Friday Flash, 10.17.14

October 17, 2014

FAR and Beyond Blog

We are now approximately two and a half weeks away from the Coalition’s 35^th Anniversary Celebration, Excellence in Partnership Honors and the 2014 Fall Conference. On November 5^th and 6^th the Coalition will be hosting a Myth-Busters dialogue with government and industry. The central themes will be fostering partnership between government and industry, supporting common sense in government procurement and creating professional opportunities for returning Veterans! These three themes are central to a procurement system that delivers best value for the American people! I am looking forward to seeing all of you there!

Today, I am pleased to announce our 2014 Lifetime Acquisition Excellence Honorees:

Kathy Jocoy, Management Services Center, Post Award Acquisition Division Director, General Services Administration

In her role supporting GSA’s portfolio of professional services schedules Kathy’s leadership and management skills have made a best value difference in MOBIS, LOGWORLD, Environmental Services, PES and the Consolidated Schedules. Kathy’s 37 years of commitment to excellence reflect the best in public service!

Steve Viar, Director, FEDSIM, General Services Administration

Steve Viar started with GSA in 1978! He began his career in the FSS Tools Center; ultimately moving to FEDSIM in 1988 where he has served ever since. An outstanding acquisition professional, Steve served as a contracting officer managing complex information technology procurements that made FEDSIM a “best in class” procurement organization recognized across the federal government. Steve now heads up FEDSIM, managing a staff of 135 who deliver best value solutions to customer agencies like DHS, DOD and FDIC every day.

Joanne Woytek, Program Manager, NASA SEWP, National Aeronautics and Space Administration

Joanne is the driving force and leader of one of the most successful information technology contract vehicles in the federal government. NASA SEWP is recognized as a leader in providing customer focused, best value information technology products and services. Under Joanne’s leadership, NASA SEWP now processes over 25,000 orders annually accounting for over $2.5 billion in customer agency purchases. NASA SEWP is known throughout government and industry for its efficiency and effectiveness in supporting agency missions.

Jan Frye, Deputy Assistant Secretary, Office of Acquisition and Logistics,

Department of Veterans Affairs

Jan has a long and outstanding career in public service as an acquisition professional. A retired Army Colonel, Jan served in senior acquisition and logistics positions throughout his 30 year career. Among other Army posts, he served as Principal Assistant Responsible for Contracting in Eighth U.S. Army/US Forces Korea and as Deputy Principal Assistant Responsible for Contracting, U.S. Army Corps of Engineers. Among his many military honors and decorations is the Legion of Merit.

At the Department of Veterans Affairs (VA), Jan currently leads one of largest acquisition and logistics operations in the Federal government. Not only he is responsible for implementation of department wide acquisition policies and procedures; he is also a driving force behind the VA Acquisition Academy located in Fredrick, Maryland. Jan also serves as a member of the Committee for Purchase from People who are Blind or Severely Disabled, appointed by President Obama in October 2011.

Congratulations to our Lifetime Acquisition Excellence recipients! The 2014 Excellence in Partnership Award winners for the remaining categories will be announced in next week’s Friday Flash. We look forward to honoring all of the outstanding public servants/acquisition professionals on November 5^th!

See you all there!

Roger Waldron

President

Join the 2014 Fall Training Conference, EIP Awards & 35th Anniversary Gala (Registration Deadline Approaching!)

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 GWU’s Law school or Master’s degree program in government contracting. Here’s come of the items you’ll have a chance to bid on during the silent auction:

Entire 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 signed by Ron “Jaws” Jaworski and Dick “Coach” Vermeil – donated by The Judge Group
NFL Football Helmet signed by Alfred Morris, Ahmad Bradshaw, Maurice Jones-Drew, Jason Witten, and 12 others – donated by Berkeley Research Group and the NFL Players Association
4 tickets for the Wizards vs Denver Nuggets game on 12/5 – donated by Federal News Radio
Six Award Winning Personal Finance books signed by author Ric Edelman – donated by Edelman Financial Services
Complimentary Night Stay at the Mayflower Renaissance Hotel – donated by Marriott
Complimentary Weekend Stay at The Liaison Capitol Hill PLUS Dinner for two at Art & Soul – donated by Affinia Hotel Collection
Coffee Table Book from the Degas/Cassatt and Rockwell exhibitions plus a canvas tote bag – donated by Booz Allen Hamilton
Russell Stover Chocolate Basket – donated by Russell Stover
Catered Chicken Taco Bar for 10 from Qdoba – donated by Qdoba
Tour and Tasting for 4 at RdV Vineyards in VA – donated by RdV
4 tickets to the Friday Nov 22 Oyster Riot Plus Oyster Riot Poster – donated by Clyde’s
iPad Mini – donated by Northrop Grumman
2 Club Box Tickets to the Philadelphia Flyers vs Washington Capitals (in Philly on 2/22/15) PLUS a Parking Pass AND $80 in Food/Merchandise Credit – donated by The Judge Group
The Dream Machine: The Untold History of the Notorious V-22 Osprey, signed by author Richard Whittle – donated by GWU

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

speakers

Our room block at the Marriott expires on Tuesday, October 21st so reserve your room now! Additionally, we need to have as accurate head count as possible for this two day event by Wednesday, October 22^nd, so please don’t delay, register today!

Lastly, time is running out for Sponsorship Opportunities – contact Matt Cahill to secure your preferred sponsorship before Tuesday, October 21^st!

35^th Anniversary Sponsorships Available

Sponsorships are now available for our 35^th Anniversary Gala & Excellence in Partnership Awards, along with our 2014 Fall Training Conference. This two day event will be taking place on November 5^th – 6^th at the Ronald Reagan Building and JW Marriott.

Want to make sure your organization doesn’t miss out? Check out the list of numerous sponsorship opportunities for these two events here. We are counting on your support!

DoD Exceeds Small Business Goal

In a press statement, the Department of Defense (DoD) announced that the Pentagon exceeded departmental goals for small-business contracting. In the statement, Andre Gudger, director of the office of small business programs, said that small businesses made up 23 percent of the Defense Department’s prime contracts in fiscal year 2014, receiving about $53 billion in work. The department-wide goal for DoD currently stands at 21.35 percent. This is the first time the DoD has exceeded the goal. Gudger also noted that the Department is interested in technology innovation capability that small businesses can provide along with robust competition and affordability. Additionally, the DoD has exceeded its 3 percent goal for contracts to small businesses owned by service-disabled veterans and it is on track to meet the government-wide small business goal of 23 percent.

GSA’s New IOA and ACO Tool

GSA has recently announced several changes within the Federal Acquisition Service’s Supplier Management division. First, Industrial Operations Analysts (IOAs) are now responsible for all sales reporting and Industrial Funding Fee (IFF) responsibilities. Administrative Contracting Officers (ACOs) will continue to manage subcontracting plans, the report card, and all delegated contracting actions. In order to identify who your IOA and ACO, are GSA has provided a new tool on the Vendor Support Center under the Contract Administration tab. To access the tool directly, visit https://vsc.gsa.gov/aco_ioa.cfm.

GSA to Review Professional Labor Qualifications

GSA recently announced in the Fall issue of GSA Steps that a review of professional labor qualifications will now be a part of the Contractor Assistance Visits (CAVs). Professional service providers will be asked by their Industrial Operations Analyst (IOA) to demonstrate that the personnel provided under Schedule task orders meet the qualifications and experience specified in their Schedule contract. The IOA may look at resumes, time sheets, and other documentation to ensure compliance. Any issues found during the review will be provided to the Procurement Contracting Office (PCO) for follow-up. If you have any questions about the specific labor you are providing or the applicability of this change, contractors are advised to contact their PCO. For questions related to the IOA CAV process and review of professional labor qualifications, please contact your IOA which can be found at https://vsc.gsa.gov/aco_ioa.cfm.

House Proposal on Defense Acquisition Reform

This week a coalition of House Democrats released a letter along with recommendations concerning Defense acquisition reform to the House Committee on Armed Services. The group notes that the recommendations are “intended to address specific acquisition challenges that would benefit the acquisition system, without claiming to address every problem.”

The recommendations include high-level principles developed as a result of conversations and meetings with representatives of public and private-sector stakeholder groups. The following outline provides some of the principles along with specific recommendations:

Bringing an end to sequestration in order to allow for more strategic investments in the long-term.
Making the government a better customer to industry through commercial item contracting
- Members recommend that the Secretary of Defense provide policy guidance to acquisition officials that ease the acquisition of commercial solutions.
  - Create a government-industry working group to develop market research and price analysis tools/techniques.
  - Enhance the curricula at the Defense Acquisition University to train acquisition professionals on the definition of commercial items, the preference for their use, commerciality determinations.
  - Communicate with industry future mission needs by requiring all portfolios to issue future year requirements forecast along with at least one industry day per year.
    - Require the Federal Acquisition Regulatory Council to provide regulation clarifying/restating that agency acquisition personnel are permitted and encouraged to engage in responsible and constructive exchanges with industry.
  - Lower the administrative burden on industry by reviewing and evaluating all existing regulations and executive orders related to contract administration compliance.
Empowering and growing the federal workforce in accordance with the Defense Acquisition Workforce Improvement Act (DAWIA)
Improving management, administration, and accountability
- Simplify and streamline the contracting process by developing tools to evaluate whether multi-source vs. single source awards are most effective to meet an organization’s needs.
- Identify the policies and/or processes that could be eliminated or consolidated to streamline and develop certainty for the contract award process.

For a full list of the recommendations and the letter, click here.

More NASA SEWP V Awardees

NASA recently announced 41 new contract winners under its SEWP program. The contracts were awarded under the Server Support Devices/Multi-functional Devices category (Group C). All the awards are for firm-fixed-price, indefinite-delivery/indefinite-quantity contracts with a maximum of $20 billion per contract.

Each contract will have an effective ordering period of 10 years, consisting of a five-year base period and one five-year option to extend the period of performance through October 2024.

For a complete list of contract winners, click here.

VA Releases Next Generation of T4

This week the Department of Veterans Affairs (VA) released the next generation of the Transformation Twenty-One Total Technology Program (T4NG) contract. According to Federal Times, the projected value of the current T4 contract will rise from a ceiling of $12 billion to $22.3 billion. The T4NG contract will focus on management services for the VA’s IT systems, health IT and telecoms, but will also grant vendors’ discretion to purchase new software and hardware, as needed, to modernize the VA’s systems.

The contracts feature a five-year base and optional five-year add-on and could be awarded to as many as 20 vendors, with four awards set aside for veteran-owned small business, service-disabled veteran-owned small businesses and women-owned small businesses. According to the announcement, the awards will be decided on the best value offered, with consideration given to technical ability, past performance, price and an emphasis on veteran employment with the respective vendor. According to Federal Times, he request for proposals is expected in November, with proposals due in December. The final award announcements are slated for December 2015.

Healthcare Spotlight

Veterans Access Choice and Accountability Act – Implications of the New Supplemental Veterans Health Care Program for Drug and Device Manufacturers

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

In the wake of the scandal over veteran wait time for health care at certain Department of Veterans Affairs (“VA”) medical facilities, Congress acted quickly to improve the care available to veterans, including access to providers outside the VA system. On August 7, 2014, President Obama signed into law the Veterans Access, Choice, and Accountability Act of 2014 (“Veterans Choice Act”), which authorized veterans to obtain hospital care and medical services from non-VA providers and $10 billion to pay for such care. Prior to the enactment of the Veterans Choice Act, the VA had voluntarily adopted a policy of paying for veterans’ medical care outside the VA system under certain circumstances; however, VA approval was required for these referrals. By contrast, the new law gives veterans greater access to the hospital care and medical services to which they are entitled under section 17 of title 38 of the United States Code.

The Veterans Access, Choice and Accountability Act – Key Provisions

The new law applies to veterans who are:

enrolled in a patient enrollment system at the VA established under 38 U.S.C. 1705 and have contacted the VA seeking an initial appointment for the receipt of hospital care or medical services; and
eligible for hospital care or medical services under 38 U.S.C. 1710(e)(1)(D) and have either
1. unsuccessfully attempted to schedule an appointment at a VA medical facility within the Veterans Health Administration wait-time goals (posted on the internet),
2. live more than 40 miles from the closest VA medical facility,
3. reside in a state lacking a VA hospital, emergency care and surgical care or live more than 20 miles from such a medical facility, or
4. live 40 miles or less from a medical facility but must travel by boat, air or ferry to reach it or travel is otherwise burdensome due to geographic challenges.

A veteran who meets any of these conditions is referred to as an “eligible veteran.”

Section 101(a) of the Veterans Choice Act requires the VA to either place an eligible veteran on an electronic waiting list for hospital care or medical services at a VA facility or, at the veteran’s election, authorize care outside the VA through agreements authorized by the statute, or any other laws, from one of four categories of care providers. Further, the VA must inform eligible veterans of the available care and ensure the electronic waiting list is accessible in order for veterans to determine the wait time and make an informed choice. If an eligible veteran elects to receive medical care outside the VA, he or she may obtain care from any of the following entities that have entered into agreements with the VA as described in the statute: 1) any health care provider in the private sector, including any physician, that is participating in the Medicare program; 2) any federally-qualified health center as defined in 42 U.S.C. 1396d(1)(2)(B); 3) the Department of Defense, and 4) the Indian Health Service. To avoid affirmative action program compliance issues, the law expressly prohibits the Department of Labor, Office of Federal Contract Compliance Programs from treating an entity that signs an agreement to furnish health care to veterans as a federal contractor or subcontractor.

When entering into participation agreements under section 101(d) of the Veterans Choice Act, the VA must negotiate rates for furnishing hospital care and medical services and reimburse the entities at the negotiated rates. In general, negotiated rates may not exceed the rates paid by the Medicare program to providers of services and suppliers as defined in sections 1861(u) and (d) of the Social Security Act for the same care or services. However, the VA may negotiate higher rates for care or services furnished to veterans in highly rural areas. The law prohibits providers from collecting more than the negotiated rate and from collecting a co-payment in excess of any amount that could be collected under chapter 17 of title 38 if the veteran received care from a VA provider.

Veterans must disclose whether they are covered under a health care plan other than Medicare, Medicaid, or Tricare. If they are covered by another plan, that plan will be primarily responsible. , for hospital care and medical services for a non-service related disability, to the extent the plan covers the care furnished. The VA will be secondarily responsible. The provider will be responsible for seeking reimbursement first from the primary payer. Authority to pay for hospital care and medical services through non-VA providers – as either the primary or secondary payer – has been transferred from the Veterans Integrated Service Networks and VA medical centers to the Chief Business Office of the Veterans Health Administration. Within 90 days after the August 7, 2014 enactment date, the VA must prescribe regulations for the implementation of a system for processing claims and paying bills for authorized care and services.

Impact of Expanded Care on Drug and Device Suppliers

Furnishing medical care to veterans through non-VA providers is a positive development for suppliers of drugs and medical devices as it should increase the utilization of their products. For example, the VA may pay for products that are manufactured in countries that are not designated countries under the Trade Agreements Act (“TAA”) without a non-availability determination, because the TAA only applies to products acquired under a federal procurement contract, not products purchased by private sector health care providers through commercial channels. At the same time, the law authorizing access to care outside the VA system raises questions regarding reimbursement of supplies, particularly pharmaceutical and biological products, which need to be resolved, perhaps through the claim processing system regulation. For example, the law specifies that veterans may elect to receive medical services including supplies furnished incident to a medical service from Medicare providers. It also contemplates that VA provider agreements will cover drugs and devices covered by Medicare Part B, cap the negotiated rate paid for such supplies at the Medicare rate, and follow procedures applicable to participation agreements under the Medicare program. What is unclear is whether the VA will pay for any drug administered by a non-VA physician and covered by Medicare, or impose its own restrictive formulary on contract providers.

Prior to the Veterans Choice Act, any drugs paid for by the VA were subject to VA formulary requirements. Not only would it be burdensome for non-VA providers to adhere to the VA formulary as a condition of reimbursement, physicians participating in the Medicare program may be unwilling to sign agreements to treat veterans if they cannot use the same products covered by Medicare and receive the same payment. Similarly, military treatment facilities and federally-qualified health centers will want to be reimbursed for whatever supplies they use in treating all their patients, not just veterans. If the VA formulary restrictions do not apply to drugs administered by non-VA physicians, manufacturers of non-formulary drugs may increase utilization of their drugs in the VA market.

Another area requiring clarification concerns prescriptions written by non-VA physicians. Although the Veterans Choice Act authorizes VA payment for supplies furnished as medical services under the Medicare program, it does not provide a pharmacy benefit outside the VA system, and does not cover drugs dispensed by private sector pharmacies. If veterans want the VA to pay for their prescriptions, the prescriptions must be dispensed by a VA pharmacy or the agency’s mail order pharmacy. Before enactment of the new law, prescriptions written by non-VA physicians often could not be dispensed by VA pharmacies without a VA physician first seeing the patient and approving the prescription. In those situations, a veteran still had to wait to schedule an appointment at a VA facility to get the medication. Hopefully, the VA will not continue that practice under the new law.

It is unclear, however, whether the VA will still require veterans to make appointments with VA doctors in order to obtain certain prescriptions. Requiring a veteran to wait weeks for a VA appointment or drive many miles to see a VA doctor in order to receive medication, which could be prescribed outside the VA and dispensed by the VA’s mail order pharmacy, is clearly contrary to the spirit of the law. If the VA is concerned with the expense of a drug prescribed by a non-VA doctor, a requirement for electronic or telephonic consultation between the prescribing doctor and a VA doctor should suffice. In addition, veterans will be issued Veterans Choice cards in order to process payment claims. Thus, it would be relatively easy for a Pharmacy Benefit Manager to manage prescriptions written by authorized non-VA doctors and dispensed by the VA’s mail order pharmacy to Veterans Choice beneficiaries, including any prior authorization requirements.

Finally, it is worth noting that if veterans elect to be treated by DoD physicians, any drugs or devices furnished to veterans at a military treatment facility will be procured by DoD at contract prices available to DoD, including prices under Blanket Purchase Agreements. Similarly, if veterans elect to be treated at federally-qualified health centers, as defined in section 1905(1)(2)(B) of the Social Security Act, drugs used to treat the veterans will be acquired at deeply discounted prices under pricing agreements authorized by section 340B of the Public Health Service Act. Thus, the acquisition cost for these providers is well below the Medicare rate, which, for drugs, is generally based on the weighted average sales price for the drug, exclusive of federal sales. The Veterans Choice Act caps the negotiated reimbursement rate paid non-VA providers for medical supplies at the Medicare rate; however, the statute does not, prohibit the VA from negotiating prices below this amount with providers that are beneficiaries of other federal contracts or pricing agreements and have much lower acquisition costs. Accordingly, the VA could negotiate payment terms with DoD facilities or federally-qualified health centers consisting of a service fee plus the acquisition cost of the drug.

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.

Missing Pieces of Procurement Reform

Roger Waldron, president of the Coalition and Stan Soloway, president and CEO of PSC, were featured as part of In Depth with Francis Rose’s special report on “The Missing Pieces of Procurement Reform”. The focus of the discussion was taking stock for the future—what aspects of the procurement process should the government preserve or replicate across government? To listen to the program visit www.federalnewsradio.com/1332/3723816/Stan-Soloway-PSC-and-Roger-Waldron-CGP .

Taking Steps to Improve Federal Information Security

On October 3rd, Beth Cobert, Deputy Director for Management at the Office of Management and Budget (OMB) published a blog post about the steps OMB is taking to help agencies improve the security of Federal information and agency networks. OMB has partnered with the National Security Council and the Department of Homeland Security (DHS) to release annual guidance, in accordance with the Federal Information Security Management Act (FISMA) of 2002. This year’s guidance “establishes a new process for DHS to conduct regular and proactive scans of Federal civilian agency networks to enable faster and more comprehensive responses to major cybersecurity vulnerabilities and incidents.” In addition to the release, DHS has published the FY 2015 CIO Annual FISMA Metrics and updated the U.S. Computer Emergency Readiness Team (US-CERT) Incident Notification Guidelines.

False Claims Act Webinar with Steptoe & Johnson LLP – 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: