FAR and Beyond Blog
This week’s topic is the “Unintended Consequences of the FAR 8.4 Rewrite.” Simply put, the rewrite removed a strategic acquisition tool, single award Blanket Purchase Agreements (BPAs), from customer agency procurement tool boxes when using the GSA schedule program. Here is more on the background, result and unintended consequences of the rule.
In 2011 Federal Acquisition Regulation (FAR) subpart 8.4 was rewritten to implement Section 863 of the Duncan Hunter National Defense Authorization Act for Fiscal Year 2009 (Section 863). As you recall, Section 863 mandated new competitive ordering procedures for the GSA schedule program. Specifically, for orders exceeding the simplified acquisition threshold ($150,000), Section 863 requires agencies to provide notice and an opportunity to compete to all schedule contractors capable of meeting the requirements. If notice is not provided to all, then the ordering agency must provide notice and an opportunity to compete to as many schedule contractors as practicable to reasonably ensure receipt of at least three quotes.trivia Ordering activities must also document their files as to the efforts to achieve competition for an order where notice was not provided to all.
Not only did the 2011 rewrite address task order competitions, it also addressed the documentation, planning and competition requirements for BPAs established under the GSA schedule program. In an effort to promote competition the new rule created significant procedural barriers to the establishment of single award BPAs. FAR 8.405-3 establishes a strong policy, procedural and documentary preference for multiple award BPAs in lieu of single award BPAs. As a result, competitively established single award BPAs containing clear, consistent and firm commitments have been largely taken out of the schedule landscape.
The current procedures for establishing BPAs are counterproductive. They increase complexity, costs and acquisition lead time for agencies seeking to establish single award BPAs for specific requirements. As a result, agencies look for alternative acquisition strategies that often lead to contract duplication (a problem that, to date has not been effectively addressed). Indeed, when a major ordering activity cites the administrative and procedural difficulties in establishing a single award BPA as a prime consideration for creating a duplicative contract for items already on the GSA schedule—something is amiss. We predicted this would happen.
As the Coalition noted in its comments on the rule back in 2011, the ordering procedures should provide parity for single award and multiple BPAs. It makes sound business and procurement sense to allow flexibility in acquisition strategies (use of schedule BPAs) to meet agency mission requirements. Competitively established single award BPAs allow agencies to leverage known, firm requirements increasing value and return when using the GSA schedule program.
GSA schedule single award BPAs for agency specific requirements should be returned to the procurement toolbox—it is the strategic thing to do for the American people.
Roger Waldron
President
Executive Order on Fair Pay and Safe Workplaces
On July 31st, President Obama signed an executive order (EO) entitled “Fair Pay and Safe Workplaces”. The EO states that all federal agencies must include provisions in future contracts that require an offeror to disclose any violations of federal or state labor laws in the past three years, prior to award of the contract. In the post-award phase, the EO further requires this disclosure record to be updated every six months. The executive order applies to all prime and subcontractors with awards valuing $500,000 or higher. The full text of the executive order can be viewed here.
Streak Broken: Government Meets Small-Business Goal
Federal Times reports that recently released numbers from the Small Business Administration (SBA) show that federal agencies met their overall small business contracting goals for the first time in eight years. Out of the $335 billion in eligible contracting obligations for fiscal year 2013, approximately $85 billion, or 23.4%, was awarded to small business contractors. This number exceeds SBA’s goal of 23% and awards governmentwide performance with an ‘A’ rating. While the government exceeded its goals on disadvantaged and service-disabled veteran-owned contracting, the goals for women-owned and Historically Underutilized Business Zone contractors fell short. The SBA Scorecard of small business contracting across each federal agency for FY 2013 can be viewed here.
Tom Sharpe to Speak on UPC Codes
This is a reminder to members that the Coalition is hosting FAS Commissioner Tom Sharpe for an important discussion on the recent proposal to “improve the integrity of vendor schedule offerings by submitting Universal Product Codes (UPC) and Manufacturer Part Number (MPN) for each awarded contract item.” The notice from FAS can be found here.
We have heard from many members that the impact of the notice is a significant contract administration issue and in many instances will require changes to business systems. Moreover, as we have communicated to FAS, given the millions of potential variations in models, parts, specifications and products, many MAS contractors will find compliance with the notice impossible or at the very least cost prohibitive. The Coalition has also raised concerns regarding compliance with the Paperwork Reduction Act as the requirement is a new paperwork burden.
This members only meeting will take place next Tuesday, August 12 and will be held at Holland and Knight LLP in Tysons Corner, VA at 10am.
Please RSVP to Roy Dicharry atrdicharry@thecgp.org. We look forward to seeing you there!
Sonny Hashmi on “Key IT Principles”
On August 1st, GSA’s CIO Sonny Hashmi published a blog post outlining key principles for information technology solutions at GSA. Hashmi says the principles will support IT projects that are “open, modern, innovative, allow reuse, and intuitive to use.” According to the blog psot, the principles will guide GSA as it continues to modernize its organization, processes, technologies and platforms.” The nine principles are below:
- Platform Reuse First: To allow for rapid deployment, reuse of resources, and cost effective delivery of business services.
- Open Source First:Any solution developed using taxpayer dollars should be in the taxpayer’s domain (open source).
- Cloud First: Leveraging cloud services will be the default approach to designing all new IT solutions.
- Open, Shared Data: All new solutions must be designed from the ground up to make data available and shareable within GSA, as well as with the public where appropriate.
- Single/Seamless Sign-on: Integrating all solutions with GSA’s Identity and Access Management (I&AM) solutions, to reduce the burden of multiple passwords on GSA’s employees, and increase security of their data and systems and increase compliance with federal IT policies and best practices.
- Digital Services Improvements: The Digital Services Principle urges GSA to take the necessary steps to enhance user experience within their public web sites, systems and tools.
- Records Management: As part of developing new IT solutions, GSA will pay specific attention to any records management implications, and ensure that they follow all relevant laws, policies and guidelines to ensure that trust is maintained in the retention and management of electronic records.
- Cyber Security: This principle will require that the GSA Office of the Chief Information Security Officer acts as a consultant and partner throughout the project life cycle, rather than being viewed as a compliance step towards the end of the project.
- Effective Vendor/Partner Engagement: Building and maintaining effective, strategic relationships with GSA industry partners is crucial to their success.
Proposed Change to FAR for Uniform Use of Line Items
On August 5th, the Department of Defense, GSA, and NASA published a proposed rule in the Federal Register to establish a uniform line item identification structure in federal procurement. The system is designed to improve the accuracy, traceability, and usability of procurement data. The line item identification structure will track goods and services through identification of key attributes, such as unit pricing on fixed price contracts. According to the notice, the proposal supports procurement efforts to implement the objectives of the Federal Funding Accountability and Transparency Act of 2006. Agencies will accept comments on this proposed rule until October 6th, 2014. For more information on the proposed rule, and information for how to submit comments, the Federal Register publication can be viewed here.
VA Releases RFI for Next Generation of IT
On July 29th, the Department of Veterans Affairs (VA) released a Request for Information (RFI) for their Transformation Twenty-One Total Technology (T4) contract vehicle. This $12 billion, indefinite delivery/indefinite quantity vehicle runs through June 2016, and is meant to improve project management and customer service. T4 covers VA networks, its VistA electronic health records system, enterprise software, hardware, testing, data migration, cybersecurity, and more. The RFI can be viewed here, with responses due by August 28th, 2014.
USDA BioBased Products Final Rule
The U.S. Department of Agriculture (USDA) has released a final rule amending its regulations for designating Biobased products for federal procurement. The rule will incorporate statutory changes to section 9002 of the Farm Security and Rural Investment Act (FSRIA) and amend the Guidelines to address the provisions of the recently signed Agricultural Act of 2014 (2014 Farm Bill). According to a press release, the rule will eliminate the restrictions on including mature market wood products and other materials in the BioPreferred program.
The 2014 Farm Bill required the BioPreferred program to “promote biobased products, including forest products that apply an innovative approach to growing, harvesting, sourcing, procuring, processing, manufacturing, or application of biobased products regardless of the date of entry into the marketplace.” According to the press statement, products that were previously considered to be “mature market” products (those that had a significant market share prior to 1972), and were previously ineligible for the BioPreferred program, will now be included in the program if manufacturers demonstrate that they apply an “innovative approach” in any part of the life cycle of their product. Currently, the USDA is working in concert with the USDA Forest Products Laboratory to develop a process to evaluate the eligibility of biobased products for the BioPreferred program based on the use of innovative approaches.
Federal Cloud Adoption Blossoms
E-Commerce Times reports that federal agencies are increasingly utilizing cloud based networking services, which has led to a demand for more cloud procurement initiatives. Agencies expect to spend about $3 billion on cloud projects in Fiscal Year 2014, about $800 million more than the previous fiscal year. GSA has proposed establishing a cloud based component to its Schedule 70 program for IT procurement. Maynard Crumb, acting director of the Office of Strategic Programs at GSA’s Federal Acquisition Service, provided the following potential advantages for creating a cloud component for Schedule 70:
- Consolidating cloud services for ease of customer discovery and access, to support market research and acquisition planning;
- Providing 70 vendors the ability to more easily differentiate cloud services from other IT products and services;
- Improving cloud services sales reporting and visibility for IT Schedule 70;
- Adding Value to GSA’s customers, because GSA would provide a high level-vetting of technologies and industry partners available through the Cloud SIN.
After consulting with GSA, the Coalition will be submitting a white paper later this month on the proposed cloud procurement initiative for Schedule 70.
Industry Groups Urge Supreme Court to Review “Per Invoice” Application of Fca Penalty
By: Donna Lee Yesner, Partner, Morgan Lewis
Violations of the False Claims Act (FCA) subject contractors to high penalties which can be unrelated to any loss actually suffered by government. The Act provides for treble damages for injury to the government, and a separate civil penalty of not less than $5,500 and not more than $11,000 per violation,. In recent years, an increasing number of whistleblower cases brought under the False Claims Act have been based on false certification and fraudulent inducement theories. The cases allege that a false representation or certification provided with the proposal induced the government to enter into the contract. Under this theory, some courts have considered the penalty applicable to every claim for payment as a matter of law, because each is tainted by the single misrepresentation at the contract formation stage. In such cases, the amount of the penalty will vary greatly depending on the number of individual orders submitted under the contract, as each invoice would be deemed a false claim subject to the penalty provision. For Multiple Award Schedule contracts, and similar IDIQ contracts, which provide a convenient means for government agencies to place repeat small orders for supplies or services as needed, a false certification can result in excessively high penalties, even if the invoices state the correct amount for work performed and there are no contract damages. Industry groups are urging the Supreme Court to consider whether such disproportionate penalties violate the Eight Amendment prohibition against excessive fines.
Last December, the Fourth Circuit Court of Appeals considered a whistleblower case involving a false certificate of independent price determination, . The Circuit Court reversed a lower court’s decision that the FCA penalty of $24 million, derived from application of the penalty to over 9,000 invoices, was grossly disproportionate to the conduct at issue under the Eighth Amendment. In that case, there were no proven damages and the invoices did not incorporate or reference the certificate at issue. In reinstating the penalty, the Fourth Circuit acknowledged problems with the “per invoice” rule, but nevertheless found that the penalty appropriately reflected the gravity of the offenses and provided the necessary and appropriate deterrent. The defendants in the case, United States ex rel. Bunk v. Gosselin World Wide Moving NV, 741 F.3d 390 (4th Cir. 2013), petitioned the Supreme Court for certiorari. A petition for certiorari is a request that the Court review the decision, as there is no right of appeal to the Supreme Court. The petition is currently pending. In June, three trade associations, PhRMA, the Chamber of Commerce, and the American Hospital Association submitted a brief as amici curiae, in support of the petitioners due to the importance of the issue and the need for clarification. The National Defense Industrial Association also submitted an amicus curiae brief.
In their briefs, the industry groups argue that the Fourth Circuit’s decision requiring a mechanical application of the FCA penalty to each invoice 1) results in irrationally large penalties that 2) bear no relationship to the severity of the offense or financial harm to the government. These are two of the four factors governing review of penalties under the Eight Amendment’s Excessive Fines Clause. The groups assert that the risk of incurring huge penalties leads defendants to settle, even when the claims are weak, and may deter smaller companies that depend on frequent billing from doing business with the government. This risk is exacerbated in government programs that necessitate a high volume of invoicing. In such programs, the magnitude of the penalty is determined not by culpability or harm to the government but by contract terms. Whistleblowers target defendants because the penalty is driven by the number of invoices rather than on the severity of the offense. Because there is no correlation between the penalty and culpability or harm, the same type of violation – false certification – can result in grossly disparate penalties. Industry groups have urged the Supreme Court not to wait for another circuit court decision to address this important issue, and to take this opportunity to provide needed clarification on the constitutional limits of the FCA penalty provision.
D.C. Circuit Upholds the Attorney-Client Privilege for Corporate Internal Investigations
By: Jack Horan, Partner, McKenna Long & Aldridge LLP, Jason Workmaster, Partner, McKenna Long & Aldridge LLP and Sandeep Nandivada, Associate, McKenna Long & Aldridge LLP
On June 27, 2014, the U.S. Court of Appeals for the D.C. Circuit granted Kellogg Brown & Root’s (KBR) petition for a writ of mandamus and vacated the District Court’s order in United States ex rel. Barko v. Halliburton Co., No. 05-cv-1276, 2014 WL 1016784 (D.D.C Mar. 5, 2014) compelling KBR to produce internal investigation documents. In Re: Kellogg Brown & Root, Inc., No. 1:05-cv-1276 (D.C. Cir. June 27, 2014). The D.C. Circuit’s ruling has upheld important protections for companies conducting internal investigations pursuant to statute or regulation, and affirmed the continued vitality of the Supreme Court’s decision in Upjohn Co. v. United States, 449 U.S. 383, 389 (1981) for companies claiming the attorney-client privilege.
District Court Proceedings
In Barko, the relator sought documents created by KBR during its internal investigation of the allegations that are the basis for the relator’s qui tam case. KBR’s legal department oversaw the investigation, which was conducted pursuant to KBR’s Code of Business Conduct. KBR asserted the attorney-client privilege over the investigation, arguing that KBR created the documents so that KBR’s internal lawyers could provide legal advice to the company. The relator argued that the documents were not privileged because they were ordinary business records. The District Court applied a “but for” test for determining whether the purpose of the documents was to obtain legal advice – analyzing whether the documents would have been created “but for” the need for legal advice. The District Court reasoned that because regulations and KBR’s own corporate policy required KBR to conduct the investigation, KBR had not created the documents solely to obtain legal advice. The Court concluded that the documents were not privileged because KBR created them to satisfy regulatory and corporate requirements.
KBR immediately requested that the District Court certify the privilege question for interlocutory appeal and to stay its order compelling production pending a petition for a writ of mandamus from the D.C. Circuit. The District Court denied those requests. Left with no other choice, KBR took the extraordinary action of filing a petition for writ of mandamus with the D.C. Circuit. The D.C. Circuit stayed the District Court’s order pending a ruling on the mandamus petition.
D.C. Circuit’s Analysis
KBR had two difficult hurdles to clear to prevail on mandamus – it had to show legal error and that the error justified the extraordinary writ of mandamus. It cleared both of them.
The Circuit found two fundamental legal errors. First, the District Court improperly used a “but for” causation analysis when applying the “primary purpose test.” The correct formulation of the “primary purpose” test requires legal advice to be a significant purpose of the communication. The significant purpose of legal advice is not undermined simply because the internal investigation is also required by statute, regulation or a company’s compliance program.
Second, the District Court misinterpreted Upjohn. The D.C. Circuit noted that Upjohn does not require any of the following for the privilege to apply: (1) the involvement of outside counsel to claim the attorney-client privilege; (2) that attorneys personally conduct employee interviews when the investigation is conducted at the direction of counsel; or (3) the use “magic words” informing employees of the purpose of the interview.
The D.C. Circuit noted that KBR’s assertion of the privilege was “materially indistinguishable” from the basis upheld in Upjohn. As in Upjohn, KBR initiated an internal investigation in response to reports of potential misconduct and as part of a concerted effort to gather facts and ensure compliance with applicable laws and regulations. As in Upjohn, KBR’s in-house legal counsel coordinated the investigation. In short, the Circuit confirmed the continuing validity of Upjohn procedures in establishing the attorney-client privilege.
After finding clear legal error, the D.C Circuit applied the three factors required for mandamus as set forth in Cheney v. U.S. District Court for the District of Columbia, 542, U.S. 367, 380 (2004): (1) no other adequate means to secure the desired relief; (2) the right to relief must be clear and indisputable; and (3) the writ is appropriate under the circumstances. KBR easily met the first two factors. Mandamus provided KBR with the only meaningful remedy. The District Court had denied KBR’s motion for interlocutory appeal, and an interlocutory appeal under the collateral order doctrine is not available for attorney-client privilege orders. An appeal after final judgment would be too late to protect the documents that KBR was ordered to produce. The DC Circuit’s finding of clear legal error itself made KBR’s right to relief clear and indisputable.
The third factor, “a relatively broad and amorphous totality of the circumstances consideration”, also favored KBR. The potential for grave harm to the attorney-client privilege if the District Court’s decision remained in effect made mandamus “appropriate under the circumstances.” Left in place, the District Court’s decision could “work a sea change in the well-settled rules governing internal corporate investigations”:
Because defense contractors are subject to regulatory requirements of the sort cited by the District Court, the logic of the ruling would seemingly prevent any defense contractor from invoking the attorney-client privilege to protect internal investigations undertaken as part of a mandatory compliance program. See 48 C.F.R. § 52.203-13 (2010). And because a variety of other federal laws require similar internal controls or compliance programs, many other companies likewise would not be able to assert the privilege to protect the records of their internal investigations. See, e.g., 15 U.S.C. §§ 78m(b)(2), 7262; 41 U.S.C. § 8703. As KBR explained, the District Court’s decision “would disable most public companies from undertaking confidential internal investigations.” KBR Pet. 19.
Id. at 15. Thus, although not binding, the incorrect “but for” analysis could gain traction in other district courts. To protect against these harms to both KBR and the attorney-client privilege more broadly, the D.C. Circuit granted KBR’s petition for a writ of mandamus.
Government contractors (and the many other companies subject to statutory and regulatory requirements to conduct internal investigations) can now breathe a sigh of relief – the application of the attorney-client privilege to corporate internal investigations required by law or regulation has been vindicated and upheld. Companies following Upjohn procedures can conduct their internal investigations with the assurance that the attorney-client privilege will protect candid and full communications.
The Coalition’s Second Annual Joseph P. Caggiano Memorial Golf Tournament
Please join us for The Coalition’s 2nd Annual Joseph P. Caggiano Memorial Golf Tournament on August 27th at Whiskey Creek Golf Club! This charity tournament is to honor our good friend and colleague, Joe Caggiano, who was not only a 23-year veteran of the federal contracting marketplace but a naval veteran as well.
We believe Joe would be proud of the fact this year’s tournament proceeds are going to a brand new cause that will continue to support our nation’s veterans. In honor of the 35th Anniversary of The Coalition for Government Procurement, and in conjunction with The George Washington University, we are creating a scholarship/fellowship to provide financial support to a veteran. Specifically, qualified veterans concentrating their studies in the field of US Government procurement and pursuing the JD or LLM degree in Government Procurement Law or the interdisciplinary Masters of Science in Government Contracting degree (MSGC) at The George Washington University will benefit from the fund as we count on them to become the next generation of skilled professionals leading this critically important sector of the US economy.
Registration will begin at 9:30am with an 11:00am shotgun start, followed by a 4:30 pm post-tournament reception. The tournament will consists of a 4 player scramble with 144 maximum players. Please click here to register your foursome or as an individual golfer!
We have several exciting sponsorships available from title sponsors to beverage cart sponsors to hole sponsors, and also a wide range in pricing so no matter what your budget, you will still have an opportunity to support this wonderful cause. Please click here to review sponsorship opportunities and contact Matt Cahill at mcahill@thecgp.org or 202-315-1054 with any questions or sponsor commitments.
We look forward to your support and a fun and rewarding day for everyone!
GAO: USASpending.gov Oversight Needed
In a recent report, the Government Accountability Office (GAO) notes that oversight is needed to address underreporting and inconsistencies on USASpending.gov. Although agencies generally reported required contract information, they did not properly report information on assistance awards (e.g., grants or loans), totaling approximately $619 billion in fiscal year 2012. USASpending.gov was launched in 2007, as a product of the Federal Funding Accountability and Transparency Act. GAO noted that unclear guidance and agency misunderstanding are reasons for the inconsistencies. Additionally, many of the awards on the website failed to contain information that was fully consistent with agency records. GAO estimates with 95 percent confidence that between 2 percent and 7 percent of the awards contained information that was fully consistent with agencies’ records for all 21 data elements examined.
The GAO maintains that if OMB guidance, specifically a memorandum in June 2013, is properly implemented, it could better ensure that agencies report future assistance awards properly. To improve reliability of information on the USASpending.gov website, GAO is making recommendations to the Director of OMB:
(1) Clarify guidance on reporting award information and maintaining supporting records
(2) Develop and implement oversight processes to ensure that award data are consistent with agency records.
OMB generally agreed with GAO’s recommendations.
Counterfeit Reporting Proposed Rule
The FAR Council published a proposed rule on June 10th 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. Members who would like to provide feedback on the rule to the Coalition, please contact Aubrey Woolley at awoolley@thecgp.org.
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 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.
EIP Award Nominations Open!
Nominate a deserving acquisition official for an EIP Award today! The Excellence in Partnership (EIP) Awards honor acquisition officials in the public and private sectors who have made significant strides in promoting and utilizing multiple award contracts, saving taxpayer dollars and contributing to veterans hiring and green initiatives. Awards will be given to individuals, organizations and contractors involved in procurement with GSA, VA, DoD, DHS and other government agencies. EIP Award nominations for 2014 are being accepted in the following categories:
1. Lifetime Acquisition Excellence Award
2. Contractor Savings Award
3. Government Savings Award (Civilian)
4. Government Savings Award (DoD)
5. Myth-Busters Award
6. Best Veteran Hiring Program
7. Green Excellence in Partnership Award
Please provide a brief description of why your nominee should be recognized with an EIP award with your nomination. Nominations may be submitted on the CGP website here. If you have any questions, please contact Matt Cahill at mcahill@thecgp.org or (202) 315-1054.