FAR and Beyond Blog
As you know, in honor of our 35th Anniversary, the Coalition for Government Procurement (the Coalition) has established an endowed scholarship fund that will benefit veterans wishing to pursue a career in federal acquisition. Veterans concentrating their studies in the field of U.S. Government procurement and pursuing a law or master’s degree at the George Washington University (GWU) will be eligible to receive financial support from the scholarship fund. Our goal in establishing this scholarship is to support the two fundamental pillars of the Coalition—common sense in government procurement and support for our veterans. Through the scholarship we are supporting the development of the acquisition workforce while also supporting our veterans as they transition to the civilian workforce!
On Saturday October 25th, on behalf of the Coalition, I attended the Fall Meeting of the Government Contracts Advisory Board of the GWU Law School. During the course of the meeting I had the honor and privilege of officially presenting Steve Schooner, Nash & Cibinic Professor of Government Procurement Law and Co-Director of the Government Procurement Law Program, with a check for $25,000 as the first installment for the Coalition for Government Procurement Endowed Scholarship Fund. This initial installment was the direct result of the generosity and support of our members through the Joseph P. Caggiano Memorial Golf Tournament held August 27, 2014. This first installment is a wonderful start towards our goal of raising at least $100,000 over the next three years to ensure the endowment is self-sustaining.
Next Wednesday, November 5th, the Coalition will host the 35th Anniversary Celebration and Excellence in Partnership Honors at the Ronald Reagan Building in Washington DC. We are extremely excited about the Coalition’ 35th Anniversary Celebration and Excellence in Partnership Honors—the Honorees can be found here. At the same time, we are thrilled be able to host a Silent Auction to support the endowed scholarship fund benefitting veterans. Proceeds from the silent auction will go directly to the scholarship fund and mark its further growth towards our goal! I encourage you to come out and support common sense in government procurement and our veterans!
The list of items available at the silent auction can be found here. I look forward to seeing you there.
Chris Hamm Named FEDSIM Director
FCW reports that Chris Hamm will step into the role of Federal Systems Integration and Management (FEDSIM) Director on November 1st, following Steve Viar’s retirement. In the coming months, Hamm noted that FedSIM will be focused on Continuous Diagnostics and Mitigation (CDM), as well as looking to expand its contract portfolio to include more vehicles that include a combination of professional services and technology. The Coalition congratulates Chris Hamm on his new role as well as Steve Viar on his selection as a Lifetime Acquisition Excellence Honoree for 2014.
GSA has announced that customers can order direct from the Janitorial and Sanitation (JanSan) strategic sourcing contract vehicle, utilizing the 18 Blanket Purchase Agreements (BPAs) available. According to the announcement, as of October 23, pricing is available directly through GSA contractors only. GSA has grouped JanSan products into four categories: Cleaning Compounds and Related Dispensers, Non-Motorized Cleaning Equipment and Trash Receptacles, Paper Products and Related Dispensers, and Motorized Floor Cleaning Equipment and Accessories. The first three categories require AbilityOne items. All vendors within these groupings are AbilityOne-authorized distributors. Small Business is also a critical partner with 15 of the 18 awards. See www.gsa.gov/fssijansan for more information.
DoD Leadership to Review RFPs Before Release
Federal News Radio reported this week that “the Department of Defense is requiring senior officials to review major acquisitions before the program receives approval to move into the technology development phase, commonly known as Milestone A.” According to Katrina McFarland, assistant secretary of Defense for acquisition, Request for Proposals (RFPs) are being reviewed by Undersecretary of Defense for acquisition, technology and logistics Frank Kendall before they are final and released on the street. Kendall is looking into whether the acquisition strategy is complied with inside the RFP, whether industry can respond to the request and if the investment decision complies with the services’ interests. To learn more, read the full Fed News Radio article.
Federal Employee Viewpoint Survey
OPM released the results of a government-wide Federal Employee Viewpoint survey on October 24th. The survey has produced interesting results eliciting support and criticism by government employees. Overall the survey reveals that 70 percent of government employees believe that their work gives them a feeling of accomplishment, 90 percent believe the work they do is important, and 80 percent believe that their immediate supervisor treats them with respect. However, only 49.5 percent of government employees trust their senior leaders (down 4.1 percent from the previous year) and 38 percent of employees agree that their senior leaders inspire a high level of motivation and commitment. The survey asked 392,752 government employees 84 questions dealing with topics such as work experience, agency performance, and senior leadership.
85% of GSA Reverse Auctions to Small Business
Performance numbers on the GSA Reverse Auction from Fiscal Year (FY) 2014 were released this week on the GSA blog. According to the post, 21 agencies across the government created 900 auctions. These auctions created savings of more than $6 million, or about 23 percent. The GSA had set aside 60 percent of the auctions for small business and by the end of FY2014 85 percent of the procurements were awarded to small businesses, totaling more than $19 million.
According to FCW, 18F, the digital delivery team housed at the General Services Administration, will launch an agile development and acquisitions planning group called 18F Consulting. It will serve as an agile coach and solutions architect for agencies. Greg Godbout, 18F’s co-founder and executive director, told FCW that 18F Consulting will help agencies break down and simplify the replacement of legacy systems into discrete, deliverable projects that can be executed according to agile development principles. 18F is also preparing to launch a dashboard that contains status information on its projects and links to code repositories and other information on GitHub. The dashboard will likely launch either this week or next, but client agencies will be given the opportunity to decide whether their projects are represented.
This week, GSA highlighted some of the people behind the success of the AbilityOne program as a part of National Disability Employment Awareness Month. Bill Sisk, FAS Deputy Commissioner and AbilityOne Commission Member writes that National Disability Employment Awareness Month “is the perfect time to reflect on the real-life, day-to-day outcomes we see when the folks employed through AbilityOne have jobs that they love and are important to them.” Employees highlighted as part of GSA’s Part 2 blog post are: Manuel Zavala from the West Texas Lighthouse for the Blind in San Angelo; Stephanie Davis at Winston-Salem Industries for the Blind; Charles Ellis from the Columbus Community Center in Salt Lake City; and Steve Credle with Job Options in San Diego. From vision loss to mental illness and even homelessness, the AbilityOne program plays a meaningful role by supporting individuals with disabilities with employment opportunities nationwide. The partnership between GSA and AbilityOne was recently recognized during the 2014 NIB/NAEPB National Conference. Accepting the award on behalf of GSA was Diana Leonardo, GSA’s liason to AbilityOne. About the award, Diana said, “these individuals are being given a chance to live independent lives and GSA is contributing to this effort by working with the U.S. AbilityOne Commission, NIB and SourceAmerica to further their efforts.” To read the full blog post, visit http://gsablogs.gsa.gov/gsablog/.
A recently released GAO report finds that the USDA’s Departmental Management, Forest Service, and Food and Nutrition Service do not, “consistently follow regulations, policies, and guidance in overseeing professional service contracts.” The report focused on the three departments which comprise 70 percent of USDA’s obligations for professional service contracts. The report looks broadly at two areas: did USDA use contract types which are preferred in various federal regulations and did USDA follow regulations in overseeing the contracts.
Due to an OMB and Federal Acquisition Regulation preference, performance based firm-fixed-price contracts are the preferred contracts in most situations. The report does note that there are times when these contracts are not appropriate, such as when the contract is for an ongoing service or when the total cost of the service is unknown. Approximately 45 percent of the contracts were performance based. The Food and Nutrition service utilized performance based firm-fixed-price contracts the most out of the three groups at about 90 percent and were exempt from the GAO recommendations regarding the use of these contracts.
In order to correct this shortcoming the report recommends that the Forest Service and Departmental Management establish mechanisms to help ensure inclusion of surveillance plans in contracts.
The other area the report looked into was whether or not the regulations were followed properly. The report looked to see that contracts had contracting officer(s) who met with the contractor on a regular basis throughout the contract performance period, reviewed the progress reports submitted by the contractor, and reviewed invoices before the contractor was paid. Departmental Management completed 38 percent of assessments, Food and Nutrition Service completed about 15 percent of assessments, and the Forest Service completed 66 percent of assessments of contractors; OMB regulations expect all contracts to be assessments.
GAO recommends that the Forest Service and Departmental Management develop strategies for meeting OMB’s target regarding the percentage of contracts for which contractor performance assessments are completed. USDA agreed with the findings and recommendations of the report.
On October 22nd, the National Institute of Standards and Technology (NIST) published the final version of the US Government Cloud Computing Technology Roadmap, Volumes I and II. The roadmap focuses on strategic and tactical objectives to support the federal government’s accelerated adoption of cloud computing.
The first volume, High-Priority Requirements to Further USG Agency Cloud Computing Adoption, describes the roadmap’s purpose and scope. The draft focused on three priorities: security, interoperability (the ability for systems to work together) and portability (enabling data to be moved from one cloud system to another). The final version adds two priorities: performance and accessibility. The document lays out 10 requirements necessary for the federal government adoption of cloud, including developing international standards, security solutions, and clear and consistent categories of cloud services.
The second volume, Useful Information for Cloud Adopters, introduces a conceptual model, the NIST Cloud Computing Reference Architecture and Taxonomy and presents U.S. government cloud target business and technical use cases.
Volume II also identifies existing interoperability, portability and security standards that apply to the cloud model and specifies high-priority gaps that need new or revised standards, guidance and technology. It also covers security challenges in cloud computing adoption. The document provides insight into the choice of the 10 requirements and the Priority Action Plans listed in Volume I.
Ideas on Savings Strategies for Buildings Maintenance/Operations FSSI
GSA’s Federal Strategic Sourcing Initiative (FSSI) team for Buildings Maintenance & Operations (BMO) is in the process of developing a savings strategy for the upcoming BMO acquisition solution. Specifically, the BMO team is interested in hearing from BMO service providers about possible ways the government can save other than through service price reductions. For more on the BMO team’s request and to submit your ideas, visit the post on GSA Interact.
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
- unsuccessfully attempted to schedule an appointment at a VA medical facility within the Veterans Health Administration wait-time goals (posted on the internet),
- live more than 40 miles from the closest VA medical facility,
- 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
- 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.
“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.
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.
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.
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.
- 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.
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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.
 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.
 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.
 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.
Quality Partnership Council – Furniture
The Integrated Workplace Acquisition Center (IWACenter) sponsored a Quality Partnership Council (QPC) meeting on October 28, 2014, in conjunction with NeoCon East. Neocon is a design expo and conference for government commercial interiors that features products and services of GSA Schedule furniture contractors. This meeting is significant in that it offers GSA and its customers an opportunity to view a wide offering of Schedule products in one place.
Senior leadership of the IWA Center participated in the QPC meeting including Linda Chero, Regional Commissioner, Federal Acquisition Service, Brian Knapp, IWAC Director and Jack Wise, FAS Regional Operations Director. Major customers of the furniture schedule including VA and Navy attended to speak regarding their use of the Schedules program. With respect to the Spiral II BPA, the Navy stated that all DoD activities can now purchase through the BPA. Navy also stated that Spiral II sales were almost $400 million, with 65% of the dollars going to small business and further that the vast majority of sales were through packaged office contracts. Navy is currently developing requirements for Spiral III. The Coalition will monitor the development of this important acquisition.
The QPC discussion covered many items of interest to Coalition members including the FIT Request for Proposals, implementation of the Services Contract Act in Schedule 71 and Universal Product Code/Manufacturer Part Number reporting. These issues are important to Schedule contractors because of continuing discussions as to whether the strategies maximize use of the schedule and minimizing costs to contractors. The IWAC reiterated its intent to make the GSA Schedules platform one that works effectively for all stakeholders. Importantly for Coalition members, the IWAC expressed it interest in participating in a working group to develop strategies for streamlining and improving MAS procedures.
The QPC was an important step to increase the dialogue between GSA and industry regarding creating a Furniture Schedule program that satisfies the needs of all stakeholders. We look forward to a continuation of that dialogue.
Additional CAGE Code Requirements beginning Nov 1
Effective November 1, 2014, FAR Subpart 4.18 – Commercial and Government Entity Code (CAGE) requires offerors to answer questions about their entity’s ownership in order to maintain an active registration in SAM. Offerors, if owned or controlled by another entity, shall provide the CAGE Code and legal name of that entity to their contracting officer.
GSA has provided a Quick Start Guide to CAGE Ownership of Offeror as a resource for contractors that includes definitions of terms, steps to respond on SAM and what to do if an owner does not have a CAGE Code. For additional information about CAGE Ownership of Offeror requirements, GSA asks contractors to contact the Federal Service Desk at www.fsd.gov.
DPAP Memo on ICAT Support
This week, Director of Defense Pricing Shay Assad released a memorandum that encourages contracting officers and Program managers to utilize Integrated Cost Analysis Teams (ICATs) to the full benefit of the programs and contracts that they manage. Established by the Defense Contract Management Agency (DCMA), Integrated Cost Analysis Teams (ICATs) provide dedicated business and technical proposal pricing support for customers across the Department by leveraging their direct knowledge through continuous evaluation of each contractor’s estimating methodologies, cost models, overhead/labor rates, business systems, and prime/subcontractor proposal practices. ICATs routinely coordinate with DCAA counterparts before and throughout the proposal analysis process to ensure effective communications and expectations for buying command.
Assad notes contracting officials should begin discussions early on in the acquisition planning process to ensure resource coordination and audit support is effectively planned by DCMA.
GSAR Part 538 Proposed Rule Extended to Nov 21
GSA extended the comment period for the GSAR; Federal Supply Schedules Contracting (Administrative Changes) proposed rule to November 21, 2014. The proposed rule updates three sections of the General Services Administration Acquisition Regulation (GSAR)—part 15, Contract by Negotiation; part 538, Federal Supply Schedule (FSS) Contracting; and corresponding areas of part 552, Solicitation Provisions and Contract Clauses. Thirty-five new FSS specific clauses are being added to GSAR parts 538 and 552. According to GSA, these clauses and provisions have already been implemented into the program through internal policy and current FSS solicitations and contracts. The Coalition is in the process of reviewing the proposed rule and will submit comments. The deadline for members to submit input to the Coalition is Thursday, November 13. Please send your feedback to Aubrey Woolley at firstname.lastname@example.org or (202) 315-1053.
DoD: Blended Rates for Compensation Caps
The Department of Defense (DoD) has approved contractors’ use of a “blended rate” to implement the multiple compensation cap requirements. The use of blended rates will accommodate contractors subject to both current and earlier compensation limit provisions, addressing the potential for complexity and related costs from the overlap. According to the memo, blended rates will be calculated by each individual contractor as a weighted average composite cap amount specific to their contract volume prior to June 24, 2014, and on or after June 24, 2014. Contractors may elect, but are not required, to use the blended rate approach. Depending upon their circumstances, contractors may elect another compliant method (e.g., using the new $487,000 cap for all contracts regardless of award date).
For more information on the implementation of compensation caps, please review DPAP’s blended rates memorandum.
Class Deviation on FAR Part 51 Released
A class deviation to Federal Acquisition Regulation (FAR) Part 51 was released this week. The deviation allows contracting officers to authorize all GSA contractors, who are performing on a time-and-material or labor-hour basis, to purchase ancillary supplies and services from Federal Supply Schedule (FSS) contractors or process requisitions through the GSA Global Supply Program. The class deviation is valid for five years from October 23, 2014.
USDA BioPreferrred Products Update
The Department of Agriculture (USDA) has announced proposed new actions to include new forest products in the BioPreferred® program. The proposed rule also includes other traditional biobased products and other mature market products, which have been produced in innovative ways. USDA is seeking public comment on the proposed rule. The proposal responds to new requirements in the 2014 Farm Bill for USDA to promote biobased products, including forest products that apply an innovative approach to growing, harvesting, sourcing, procuring, processing, manufacturing, or application of biobased products regardless of the date of entry into the marketplace.