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Friday Flash, 05.21.12

1. Comment of the Week

As they say in sports, another Expo is in the books!  While this year’s GSA Expo agenda was scaled back, the 2012 Expo remained an important “Myth-Busters” event.  The Expo included over 10,000 hours of training for government and industry acquisition professionals.  It also served as a government-industry forum for dialogue and information sharing regarding OASIS, Next Generation Schedules, and GSA GWACs, and the MAS program.  For example, on Tuesday General Supplies and Services (GSS) held its Industry Partnership Forum highlighting for industry key GSS program, management and policy initiatives.  I would like to thank GSS for the opportunity to speak at their Forum highlighting the Coalition’s key policy priorities:  Other Direct Costs (ODCs), Reform of the Pricing Policies, Contract Duplication, and continuing the Myth-Busters campaign.

On Wednesday, Acting Administrator Dan Tangherlini attended a morning meeting with the Coalition.   At the meeting Administrator Tangherlini discussed the ongoing top down review of GSA operations, including a review of the GSA Expo.  He emphasized the need to better integrate the Public Building Service (PBS) and the Federal Acquisition Service (FAS).  In particular, he commented that PBS should be using FAS more to meet its operational procurement needs.  Finally, he discussed the vital role GSA plays in supporting customer agency missions and value proposition for GSA moving forward.  In sum, as discussed at the meeting, in a time of disruptive change, GSA has an opportunity to provide even greater support to the federal community.  The Coalition thanks Administrator Tangherlini for meeting with us and engaging in a thoughtful and important discussion regarding the future of GSA.

Later on Wednesday, Administrator Dan Tangherlini and FAS Commissioner Steve Kempf walked the Expo floor, visiting with GSA contractors and viewing several Expo training sessions.  They even stopped by  “The Fundamentals of MAS Contract Compliance: Building a Foundation for Success” presented by none other than yours truly along with Jason Workmaster, Partner at McKenna Long & Aldridge LLP and Jonathan Aronie, Partner at Sheppard Mullin.   The Administrator’s interest in the Expo is truly appreciated as the GSA Expo is annually one of the largest, if not the largest, federal procurement training events.

Wednesday night, the Coalition held its annual Partnership Dinner.  The Coalition thanks FAS Commissioner Steve Kempf, Assistant Commissioner ITS, Mary Davie, Assistant Commissioner for Assisted Services Tim Fleming, Assistant Commissioner for GSS Bill Sisk, and Assistant Commissioner for Acquisition Management Houston Taylor for participating in a wide ranging panel discussion entitled “GSA Myth-Busters Forum: FAS’s Top Seven Priorities to Serve GSA’s Customer Base.”  The Forum kicked off the event followed by a great networking hour and dinner for our member attendees.   Of particular interest to the attendees was the update on ODCs and the Next Generation Schedules, including the possibility for cost-reimbursement capability on schedule contracts.  The Coalition looks forward to the next steps on these important changes. The Coalition supports these important modernization efforts that will improve the efficiency and effectiveness of the MAS program for customer agencies, MAS contractors and, ultimately, the taxpayer.

Later in the evening, the Coalition and its members were honored to hear from Rocky Perez of the Wounded Warrior Project. Rocky spoke about his background and the programs his organization fulfills to aid wounded veterans as they return home from conflict zones. The Coalition is proud to support wounded veterans through our annual golf tournament that is held in August.

The Coalition extends a special thank you to our Partnership Dinner Title sponsor, Lockheed Martin.  The Coalition also thanks our other dinner sponsors Siemens, Accenture, and Bloomberg.  The Coalition appreciates your support.  Finally, thank you to our Keystone members, Booz Allen Hamilton, General Dynamics Information Technology, HON and Allsteel, L-3, Northrop Grumman and McKenna Long & Aldridge LLP. 

I also want to thank my staff for all their hard work in putting together these events.  Without you it would not have been possible!  Thank you Sandy, Aubrey, Roy, Rob, and Denise.   

2. Tangherlini Speaks to Coalition Members 

Acting GSA Administrator Dan Tangherlini joined CGP members at a morning meeting last Wednesday to discuss his top priorities for the agency.

  • Conducting a top-to-bottom review of GSA as well as the Expo
  • Leveraging PBS and FAS operations to reduce duplication
  • Encouraging GSA sustainability not only with energy and the environment but also in the workforce with mobile offices and telework
  • Supporting modernization of GSA’s contracting programs to maximize efficiency and save taxpayer dollars

Administrator Tangherlini provided a thoughtful discussion about GSA’s value proposition and looked at how to continue to provide procurement support for the government. The Coalition would like to thank Administrator Tangherlini for taking the time to speak to the Coalition and its members as part of the Myth-Buster’s initiative. We look forward to continuing a mutually beneficial working relationship with GSA for common sense in government procurement. The Administrator also spoke with Federal Times in a detailed interview, which can be found here.

3. Keeping Politics Out of Contracting Bill Approved By Senate Committee

Wednesday, May 16th, the Senate Homeland Security and Governmental Affairs Committee passed S. 1100, the Keeping Politics Out of Federal Contracting Act. The act, introduced by Sen. Collins (R-Maine), prohibits contractors from being required to disclose political contributions. The Coalition sent a letter of support to Sen. Collin’s office last Tuesday. Although the intention of political disclosure is to keep politics out of the procurement system, the Coalition believes that it would do the opposite, inserting politics into Federal contracting. The purpose of S. 1100 is to keep contract awards based on merit and value to the taxpayer. Political disclosure creates the potential for contracts to be awarded based on political considerations, which could reduce competition. Therefore, the separation of politics and Federal contracting is key to the keeping a competitive and effective procurement system based on best value. The Coalition will continue to follow the progress of S. 1100 through the Senate.

4. SBA Proposed Rule on Small-biz Participation in MACs

On Wednesday May 16th, the Small Business Administration (SBA) issued a notice of proposed rulemaking that provides more specific guidance with regard to the implementation of section 1331 (reservation and set-aside of multiple award contracts and orders against multiple award contracts for small businesses) of the Small Business Jobs Act of 2010. The guidance describes three areas where small business can be included in in multiple award contracts (MACs) –a term that according to the new rule includes MAS contracts issued by GSA: (1) Set-aside part or parts of a multiple award contract for small business, (2) reserve one or more awards on multiple award contracts, and (3) set aside orders under multiple award contracts for small businesses.

The proposed rule preserves the discretion that section 1331 vests in agencies to decide whether or not to use any of the enumerated set-asides and reserve tools. It also clarifies that SBA seeks to ensure that agencies give meaningful consideration to the tools without either prescribing use of any specific tool in any given circumstance or imposing significant new burdens.

This proposed rule would also implement the following sections of the Small Business Jobs Act of 2010: section 1311 (definition of multiple award contract); and section 1313 (consolidation of contracts definitions, policy, limitations on use, determination on necessary and justified). Please see a copy of the proposed rule for more details.

5. House Drops Request to Change Definition of Commercial Item

The House Armed Services Committee has turned down a Department of Defense (DoD) legislative proposal as part of the FY2013 NDAA to change the language in the Federal Acquisition Regulation (FAR) to limit what can be procured under commercial “of-a-type”. DoD submitted the request to Congress expressing their concern that the clause is being abused by vendors in an attempt to avoid certain reporting requirements necessary for contracting officers to make sound price determinations. The Senate Armed Services Committee will begin consideration of their version of the FY2013 NDAA bill this week.

The Coalition is concerned that the alteration or removal of commercial “of-a-type” could have unintended consequences for DoD, limiting competition and the department’s access to commercial services and products. The Coalition will continue to monitor this issue and will provide updates in the Friday Flash.

6. OMB and Contractor Role in Shared Services

On Friday, Federal News Radio reported that OMB is beginning to clarify the role of the private sector in its new shared services strategy. Unlike the previous Line of Business Initiative under the Bush administration, which allowed public and private entities to provide shared services, the new strategy will not distinguish between the two. Scott Bernard, the federal chief architect at OMB said the roles will be defined as a “managing partner, a consumer or agency, and a supplier.” “It’s my opinion in many cases, not all, but in many cases the supplier role will be filled by an industry provider,” Bernard said. According to Federal News Radio, Andrew McMahon, the PortfolioStat lead for OMB, said the administration is not only indifferent about who provides the shared services, but with the new technology that has come about over the last three or four years, there could be different levels of providers. Agencies have until the end of May to submit to OMB a survey that identifies possible opportunities for a shared service provider to step in. By June 15th, agencies will send OMB a list of IT commodity areas that should be consolidated and will submit a draft plan by June 29th to consolidate that commodity IT. OMB plans to meet with all agencies in July and release a final consolidation plan by August 31st.

7. NDAA Update

On Friday, May 18th, the House of Representatives passed a $642 billion defense bill. The National Defense Authorization Act FY2013 (NDAA) (H.R. 4310) has drawn a veto threat from the administration, which says the bill breaks a deal struck during the Budget Control Act and limits the military’s ability to carry out the defense strategy. The bill, which allocates $8 billion more to the Department of Defense than the President’s proposal, was approved by a vote of 299-120. Controversial provisions within the bill include a planned missile-defense site on the east coast, a prohibition placed on further cuts to America’s nuclear arsenal and a revival of language concerning the indefinite detention of suspected terrorists. The Senate is likely to move forward without these provisions. The bill includes a provision on contract bundling along with a proposed increase in the government small business contracting goal from 23 percent to 25 percent. The administration opposes this increase and the contract bundling provision, claiming that it would make unbundling a contract too complex.

8. DHS to Finish FY 2012 Spending by Sept.

The Department of Homeland Security (DHS) looks to spend $8 billion of the FY 2012 contracting budget by September 30th. The department is planning to award the $8 billion in the next four months. The group of contracts to be awarded includes the EAGLE II IT contract, which will continue simultaneously with previous EAGLE contracts. During a May 15th conference, Kevin Boshear, director of the Office of Small and Disadvantaged Business Utilization stated that the contract will be awarded soon.  According to the posting on FedBizOpps, the contract includes IT support services in three functional categories including: Service Delivery, IT Program Support Services and Independent Test, Validation, Verification and Evaluation Solutions. The remaining $8 billion in the FY 2012 budget will go to various IT, security and office supply contracts.

9. May Legal Corner

Federal Courts Begin To Lose Patience With Opportunistic Relators

Guest Bloggers:  Christopher Loveland and Jonathan Aronie, Sheppard Mullin Richter & Hampton LLP

Since 2005, anyone with even a passing familiarity with GSA’s Multiple Award Schedules Program knows that compliance with the Trade Agreements Act is a key enforcement area of the Office of Inspector General, the Department of Justice, and whistleblowers.  It was in 2005 (continuing into 2006), as many of you will recall, that several office products companies settled False Claims Act (“FCA”) cases with the Department of Justice.  The cases were brought by a whistleblower (known as a “relator” in FCA parlance) alleging that the companies had sold non-TAA products to the government through their Schedule contracts.  These cases, which collectively settled in the neighborhood of $27 million, made the TAA a household word – at least among those households holding GSA schedules.

The 2005 settlements had a significant impact on Schedule contractors and on the Schedules Program generally.  Following the settlements, the GSA Office of Inspector General issued some 200 subpoenas to Schedule vendors as part of a targeted enforcement effort.  GSA contracting officers began incorporating notices of the importance of TAA compliance in solicitation packages, on the GSA web site, and in training materials.  And, important for our purposes here, prospective relators were awakened by the scent of blood in the water, and the profit that that blood could bring.

The sharks began circling Schedule contractors almost immediately.  One of the first relators to test the FCA waters with a TAA case was Mr. Christopher Crennen, who filed a case in Massachusetts on March 28, 2006 against dozens of contractors.  Mr. Crennen was a lawyer by trade from Colorado who reviewed the country of origin labels on the backs of computers and computer accessories in several government offices in Denver, and in his local retail electronics store.  He then took the list of products made overseas and compared it to the products listed by Schedule vendors on the GSA Advantage! website.  When he found a match, he concluded he had identified a False Claims Act violation.  Based upon this “investigation,” Mr. Crennen filed a qui tam action alleging that the defendants had misrepresented and falsely certified that their products complied with the TAA.

Given the scope of Mr. Crennen’s “investigation” and his lack of any inside information, there obviously were a number of problems with his allegations, including his failure to identify even one actual false claim for payment that allegedly was submitted to the government.  It thus should have come as no surprise when, shortly after the complaint was ordered served on September 18, 2009, each of the defendants filed a motion to dismiss arguing that Mr. Crennen’s amended complaint failed to include enough particularity regarding the details of the alleged fraud as required by Rule 9(b) of the Federal Rules of Civil Procedure.

The Court agreed with the defendants, finding that “[a]rticulating a theory as to how a company could violate subsection (a)(1), without more, is insufficient to comply with the requirements of Rule 9(b).”  The Court dismissed Mr. Crennen’s case with prejudice on futility grounds because, “after three years and a government investigation, he still cannot allege that any specific claim was planned or submitted for a product listed on the GSA Advantage! website with a false country of origin.”

Shortly after Mr. Crennen gave it his best shot, Mr. Brady Folliard threw his hat into the ring, filing suit in Washington, DC on April 20, 2007 against a number of Schedule vendors, including several of those previously sued by Mr. Crennen.  Mr. Folliard was no stranger to the lure of the False Claims Act, having filed at least five other qui tam actions, all of which ultimately were dismissed.  Like Mr. Crennen, Mr. Folliard was not a whistleblower in the traditional sense.  He did not work for any of the defendants or have any insider information.  Instead, he based his claims entirely on purported “industry knowledge” and publicly available information.

Not long after the case was unsealed on June 22, 2010 (remember, FCA cases initially are filed under seal), each of the defendants moved to dismiss because Mr. Folliard’s second amended complaint did not satisfy the particularity pleading requirements of Rule 9(b).  Six of the defendants who were parties to the Crennen case also argued that the Court lacked jurisdiction pursuant to what is called the “first-to-file” bar because Mr. Folliard’s complaint alleged the same material elements of fraud as Mr. Crennen, and the claims did not give rise to a separate and distinct recovery by the Government.  The Court agreed that it did not have jurisdiction over those defendants who were parties to the Crennen case because “[a]llowing the complaint to go forward would not reduce fraud or return money to the federal fisc, and it would set a precedent that encourages opportunistic relators.”

Interestingly, while the Court granted the motions to dismiss on first-to-file grounds, it denied the motions based on Rule 9(b).  That resulted in the case proceeding against two of the defendants.  In its Order, however, the Court invited the two remaining defendants to file a motion for “summary judgment following on the heels of the complaint if . . . [their] records discredit the complaint’s particularized allegations.”  Both defendants filed a motion for summary judgment at the outset of discovery, arguing that their records discredited Mr. Folliard’s allegations.  The Court recently granted these motions in part and dismissed two of the relator’s four claims.  The Court further ordered that Mr. Folliard file an amended opposition to each of the defendants’ summary judgment motions regarding the remaining two claims.  Once briefing is complete, the Court will decide summary judgment.

Mr. Bryan Sandager was the most recent relator to jump on the qui tam bandwagon.  He filed an FCA action in Minnesota on July 31, 2008, alleging that almost two dozen contractors misrepresented the country of origin of products listed for sale on the GSA Advantage! website in violation of the TAA.  Like Mr. Crennen and Mr. Folliard, Mr. Sandager did not have any inside information regarding any of the defendants.  In fact, he readily conceded in his Amended Complaint that “[t]he details of each Defendant’s sales to the Government … are peculiarly within each Defendant’s private knowledge and are not known to Relator.”  Instead, he based his allegations entirely on publicly available information gleaned “through his long-held position in the industry.”  Mr. Sandager had worked as a corporate compliance officer since 1999 at one of the defendants’ competitors.

Given the lack of details alleged by Mr. Sandager, all of the defendants moved to dismiss in January 2012, arguing that the amended complaint failed to plead with particularity the “who, what, when, where, and how” of alleged fraud as required by Rule 9(b).  Many of the defendants also moved to dismiss pursuant to the first-to-file bar because Mr. Sandager’s allegations were based on the same underlying allegedly fraudulent conduct as several earlier-filed qui tam actions that were pending when Sandager filed his action, including Crennen and Folliard.

The Court agreed with the defendants.  Not only was the action jurisdictionally barred against many of the defendants under the first-to-file bar, the Court also found that Mr. Sandager’s failure to allege with particularity the existence of even one false claim was “fatal to his claims.”  The Court dismissed the action with prejudice because it did not believe that Mr. Sandager could resolve the “fundamental flaws” in his amended complaint by re-pleading.

The rulings in CrennenFolliard, and Sandager demonstrate that at least some courts are unwilling to grant opportunistic relators a “free pass.”  Claims need to be both properly plead and jurisdictionally sound to get to the discovery stage of a case.  It simply is not enough for a relator to allege a theory or methodology as to how a company could have violated the FCA.  Instead, compliance with Rule 9(b) mandates that specific details be alleged by a relator showing the “who, what, when, where, and how” of the alleged fraud.  Were courts to hold otherwise, it would open the floodgates of baseless lawsuits by opportunistic relators and cause companies to needlessly incur significant resources fending off countless discovery fishing expeditions.

While the outcomes in these cases are encouraging and show a positive trend of Courts standing up against baseless and harassing litigation, they also serve to provide valuable reminders to contractors.  TAA compliance remains a high profile issue and should not be an afterthought.  Products offered for sale to the government on a GSA Schedule must be from trade-compliant countries.  Contractors should take steps to make sure that their contracting personnel are well trained and have in place procedures to confirm compliance with the TAA.  A strong and effective compliance program is a good defense to claims of a “knowing” violation of the FCA. Moreover, it is important to maintain documentation showing that products sold to the government are TAA-compliant.  Contractors need to take the necessary steps not only to guard against whistleblower actions by employees, but also, as demonstrated in the Folliard and Sandager cases, potential actions by competitors.

No contractor expects to be sued under the FCA.  But if it happens, having in place effective safeguards will prove invaluable to a contractor’s defense, saving both time and money.[1]

[1] In the interest of full disclosure, the authors of this article represented several of the defendants in each of the CrennenFolliard and Sandager cases.

10. OFPP Nomination Moves to Full Senate

Last Wednesday the Senate Homeland Security and Governmental Affairs Committee approved Joseph Jordan’s nomination for administrator of the Office of Federal Procurement Policy (OFPP). The nomination has now moved to the full Senate for approval. If approved, Jordan will succeed previous administrator, Dan Gordon. Jordan currently serves as senior advisor to the Office of Management and Budget (OMB) and previously worked as associate administrator for government contracting and business development at the Small Business Administration. Jordan stated that his goals as administrator would focus on buying smarter, increasing strategic sourcing and increasing contracts with small businesses. He also intends to make the contracting workforce a priority, increasing opportunities for training and taking steps to ensure ethical business practices to decrease taxpayer risk.

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