FAR and Beyond Blog
Welcome back! I hope you all had a wonderful Thanksgiving! As the end of the year approaches, it is time to finish the “Thirteen Thoughts for 2013.” On January 14th of this year, I introduced the “Thirteen Thoughts for 2013.” Throughout 2013, this blog has tackled/addressed significant procurement issues, which can be found here. Now it is time to address “Thought No. 13: Oversight of the procurement system—is there balance?” Exploring the need for balance in the oversight of the procurement system, this blog will focus on GSA, as the central procurement agency for the federal government.
As a former government employee who often worked collaboratively with the GSA Inspector General’s Office (IG), I understand and appreciate the vital role the IG plays in addressing risk management in our procurement system. Oversight and risk, however, must be balanced. There is a tolerable level of risk in all government and business operations. Risk drives innovation, efficiencies, and best value solutions. Moreover, there is an inflection point on the risk mitigation curve where the benefits of mitigation are exceeded by the costs of mitigation. For GSA or government to eliminate every scintilla of risk (assuming it could do so) through oversight not only would increase the risk that government innovation, efficiency, competition and best value solutions would grind to a halt, but also would simply transform risk costs into oversight costs.
Clearly, oversight is necessary; it is vital to ensuring integrity in our system. The question is finding the right balance that maximizes value delivered to customer agencies and the American people through our procurement system. A key to that balance is the vital, positive role played by contracting managers in procurement operations.
Contracting manager leadership is a key to ensuring open, balanced communication between all stakeholders throughout the procurement process. Communication is vital to maximizing best value outcomes for all. It is what the Myth-Busters campaign is all about. The risk to communication is why a recent GSA FAS instructional letter issued by the FAS Office of Acquisition Management and the recent IG audit of management intervention are of such concern. Stay with me now–here are the particulars.
On May 6, 2013, the Office of Acquisition Management issued FAS Instructional Letter 2014-04, entitled “Contracting Officer Responsibilities Pursuant to GSA Office of Inspector Contract Audits” (the instructional letter). The instructional letter (publically available here) provides guidance on audit procedures, specifically the responsibilities of the contracting officer concerning GSA IG audits. The drafting of instructional letters is typically a collaborative effort involving all GSA internal stakeholders. The instructional letter guidance includes a series of questions and answers on key issues.
Although the instructional letter provides several positive statements regarding contracting officer discretion when utilizing the audits in negotiating pricing for MAS contracts, it also includes a question and answer regarding the right of the IG auditors to escalate issues to the appropriate agency officials when the contracting officer disagrees with the audit findings. Here is the instructional letter’s question and answer No 7:
Q7. What can the auditor do if I [i.e. the contracting officer] disagree with the report finding(s)?
A7. The RIGA [the Regional Inspector General for Auditing], if in disagreement with the CO’s final position or the original 60-day CO’s response, retains the right to escalate the issues to the appropriate agency officials. The RIGA shall notify the Assistant Inspector General for Auditing (AIGA) or designee, who will initiate contact with the appropriate agency officials to resolve the issues. Furthermore, the auditor may request to the CO and/or appropriate agency officials that actions be temporarily suspended in order to discuss the differences.
On June 4, 2013, the GSA IG issued Report Number A120161/Q/6/P13003, Improper Management Intervention in Multiple Award Schedule Contracts, Federal Supply Schedule 70-Information Technology Contracts, Federal Acquisition Service. The report included the following recommendation:
The Commissioner, Federal Acquisition Service, should:
- Ensure that the contracting process is independent and free from FAS management interference due to contractor pressure. These steps should include:
- Requiring FAS management not to intervene in contracting actions in response to requests from contractors except for instances of misconduct or other serious administrative issues;
- Requiring FAS management to fully document all conversations and correspondence with contractor officials regarding specific contracts and offers, to include such information as date, time, participants and specific details of information exchanged; and
- Issuing a memorandum expressing support for contracting staff making independent determinations, including decisions not to award contracts or contract extensions.
In response to the audit and its recommendations, a multi-association letter was sent to GSA raising concerns regarding the appropriate role of senior management in the day-to-day operations of the MAS program. The letter can be found here. Simply put, it is a question of balance. Managers of a procurement operation, like the MAS program, must be able to hear from all stakeholders, including the IG and contractors, regarding issues surrounding the negotiation of contracts. These managers also should feel empowered to find innovative approaches to assure that best value solutions are available through GSA. To do otherwise would be to abdicate leadership of the program.
Unfortunately, the instructional letter and the IG audit, standing alone as the only public guidance/positions on the role of the contracting manager, make clear a current limited communications role for managers. The key management role of ensuring balance between oversight and operation is out of balance! Unfortunately, to date, there has been no written response to the multi-association letter. All in industry would value further positive communication from GSA leadership regarding the role of contracting managers.
In a Federal Register notice released Wednesday, the Office of Federal Procurement Policy (OFPP) raised the cap on the total annual compensation that the government will reimburse contractor executives by $190,000 for fiscal year 2012. The cap has been increased from the FY11 cap of $763,029 to the cap for FY 12 of $952,308. “Because Congress has not changed or replaced the statutory formula for setting the cap, the administration is compelled by statue to raise the cap for another year in accordance with that statutory formula,” OFPP stated in the notice. “In other words, the administration has no flexibility to depart from the statutory requirement that the cap be adjusted annually based on the application of the statutorily-mandated formula.” OFPP stated in the notice that the cap is in place for all contracts awarded after Jan. 1, 2012 and for subsequent fiscal years unless it’s revised by OFPP.
Federal Times published an article this week about GSA’s increasing efforts to use data to drive down costs. At the Government IT Forum in Washington, Mark Day, acting deputy assistant for the Office of Integrated Technology Service (ITS), spoke to some specific data analysis that his office has conducted. According to Federal Times, Day described at the event how ITS has begun mining cost data including spending data on GSA’s Governmentwide Acquisition Contracts. The results support the notion that competition drives down costs. More specifically, Day explained that in their assessment of prices paid versus the contract base price in situations where there was only one bidder versus up to 10 bidders, prices paid were significantly lower with increased competition. GSA’s findings indicated that “in cases where there was only one bidder, the pricing discount was less than one half of 1 percent. When there were two or more bidders, the discount was 18 percent.” For the full article, visit www.federaltimes.com/apps/pbcs.dll/article?AID=2013312040017.
Registration is now open for GSA’s virtual meeting on the Federal Strategic Sourcing Initiative (FSSI) Office Supplies – 3rd Generation (OS3) Program. The meeting is scheduled for Tuesday, December 10 from 10:00am to 12:00pm. GSA has posted a Draft OS3 Statement of Work and Draft RFP Overview Video for industry to review and provide feedback on—both on GSA Interact and during the virtual industry day meeting. Please visit the FSSI OS3 Community on GSA Interact for more details and to register for the virtual event. If you would like to provide feedback on OS3 issues to the Coalition, please contact Aubrey Woolley at email@example.com.
According to Federal News Radio, Defense Secretary Chuck Hagel moved Wednesday to eliminate several high-level Pentagon positions, consolidate offices and change the responsibilities of a number of organizations within the Office of the Secretary of Defense (OSD). The move comes as part of a pledge to reduce the Pentagon’s headcount by 20 percent. The plans are a part of an effort started in July of this year to reduce the size of DOD back-offices. “Much of these savings will be achieved through contractor reductions, although there will be reductions in civilian personnel,” Hagel said. “Ultimately, other headquarters elements will be implementing similar reductions, and we will detail our plans to achieve these savings in the Pentagon’s budget submission next year.” DOD says the planned changes would reduce OSD’s military and civilian headcount to 2,200 by fiscal 2019 and save about $1 billion.
Also of importance are the organizational changes that Hagel is proposing. Federal News Radio notes that some elements of the plan would require Congressional approval, such as the added responsibilities Hagel wants to place under DoD’s deputy chief management officer (DCMO) and its chief information officer (CIO). Additionally, the DoD CIO would take over DCMO’s current responsibilities for overseeing the development of business IT systems. Although the undersecretary of Defense for acquisition, technology and logistics will continue to be responsible for acquisition of IT systems, the change will finally make the DCMO the true focal point for management issues in the Defense Department, Hagel said. Gen. Martin Dempsey, the chairman of the Joint Chiefs of Staff added that the Department will take a look at “acquisition reform, where the goal is to get out of this pattern where things are acquired and delivered too slowly and too expensively.”
On Tuesday, the Coalition met with Chris Cummiskey, the DHS Acting Undersecretary for Management, along with the DHS Chief Procurement Officer, Chief Information Officer, the Director of the Office of Program Accountability and Risk Management and the Acting Chief Financial Officer. The multi-association event served as a ‘Myth-Buster’ conversation about the challenges that the Department of Homeland Security faces in the coming year and how industry can assist in meeting those challenges. It featured discussions around topics of common concern and the acquisition management process.
As a result of the dialogue, DHS has invited the Coalition to recommend to the Department opportunities to streamline processes, increase efficiencies, and reduce transactional costs across DHS procurement operations. Consistent with the Coalition’s ongoing efforts to identify Federal acquisition requirements/processes that add cost without commensurate value, the Coalition is reaching out to members for ideas on these items. If members have any suggestions, please submit them to Roger Waldron at firstname.lastname@example.org.
A presidential memorandum was released this week that increases the renewable energy goals for the Federal government. Federal agencies are to consume 20% of their electricity from renewable energy by 2020—more than double their current objective of 7.5%. To achieve this goal, agencies have been directed to adopt certain building-performance and energy-management practices. They include installing building energy meters and sub-meters and installing water meters in Federal buildings where cost-effective and appropriate. Agencies are also to measure their energy and water performance through the EPA ENERGY STAR Portfolio Manager. Agencies will be measured on their progress toward the 20% renewable energy goal through the annual Sustainability Report Card. The 2013 Sustainability Report Cards were just released this week and can be viewed at http://sustainability.performance.gov/.
The Environmental Protection Agency (EPA) published a notice in the Federal Register on Wednesday, November 27, 2013 regarding the use of ecolabels in Federal procurement. The purpose of the guidelines is to help agencies identify which environmental standards and ecolabels they should use when buying green products. A summary of the draft guidelines is available at www.epa.gov/epp/draftGuidelines/draftGuidelines.pdf. The Coalition will be submitting comments through the Green Committee’s Ecolabels Working Group. If you would like to participate, please contact Aubrey Woolley at email@example.com. Comments are due February 25, 2014.
Gratuities – Cautionary Tales for Contractors and Government Employees
By: Tom Barletta, Partner, Steptoe & Johnson LLP; Fred Geldon, Senior Counsel, Steptoe & Johnson LLP; & Mike Navarre, Special Counsel, Steptoe & Johnson LLP
Recent events demonstrate that government investigators and prosecutors are taking more seriously the ethical regulations that govern gratuities. Cases in point:
- On April 25, 2013, the U.S. Department of Justice issued a press release announcing that a Bureau of Prisons (BOP) employee had pled guilty to a charge of receiving unlawful gratuities. The BOP employee, a supervisory traffic management specialist in the BOP Relocation Services section, was responsible for giving relocating BOP employees a list of approved movers and then referring their move to agents of the chosen carrier. While performing these duties the employee received spa and salon gift cards in the amount of $1,007 and $790 from one carrier’s agent, as well as free moving services from moving companies. The BOP employee was subsequently assessed a fine of $1,500 and placed on probation for 18 months.
- On June 5, 2013, the Washington Post reported that the Internal Revenue Service (IRS) had placed two managers on administrative leave for accepting free food and other gifts in violation of government ethics rules. These violations were discovered during an audit of a years-old conference, at which the managers “allegedly held an after-hours party in their private hotel suites.” It apparently was not clear who gave the managers the food, worth $1,162. Acting Commissioner Danny Werfel said in a statement to the Post that the IRS has started the process of firing the managers.
The basic rules applicable to government employees regarding gratuities are set forth in the Standards of Ethical Conduct for Employees of the Executive Branch (“Standards”), which are codified at 5 C.F.R. § 2635. The Standards generally prohibit federal government employees from accepting gifts from “prohibited sources,” a category that includes, among others, contractors (and employees of contractors) doing business with or seeking to do business with the federal government employee’s agency. 5 C.F.R. §§ 2635.102(k), 2635.203(d).
There are some exceptions, however. For example, under the Standards, federal employees may accept, even from “prohibited sources,” items worth $20 or less, as long as the total value of the gifts from the same source is not more than $50 in a single calendar year (calculated by including a contractor and its employees as a single source). 5 C.F.R. § 2635.204(a). The Standards also include other limited exceptions, such as gifts motivated by family relationships.
The size of the gratuities in the two recent examples discussed above far exceeds these thresholds. In the case prosecuted by the Justice Department, however, the amount at issue was significantly less than amounts usually cited in large corruption cases, and demonstrates that even these (relatively) small violations are attracting the attention of auditors, investigators, and prosecutors.
Although the Standards apply only to government employees who receive gratuities rather than to contractor employees who offer gratuities, contractors can face potential liability in relation to gratuities as well.
The federal criminal gratuities statute, 18 U.S.C. § 201, provides for fines or imprisonment for anyone who, for example,
directly or indirectly gives, offers, or promises anything of value to any public official, former public official, or person selected to be a public official, for or because of any official act performed or to be performed by such public official, former public official or person selected to be a public official.
18 U.S.C. § 201(c)(1)(A).
Unlike a bribe, an illegal gratuity does not require an intent to influence; rather, the illegal gratuity only need be given “for or because of” an official act. An illegal gratuity “may constitute merely a reward for some future act that the public official will take (and may already have determined to take), or for a past act that he has already taken.” United States v. Sun-Diamond Growers of California, 526 U.S. 398, 404-405 (1999). There must, however, be a connection, i.e., the government must prove “a link between a thing of value conferred upon a public official and a specific ‘official act’ for or because of which it was given.” Id. at 414.
The risk to contractors is heightened, however, because the line between an acceptable gift and an illegal gratuity is nuanced. For example, in United States v. Hoffmann, 556 F.3d 871, 877 (8th Cir. 2009), the court rejected the defendant’s contention that the Government had failed to prove that he violated the gratuities statute because he did not reasonably believe that the government employee would take an official action and because the government employee never did so. Rather, the court upheld the conviction finding that a “reasonable juror could conclude” that the contractor gave the government project manager a set of golf clubs “to . . . reward future performance.”
The risk to contractors is demonstrated by yet another recent Justice Department announcement in a whistleblower “qui tam” case that included gratuities allegations. On March 7, 2013, DOJ announced that three CIA contractors (American Systems Corporation, Anixter International Inc., and Corning Cable Systems LLC) had agreed to pay $3 million to settle allegations they violated the False Claims Act and Anti-Kickback Act. The announcement included allegations that in pursuit of a 2009 contract the companies had provided gratuities (meals, entertainment, gifts, and tickets to sporting and other events) to CIA employees.
Prohibitions on gratuities applicable to contractors are also incorporated into various FAR provisions. For example, FAR 52.203-13(b)(3) (Contractor Code of Business Ethics and Conduct) requires that contractors “timely disclose, in writing, to the agency Office of the Inspector General, with a copy to the Contracting Officer, whenever, in connection with the award, performance, or closeout of this contract or any subcontract thereunder, the Contractor has credible evidence that a principal, employee, agent, or subcontractor of the Contractor has committed . . . [a] violation of Federal criminal law involving . . . gratuity violations found in Title 18 U.S.C.” In addition, FAR 52.203-3(a) allows the government to terminate a contract if a contractor or contractor employee “[o]ffered or gave a gratuity (e.g., an entertainment or gift) to an officer, official, or employee of the Government; and [i]ntended, by the gratuity, to obtain a contract or favorable treatment under a contract.” The government also may recover damages and/or suspend or debar a contractor from federal contracting for violations of this clause. See FAR 3.204(c).
Finally, in addition to potential criminal penalties and suspension and debarment, providing gratuities to government employees can also result in other adverse effects for a contractor, such as negative past performance ratings that could affect current and future business.
In sum, to maintain healthy relationships with their government customers and to protect government employees and themselves from potential liability, contractors should understand the laws and regulations applicable to gratuities to government employees, have a clear policy regarding gratuities (which, for many contractors includes a prohibition on giving gratuities) and provide appropriate education and training to their employees.
Of course, contractors should also be aware of laws and prohibitions that apply in related contexts, including anti-kickback laws that prohibit certain improper payments between prime contractors and subcontractors, the Foreign Corrupt Practices Act, which prohibits certain types of payments to foreign officials, and laws and regulations that regulate payments that can be made to members of Congress and staff.
 “Gifts” include entertainment, favors, discounts, hospitality, transportation, and other things of value. 5 C.F.R. § 2635.203(b).
 The Court in Sun-Diamond also rejected the Government’s contention that the illegal gratuities statute is violated by providing a gift to an official because he is in a position (i) to act favorably at some unknown future time, or (ii) to “build a reservoir of goodwill that might ultimately affect one or more of a multitude of unspecified acts.” Sun-Diamond, at 405.
 The Justice Department also alleged that the companies improperly received source selection information from a CIA employee to whom they had provided gratuities.
Breaking: SEWP V Request for Proposal Extended
Release from NASA SEWP: “The government anticipates an amendment release to extend the proposal due date. The Release is anticipated to be issued today.
NASA SEWP Program Office
GAO: Update Guidance for Consolidated Contracts
The Government Accountability Office (GAO) recently released a report entitled, Small Business Contracting: Updated Guidance and Reporting Needed for Consolidated Contracts. The GAO found that the Department of Defense (DOD) and the General Services Administration (GSA) “do not know the full extent to which they are awarding consolidated contracts.” This is the result of contracts being misreported in the federal procurement data system. DOD and GSA accounted for more than 80 percent of the consolidated contracts reported by all federal agencies in fiscal years 2011 and 2012. As part of their research, the GAO reviewed 157 contracts, more than half of all DOD and GSA contracts that were reported as consolidated, and found that 34 percent of the DOD contracts and all of the GSA contracts were actually not consolidated. GAO also identified four DOD contracts with consolidated requirements that were not reported as such. The report states that, DOD generally justified contracts with consolidated requirements in accordance with existing regulations, but DOD and GSA have not yet implemented recent 2010 changes in the law. GAO found that 82 percent of the 100 DOD contracts confirmed as consolidated followed existing regulations pertaining to conducting market research, identifying alternatives, and justifying decisions. Most of the DOD contracts that did not comply were justified, but the determinations were not made in accordance with DOD regulations. In October 2013, DOD lowered the dollar threshold. With regard to consolidated contracts, DOD and GSA are waiting for the Small Business Administration (SBA) to issue a final rule to implement all of the statutory changes before updating regulations. SBA issued a final rule on October 2, 2013, which takes effect no later than December 31, 2013.
Given these findings, the GAO recommends that DOD update and GSA establish guidance after SBA rulemaking is complete to reflect changes in the law and that SBA comply with congressional reporting requirements for bundled contracts. DOD, GSA, and SBA concurred with the recommendations. For more information from the report, please visit www.gao.gov/products/GAO-14-36.
Proposed Rule: Higher-Level Contract Quality Requirements
A proposed rule has been released to amend the Federal Acquisition Regulation (FAR) to clarify when to use higher-level quality standards in solicitations and contracts, and to update the examples of higher-level quality standards. The proposed rule would accomplish this by revising obsolete standards and adding two new industry standards that pertain to quality assurance for avoidance of counterfeit items. These standards will be used to help minimize and mitigate counterfeit items or suspect counterfeit items in Government contracting. Comments are due on or before February 3, 2014 to be considered in the formation of the final rule.
Ethics Webinar Coming in January!
“Fundamentals of Ethics and Compliance”
- Provide an understanding of the ethical and compliance rules that apply when dealing with customers and suppliers in the federal government marketplace.
- Emphasize to contractors and employees the importance of ethical conduct when doing business with the federal government.
- Help contractors and employees recognize ethical issues and compliance risks associated with doing business in the federal marketplace and know when to seek guidance.
Topics to be covered include:
- Bribery and Gratuities
- Kickbacks and Contingent Fees
- Procurement Integrity Rules
- Organizational Conflicts of Interest
*The material is aimed at government-facing contractor employees (not just attorneys and compliance experts) and may also be of interest to government employees who deal with contractors.