Friday Flash 12.9.16

The Unintended Consequences of Category Management’s Best-in-Class (BIC) Approach?   

Last week, we examined the recent draft circular issued by the Office of Federal Procurement Policy (OFPP) regarding the implementation of Category Management. As a follow-up, this week’s FAR & Beyond blog further examines some of the legal, policy, and operational questions surrounding the draft circular’s designation of “Best-in-Class” (BIC) contract solutions for mandatory use.

First, as a threshold matter, it remains unclear what, if any, statutory authority exists to support the Office of Management and Budget (OMB) mandatory designation for BIC contracts. To date, OMB has yet to provide any statutory authority for its designation. Pursuant to the Clinger-Cohen Act, 40 U.S.C. 11302(e), OMB can designate executive agents for the government-wide acquisition of information technology.  GSA’s IT GWAC, NASA SEWP, and the NIH GWACs all operate pursuant to an executive agency designation.  In addition, the OFPP Act, 41 U.S.C.1121(f), limits OFPP’s authority to be involved directly in certain agency procurement decisions.  In light of this limitation, there is confusion about what authority is being exercised by OFPP/OMB when it designates government-wide mandatory use contracts.

The creation of government-wide mandatory use contracts raises additional fiscal law questions that must be addressed.  Typically, absent some specific statutory authority, the funding of interagency transactions (e.g. use of another agency’s contract) is governed by the Economy Act.  See, generally, FAR 17.5.  FAR 17.5 also includes specific requirements with regard to documenting the contract file concerning decisions to use interagency transaction to acquire products and/or services through contract vehicles, like the GSA schedules, the IT GWACs, or to utilize assisted services.  It is unclear how the procedural requirements for utilizing a BIC preferred or BIC mandatory contract solution square with these pre-existing authorities, processes, and procedures.

Second, as a policy matter, mandatory contract vehicles could lead to significant risk for government and industry.  Without vigilance, a well-intended cross-functional team could designate “winners and losers” through mandatory contract solutions for customer agencies and contractors in an attempt to manage the market.  Such an approach can limit access to ongoing commercial competition and innovation, as well as negatively impact the small business community.

Agency needs vary, and through the schedules program, GSA has risen to the occasion to meet these needs by accessing the commercial marketplace 365 days a year through continuous open seasons.  GSA Schedules are the most successful government-wide, commercial item contracting program, with at least 33 percent of all purchases under the program going to small business concerns.  Agencies also leverage the schedules when using Blanket Purchase Agreements (BPAs) to meet strategic program requirements.  It seems that whenever a new contracting need is identified, the GSA Schedules serve as the strategic platform to meet the government’s needs, the latest example being the identity protection BPAs established in the wake of the Office of Personnel Management (OPM) data breaches.  Yet, it appears that the GSA Schedules will not be designated a BIC contract solution.  This result is confusing, as, notwithstanding GSA’s good faith efforts, it will only serve to increase contract duplication.

In no way does the Coalition stand for the proposition that the government should not seek opportunities to increase operational efficiency and reduce inappropriate duplication.  Indeed, there is a fruitful discussion to be had in developing a means for common-sense alignment across agencies beyond the authority of the Economy Act.  The concern here is simply that, given the high stakes involved in creating a government-wide, mandatory contract solution, the BIC selection could become an unwieldy or parochial exercise focused on process, rather than securing best value in furtherance of agency missions.  Already, there are indications that one size does not fit all.  For example, GSA’s OASIS is not considered BIC, reportedly because there may be customer agency concerns regarding the available pool of contractors.  The result, then, risks an increase in contract duplication.

Finally, it should be noted that the draft circular makes no provision for industry input when selecting a BIC contract solution.  For success, the BIC evaluation process should include input from key stakeholders across the spectrum, including from industry partners who can inform their government colleagues of the best value products, services, and solutions to meet customer agency needs, thus allowing the government to make informed decisions.

The Coalition has appreciated the great efforts made by OMB, OFPP, and GSA to reach out to industry for reaction to the proposed circular.  These efforts to understand and collaborate create an esprit de corps among stakeholders as we focus our energies on serving the citizens.  As always, we offer any assistance needed to the government to help reduce regulations, streamline processes, and put the “commercial” back in commercial item contracting.

 

Stopgap CR Measure Introduced

On Tuesday, House Appropriations Chairman Rep. Hal Rogers (R-KY) introduced a continuing resolution (CR) that would fund the government through April 28 at current levels. The CR would maintain the budget cap level of $1.07 trillion that was established under the Budget Control Act of 2011.

Rep. Rogers’ office notes that the CR continues funding for provisions included in the FY2016 appropriations and does not include controversial riders or major changes to existing policy.

 

Buried DoD Report Details Millions in Waste

On Monday, December 5, the Washington Post reported that a 2015 Department of Defense (DoD) internal study found $125 billion in administrative waste in the department’s business operations. When the study’s final report was issued, DoD officials, who were concerned that Congress would use findings to further cut the department’s budget, concluded that the report, “had limited value,” and moved to suppress its result.

In August 2014, Deputy Secretary of Defense, Robert O. Work, requested that the Defense Business Board (DBB) conduct the study to find opportunities for DoD to reduce their back-office bureaucracy and use the savings to reinvest in combat power. Using personnel and cost data from across the department and its various components, the DBB found that DoD spends approximately 25% of its annual budget on overhead and core business operations.

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Based on their findings, the DBB recommended that DoD undertake a mixture of options, including, renegotiating service contracts, hiring workers at a lower cost, and adopting aggressive performance targets. The DBB’s findings are available through the Washington Post here.

 

NDAA Compromise Would Promote Commercial Buying and Sustain GAO Protest Authority

Last week, it was reported that the House and Senate reached a compromise on a National Defense Authorization Act (NDAA) for Fiscal Year (FY) 2017. On Monday, December 5, Federal News Radio reported that the compromise includes several key provisions directed at increasing the Department of Defense’s (DoD) utilization of commercial practices and solutions.

Specifically, if enacted, the NDAA compromise would push DoD to abandon military-specific specifications, implement a pilot program designed towards fostering commercially-oriented buying, and direct DoD to revise its recently issued instructions for service acquisition. In addition, the NDAA compromise would reinforce existing authorities that DoD has to conduct streamlined acquisitions under Part 12 of the Federal Acquisition Regulation.

Finally, the compromise would give permanent authority to the Government Accountability Office (GAO) to hear and decide bid protests of any task order valued over $10 million. The Senate had allowed this authority to sunset at the end of September.

The compromise has passed the House, 375-34, and is expected to be taken up in the Senate by next week.

 

IT Modernization Bill Hits $9B

On Monday, December 5, Federal Computer Week published an article detailing how a $9 billion estimate by the Congressional Budget Office may impede a last-minute push to get the Modernizing Government Technology (MGT) Act through Congress before the end of the calendar year. Given the compressed legislative schedule, Congress is required to pass a continuing resolution by December 9, the bill’s high price makes it unlikely that the Senate will be able to address a planned companion to the House version before lawmakers leave for the holidays.

If enacted, the MGT Act would create two new funding streams for Federal agencies to update their legacy IT systems. Specifically, pursuant to the bill, agencies would be authorized to reprogram funds for updating their outdated IT, and would have access to a government-wide fund for major IT projects.

 

GSA Requesting Feedback on Health IT Categories

Last Thursday, the General Services Administration (GSA) issued a request for feedback on GSA Interact regarding the addition of Health IT opportunities to the IT Solutions Navigator (ITSN), a GSA e-tool which captures customers’ requirements to provide the best-fitting contract vehicle and appropriate point of contact. In order to map Health IT to the ITSN, GSA has developed a hierarchy of categories for Health IT, and the agency is seeking industry’s feedback on how this hierarchy could be optimized.

GSA announced that they were adding the Health IT Special Item Number (SIN) to Schedule 70 in July. There have been no sales under the SIN in Fiscal Year 2016. If members have any feedback on the draft hierarchy, please contact Aubrey Woolley by Tuesday, December 13.

 

GWAC/MAC Meeting on December 14 with FEDSIM

coenThe Coalition’s GWAC/MAC Committee will be hosting a meeting on Wednesday, December 14 at 1:00PM. The guest speaker for the meeting will be Rob Coen, Strategy Director for the General Services Administration’s Federal Systems Integration and Management Center (FEDSIM), who will provide members with an update on the program.

If you would like to attend the meeting, please RSVP to Jason Baccus. RSVPs are required at CGI for security purposes. Please note that this is a different time and date than usual for the GWAC/MAC Committee.

 

IT/Services Meeting on December 13 with TTS & 18F

allaThe Coalition’s IT/Services Committee will be meeting on Tuesday, December 13 at 10:00AM. The guest speakers for the meeting will be Alla Goldman Seiffert, Deputy Assistant Commissioner, Technology Transformation Service Office of Acquisition.

The topic of discussion will be 18F’s efforts to help make the Federal government a better buyer of IT and other current initiatives.

If you would like to attend the meeting please RSVP to Jason Baccus; RSVPs are required by our host  for security purposes.

 

Federal Acquisition Regulation: Set-Asides Under Multiple-Award Contracts

Earlier this week, the FAR Council published a proposed rule that would implement regulatory changes made by the Small Business Administration (SBA). These changes would provide Government-wide policy for partial set-asides and reserves, and setting aside orders for small business concerns under multiple-award contracts.

Pursuant to the rule, small businesses would no longer be required to submit an offer on the non-set-aside portion of a solicitation to be eligible for consideration on the set-aside portion. In addition, it would create substantial coverage for “reserves,” a new concept that allows agencies to ensure small business participation at the prime contract level when a total or partial set-aside of the work required is not feasible.

Comments on the proposed rule are due by February 6, 2017.

The Coalition is considering commenting on the rule. If you would like us to submit a response on members behalf, please contact Jason Baccus at jasonbaccus@thecgp.org

 

OGE Finalizes Rule Regarding Solicitation and Acceptance of Gifts for Executive Branch Employees

Lorraine M. Campos, Partner, Crowell & Moring; Gail D. Zirkelbach, Partner, Crowell & Moring; Nkechi Kanu, Associate, Crowell & Moring; and Joelle Sires, Associate, Crowell & Moring

On November 18, 2016, the Office of Government Ethics (OGE) issued a final rule revising the Standards of Ethical Conduct for Employees of the Executive Branch (“Standards”) applicable to the solicitation and acceptance of gifts from outside sources. See 5 CFR § 2635. The final rule imposes a duty to decline otherwise permissible gifts when the appearance of impropriety is present, adds new examples of how to apply the rules, codifies previous interpretations of the gift rule, and retains the $20 de minimis exception (despite pushback in comments to the proposed rule to raise the standard commensurate with inflation.) Although Government employees are the primary subject of the final rule, the changes will have a direct impact on how contractors, referred to as “prohibited sources” can interact with Government officials.   It is important for government contractors to understand that being implicated by a Government official’s violation of these Standards can lead to various consequences, such as facing public embarrassment, a tarnished reputation in the marketplace, suspension and debarment, or penalties for violating the bribery or illegal gratuities statutes.

The rule becomes effective on January 1, 2017.

Summary of Notable Changes

  • 2635.201 – Overview and Considerations For Declining Otherwise Permissible Gifts

Recognizing the subtleties in the laws and regulations the final rule adds a new provision which sets out a flexible, non-binding standard for employees to consider.  Employee must now consider whether their acceptance of an otherwise permissible gift would create the appearance that their integrity or ability to act impartially may be compromised. To assist employees in making this determination, the final rule sets out factors for employees to consider when evaluating whether they should decline an otherwise permissible gift,  such as the market value of the gift, whether the timing of the gift creates the appearance that the donor is seeking to influence official action,  the donor’s interests in the employee’s performance or non-performance of official duties, and whether the gift would provide the donor with significantly disproportionate access. The new provision includes examples to illustrate how an employee may use the standard and factors found in § 2635.201(b).

  • 2635.203 Definitions – “Gift” and “Market Value”

Gift: The final rule makes a number of changes to § 2635.203(b), which defines the term ‘‘gift’’ and provides exclusions from that definition. Ten new examples are also incorporated into this section to clarify the regulatory exclusions, which include:

  • Modest items of food and refreshment: Under the final rule, an example clarifies that the § 2635.203(b)(1) “modest item of refreshment” exclusion does not cover alcoholic beverages.
  • Presentation items with little intrinsic value: The final rule amends § 2635.203(b)(2) to permit employees to accept presentation items with little intrinsic value that are ‘‘primarily’’ for presentation as opposed to only those that are ‘‘solely’’ for presentation.
  • Participation in a welfare program: Pursuant to the final rule, 2635.203(b)(6) now clarifies that continued participation in an employee welfare or benefit plan with a current or former employer would not constitute a gift.
  • Items purchases by the Government or secured under Government contract: The final rule includes an example at § 2635.203(b)(7), which illustrates that employees may retain certain “travel promotional items, such as frequent flyer miles, received as a result of . . . official travel, if done in accordance with 5 U.S.C. 5702, note, and 41 CFR part 301-53.”
  • Free attendance provided to employees speaking in their official capacity: The new rule permits employees who are presenters at an event to accept meals outside of a group context, so long as the meal is open to all presenters and is hosted by the sponsor of the event.

Market Value: The definition of “market value” has been amended to mean “the cost that a member of the general public would reasonably expect to incur to purchase the gift.” An example demonstrates how to calculate the market value of certain gifts not available for retail purchase (e.g. tickets to a private skybox for a baseball game where the skybox is leased annually by the company.)

  • 2635.204 Exceptions to the prohibition for the acceptance of certain gifts
  • Gifts of $20 or less: The OGE decided against raising the regulatory dollar thresholds found in the gift exception at § 2635.204(a) in light of existing exclusions and exemptions that permit employees to accept targeted items that are over $20 in carefully restricted circumstances and because the OGE believes the $20 threshold continues to be workable, permitting employees to accept on an infrequent basis most of the types of items that can be characterized as inexpensive and innocuous.
  • Gifts based on a personal relationship: The final rule includes a new example at § 2635.204(b), which provides guidance on assessing whether a gift provided by a social media contact falls within the bounds of the gift exception.
  • Gifts of free attendance to widely attended gatherings (WAG): The final rule makes several amendments to the exception at § 2635.204(g). The provision first states that an event does not qualify as a WAG if it does not present “an opportunity to exchange ideas and views among invited persons.” Second, government employees are now required to obtain written authorizations before accepting any gift of free attendance at WAGs. Third, the final rule explicitly requires agency designees to weigh the agency’s interest in employees’ attendance at WAGs against the possibility that acceptance of gifts of free attendance will influence their decision-making or create the appearance that they will be influenced in their decision-making, before authorizing the attendance.
  • Gifts of informational materials: The final rule incorporates a new definition for “informal materials,” and permits employees to accept qualifying gifts if (i) the aggregate market value of all informational materials received from any one person does not exceed $100 in a calendar year; or (ii) If the aggregate market value of all informational materials from the same person exceeds $100 in a calendar year, an agency designee has made a written determination after finding that acceptance by the employee would not be inconsistent with the standard set forth in § 2635.201(b).
  • 2635.206 Proper disposition of prohibited gifts

Currently, § 2635.205(a)(1) provides that an employee who receives a tangible gift that is prohibited by the subpart must either return the gift to the donor, pay the donor the market value  or not accept the gift in the first instance. Pursuant to the final rule, employees will now also have the option of destroying gifts with a market value not in excess of $100. The final rule also adds a new provision at § 2635.206(d), which encourages employees to record any actions that they take to dispose of gifts that cannot be accepted.

As exhibited by some of the recent procurement integrity scandals, the federal government is taking these and other ethical violations very seriously. Contractors and those seeking to do business with the government must understand the nuances associated with interacting with Government officials. Standard practices in commercial contracting can lead to stiff fines and other penalties when offered in the government contracting arena.  Compliance programs should be updated and employees should be trained on the risks associated with giving gifts to Government officials.

 

Legal Corner

In August, on behalf of the Coalition, Mayer Brown LLP filed an amicus brief in State Farm Fire and Casualty Co. v. United States ex rel. Rigsby.  This is an important case for government contractors and – in the Coalition’s view – that the industry’s view was presented to the Court. Below is an analysis of the Supreme Court’s decision, which was released earlier this week.

Supreme Court Refuses To Require Sanctions for Breach of the Seal Requirement of the False Claims Act

By Roger V. Abbott

On December 6, 2016, the Supreme Court ruled that the False Claims Act (“FCA”) does not require the dismissal of lawsuits brought by relators who violate the requirement that information regarding the FCA complaint (and alleged fraud) not be disclosed to anyone (other than the district court and Department of Justice) and remain “under seal.” In State Farm Fire & Casualty Co. v. United States ex rel. Rigsby , the Court held that district courts retain discretion to fashion an appropriate remedy based on the facts of the case.

The FCA imposes liability on anyone who “knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval.” Notably, in order to encourage citizens to ferret out fraud, section 3730(b) of the FCA authorizes private citizens (or “relators”) to bring civil actions on behalf of the government, and retain a portion of any recovery. In doing so, however, the FCA imposes certain requirements on relators. The State Farm case focused on the “seal” requirement, which requires that complaints filed by relators “shall be filed in camera, shall remain under seal for at least 60 days, and shall not be served on the defendant until the court so orders.”

In State Farm, the Supreme Court addressed an important question for the government contract community: “What standard governs the decision whether to dismiss a relator’s claim for violation of the FCA’s seal requirement, 31 U.S.C. § 3730(b)(2)?” State Farm argued that respondent’s former counsel had, on multiple occasions, willfully violated the seal by leaking embarrassing stories to the press about fraud allegations and by revealing information about the case to a congressman, who publicly criticized State Farm. State Farm asked the Court to reverse the Fifth Circuit, which had not required the district court to dismiss the case for violation of the seal.

At the Supreme Court, State Farm relied on a Sixth Circuit precedent and argued that the statute’s text (“shall be filed in camera . . . shall remain under seal”) and history require a per se rule that any violation of the seal mandates dismissal. In the alternative, State Farm asked Court to adopt the balancing test used by the Second Circuit, which considers the interests of the government as well as defendants. In contrast, the Ninth Circuit balancing test, which the Fifth circuit had adopted in this case, only weighed the interests of the government.

The Court held that the “plain language” of the FCA does not require mandatory dismissal. The Court reasoned that notwithstanding the use of the word “shall,” the FCA did not include a specific remedy for violation of the seal, and that “[i]n the absence of congressional guidance regarding a remedy . . . the sanction for breach is not loss of all later powers to act.” The Court also held that the “structure” of the FCA indicated that the sanction for breach of the seal requirement does not mandate dismissal. The Court noted that other provisions of the FCA, such as the public disclosure bar, included a specific remedy of dismissal, and concluded that Congress “knew how to draft the kind of statutory language that petitioner seeks to read into section § 3730(b)(2).” Finally, the Court refused to impose a particular nationwide standard, holding that “whether dismissal is appropriate should be left to the sound discretion of the district court.”

The Court, in its concluding remarks, sought to address the concerns expressed by State Farm and the amici curiae, that failure to require mandatory dismissal for violation of the seal would encourage relators to harass defendants into settling claims by leaking embarrassing stories to the news media. The Court noted that “sanction remains a possible form of relief.” Nonetheless, given the extreme set of facts and strong evidence of bad faith in this case, this reassurance is unlikely to provide much comfort for government contractors.

Attorneys at Mayer Brown submitted an amicus brief in this case on behalf of the Coalition for Government Procurement, in support of petitioner.

TAGS: [False Claims Act & Civil Fraud]

 

Pictures from the 2016 Fall Training Conference and EIP Awards
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The Coalition would like to thank Susan Hornyak of Susan Hornyak Photography for taking pictures at the 2016 Excellence in Partnership Awards and Fall Training Conference. Click here to view pictures!