industry and any other relevant stakeholders on a proposed new Cloud Computing Services SIN; and

(2)   Better understand how industry partners are selling cloud computing services today on IT Schedule 70, to support a decision on creating a Cloud Computing Services SIN.

The RFI seeks feedback from both customer agencies and industry partners. The due date for submission of comments is August 6th. The RFI can be found here.

The RFI is a positive step on the part of FAS in seeking innovative solutions to customer agency requirements. However, in order to seed the cloud via IT Schedule 70, FAS should address the applicability of the Price Reduction Clause to the proposed Cloud Computing SIN. The PRC is an outdated (from the 1980s) pricing compliance scheme that increases contract administrative costs while restricting the ability of contractors to maximize service solutions with their latest technologies at best value—including best price for agency requirements. Simply put, the PRC is an anti-competitive, anti-innovation contract term.

The origins of the PRC date from a 1982 Multiple Award Schedule policy statement addressing the pricing negotiation and terms of schedule contracts. Under the PRC, a customer or category of customers is identified as the tracking customer for purposes of price reductions. Generally, under the terms of the PRC, if a MAS contractor offers the tracking customer(s) a price reduction during the life of the MAS contract, a corresponding reduction must be provided to the government. Failure to do so results in a breach of contract, and potentially severe consequences, including possible Civil False Claims Act liability. The PRC reflects a time when the MAS program was product-based. It also reflects a time when the MAS program was a mandatory program and when competition was not required at the order level. At the time, given the structure of the program, the PRC was intended to provide price protection for the government. Times have changed!!

Today, services account for approximately two-thirds of annual purchases under the MAS program. The MAS is open to all commercial sources (with the exception of Schedule 75, Office Supplies, which is closed to new offers) and the statutory and regulatory framework governing the MAS program require competition for all orders exceeding the simplified acquisition threshold. Simply put, unlike the MAS program of the ‘80s, task and delivery order competitions for agency specific requirements are driving pricing under the program.

Moreover, task and delivery order competition for agency specific requirements is sound procurement practice when acquiring IT/professional service solutions like cloud computing. With the cloud, each service requirement is unique, reflecting the customer agency’s IT infrastructure, security requirements, mission, workforce, and organizational structure.

The PRC ignores the unique quality of service solutions in the market. Variations in service solutions for each customer mean that an apples-to-apples comparison for purposes of the PRC is problematic at best, if not impossible. Each time an MAS contractor provides a commercial customer with a solution, the contractor must address whether that solution impacts the PRC. The result is an unhealthy restriction on the contractor’s ability to compete in the commercial marketplace. Due to the competitive and administrative challenges in tracking commercial transactions for PRC compliance many contractors will not offer their newest products, services and technologies via IT Schedule 70. As a result, access to the latest commercial innovations is restricted under the MAS program.

Cloud computing solutions are typically tailored to meet customer needs. As with many other complex services, each requirement stands on its own. Applying a costly administrative pricing oversight mechanism like the PRC in such a dynamic, innovative environment makes no business or procurement sense. Waiving the applicability of the PRC to the Cloud Computing SIN is the best way to accelerate best value “cloud computing” solutions and increase access to commercial innovation via IT Schedule 70. Eliminating the PRC and relying on task order competitions for agency specific requirements will drive competition, innovation, value and pricing for cloud services across the MAS program.

Interestingly, there is precedent for such an approach, a little over a year ago FAS waived applicability of the PRC for MAS furniture contractors in order to allow the MAS contractors to fully compete for a series of furniture procurements. Alternatively, FAS could issue a class deviation eliminating the PRC for the Cloud Computing SIN.

Over the longer term, given the growing convergence of IT and services, the time is right for GSA to reform the MAS pricing policies (and eliminate the PRC) to reflect the 21st century marketplace. Such an approach will be a win for customer agencies, the American people, and contractors.

The next step in accelerating cloud computing solutions via IT Schedule 70 is the activation of “Other Direct Costs” through the current FAR Clause that is already in the IT Schedule 70 contracts. But more on that in my next blog.

The Coalition notes that this week GSA recently extended the Cloud RFI Proposal for IT 70 deadline to 4:00pm on August 21, 2014. The Coalition and its memberhsip applaud GSA for allowing more time for companies to respond on this important issue.  Members interested in contributing to the Coalition’s response, please contact Roy Dicharry at rdicharry@thecgp.org.  For more details, see GSA’s RFI posted on FedBizOpps.

Roger Waldron

President

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