FAR & Beyond Blog: The National Dialogue on Improving Federal Procurement (aka the “Open Dialogue”). An opportunity to jump start acquisition reform??
In April 2014, the National Dialogue was launched by the Chief Acquisition Officer (CAO) Council in conjunction with the FAR Council, the Chief Information Officers Council, the General Services Administration and OMB’s Office of Federal Procurement Policy. With the use of social media, the National Dialogue collected feedback from the public about the rules, requirements and procedures that create barriers to the Federal market and ideas about how to improve the system. The website, “Open Dialogue on Improving Federal Procurement” can be found here. According to the website, the intent of the dialogue was to provide an opportunity for the public to discuss potential improvements to the Federal contracting process—think of it as a social media Myth-Busters effort! The dialogue was divided into three campaigns:
- Campaign 1: Reporting and compliance requirements
- Campaign 2: Procurement Rules and practices
- Campaign 3: Participation by small and minority business, new entrants, and non-traditional government contractors
For each of these campaigns, the public was invited to provide insight, ideas and feedback on potential improvements that could be accomplished through executive action (regulatory, administrative or management) as well as through legislation. The public recommendations for improvements were posted under each campaign with the corresponding opportunity to vote/endorse individual recommendations.
In May, OMB posted the final results of the National Dialogue on Federal procurement. The Coalition for Government Procurement’s (“the Coalition’s”) reform recommendations topped the list of ideas to improve the Federal acquisition system and increase access to the Federal market. The following Coalition recommendations made the final top 10 list in the National Dialogue, based on the number of votes received:
- Reduce Extensive Data Collection Requirements
- Remove the Price Reductions Clause and Reform Pricing for the Multiple Award Schedules
- Address Burdensome Ordering Procedures for Blanket Purchasing Agreements (BPAs)
- Reduce Contract Duplication
- Increase Clarity of Intellectual Property (IP) Rights- GSA Schedules
- Implement Other Direct Costs-GSA Schedules
- Reduce Restrictive Experience Requirements- GSA Schedules
The results of the National Dialogue are a strong statement for improving the GSA Schedules program. Collectively these recommendations would transform the GSA Schedules program into an innovation portal for government customers and commercial firms; a streamlined, efficient and effective marketplace where customer agencies could access the latest commercial technologies, services and products. The Coalition’s reform recommendations will reduce barriers to entry into the Federal market thereby increasing competition, reducing cost, and promoting access to commercial innovation for government customers.
Significantly, the Coalition’s recommendations can all be accomplished through executive action. OMB and the CAO Council are expected to review the results of the National Dialogue and determine the next steps to remove barriers and burdens in Federal procurement. The Coalition looks forward to the implementation of the top recommendations received in the dialogue, which will lead to a more efficient and effective acquisition system for agencies and the American taxpayer.
FedRAMP Issues New Security Control Guidelines
This week GSA’s FedRAMP program updated its security control requirements based on an update to the National Institute of Standards and Technology Special Publication (SP) 800-53 that went into effect last year. According to GSA, the requirements and transition to the new Rev. 4 FedRAMP baseline and templates for each Cloud Service Provider (CSP) will depend on where they are in the FedRAMP process. Those that are in the initial stages of initiating FedRAMP must test all Rev. 4 controls before receiving authorization. CSPs that have already completed an annual CSP prior to June 1, 2014, have one year from the date of their last assessment to adopt the new security control baselines and submit the Rev. 4 templates. To date, there are 16 FedRAMP-compliant offerings in government according to Nextgov. The following slide from a June 2014 presentation by FedRAMP shows the available Provisional Authorities to Operate (P-ATOs) and Agency Authorities to Operate (ATOs):
Another significant development this month for CSPs in the Federal market is that as of June 5, 2014, all CSPs used by Federal agencies are required to meet FedRAMP’s requirements. Agencies are also to enforce FedRAMP through contracts.
To access the updated FedRAMP security control baseline and new templates, visit http://cloud.cio.gov/fedramp/templates.
GSA Seeks Industry Input on Alliant Follow-on
The General Services Administration (GSA) is seeking industry input on what topics and emerging trends should be considered in the successor to its government-wide Alliant contract. IT subjects that GSA is currently considering include Cyber and Information Security, Big Data, and Cloud Brokerage, but companies are encouraged to give their advice on what trends they believe will be most important in the Federal market over the next 10 to 15 years. For more information or to submit comments to GSA, visit https://interact.gsa.gov/blog/emerging-technology.
House Bill to Reform DHS Acquisition Management
On June 9th, the House of Representatives approved a bill that would reform the Department of Homeland Security’s (DHS) acquisition processes. According to Rep. Jeff Duncan (R-S.C.), chairman of the Oversight and Management Efficiency Subcommittee of the House Oversight and Government Reform Committee, the bill would help reign in DHS contracts that “have been late, cost more and done less than performed.” Among other provisions, the DHS Acquisition Accountability and Efficiency Act would require DHS to report to Congress any cost overruns for major projects and authorize the chief acquisition officer to approve, halt, modify or cancel major acquisition programs as needed.
GAO Denies Latest OS3 Protests
Despite concerns from the Small Business Administration (SBA), the Government Accountability Office (GAO) denied the protests of several small businesses regarding the General Services Administration’s (GSA) Office Supplies (OS) 3 strategic sourcing contract. While the protestors and the SBA argued that GSA’s analysis of the economic impact of OS3 on small businesses was faulty, the GAO ruled that GSA met all of the requirements of the Small Business Jobs Act, which does not require a “quantified cost-benefit analysis.” With the GAO’s most recent rulings, the final protest bid remaining on OS3 is from National Industries for the Blind. GAO’s ruling on that protest is due July 2nd.
GAO: IT Reform Initiatives Can Help Improve Efficiency and Effectiveness
Testifying before the Senate, David Powner, the Government Accountability Office’s (GAO) Director of Information, discussed the results of a recent GAO study on IT acquisition and management reform initiatives. The GAO study highlights the need for greater use of the Office of Management and Budget’s (OMB) IT Dashboard to provide agencies with information, including risk ratings, on over 750 major investments at 27 federal agencies. In addition, the GAO also recommends greater usage of OMB’s PortfolioStat initiative, which “requires agencies to conduct annual reviews of their IT portfolio and make decisions on eliminating duplication.” The GAO study recommends that agencies use these tools to their advantage to help ensure the most efficient and effective use of resources.
Rule Proposes Reporting Beyond Counterfeit Electronic Parts
The FAR Council published a proposed rule this week extending certain reporting requirements for contractors beyond what is already required for counterfeit electronic parts to a broader scope of products and services. The proposed rule, titled “Extending Reporting of Nonconforming Items”, is intended to reduce the risk of counterfeit items entering the supply chain by ensuring that contractors report suspect items to a government database. According to an article by Crowell & Moring, “a contractor would be required to report to the contracting officer within 30 days of becoming aware that any ‘end item, component, subassembly, part or material contained in supplies purchased by the Contractor for delivery to, or for the Government is counterfeit or suspect counterfeit’”. It would also require that the contractor report the incidence to the Government-Industry Data Exchange Program (GIDEP) and monitor this site regularly to avoid delivery of any reported items to the government. For more details on the proposed rule, access Crowell & Moring’s article here. Comments on the rule are due August 11, 2014.
DPAP Directs Contracting Officers to Consider Total Fees for Interagency Acquisitions
In a memorandum released this week, Richard Ginman, Director of DoD Defense Procurement and Acquisition Policy (DPAP), directs DoD contracting officers to document when the use of a non-DoD contracting vehicle by an assisting agency adds extra fees to the assisted acquisition. The June 11th, 2014 memo cites an audit by the DoD Inspector General (DoDIG) of DoD direct and indirect transactions that were executed through the Department of the Interior (DoI). The audit found that on certain occasions, DoI executes contract actions on behalf of DoD through another agency’s contract vehicle – which adds an additional fee for the DoD. The DoDIG expressed concern that some of these fees were being executed without DoD leadership’s awareness. In an effort to keep additional costs to a minimum, the memo requires that DoD contracting officers have the assisting agency notify them if they plan on using another agency’s contract vehicle. If this is the case, the extra fee incurred must be included in the documentation supporting the business decision to use the assistance of the outside agency.
The Coalition on In Depth with Francis Rose
This week, Coalition President Roger Waldron joined Francis Rose on In Depth to discuss the Coalition’s recent recommendations to the government as part of the National Dialogue on Federal Procurement. The Chief Acquisition Officers Council wants to make entering the federal contracting world easier for companies new to the market. The National Dialogue includes recommendations from vendors already in the game to help new companies make that jump and improve the overall acquisition process. Roger Waldron tells Federal News Radio‘s Francis Rose that the top 10 recommendations were from the Coalition. To listen to the discussion, click here.
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.
[1] See Semiannual Report to Congress, Issue 69, (October 1, 2012 – March 31, 2013),VA OIG; Semiannual Report to Congress, Issue 70 (April 1 – September 30, 2013), VA OIG.
[2] The three other component offices are the following: (1) the Office of Audits and Evaluations, which audits and evaluates the effectiveness of the Veterans Health Administration programs and Veterans Benefits Administration programs; (2) the Office of Healthcare Inspections, which monitors the healthcare provided to the veterans; and (3) the Office of Management and Administration, which provides comprehensive support services to the VA OIG, and administers the VA OIG Hotline.
[3] The Office of Counselor also supervises the Release of Information Office, which primarily processes Freedom of Information Act and Privacy Act requests for OIG records, as well as other requests for information.
[4] The reports describe the pre-award audits results as “potential cost savings” and “savings and cost avoidance” so it is not clear whether these amounts include audit recommendations ultimately rejected by the contractors.
[5] To provide some perspective, the VA estimates that there are currently 1900 contract holders under its FSS program.
[6] The categorization of the pre-award and post-award audits in this article are based on the description of the audits in Appendix A of the reports.
[7] The OIG’s reports labeled eleven post-award reviews as involving voluntary disclosures with a total recovery to the VA of $12,728,288.
[8] This amount includes a $500 million fine resulting from a False Claims Act case against a large pharmaceutical company.
DCAA Issues New Audit Guidance Concerning Services By Contractor Employees Not Meeting Qualification Requirements Under T&M Contracts
By: Thomas A. Lemmer, Partner, McKenna Long & Aldridge LLP; Steven M. Masiello, Partner, McKenna Long & Aldridge LLP; Tyson J. Bareis, Associate, McKenna Long & Aldridge LLP
The Defense Contract Audit Agency has issued new audit guidance on the important topic of labor qualifications under time and material contracts. See MRD 14-PPD-008(R). This guidance matters to contractors because it relates to the common DCAA position (based on FAR 52.232-7(a)(3)) that contractors should not be paid any amount for effort performed by employees that fail to meet contractual qualification requirements.
The audit guidance clarifies that contracting officers have authority to approve the use of non-qualifying labor both before and after the labor is provided and directs auditors to coordinate with contracting officers before issuing audit findings in this area. Even in circumstances where contracting officer approval has not and will not be given, the guidance recognizes that:
[I]n many cases, the contracting officer is not going to withhold payment of all labor costs when an employee does not meet the labor qualifications if the work delivered did adequately complete the scope of work. In these cases, the contracting officer will need to modify the contract for a new rate or contract line item to reimburse the costs. Auditors should assist the contracting officer to help in arriving at a rate that is more appropriate than the rate charged by the contractor (e.g., a rate based on the fully burdened rate of pay for the unqualified employee, or the labor category where that employee truly fits).
The above language is helpful to contractors because it emphasizes the need to communicate with contracting officers and contractors to resolve this type of labor issue. This approach is consistent with the fact that, when DCAA questions billings due to employee qualification issues, the agency is not questioning the allowability of costs and, instead, is questioning whether amounts paid to the contractor are appropriate under the terms of the contract. As the DCAA guidance implicitly recognizes, such issues are more akin to contract administration matters, which are within the purview of the relevant contracting officer to address and resolve.
Predictably, the audit guidance also directs auditors to consider whether contractor failures meet labor qualification requirements represent business systems issues. Specifically, the guidance notes:
If the audit team determines that the contractor has a material amount of T&M billings that include hours that do not meet the labor qualifications specified in the contract, a significant deficiency related to DFARS 252.242-7006(c)(12) should be reported. The contractor has failed to establish adequate internal controls to exclude from costs charged to Government contracts, amounts that are not allowable in terms of contract provisions in the FAR 52.232-7 T&M Payment Clause. An adequate accounting system would include procedures for a contractor to ensure that they get the Contracting Officer’s specific authorization prior to the delivery and billing of hours that do not meet the qualifications specified in the contract.
(Emphasis added). By failing to direct auditors to consider whether the conduct observed results from a systemic issue or has a material impact on the reliability of contractor billings, the above guidance vastly oversimplifies the analysis necessary to determine whether conduct represents a significant deficiency under the Business Systems Rule. Unfortunately, this simplistic view of the Rule is consistent with the level of analysis often provided by auditors when determining that a significant deficiency exists in a contractor’s business system. Contractors should continue to be skeptical of these auditor assertions and, when appropriate, resist such assertions as inconsistent with the definition of “significant deficiency” in the Business Systems Rule.
If you have any questions concerning this recent audit guidance, please contact the authors of this alert or the McKenna Long attorney with which you typically work.
Off the Shelf: Is the GovCon services market a “real” market?
This week on “Off the Shelf”, John Hillen, former CEO of Sotera Defense Solutions, and current executive in residence and professor of practice at George Mason University’s School of Management, joins host Roger Waldron for a discussion of the GovCon services market.
Hillen outlines the growth of the GovCon market from its infancy in the 1960’s and 70’s to its current state. He tackles the fundamental question: Is the GovCon services market a “real” market? The answer has major policy implications for the procurement system’s role in delivering 21st Century solutions for the American people.
Hillen also makes the case for the continued maturation of the GovCon market as vital to delivering best value solutions for government customers. To listen to the program online, visit www.federalnewsradio.com/80/3634286/Is-the-GovCon-services-market-a-real-market.
Two-Part Webinar Series for GSA Schedule Contractors
The Coalition for Government Procurement, in conjunction with Baker Tilly, is pleased to announce an upcoming Two-Part Webinar Series for GSA Schedule Contractors:
The landscape for GSA Schedule contractors has become increasingly difficult. Both products and services contractors are facing new challenges as they negotiate new GSA Schedule contracts or administer their existing GSA Schedule contracts. Pricing, contract terms and conditions, and post-award compliance have all come under the microscope, and contractors must be ready to respond. This two part series will address some of GSA’s and GSA OIG’s recent focal points so that contractors can consider potential impacts to their business and how they can best prepare.
Part 1: Challenges Facing Professional Services Contractors
Thursday, June 24th, at Noon EDT
Presented by Jeff Clayton and Jenn Thorson
A disconnect has always existed between services contracting and the GSA contracting model, but big changes are afoot within GSA that could make the Schedules program even more difficult to navigate. Topics for discussion include: challenges related to labor category mapping, pricing strategies, CSP-1 disclosures and PRC obligations, GSA’s category management initiative and the push for standardized labor categories. The pressure that GSA is facing from a pricing perspective and its impact on interactions with professional services contractors will also be discussed.
Part 2: Challenges Facing Products Contractors
Thursday, August 14th, at Noon EDT
Presented by Jeff Clayton and Steven Brewer
GSA is facing immense pressure to achieve lower prices for its federal government customers. This has impacted the government’s negotiation tactics and in turn it has impacted, and will continue to impact, products contractors. Prices paid data is being tracked and horizontal pricing comparisons are becoming the norm. Federal Strategic Sourcing Initiatives, an increasingly popular tool for GSA, continue their march across the supply side of the Schedules program. The presentation will discuss all of this and more, including best practices, so that contractors can prepare themselves to respond to these issues.