Friday Flash, 01.31.14

FAR and Beyond Blog 

Before tackling the comment of the week there are some updates I’d like to share with you.  First, it is an exciting time with the launch of my new Federal Times Blog!  The first blog posting appeared last week and can be found here.  I encourage all Friday Flash readers to follow this new blog focusing on GWACS and GSA.  The next blog will be posted the second week of February and will focus on the “GSA supplier” relationship.

MAS Contract Compliance and the 5th Anniversary of the Mandatory Disclosure Rule, Feb 5th

With GSA Inspector General, Brian Miller

Second, next week is Compliance Week at the Coalition!   On Wednesday, February 5^th, Brian Miller, GSA Inspector General (IG), Aleksandra Doran, Assistant General Counsel to the IG, and Jonathan Aronie, Partner at Sheppard Mullin will participate in a Myth-Busters dialogue focusing on MAS Contract Compliance and the Mandatory Disclosure Rule!  Space is filling up fast and this is a great educational opportunity!  Attendees will hear the ins and outs of the Mandatory Disclosure Rule and contract compliance from those on the front lines of compliance management.   The Forum is a “must attend” event for contractor in-house counsel, compliance managers, contract managers, and executives.  There is still time and you can register here.

Fundamentals of Ethics and Compliance Webinar, Feb 6^th

Steptoe & Johnson

The following day, the Coalition will be hosting a webinar, ”Fundamentals of Ethics and Compliance” by Steptoe & Johnson.  Tom Barletta, Partner at Steptoe & Johnson will focus on the latest developments in the unique world of government contract ethics rules.  These two sessions provide a powerful package of insight, information, and best practices around the business imperative of contract compliance!

The Cost-Build Approach for GSA Schedule Labor Pricing, Feb 11^th

Baker Tilly

On February 11^th, Baker Tilly will present a Coalition Webinar on “The Cost-Build Approach for GSA Schedule Labor Pricing.”  Another great opportunity to learn about key trends, issues and strategies associated with the negotiation of labor rates using the cost-build approach.

ITS Priorities for 2014, Feb 20^th

With Mary Davie, Assistant Commissioner for GSA’s Integrated Technology Service (ITS) and Mark Day, ITS Deputy Assistant Commissioner

Finally, the Coalition is pleased to announce that Mary Davie, Assistant Commissioner for GSA’s Integrated Technology Service (ITS) and Mark Day, Deputy Assistant Commissioner for ITS will be providing an update on ITS Priorities for 2014 at our February 20^th  Myth-Busters Forum.  The forum will be from 7:30 am to 10:00 am at the Tower Club.  You can register here.

Today marks the target release date for the new FSSI IDIQ for office supplies (OS3).  As you know, last week’s “FAR and Beyond” blog focused on OS3.  GSA’s decision to create a duplicate IDIQ contract program that overlaps the GSA schedules is troubling.   The apparent rationale for creating the new IDIQ is that customer agencies have indicated that some MAS terms and conditions could hinder pricing.   If that is the case, we must ask the obvious question. Why not fix the MAS program, which accounts for 75 percent ($40 billion) of the Federal Acquisition Service’s total annual dollar volume?

The MAS program is the backbone of GSA, Federal Acquisition Service.  It is the leading commercial item contracting program across the federal enterprise.  It provides a streamlined marketplace for commercial firms and customer agencies to efficiently and effectively compete for and acquire commercial services, products and solutions.  But the full potential of MAS has not been achieved.  The MAS program can be a driver for— innovation in services, solutions, and technologies.  It can bring new, creative commercial practices, pricing and contract structures to customer agencies.  By better mirroring the commercial marketplace, the MAS program will better serve the American people.

It is time to for reform of the MAS program that achieves greater, openness, flexibility, and streamlining.  It is time to innovate the MAS program!

Rather than focusing on innovation, GSA focuses on “supplier suppression.” For example, without any fanfare or advance notice, GSA closed one of the largest, most important SINS on Schedule 51V to new offers.

The closure of the schedule is an anti-competitive, anti-market approach.  To the extent the goal is simply to reduce the number of contractors, the long term implications for customer agencies and the American people are not good.   Limiting the supply chain could reduce quality and increase prices over the long term.  Closing schedules is making a symbolic statement that innovative best in class small, medium and large businesses need not apply!

Roger Waldron

President

 

Schedule 51V Closes SINs due to FSSI

GSA has published a notice in FedBizOpps regarding the closure of certain SINs under Schedule 51V.  GSA explains in the notice that the reason for the closure to new offers is the upcoming award of BPAs for Maintenance, Repair and Operations products under the Federal Strategic Sourcing Initiative (FSSI).  The “temporary postponement” will be in place for the next 24 months and applies to the following SINs:

• 105-001, Hardware Store, Home Improvement Center, or MRO – Store Front
• 105-002, Hardware Store, Home Improvement Center, or MRO – Catalog
• 550-001, Tools Powered
• 600-001, Tool Boxes, Tool Cabinets, Tool Chests, and Tool Holders
• 613-001, Tools, Non powered
• 834-100, Commercial Coatings, Adhesives, Sealants and Related Services
• 834-500, Stains, Varnishes, Sealers, Shellacs, Lacquers and Related Services

To access GSA’s notice on FedBizOpps, click here.

 

Report: Cybersecurity in Acquisition

The General Services Administration (GSA) and the Department of Defense (DoD) have released a report with six recommendations on Cybersecurity in acquisition. The report, released on January 23, delineates how acquisition professionals should begin employing cybersecurity in government contracts. Initiated by Executive Order 13636 and Presidential Policy Directive (PPD) 21 issued by the President last February, the working group in charge of developing cybersecurity recommendations included the National Institute of Standards and Technology and the Office of Federal Procurement Policy. According to press releases from the DoD and GSA, the report provides a path forward to aligning federal cybersecurity risk management and acquisition processes.  It provides strategic recommendations for addressing relevant cybersecurity issues, suggests how challenges might be resolved, and identifies important considerations for the implementation of the recommendations. The document lays out six recommendations concerning cybersecurity in federal procurement:

1. Institute baseline cybersecurity requirements as a condition of contract award for appropriate acquisitions
2. Include cybersecurity in acquisition training
3. Develop common cybersecurity definitions for federal acquisitions
4. Institute a federal acquisition cyber risk management strategy
5. Include a requirement to purchase from original equipment manufacturers, their authorized resellers, or other trusted sources
6. Increase government accountability for cyber risk management

For the full report, visit the link here.

 

Draft IT Reform Bill Released

This week Rep. Anna Eshoo (CA-18 and Rep. Gerry Connolly (VA-11) released a draft of new Information Technology legislation that would create a new high-level office in the White House to review and guide major IT projects. The Reforming Federal Procurement of Information Technology (RFP-IT) Act would also staff the proposed “Digital Government Office” with top IT talent to review all major IT projects and help agencies plan the contracting process, according to a press release from Rep. Eshoo’s office. The office would be led by a Chief Technology Officer (CTO) with the power to hire top talent from the private sector and have the power to regulate IT procurement. Additionally the bill would enable more small businesses to compete for federal IT contracts by lifting the threshold for a streamlined contracting process from $150,000 to $500,000. The bill proposes paying for the new office with surplus General Services Administration fees.

 

GWAC/MAC Alliant Meeting

This week, The Coalition hosted the GSA Alliant team from San Diego, CA at the GWAC/MAC Committee. Casey Kelley, Director of Alliant, along with Richard Blake, Chris Fornecker, Paul Martins and others from the Alliant team engaged in a Myth-busters discussion with members about the upcoming Alliant II and Alliant II Small Business contracts. We would like to thank Casey Kelley and the Alliant team for an engaging dialogue concerning labor categories, the OASIS model, and the anticipated timeline for the acquisition. The conversation will continue, as we look forward to having a breakout session on Alliant II at our Spring Conference on April 10!

 

New Federal Times Blog!

Federal Times has recently added an acquisition blog featuring The Coalition’s Roger Waldron, as a part of their GWACs & GSA section. Last week’s post focused on the recent release of the GSA Strategic Plan. Waldron’s blog says that GSA is to be commended for posting the plan and providing the public with an opportunity to comment. While it is welcomed transparency that provides all stakeholders in GSA’s programs with an opportunity to provide feedback on the way forward for the agency, mention of GSA’s largest, most successful contract vehicle is missing. The Multiple Award Schedule Program (MAS) program accounts for approximately $40 billion of FAS’s $54 billion or roughly 75 percent of the total dollar volume. Despite this, the strategic plan makes only one formal mention of the MAS program, raising several questions. Look for new blog posts every on Federal Times every month.

 

PBS Commissioner Dorothy Robyn Stepping Down

According to the Washington Post, GSA Public Buildings Commissioner Dorothy Robyn will be stepping down in March. “I cannot thank Dorothy enough for her contributions to GSA,” Tangherlini said in a statement. “Since Dorothy joined us, she has worked tirelessly to manage the more than 9,000 assets we hold in trust on behalf of the American people. Her commitment has not only helped us maintain those facilities but also enabled GSA to increase our capital investments, improve our business practices, and enhance the energy efficiency of our entire portfolio. ” The Post also reported that the Office of Management and Budget’s (OMB) acting controller, Norman Dong, will be succeeding Robyn at PBS. The Coalition sincerely appreciates the outreach that  PBS Commissioner Dorothy Robyn had with our members on several of her top initiatives at GSA designed to save taxpayer dollars, including “right-sizing” the Federal footprint and the consolidation and energy efficiency of Federal buildings.

 

Compliance Lessons from the Office of Inspector General

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

Effective and compliant contract administration should be a primary goal for all government contractors, including, of course, contractors with the Department of Veterans Affairs (VA).  As with any other business goal, compliance should be attained efficiently.  Within the web of statutory, regulatory, and contractual requirements, VA contractors should understand the areas where noncompliance creates the greatest risk and exposure, and spend their resources accordingly.

As with the Offices of Inspectors General throughout the government, the VA Office of Inspector General (OIG) is a central player in the oversight of contracts, enforcing compliance with all major VA statutory, regulatory, and contractual requirements, and redressing compliance failures.  As part of its responsibilities, the VA OIG reports to Congress twice annually on the audits, reviews, and investigations it conducts.[1]  Although intended for other purposes, these reports can assist VA contractors in identifying the requirements that are of the most importance to the VA, and should be most important to the contractor.  In short, VA OIG’s actions over the prior year serve as a lesson to contractors on where to spend their time and money (and the effect of noncompliance).

The VA OIG has “a nationwide staff of auditors, investigators, health care inspectors, and support personnel” in six major component “offices” that conduct “independent oversight reviews to improve the economy, efficiency, and effectiveness of VA programs, and to prevent and detect criminal activity, waste, abuse, and fraud.”  For a VA contractor, the three component offices that are of most importance are:  (1) the Immediate Office of the IG; (2) the Office of Counselor to the IG; and (3) Office of Investigations.^[2]

The Immediate Office of the IG is top-tier management, with the Deputy Inspector General operating as the “Chief Operating Officer.”  In addition to planning, directing and monitoring all [IG] operations,” the Immediate Office establishes investigative priorities for the Office, and identifies and promotes legislative initiatives to Congress.

The new year should bring a new IG to the VA.  On November 6, 2013, GeorgeOpfer announced his retirement as IG after more than 44 years of government service.  Mr.Opfer assumed responsibility as Inspector General on November 17, 2005, after being nominated by President GeorgeW.Bush.  Although President Obama has not nominated a replacement, Mr.Opfer’s long-time Deputy, RichardGriffin, is currently serving as Acting Inspector General.  Mr.Griffin has been a Deputy Inspector General since November 23, 2008, and previously served as Inspector General from November 1997 to June 2005.

A change in Inspector General can have a significant effect on the priorities, policies, and procedures of an office – as demonstrated by the GSA’s OIG under the direction of the current IG, Brian Miller.  Given his status as Acting Inspector General and his long service under Mr.Opfer, it would be surprising if Mr.Griffin made dramatic changes to the VA OIG’s policies or procedures.  Significant changes will likely come, if at all, under the next IG.

The Office of Counselor provides counsel to the OIG on False Claims Act cases affecting the VA and serves as liaison to the Department of Justice on False Claims Act cases.  The Office of Counselor also manages the Office of Contract Review, which  provides pre-award and post-award audits of contractors’ proposals and contracts under an agreement with VA’s Office of Acquisition, Logistics and Construction (OALC).[3]  The majority of pre-award audits of proposals for contracts or modifications under the VA’s Federal Supply Schedule (FSS) program.  The Office automatically reviews the pricing for all proposals when the estimated contract or modification exceeds $5,000,000 under Schedule 65IB, Drugs, Pharmaceuticals, and Hematology Related Products, and $3,000,000 for the other VA Schedules.  The Office of Contract Review also reviews pharmaceutical manufacturers’ compliance with the pricing requirements of the Veterans Health Care Act.  Thus, the Office of Contract Review reviews pricing for major VA contracts and ensures the pricing is compliant with contractual, regulatory, and statutory requirements, and provides a recommendation to the contracting officer on the prices the VA should pay for items on large FSS contracts.

So how did the pricing proposed by potential contractors fare with Office of Contract Review?  During fiscal year 2013, the Office conducted 83 pre-award audits of proposals of all types, and identified $655,056,285 in cost savings, or an average of $7.9 million in cost savings per audit.[4]  It’s safe to say that the Office did not routinely accept pricing as proposed by the contractors.

How about proposals for FSS awards, renewals or modifications?  Forty-six of the 83 pre-award audits were of proposals for awards, renewals or modifications under the FSS program^[5] – 32 for initial award, ten for renewals, and four for modifications to add products.[6]  The Office recommended a price reduction for 72% (23 of 32) of the audited proposals for initial award.  The Office recommended a total of $470,428,110 in price reductions, with an average of $14.7 million per audit (including all 32 audits).  Thus, offerors submitting proposals for an initial award of an FSS contract fared worse than the average contractor subject to pre-award audits.

With pricing established by the existing contracts, one would expect that the contractor would fare better in pre-award audits for contract renewals.  Contractors did fare better but the Office frequently challenged the proposed pricing.  The Office recommended a total of $18,577,827 in price reductions, with an average of $1,857,783 per audit.  The OIG recommended a price reduction for 60% (six of ten) renewal proposals.

Contractors seeking product additions fared the best over the past year with the OIG recommending price reductions in only 25% (one of four) of its audits.  The one price reduction was a significant one though — $8,615,256.

So, here are the lessons learned from the pre-award audits:

• Most obviously, the OIG takes a hard look at proposed pricing, in the past year rejecting 72% of pricing proposed for initial award, 60% for renewals, and 25% for modifications.
• A contractor needs to be prepared to support its pricing not only when it is seeking the initial FSS contract, but also at renewal and for each modification.

Now let’s look at post award audits – audits conducted to determine whether a contractor is complying with its pricing obligations.  The Office reported 33 post-award audits in fiscal year 2013, which resulted in the VA recovering contract overcharges totaling over $17.6 million.  According to the OIG, approximately $11.7 million of that recovery resulted from Veterans Health Care Act compliance with pricing requirements, recalculation of Federal ceiling prices, and appropriate classification of pharmaceutical products.

Fourteen of the post-award audits were of voluntary disclosures.  The Office claimed more than offered by the contractor in nine of 14 voluntary disclosures.  The average recovery to the VA from voluntary disclosures was $1,157,117.[7]

The VA recovered 100 percent of recommended recoveries for post-award audits.

Lessons learned from post-award audits:

• Pay close attention to your Veterans Health Care Act pricing – it is a major compliance area for the OIG, comprising the largest recovery area.
• Be prepared to support your accounting and rationale for any voluntary disclosures.  The disclosure is likely to be audited and the proposed repayment amount is likely to be challenged.
• Your opportunity to affect the government’s view of your liability is through negotiations with the OIG.  The Office has an excellent record – 100% of the time – of recovering what it determines the VA is due.

Now, a look at the focus of the Office of Investigations over the past fiscal year.  The Office of Investigations (OI) investigates crimes committed against programs and operations of the VA.  Within the OI, the Criminal Investigations division investigates all types of crimes (including criminal fraud as well as rape and murder) and civil fraud.  For fiscal year 2013, the OI reported opening 45 cases, making 11 arrests, and obtaining more than $564.1 million[8] in fines, restitution, penalties, and civil judgments “in the area of procurement practices.”

The OI specifically identified twelve criminal cases involving procurement violations by contractors – all twelve involved service-disabled, veteran-owned small business fraud.  In those cases, the SDVOSB business either misrepresented the eligibility of its owner, or the true ownership of the business.

Lessons learned from the OI:

• Exposure under the False Claims Act for VA contracts can be very significant – reaching over $500 million in 2013.
• People get arrested and go to jail for defrauding the VA.
• If you tell the VA that you are a serviced-disabled veteran and own and operate a SDVOSB, you better be a service-disabled veteran and own and operate the SDVOSB.

Finally, one other lesson learned – this one from the structure of the VA OIG.  Contact by the Office of Contract Review and the Office of Investigations can both lead to civil or even criminal liability, but there is a significant difference.  If the contact comes from the Office of Investigations, the issue has already likely been determined to be a potential civil fraud or criminal violation.  There is no doubt that it is time to call your lawyer.