Friday Flash, 10.03.14

October 3, 2014

FAR and Beyond Blog

Happy Federal Fiscal New Year! The Coalition wishes everyone in the procurement community a Successful Fiscal Year (FY) 2015! Success for all is ultimately measured as to whether the procurement system delivers best value mission support for customer agencies and the American people. We are all stakeholders in that effort!

Of course, the next month will highlight the Coalition’s 35^th Anniversary Celebration, the Excellence in Partnership (EIPs) Honors, and the 2014 Fall Conference. At the center of the 35^th Anniversary Celebration Dinner is our silent auction to support the Coalition endowment for veterans enrolled in the George Washington University’ Law School or Master’s Degree program in government contracting. For information about the celebration dinner and 2014 Fall Conference please check here.

But there is much more to come. As we move into FY 2015, the Coalition’s agenda will continue to have a laser like focus on procurement policies, procedures and programs that deliver best value solutions for customer agencies through sound business opportunities for small, medium and large businesses. Here is a quick snap shot of our FY 2015 agenda:

Strategic Sourcing. In Spring 2014 the Coalition established a Strategic Sourcing Working Group to share information and best practices regarding strategic acquisition. The Coalition will be sharing a draft strategic sourcing white paper with members at the Fall Conference. This white paper will be informed by GSA’s recent response to the Coalition’s Freedom of Information Act (FOIA) seeking all documents relating to claimed savings via the Federal Strategic Sourcing Initiative.
VA Schedule Pricing Policies and Procedures. The Coalition will be supplementing our September 2013 White Paper: GSA Multiple Award Schedule Pricing: Recommendations to Embrace Regulatory and Commercial Market Changes. The supplement will address current VA schedule pricing practices, procedures and policies as well as current commercial market trends and best practices.
Coalition Innovation Task Force (CITF). In calendar year 2015, the Coalition will launch the CITF. The CITF will identify opportunities to streamline acquisition procedures and embrace requirements development and contracting techniques that leverage commercial solutions and innovation.
Promoting the Results of OMB’s Open Dialogue: As you know, eight of the top ten recommendations to reform the procurement system that OMB received were suggested by the Coalition. Among the recommendations are reforming the Price Reduction Clause and addressing “Other Direct Costs.” In addition, the Coalition provided GSA with a list of contracting fixes to reduce transactional costs and increase value for customer agencies. We look forward to a Myth-Busters dialogue with GSA and OMB on these reform opportunities.
Alliant 2 Working Group: The Coalition has established an Alliant 2 working group through our GWAC/MAC Committee to support engagement and dialogue between GSA and industry members regarding this vital follow on procurement.
FSSI HR Services & Training Working Group: Coalition has established a working group to support engagement and dialogue between GSA and OPM regarding the follow on procurement for human resources and training program support. This government-wide procurement vehicle will replace OPM’s TMA contract program. Just this week the working group met with officials from GSA and OPM to discuss the procurement.

Each day we will continue to focus on common sense operational policies and procedures that foster competition, reduce transactional costs and enhance value for customer agencies and the American people. Beyond the items listed above, we will continue to discuss, highlight and address contract duplication, data reporting requirements, and government-unique requirements where the costs outweigh the benefits. If you have feedback and/or items that you believe we should be focusing on please do not hesitate to contact me at (202) 331-0975.

Roger Waldron

President

VA IG Findings on Use of Reverse Auctions by VHA

On September 26, the VA Office of Inspector General (OIG) released a report reviewing the Veterans Health Administration (VHA) use of reverse auction as a method for procurement. The report is one of two IG reports released on reverse auctions. The use of reverse auction report was issued in response to, “numerous complaints and concerns from the Federal Supply Schedule (FSS) contractors.” The other report covered an investigation of interference of a VA Official for the financial benefit of a contractor, FedBid.

According to the OIG, the methodology VHA used to calculate and report savings by using reverse auction greatly overstated any actual savings and did not comply with VHA’s Standard Operating Procedure. Further, the OIG noted that VHA’s mandatory requirement to use reverse auctions violated the department’s policy for using priority sources such as FSS contracts.

Among the concerns raised, fewer than seven percent of all contract files had complete documentation. As a result, reported savings were not reliable due to improper documentation. The OIG also found that the VHA was procuring items from unauthorized distributors—also known as ‘grey market’ items.

The report listed eleven recommendations for more efficient and effective use of reverse auctions. Among the recommendations were limiting reverse auctions to situations where savings are proven, requiring proper documentation, creating an internal review process separate from the buying office, and requiring that only authorized distributors can participate in the reverse auction to prevent ‘grey purchases’. To read the full report, visit www.va.gov/oig/pubs/VAOIG-13-01408-294.pdf.

Join the 2014 Fall Training Conference, EIP Awards & 35th Anniversary Gala

This two day event begins the evening of November 5th with our 15th annual Excellence in Partnership (EIP) Awards, recognizing outstanding federal and contractor organizations and employees that support the evolving needs of government. The Gala will be held at the Ronald Reagan Building and International Trade Center in Washington, D.C. The evening’s events will include a networking reception, plated dinner, look back at The Coalition’s past 35 years, and a conversation with our guest speaker Cory Gritter, a medically retired veteran of the United States Marine Corps and President of Gritter-Francona, Inc., a Service Disabled Veteran Owned Small Business that focuses on Information Technology and Cyber Security services. In honor of our nation’s veterans, and in conjunction with the George Washington University, the evening features a silent auction to support the Coalition’s endowment for veterans enrolled in GW’s Law school or Master’s degree program in government contracting. If you are able, we kindly ask that you and/or your company donate an item for this special occasion. Please contact Matt Cahill at mcahill@thecgp.org or 202-315-1054 to discuss your donation to the auction! Here’s an example of some items already donated:

Suite at the Verizon Center (18 seats + 3 parking passes) for February 3rd at 7:00 p.m. when the Caps play the Kings (Stanley Cup Champions) – donated by Lockheed Martin
Box Seats at Nationals Park – donated by Baker Tilly
Golf Lessons and a Foursome – donated by Whiskey Creek Golf Club
Patriotic Quilt – made and donated by Robin Klonarides of Raytheon
Football Memorabilia signed by Ron “Jaws” Jaworski – donated by the Judge Group
NFL Football Helmet signed by 2013 Rookie Class – donated by Berkeley Research Group and the NFL Players Association

The following day, November 6th, our 2014 Fall Training Conference will take place at the JW Marriott hotel, directly across the street from the Ronald Reagan Building. The conference addresses current topics and trends affecting government-wide contracts. Timely, interactive sessions will focus on innovative approaches to federal acquisition. Please see the full draft agenda here.

2014 Fall Conference

35 years of Commonsense in Government Procurement: Looking Back and Moving Forward

Additionally, please check out our sponsorship opportunities for both day’s events here and contact Matt Cahill to secure your preferred sponsorship now!

Lastly, please don’t delay, register for this exciting two day event today by click here!

EIP Nominations Extended to Wed, Oct 8

Nominate a deserving individual, government organization or federal contractor for an EIP Award today! The Excellence in Partnership (EIP) Awards honor public and private sector organizations and leaders 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

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.

NASA SEWP Awardees List

This week, NASA Solutions for Enterprise-Wide Procurement (SEWP) program announced the awardees of its fifth generation IT GWAC. The full list of awardees can be found here.

GSA OIG: Improvements to FAS Workforce

This week the General Services Administration (GSA) Office of Inspector General (OIG) released a report entitled, Opportunities Exist to Strengthen the Federal Acquisition Service’s

Contracting Officer’s Representative Workforce. The OIG conducted the study in order to determine if the certification program for Federal Acquisition Service (FAS) Contracting Officer’s Representatives (CORs) is effectively managed and executed in accordance with the Office of Federal Procurement Policy’s COR certification program and relevant GSA guidance. OIG findings include the following:

FAS is inconsistently implementing COR certification program guidance and stated best practices.
FAS CORs are not being designated in accordance with COR certification program guidance due to decentralized management and limited system access.
Lack of training alternatives and sufficient oversight result in underdeveloped CORs.

The OIG recommends that the FAS Commissioner ensure that all FAS CORs are registered in the Federal Acquisition Institute Tracking Application System and release new guidance to strengthen consistency with OFPP’s program and relevant GSA guidance. For the full report members can link to it above.

Join the Alliant 2 Working Group

As a follow-up to the recent GWAC/MAC Committee meeting with the GSA Alliant 2 team, the Coalition will form an Alliant 2 Working Group. The purpose of the working group is to provide feedback to GSA concerning the acquisition strategy for the upcoming Alliant 2 contract vehicle. The working group has established monthly industy meetings with the GSA Alliant 2 team to provide a forum for a mythbusters dialogue on a host of Alliant 2 issues.

If you would like to join the working group, please email rdicharry@thecgp.org with your name, title and company.

GSA, Sustainability and Category Management

The General Services Administration (GSA) plans to focus more on sustainability in acquisition. According to a GSA blog post this week, over the next year the agency will:

Integrate sustainability into Category Management and the new Acquisition Gateway Hallways in the Common Acquisition Platform (CAP).
Where it makes sense, identify sustainability metrics for each category; baseline the status today; and aim to improve performance in coming years.
Share the Federal Acquisition Service’s (FAS) expertise on how to buy green in the Acquisition Gateway Hallways. They will include resources like the Green Procurement Compilation and tips for including sustainability in contracts.
Look at strategic sourcing, Government-wide Acquisition Contracts, and other major FAS contracts, for ways to encourage contractors to be more efficient. The right solution will depend on the contract, and the sustainability team will help identify effective requirements and options.

Keys to this initiative are 1) encouraging contractors to operate more efficiently and provide more green products, and 2) demonstrating to customer agencies how FAS’s green solutions save time and money, and help them meet their green goals. To learn more read the full GSA blog post.

Joint Cyber Working Group Establishes Lead Roles

This week, the Joint Working Group on Improving Cybersecurity and Resilience Through Acquisition identified individuals as Project Managers for the implementation of the cyber recommendations made in accordance with Section 8(e) of Executive Order 13636. The memo notes that the Project Manager (PM) is the focal point within the Joint Working Group (JWG) and the stakeholder community for all matters related to implementation of the recommendation. A list of the PMs and their specified recommendation is below.

I. Institute Baseline Cybersecurity Requirements as a Condition of Contract Award

for Appropriate Acquisitions

Don Davidson, DoD donald.r.davidson4.civ@mail.mil

II. Address Cybersecurity in Relevant Training

Andre Wilkins, DHS andre.wilkins@hq.dhs.gov

III. Develop Common Cybersecurity Definitions for Federal Acquisitions

Jon Boyens, NIST jon.boyens@nist.gov

IV. Institute a Federal Acquisition Cyber Risk Management Strategy

Don Johnson, DoD donald.b.johnson1.civ@mail.mil

V. Include a Requirement to Purchase from Original Equipment Manufacturers,

Their Authorized Resellers, or Other “Trusted” Sources, Whenever Available, in

Appropriate Acquisitions

Emile Monette, GSA emile.monette@gsa.gov

VI. Increase Government Accountability for Cyber Risk Management

Joe Jarzombek, DHS Joe.Jarzombek@hq.dhs.gov

Healthcare Spotlight

TAA Case Is Study On Contractors’ FCA Vulnerability

By: Donna Lee Yesner, Partner, Morgan Lewis & Bockius LLP and Stephen E. Ruscus, Partner, Morgan Lewis & Bockius LLP

The U.S. Department of Veterans Affairs and Department of Defense are major buyers of medical devices and supplies. Companies wishing to sell in this multibillion dollar market, however, must be aware of an important federal procurement requirement regarding country of origin, which is inapplicable to nonfederal sales, and understand the risk of noncompliance.

Government contractors must agree that the products they sell to the U.S. government under contracts valued in excess of $204,000 comply with the Trade Agreements Act, unless the TAA requirement is waived by a federal agency. Failure to comply with this requirement has provided grounds for whistleblower actions under the False Claims Act, particularly against companies that sell commercial items under Federal Supply Schedule contracts or through Distribution and Pricing Agreements, which require compliance with the TAA.

Recently, Smith & Nephew Inc., a medical device manufacturer, settled what may be the first such case involving allegations that a company knowingly sold medical devices manufactured in a country not compliant with the TAA to the company’s government customers. See United States ex rel. Cox v. Smith & Nephew Inc., No. 2:08-cv-02832 (W.D. Tenn., order of dismissal, Sept. 4, 2014).

Trade Agreements Act Requirements

The TAA is intended to remove barriers to government procurement of foreign-sourced items and to incentivize countries to become signatories to the World Trade Organization Government Procurement Agreement and other international trade agreements. When a contract is subject to the TAA, the Buy American Act and its preference for end items manufactured in the U.S. is waived, creating more opportunity for companies selling foreign-made products. At the same time, the TAA prohibits the U.S. government from acquiring end items other than those made in the U.S. or countries that have signed the WTO GPA (referred to as “designated country end products”), unless the agency determines that offers of eligible items are unavailable or insufficient to fill the agency’s needs. If a contract is below the threshold amount, the agency may acquire an item made in a nondesignated country, such as India or China, under that contract. For contracts in which the quantity of items that may be ordered is indefinite, the estimated contract value is used in determining whether the applicable threshold has been exceeded. As a policy matter, the TAA applies to all FSS contracts, including those covering medical supplies and devices administered by the VA.

The TAA is implemented through mandatory contract clauses in government contracts over the threshold amount and country of origin representations and certifications made by companies responding to a federal contract solicitation, as prescribed by the Federal Acquisition Regulation Part 25.4 and FAR 52.225-3 through 52.225-6. A product’s country of origin must be disclosed when it is manufactured in a nondesignated country. If the TAA applies, the contracting agency, in its discretion, may make a nonavailability determination or may request a categorical waiver of the TAA from the Office of the U.S. Trade Representative. The agency also may order small amounts of the product under individual contracts below $204,000 in value without regard to the TAA. Unless the TAA has been waived or is, by law, inapplicable to a transaction, the acquisition of end items from a nondesignated country violates the TAA. Accurate representations by the contractor are thus necessary for a federal customer to adhere to procurement law and regulations.

The test the government uses for determining country of origin under the TAA is the “substantial transformation” test applied by U.S. Customs and Border Protection when assessing import duties under Section 304 of the Tariff Act of 1930, and implementing regulations. Customs’ regulations define “country of origin” as “the country of manufacture, production or growth of any article of foreign origin entering the United States” and also provide that “[f]urther work or material added to an article in another country must effect a substantial transformation in order to render such other country the ‘country of origin’ within the meaning of this part.” 19 C.F.R. 134.1(b). In general, a substantial transformation occurs when an article emerges from a process with a new name, character or use different from that possessed by the article prior to processing, but will not result from minor manufacturing or combining process that leaves the identity of the article intact. Determining where a product has been substantially transformed into the end item acquired by the government often requires a fact-intensive analysis of the manufacturing process.

For example, in a July 2014 decision regarding the country of origin of a medical device that interfaces with a breath monitor, Customs considered the country of origin of the item’s components, the extent of the processing that occurred within a country and whether such processing rendered a product with a new name, character and use. The device consisted primarily of tubing from Israel, cut to length in China and combined there with various connectors, filters and adaptors sourced from several countries. The decision noted that the “key issue is the extent of operations performed and whether the parts lose their identity and become an integral part of the new article,” that “factors such as the resources expended on product design and development, extent and nature of postassembly inspection and testing procedures and the degree of skill required during the actual manufacturing process may be relevant,” and that “assembly operations that are minimal or simple, as opposed to complex or meaningful, will generally not result in a substantial transformation.” Holding that the tubing imparted the essential character to the end product and that this tubing was not substantially transformed by the cutting and assembly operations in China, Customs, in this case, held that the country of origin of the finished product was Israel.

Although required to certify TAA compliance, a reseller of an item acquired from its manufacturer may be unable to validate country of origin independently. Recently, however, the D.C. Circuit affirmed in another whistleblower case that resellers may reasonably rely on their suppliers’ country of origin representations, and, absent evidence that would make such reliance unreasonable, need not conduct independent evaluations before they provide their own certifications in order to shield themselves from FCA liability. See United States ex rel. Folliard v. Gov’t Acquisitions Inc., No. 13-7049 (D.C. Cir. Aug. 29, 2014).

This was an important decision for wholesalers and distributors that contract directly with agencies like the DOD and VA to supply medical devices that they purchase from device manufacturers. In such cases, the contractor may not be liable if the product is a nondesignated country end item, but misrepresentation concerning country of origin by the manufacturer supplying the contractor could still be potentially actionable against the manufacturer.

Once a company represents that an item is a U.S. or designated country end product and it is placed on the company’s FSS contract, the company must ensure that units manufactured in nondesignated countries are not delivered to government customers ordering under the FSS. If a manufacturer of medical supplies sources a product in a nondesignated country for sale to commercial customers, because it is more economical to do so, it must have a second, designated-country source before it sells the product to the federal government under its FSS contracts and must have inventory controls designed to ensure that shipments to government customers conform to the representations and certification of TAA compliance. The VA has explicitly advised manufacturers sourcing from nondesignated countries of the need to implement such inventory controls. See Dear Manufacturer Letter here.

Smith & Nephew Settlement

In the Smith & Nephew case, the company allegedly imported items from Malaysia, a nondesignated country, repackaged them in the U.S. and failed to segregate them from products sourced in designated countries that could be sold to the government. Thus, the company could not ascertain whether units shipped to customers that ordered under its medical/surgical FSS contract or the GSA Advantage website were TAA compliant. The company voluntarily disclosed to the DOD Office of Inspector General and VA National Acquisition Center that it may have violated procurement law and the terms of its contracts and took corrective action. However, three months later, a former employee filed a whistleblower action against the company for knowingly violating the TAA, and the court declined to dismiss the case on the grounds that the FCA public disclosure bar applied to the voluntary disclosure.

Reducing the Risk of Liability in TAA Whistleblower Suits

The Smith & Nephew case highlights the vulnerability of device manufacturers that source products from nondesignated countries to potential FCA liability and the need not only for diligence in ascertaining country of origin, but also for controls to prevent products manufactured in nondesignated countries from being supplied to the government when such sales are not permitted.

Reasonable controls could include: (1) a system that identifies country of origin, and segregates and tracks inventory from import to shipment if items are purchased from both designated and nondesignated countries; (2) a system that monitors sourcing decisions before changes are made to ensure the item continues to be substantially transformed in the U.S. or a designated country; (3) a policy requiring country of origin representations of vendors if the components are not later substantially transformed into the delivered end item; and (4) a procedure for obtaining legal opinions when the country of origin is unclear or, in some cases, an opinion from Customs.

Purchasing items made in nondesignated countries may substantially reduce production costs and make economic sense, and a company’s sales to the federal government may be very small compared to its commercial business. However, the risk of exposure to a whistleblower suit and the consequences for failing to implement measures to avoid violating the TAA are likely considerably greater than the cost of compliance.

In the Smith & Nephew case, the company was forced to defend an action that settled for millions of dollars even though it disclosed the situation to the VA, and the department neither referred the matter to the U.S. Department of Justice nor intervened in the whistleblower case after it was unsealed.

Judicial precedent is currently divided over the application of the public disclosure bar to such voluntary disclosures. In the Smith & Nephew decision, it is unclear whether the company’s disclosure to the VA affected the settlement negotiations in which the VA participated, or the department’s decision not to intervene, but it is also noteworthy that the VA’s policy has been to encourage self-disclosure. Thus, although the company’s actions did not shield it from a whistleblower suit, they may have protected the company from greater harm.

Legal Corner

“Incomplete, Inaccurate, and Unverifiable”: An Evening with the OIG’s Recent Audit Report on GSA’s Administration of Contractor Team Agreements

By: Jonathan Aronie, Partner, Sheppard Mullin Richter & Hampton

I acknowledge it runs counter to the traditional, universally-accepted, ultra-cool image of DC Government Contracts lawyers, but I must admit I like reading GSA OIG Audit Reports. So it was with great anticipation that I poured myself a generous glass of milk the other night and curled up in front of a warm desk lamp to devour the pages of the OIG’s latest commentary, engagingly titled “Audit of Contractor Team Arrangement Use.”

As its title foreshadows, the Report, dated September 8, 2014, recounts the exhilarating tale of the OIG’s exploration of GSA Contractor Team Arrangements (“CTAs”). The noble objectives of the audit team, established in the Report’s opening pages, were to “(1) determine the extent to which contracting officers follow existing guidance and regulation in the administration of contractor team arrangements and (2) assess contracting officer awareness of risk in improperly administering team arrangements.” They had me at “objectives.” Snuggling up closer to my desk lamp, I read on.

Because GSA’s CTA records were “incomplete, inaccurate, and unverifiable” (a finding, incidentally, that would spell disaster for a contractor), the OIG’s audit was performed on a limited sample of GSA task orders – 7 orders, to be exact. The auditors, however, did interview numerous contracting officers and supervisors, and the conclusions they were able to draw from their review are nothing short of hair-raising. According to the auditors – wait for it – GSA’s contracting officers “have been provided minimal instruction and have received no formal training relating to the award and administration of team arrangements.” The auditors also concluded GSA has provided inadequate guidance regarding the use and administration of CTAs. I was pulled deeper and deeper into the story with each new paragraph. As I flipped the pages with zest, hungering for the surprise around the next corner, I . . . .

Okay, I give up. The truth is, there is absolutely nothing surprising, engaging, hair-raising, or even particularly interesting about the OIG’s audit findings. We all have known for years that GSA contracting officers don’t understand Contractor Team Arrangements – and, frankly, most contractors don’t either.

For the last 15 years or so, I’ve taught an Advanced Issues in MAS Contracting Course – previously with Carolyn Alston (currently with the Coalition) and currently with Larry Allen (previously with the Coalition) – and the issue of CTAs comes up in every class. The pervasiveness of the confusion among Government COs and contractors never ceased to amaze me – at least until I attended a CTA course at GSA Expo a few years back taught by a now-retired CO. With due respect (and apologies) to the many good COs and Government teachers out there, the course was awful. The information was vague, not useful, and, in many ways, just plain wrong. Thus, it came as no surprise to me, as it probably didn’t to you, that the GSA OIG auditors concluded COs are not being well educated on this topic.

I was more interested in the OIG’s view of the consequences of the lack of training and guidance. The consequences identified by the auditors, however, were presented through the lens of a Government actor – not a contractor. While I don’t quibble with the correctness of the auditors’ findings, I do regret they ignored most of the risks to the contractor of misunderstanding CTAs. And there are several. But before getting to that, let’s get some basics out of the way.

A CTA is an agreement between two (or more) GSA Schedule contractors to provide a solution to an authorized Schedule purchaser that neither could provide on its own. In GSA’s words, a CTA allows Schedule contractors “to meet the government agency needs by providing a total solution that combines the supplies and/or services from the team members’ separate GSA Schedule contracts. It permits contractors to complement each other’s capabilities to compete for orders for which they may not independently qualify.” Here are a few other important elements of CTAs:

All participants in a CTA must have their own Schedule contract, and must contribute something to the CTA.
The products or services offered through the CTA must be “on Schedule” just as they would have to be if offered by a sole Schedule holder. (Open market items may be offered only as provided in FAR Part 8.)
Notwithstanding the penchant of Schedule contractors to characterize one member of the CTA as the prime and the other member as the sub, in fact, all CTA participants are primes. The leader commonly is known as the “Team Lead,” while the others commonly are known as “Team Members.” But, legally speaking, they all are primes. As the OIG pointedly reminded GSA in its Audit Report, “each team member is a prime contractor and should be treated as such.” The point is critical for reasons discussed further below.
As prime contractors, all CTA participants have “privity of contract” with the Government. In other words, all participants assume the rights of, take on the obligations of, and subject themselves to the risks of being a prime contractor.
All CTA participants are responsible for complying with the terms and conditions of their respective Schedule contracts, including pricing terms, TAA requirements, Price Reductions Clause obligations, labor qualification requirements, etc.
Each CTA participant is responsible for reporting its own revenue and paying its own IFF.

And importantly, each CTA participant – whether it views itself as the lead or as a member – is at risk for any non-compliance, including breach risk for its or its teammates’ non-compliance, past performance risk for its or its teammates’ performance failures, False Claims Act risk at least for its own recklessness (and possibly for its teammates’ recklessness if it was known), and, as a practical matter, reputational risk for most anything that goes wrong regardless of fault.

With that as background, let’s now take a look at the aspects of a CTA that create some of these risks from the perspective of the contractor.

Billing Errors Risk

In the context of a Subcontract, the prime contractor must have all products/services on its Schedule and must bill the Government at or less than its Schedule price – even if the products/services are provided by a subcontractor. This means that, unless a unique solicitation provision directs otherwise, the prime contractor can “mark up” the subcontractor’s price to the prime’s Schedule price. In the context of a CTA, however, each participant is beholden to its own price list. Thus, the team lead cannot “mark up” a team member’s products/services beyond that team member’s Schedule price. Failure to appreciate the difference between a Subcontract and a CTA can create the risk of pricing errors and, at the very least, the risk of confusion among COs and auditors.

IFF Reporting Risk

Each team member is responsible for paying its own IFF on sales made through a CTA. Where CTAs are structured so the Team Lead handles all interactions with the customer, however, the Team Lead sometimes pays the entire IFF obligation and, consequently, the Team Members may lack visibility into the timing or even the amount of Schedule revenue. While GSA typically receives its due tribute in any case (since, as noted, the Team Lead sometimes pays the full IFF amount), the absence of a specific, traceable payment by the Team Member can create all sorts of problems when it comes time for IOA reviews and/or OIG audits.

Labor Qualification Risks

A prime contractor must ensure all personnel working on the project meet the labor qualification requirements set out in the prime contractor’s GSA Schedule contract – whether or not the individual performing the work is employed by the prime contractor or a subcontractor. In contrast, each participant in a CTA must ensure its personnel meet the labor qualifications set forth in its own Schedule contract. Here again, a clearly written CTA is essential. Lack of clarity regarding the nature of the contracting relationship can increase the risk of an inadvertent contract breach in an area (i.e., labor qualification issues) that increasingly is a favorite among auditors.

Ability-to-Offer Risk

As GAO has made clear again and again over the years, except in very limited situations, Schedule procurements require the proposal of Schedule items. The failure to offer products or services on the offer’s valid Schedule contract can result in rejection of the proposal, or, if it does not, will provide fodder for an easy bid protest. While a contractor bidding under a CTA can pull from any/all of its teammates Schedule contracts to prepare a compliant 100%-Schedule solution, a prime contractor cannot pull from its subcontractor’s Schedule if the prime does not have the product/service on its own Schedule. The prime contractor must have 100% of the items on its own Schedule. One unlucky contractor found this out the hard way back in 2007 when it submitted a quotation in response to a management operations RFQ, but didn’t make clear it was proposing as a Contractor Team. Consequently, GSA rejected the quotation, finding it not to be a CTA and finding the offeror did not independently hold all of the necessary Schedule items required by the RFQ.^{^[1]}

Price Reductions Clause Risk

This one is best described through the ancient and time-honored art of a war story. I had a client years ago that entered into what it thought was a prime/sub relationship with another Schedule holder. It was a service contract for the military and the “prime” didn’t have all the necessary labor categories on its Schedule so it “subbed” to my client. As many companies do, the companies structured their relationship as a prime/sub arrangement, with the “sub” providing personnel at a discount to the “prime,” and then the “prime” marking up the personnel to its Schedule price; the markup serving as the “prime’s” fee.

A year or so after the project came to an end, the “sub” was hit with an OIG audit. The auditor saw the “discounts” to the “prime” and accused it (the “sub”) of violating its Price Reductions Clause. (The company’s Basis of Award included prime contractors.) The auditor did not particularly care that the Government was the ultimate customer. He saw only a discount to a BOA customer and, to him, that spelled PRC violation.

Nor was the auditor taken by the company’s argument that the relationship actually was a CTA and, therefore, the sales to the “prime” actually were sales to the Government because (as you know if you’ve read this far) each CTA member is a prime contractor. The company’s argument was not made any easier when the auditor reviewed the order (which only referenced the “prime”), reviewed the agreement between the “prime” and the “sub” (which was titled a “Subcontract” and referenced only a “prime” and a “sub”), and recognized that the “prime” had paid the totality of the IFF (an action consistent with a prime/sub relationship, not a CTA). Had the parties clearly identified the agreement as a CTA, employed the correct terminology, and acted consistent with GSA’s CTA guidelines, there would have been no PRC violation allegation.

The moral of this little tale is this: Words matters. Contractors should use prime/sub when dealing with a subcontract, and use lead/member when dealing with a CTA.^{^[2]}

Risk Mitigation Techniques

Add to the foregoing risks the additional, mostly-Government-facing risks identified in the OIG’s Audit Report and you have yourself one very confusing, very misunderstood, and very risky contract vehicle. This is not to say, of course, you should avoid entering into CTAs. But you should look before you leap, understand the rules and the risks, and take compliance seriously. And, oh yes, don’t read the OIG Audit Report as though it sets forth all the risks!

In its Audit Report, the OIG identified a number of measures GSA can/should take to help reduce some of the confusion around CTAs. These involved better training for COs, better internal record keeping systems within GSA, and better policies. While industry awaits these enhancements, there are things contractors can do to protect themselves. Here are a few:

Understand the difference between a Subcontract and a CTA, and clearly identify which vehicle you are employing. Be clear internally, be clear to your teammates/ subcontractors, and be clear to the Government.
Do not rely on oral CTAs (or oral subcontracts for that matter). Prepare properly crafted CTAs in writing. While, as confirmed by the OIG, GSA historically has paid little attention to the content of CTAs, the agency’s website does offer a pretty good list of what contractors should include in their CTAs. See www.gsa.gov/portal/content/202253. While GSA identifies these elements as requirements of a CTA (i.e., “The CTA document must address” X or Y), they are not. They are, however, quite good recommendations.
Share the CTA with the contracting officer. GSA “strongly encourages” contractors to do so, and so do I.
Use correct terminology. If you are establishing a CTA, call it a CTA and identify one company as the Lead and the other as the Member. If you are establishing a subcontract, call it a subcontract and identify one company as the prime and one as the sub. Do not use the terms interchangeably.^{^[3]}
Try to have the award issued in the name of the CTA rather than in the name of one member of the CTA. If this is not possible (e.g., because the agency, for whatever reason, resists), then try to have the CTA identified on the face of the award document. As the OIG recognized in its Audit Report, contracting officers often do not remember to do this on their own.
Identify clearly in the CTA (and in the proposal and/or contract) which team member will submit invoices and how payment is expected to be made. Remember, while the Government should pay each team member independently, agencies rarely want to take that approach, and GSA does not force them to. Failure to deal with invoicing and billing issues early can create great confusion down the road as auditors struggle with reconciling reported revenue to internal records. The OIG correctly recognized this issue in its Audit Report as well.

* * *

In hindsight, perhaps I was too hard on the OIG in my introduction. While GSA’s CTA files may be incomplete, inaccurate, and unverifiable, the Audit Report nonetheless got it right. CTAs are misunderstood by the contracting community – industry-wise, CO-wise, and otherwise. So maybe the Audit Report was not as exciting as I had hoped, but it did provide a good opportunity to reflect upon a risky area of GSA Schedule contracting. Perhaps the sequel will be more riveting. GSA estimates it will publish updated CTA regulations by April 2016. I plan to be the first in line to get a copy so I once again can curl up in front of my warm desk lamp with a nice glass of milk and get lost in the world of GSA Schedule contracting. Oh, what a life!

Jonathan is the co-managing partner of Sheppard Mullin’s Washington, DC office, and has been practicing government contracts law since 1994. He is the co-author of the GSA Schedule Handbook (West Publishing), teaches on a variety of Government Contracts topics across the country, and is a frequent speaker at Coalition events. When not reading or writing about Government Contracting, he can be found trying to get control over his two young girls, one of whom became a teenager this month.

^{^[1]} The Computer Cite protest (B-299858) is an interesting one and a good read for contractors participating in CTAs. In the bid protest that followed GSA’s rejection of the offer, the offeror contended its teaming agreement satisfied “the essential requirements for a CTA. . . .” GAO disagreed.

^{^[2]} For those interested, the audit actually came to a very interesting and successful conclusion. Since the “prime” did not have the necessary labor categories on its Schedule and the “sub” did, we explained to the auditor that either (1) the prime and the Government agency violated the procurement rules by providing/procuring non-Schedule services under a Schedule procurement or (2) the parties actually had intended to establish a CTA, but simply failed to use the proper language. Ultimately, the auditor went with door number two, which, legally, was the correct result. The parties’ poor terminology and documentation, however, caused what should have been a simple audit to turn into a very expensive one.

^{^[3]} To add to the confusion, in the context of a CTA, either team member also may have subcontractors of its own. But that’s an article for another time.

View from RJO

Risk-Based Acquisition Strategies to Avoid Failed IT Projects

By Robert S. Metzger and Mark J. Linderman[i]

Enterprise IT implementation projects fail too often in public implementation with costly results to public sponsors as well as to systems integrators and software providers. Enormous amounts can be expended without achieving intended purposes and costly litigation can follow. Recent examples include:

On July 22, 2014, a Senate investigations report accused the Air Force of wasting $1.1 billion in a failed effort, between 2004 and 2012, to implement the Expeditionary Combat Support System (ECCS), intended to replace unconnected logistics systems with a fully integrated system.[1]
On August 22, 2014, the State of Oregon brought suit against Oracle over its failure to provide a Health Information Exchange (HIX) and alleged breach of contract, fraud, racketeering and false claims.[2] Oregon claims that it spent $240 million “for a health insurance exchange that never worked as promised” and for modernization of the state’s social services technology that “never got off the ground.”[3]
On November 3, 2013, the State of California terminated its contract with SAP for a new, integrated state payroll system, intended for 240,000 employees, and subsequently brought suit against SAP seeking more than $50 million in damages.[4]
On October 15, 2009, the State of Indiana terminated its $1.3 billion welfare modernization contract with IBM for cause and sued IBM seeking damages of more than $170 million. In 2012, a trial court ruled for IBM, finding that default was not justified where there was “substantial performance.”[5] An appellate court reversed this finding on February 13, 2014, concluding that IBM failed to fulfill the essential purposes of the contract. The Supreme Court of Indiana has agreed to decide the matter.[6]

Failed IT systems mean that important government purposes go unmet and large amounts of public funds are wasted. Contractors may incur losses amounting to tens or even hundreds of millions of dollars. When large claims are filed or a customer terminates an IT project for default, litigation may result that costs further millions.[7] Such controversies are never satisfactory either for provider or customer.

There are no “uniform best practices” to avert controversy and guarantee project success. However, certain measures of risk identification and risk management can help both customers and contractors. We offer 10 recommendations that reflect our experience with federal and state public sector IT projects. In this article, we focus on the acquisition phase which precedes contract award.

1) Legacy systems must be understood

IT implementation projects often involve the deployment of enterprise resource planning (“ERP”) systems.[8] These involve systems integration built upon core software. The software typically is originated for commercial customers and evolves through successive iteration as experience is gained with each installation. But the “out of the box” solution rarely fits the particular needs of a government customer. There will be differences between the customer’s present (“as is”) system and the prospective (“to be”) system that the customer desires. Customization of the ERP solution is needed to address this gap. This requires careful attention to understand the legacy environment and to define objectives of the new system satisfactory for every stakeholder.

2) The customer must have a clear vision of the re-engineered business process

Governments pursue modern ERP systems to eliminate separate, “stovepipe” legacy systems and to replace them with integrated systems that leverage common data sets and automate many discrete governmental functions. In theory, an ERP system will reduce the government’s operating costs, make the work of the public workforce more fulfilling and productive, and improve the ability of government to deliver services and otherwise respond to the public. At the same time, not all stakeholders in existing systems will readily agree to new systems that require changes to old ways. Projects can fail if owners attempt to bend back new systems to mimic legacy practices.

3) Realistic expectations are essential to project success

When a public sector customer defines its ERP objectives, these become the “requirements” for the “to be” system. The public sector customer must have a clear vision of what it wants in the re-engineered business process. It can be very difficult to objectively document requirements because the customer, at the beginning of a project, may not know whether they want to employ out-of-the-box functionality or whether customization is required.[9] If the customer has unreasonable expectations, this will increase project failure risk because there may be no achievable “target” for the contractor to hit. Absence of clear and achievable objectives is a recipe for extended periods of contract performance and for delay or changes claims – if not frustration of fundamental purpose.

4) The customer must have support of its stakeholders

IT projects that seek “transformation” from legacy systems involve a high degree of interdependency. The public customer knows best its legacy capabilities as well as business needs. It controls existing data that must be converted and transformed to test and then operate the future system. RFPs should recognize customer-side responsibilities and contracts must clearly state that the contractor’s obligations depend upon the customer’s timely performance of its obligations. Often, one agency will act as lead or sponsor for a system to benefit many other agencies or departments. The sponsor must have the ability to assure that stakeholders timely perform their assigned functions as well as authority to accept a system even if risk-averse shareholders are reluctant to commit.

5) Confirm sufficient resources are present for customer-responsible actions

Complex IT projects truly are joint undertakings. Functions such as data conversion and integration testing depend upon the time, commitment and expertise of customer-side personnel for whom this work, though critical, may be outside their regular duties. Project personnel also are responsible for review and approval of incremental performance – and this work typically is on the “critical path” for project success. If the customer does not commit sufficient trained personnel to hold up its end of the project, the result is costly program extension and disruption to the planned work.

6) Be prepared to walk away if risks are transferred and not equitably shared

Careful review of an RFP or “model contract” will reveal when a government customer seeks to transfer excess performance, cost or schedule risk to the contractor. Because project success depends upon mutual commitment and collaborative accomplishment, RFPs that shift too much risk to the contractor present high risk of failure both operationally and financially. Such risks can become too great to justify a bid even if competitive circumstances permit pricing that takes some risk into account.

7) Risk recognition must temper business capture objectives

Business capture organizations within contractors naturally see large IT projects as tempting opportunities. This can produce pressure to take excess risks to secure the “win.” This is a mistake, especially for demanding “transformational” projects. After the contract is signed, most of the leverage resides with the public purchaser. Rarely can or will a government contractor abandon performance. Recent history is filled with examples of IT projects gone bad where contractors spend tens of millions of dollars in delayed performance with little likelihood of full recovery. A common problem is that of “concurrent delay,” because government customers are not likely to pay on claims unless the contractor can show that its claim is limited to delays and costs caused by customer-responsible actions.

8) Evaluate the reasonableness of terms and conditions and their negotiability

It can be naïve and even reckless to assume that during performance the customer will act in good faith to resolve performance problems or by agreeing to contract changes. Those responsible for the conduct of an acquisition are rarely the same people who preside over contract performance. This places paramount importance upon the drafting details and on inclusion of commercially reasonable terms and conditions in the contractual documentation. In state procurements, the public buyer may not be able or willing to negotiate any changes in material terms. Over the years, failed IT projects sometimes produce claims against contractors seeking hundreds of millions of dollars. Limitation of liability provisions and limitations on recoverable damages are essential to contain the potential exposure.

9) It must be clear what constitutes “the Contract”

An IT implementation contract can run to thousands of pages, e.g., where the RFP and contractor’s proposal are among the contract documents. Contractors must assure that critical obligations are stated clearly and should strive to avoid material inconsistencies at different levels of contractual documentation. Special attention must be paid to priorities among objectives and (of course) the Order of Precedence clause. Another key issue is how the contract treats assumptions that often accompany a contractor’s IT proposal. These may address, for example, responsibilities of the customer, where requirements will be met “out of the box,” where customization is proposed, and how the contractor interprets key requirements. Disputes often arise when the public customer refuses to agree that the contractor’s performance is governed by such assumptions. Every effort should be made to be sure that those assumptions are recognized as part of the operative contract documents.

10) The contract must establish how the adequacy of performance is determined

In the Indiana vs. IBM litigation, the trial court found that IBM was not in breach of the contract because of “substantial performance” and because the State realized many project benefits. On appeal, however, IBM was found in “material breach” because the appellate court concluded that the fundamental purposes of the project had not been achieved to the State’s satisfaction. The Supreme Court of Indiana will decide this issue. It has potentially profound significance. IT implementation contracts typically include time-sequenced iterative obligations, involving dozens or even hundreds of deliverables. The customer’s receipt and review of in-process deliverables represent objective and documented events. Similarly, achievement of “Milestones” over the course of contract performance signifies progress in meeting contract objectives. But disputes such as Indiana vs. IBM reveal that the public customer may insist that its subjective satisfaction at some overarching policy level is the legal measure of adequate performance. At the very least, contractors must be warned to take all feasible measures to assure that any dispute over performance will recognize not just high level requirements but the documented satisfaction of contractual waypoints.

[1] “The Air Force’s Expeditionary Combat Support Systems (ECCS): A Cautionary Tale on the Need for Business Process Reengineering and Complying with Acquisition Best Practices,” Staff Report, Permanent Subcommittee on Investigations, U.S. Senate (July 7, 2014).

[2] Ellen Rosenblum vs. Oracle America, Inc., Case No. 14C 20043, Circ. Ct. of Oregon, County of Marion. Complaint available at http://www.doj.state.or.us/releases/pdf/FINAL_Complaint_8_22_14.pdf,

[3] Id., at 6.

[4] State Controller’s Office vs. SAP Public Services, Case No. 00154918, Super. Ct. of California, County of Sacramento.

[5] State of Indiana vs. International Business Machines, Case No. 49D10-1005-PL-021451, Super. Ct. of Marion County. Findings of Fact, Conclusions of Law and Judgment for IBM, available at http://www.in.gov/legislative/senate_democrats/files/blog/FinalOrdersignedJuly182012.pdf.

[6] State of Indiana vs. International Business Machines, No. 49A02-1211-PL-875, Ct. of Appeals of Indiana. Opinion, available at http://www.in.gov/judiciary/opinions/pdf/02131403nhv.pdf .

[7] The trial in Indiana vs. IBM lasted six weeks and the court heard 92 witnesses. Before trial, the court considered 12 motions for summary judgment. Approximately 27,800 exhibits were submitted, totaling about 1 million pages of documents.

[8] ERP is defined by Gartner’s IT Glossary, at http://www.gartner.com/it-glossary/enterprise-resource-planning-erp/, as “the ability to deliver an integrated suite of business applications. ERP tools share a common process and data model, covering broad and deep operational end-to-end processes, such as those found in finance, HR, distribution, manufacturing, service and the supply chain.”

[9] An IT project typically includes a “blueprint” phase to further or fully define the requirements that are to be achieved during design and development. The problem is even more acute in “agile” development projects where requirements tend to be stated at a very high level with planned, short-term “sprints” during performance to achieve narrowed understandings of desired functionality at completion.

[i] Robert S. Metzger is the head of the Washington, D.C. office of Rogers Joseph O’Donnell, P.C., and Mark J. Linderman is a Shareholder in the firm’s office in San Francisco, CA. Rogers Joseph has focused upon public contracts matters for more than 30 years.

GSA Temporary Leadership Changes

A number of temporary leadership changes were announced this week within GSA’s General Supply Service effective October 1, 2014.

Geri Watson, Director, Acquisition Center R10 will serve as Acting Director, Acquisition Operations (QSA).

Jon Folz, Director, Enterprise Supply Chain Solutions (QS0A), will serve as the Acting Director, Business Operations Support Division, while Patrick Donovan serves in a temporary role as a Business Architect with the Office of Strategy Management (QP).

Charles Stephens, Executive Specialist (QS), will serve as the Acting Director, Enterprise Supply Chain Solutions.

Bruce Spainhour, Director, Center for Innovative Acquisition Development (QSAB), will serve as the Acting Director, Office for Emergency Management (QS0C).

Greg Rollins, Director, Center for Acquisition Support (QSAA), will serve as the Acting Director, Center for Innovative Acquisition Development.

Alexandra Rouse, Innovative Programs Branch (QSABD), will serve as Acting Director, Center for Acquisition Support (QSAA).

Alliant 2: Contract Access Fee (CAF) as an Indirect Cost

This week the Alliant 2 Team posted to GSA Interact a question #10 on Contract Access Fee (CAF) as an Indirect Cost. The notice explains that in order for the GWAC Program to cover its operating costs, funding to operate the Program needs to be addressed as either a direct or indirect component of service prices.

The GSA GWAC Program is investigating two alternative options that would help streamline the process.

Option 1: Require each of the Alliant 2/Alliant 2 Small Business (A2/A2SB) GWAC Contract Prime Awardees to include the cost of the GWAC Program (based on recurring operational costs) as part of the awardees’ indirect costs. The GWAC Program would determine the operating cost and adjust accordingly on an annual basis; and the operating cost would be spread evenly to the GWAC Contract Prime Awardees to pay at fixed intervals within a fiscal year. The GWAC fee would be recovered from agency customers as a component of each GWAC Contract Prime Awardee’s indirect costs.

Option 2: Require each of the A2/A2SB Contract Prime Awardees pay 0.75% of all invoices on a periodic basis. We would also be interested in knowing which interval works best (i.e., monthly, quarterly, semi-annually). The 0.75% would be a separate and distinct indirect business cost billed to the agency customer, resulting in the A2/A2SB Contract Prime Awardees covering the cost of operating the GWAC Program based on business volume.

Members are encouraged to provide their feedback on these two options at the Interact post here. Also please note that the Coalition is forming an Alliant 2 Working Group. Members interested in participating, contact Roy Dicharry at rdicharry@thecgp.org.

OMB and Treasury on DATA Act

The Office of Management and Budget (OMB) along with the Department of the Treasury (Treasury) have released their plans to begin implementing the Digital Accountability and Transparency (DATA) Act. The law expands the USASpending.gov site to include information on grants, awards, procurement and other spending. According to FCW, OMB and Treasury officials discussed the implementation plans during a town hall meeting for federal employees involved in the process. OMB will be leading the effort to develop data definition standards, which will include creating consistent data definitions, formats and taxonomies, where possible, said Karen Lee, an official in OMB’s Office of Federal Financial Management. Additionally, OMB will oversee a pilot to reduce the administrative burden on vendors by minimizing data collection and enable information to be reported once and used multiple times.

Treasury plans to create data exchange standards to translate information between systems that have a need for unique identifiers. This will involve developing an overall framework for how data elements relate to one another, as well as a guide to performing advanced analytics on the collected data. The implementation will be coordinated across the government through an interagency advisory committee that includes officials from OMB, Treasury, the White House Office of Science and Technology Policy, the General Services Administration and other groups within the government.

Waldron Addresses Data Reporting on In Depth

This week on In Depth, Francis Rose discusses the Pentagon chief information officer’s plan to save up to $20 billion in IT spending over the next five years. The CIO’s office will try to consolidate databases from every single defense agency to get rid of data duplication. Roger Waldron shares a similar cost-saving strategy for federal contractors and agencies that have too many data reporting requirements built in their contracts. Listen to the program on In Depth online.

An Update on OASIS

Recently on “Off the Shelf”—GSA’s OASIS contracts are open for business. Jim Ghiloni, program manager for OASIS at the General Services Administration, provided an update on the contracting program. Ghiloni highlighted the key OASIS capabilities, features and business opportunities available for both customer agencies and contractors. He also provided an update on GSA’s Professional Services Schedules initiatives including the proposed consolidation of schedule contracts. Listen to the discussion here.

Department of Labor Final Rule—Minimum Wage for Contractors

On October 1, the Department of Labor released a final rule on the minimum wage for government contractors—raising it to $10.10 per hour. This new ruling will apply to all contracts and replacements for expiring contracts resulting from solicitations issued on or after January 1, 2015 and to contracts awarded outside the solicitation process on or after January 1, 2015.

Beginning on January 1, 2016, and annually thereafter, the Secretary of Labor will update the minimum wage. It will be indexed to inflation (using the Consumer Price Index for Urban Wage Earners and Clerical Workers), rounded to the nearest $0.05. And at least 90 days notice will be given before any change.

DOL has posted a fact sheet about the rule on its website. The fact sheet includes the following helpful information about the rule.

A. Contracts covered – new contracts and replacements for expiring contracts that result from solicitations issued on or after January 1, 2015 in the following four major categories

(1) procurement contracts for construction covered by the Davis-Bacon Act (DBA);

(2) service contracts covered by the Service Contract Act (SCA);

(3) concessions contracts, including any concessions contract excluded from the SCA by the Department of Labor’s regulations at 29 CFR 4.133(b); and

(4) contracts in connection with Federal property or lands and related to offering services for Federal employees, their dependents, or the general public.

B. Contracts not covered

(1) grants;

(2) contracts and agreements with and grants to certain Indian Tribes

(3) procurement contracts for construction that are not subject to the DBA (i.e., procurement contracts for construction under $2,000); and

(4) contracts for services that are exempted from coverage under the SCA or its implementing regulations. For example, the SCA exempts contracts for public utility services, including electric light and power, water, steam, and gas, from its coverage.

(5) employment contracts providing for direct services to a Federal agency by an individual.

(6) contracts for the manufacturing or furnishing of materials, supplies, articles, or equipment to the Federal Government, i.e., those subject to the Walsh-Healey Public Contracts Act.

C. Contractor Obligations

(1) contractors and subcontractors must pay not less than the Executive Order minimum wage to workers for all hours spent performing on covered contracts;

(2) include the Executive Order minimum wage contract clause in lower-tiered subcontracts; and

(3) comply with obligations related to wage deductions, frequency of pay, and recordkeeping.

The final rule also prohibits taking kickbacks from wages paid to workers on covered contracts and retaliation against any worker for exercising his or her rights under the Executive Order or the implementing regulations.

Prime contractors and upper-tier contractors would be responsible for the compliance of any subcontractor or lower-tier subcontractor. Contractors would be required to maintain records for three years including for each worker the rate or rates of wages paid, the number of daily or weekly hours worked and any deductions made. Compliance with the requirements will be monitored by the Department of Labor’s Wage and Hour Division.

New CAGE Code Requirements in SAM

Starting on November 1, 2014, contractors registering in the System for Award Management (SAM) will need to enter their owner’s Commercial and Government Entity (CAGE) Code if the answer is “Yes” to the following questions:

Does your entity have an immediate owner?
Does your entity have a higher-level owner?

An immediate owner is defined as an entity (who is not the offeror) that has direct control over the offeror. A highest level owner is the entity that owns or controls an immediate owner of the offeror, or that owns or controls one or more entities that control an immediate owner of the offeror.

For more information, review the SAM announcement and list of FAQs posted here.

DFARS Final Rule on Cost-Type Contracts

This week, the Department of Defense (DoD) released a final rule prohibiting the DoD from entering into cost-type contracts for production of major defense acquisition programs (MDAPs). In implementing section 811 of the NDAA for FY 2013, DoD further defined the prohibition on entering into cost-type contracts to include entering into cost-reimbursement line items for the production of MDAPs. The rule became effective this week on September 30, 2014.

False Claims Act Webinar with Steptoe & Johnson – Oct 22

Given continuing audit scrutiny and the significant monetary incentives for private relators to file and pursue claims under the civil False Claims Act (FCA), the FCA continues to be a significant consideration for Federal Government contractors and their suppliers. In particular, the GSA’s Multiple Award Schedules (MAS) program presents many unique and significant FCA-related risks due to certain GSA requirements.

To assist in-house counsel, compliance officers, and contracts personnel in understanding those risks, this webinar will identify potential FCA risks and traps for the unwary under the GSA MAS program by using “real world” examples from recent FCA complaints and settlements, including potential FCA risks arising from the commercial sales practices disclosures, compliance with the Price Reductions Clause, the Trade Agreements Act, and indirect sales through resellers.

Presenters:

Pricing:

Keystone Member: Complimentary
Premier Member: Complimentary
Regular Member: $50
Non-Member: $80
Government: $10