Friday Flash, 11.14.14

November 14, 2014

FAR and Beyond Blog

Thank you to all our members for your support of the 35^th Anniversary Celebration/EIP Honors and Fall 2014 Training Conference!

The 35^th Anniversary Celebration and Excellence in Partnership Honors could not have been possible without the sustained, strong support of our members and continued efforts to bring common sense to government procurement. Of course, a special Coalition thanks to all our speakers sponsors, and attendees. The participation from our speakers and moderators this year ensured that both events were a fantastic success while the generous support of our sponsors helped make these Myth-Busters events possible.

The Coalition would like to thank the Keynote speakers, Cory Gritter and Carl Salzano, for their moving discussion on the importance of supporting our veterans as they transition to civilian life, as well as the immense value that veterans bring to the public and private sectors.

In addition, the Coalition would like to thank the winners of the Gala’s silent auction, whose generosity raised more than $10,000 for the Coalition for Government Procurement Endowed Scholarship Fund. 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 will be eligible for financial support through the scholarship fund.

Thank you to everyone who participated in, attended, and sponsored our 2014 Fall Training Conference, “35 Years in Government Procurement: Looking Back and Moving Forward”. The conference brought together procurement leaders from across government and industry for a “Myth Busters” dialogue honoring the past, but more importantly, focusing on the procurement system of the future. During the conference, acquisition leaders engaged in a thoughtful dialogue about current and future programs, which is critical for a procurement system that delivers best value mission support for customer agencies and the American people.

The Coalition would like to extend a special thank you to our general session speakers and moderators at the conference—

Keynote speaker: The Honorable Thomas Davis, Director of Government Relations at Deloitte
Shay Assad, Department of Defense
Emile Monette, GSA
Brad Medairy, Booz Allen Hamilton
Jon Boyens, National Institute of Standards & Technology
Elizabeth Ferrell, McKenna Long & Aldridge
Steve Schooner, George Washington University Law School
Mathew Blum, Office of Federal Procurement Policy
Jeffrey Koses, GSA
Mike Pullen, CGI
Lunch speaker: Alan Estevez, Principal Deputy Under Secretary of Defense for Acquisition, Technology and Logistics, Department of Defense

The Coalition would also like to thank all of the participants in the afternoon Myth-Busters breakout session panels, especially the following federal agencies:

GSA
Office of Personnel Management
NASA
National Institutes of Health
Defense Logistics Agency
United States Air Force
Department of Defense
Department of Homeland Security
Department of the Treasury
Department of Veterans Affairs

On behalf of the Coalition for Government Procurement, and all the attendees, thanks again to all of our sponsors and speakers!

Finally, thank you to our staff, Carolyn, Aubrey, Denise, Matt, Roy, Rob, and our interns Sean and Justin, for all their hard work in putting these wonderful events together. Outstanding!!! And Justin, your rendition of the National Anthem made us all proud of our country and set a great patriotic tone for the 35^th Anniversary Celebration and EIP Honors banquet!

35th Anniversary and Fall Conference Photos!

Thank you to everyone who participated in last week’s 35th Anniversary celebration events! To view the photos from the 2014 Fall Training Conference and the 35th Anniversary Celebration and Excellence in Partnership Honors banquet, visit the links below:

35th Anniversary Celebration and Excellence in Partnership Honors banquet: http://keithpix.smugmug.com/Other/EIP-awards/n-fPM5P

2014 Fall Training Conference: http://keithpix.smugmug.com/Other/CGP-2014-Fall-Training/n-HTjJL

Coalition Fall Training Conference in the News

Last week, some of the highlights from the Coalition’s 2014 Fall Training Conference were published in the news. Here are a few in case you missed them—

Prepping HealthCare.gov, rethinking DOD contracts and more

http://fcw.com/articles/2014/11/06/news-in-brief-november-6.aspx

Contractors struggle with ‘patchwork’ of cybersecurity regulations

http://fcw.com/articles/2014/11/06/cyber-regs-contractors.aspx

Pentagon pushes data transparency to get better deals

http://www.federalnewsradio.com/394/3737819/Pentagon-pushes-data-transparency-to-get-better-deals

DoD Cloud Guidance Coming Soon

Federal Times reports that the Department of Defense is set to release an updated cloud computing policy within the next two weeks. According to acting department chief information officer Terry Halvorsen, the re-write of the 2012 policy is intended to speed up the procurement process by giving more purchasing authority to individual agencies. Federal Times notes that new draft guidance will decentralize the process and allow individual agencies to purchase approved commercial cloud services through their respective contract offices. Under the new policy, the Defense Information Systems Agency (DISA) would not act as the sole contracting office but would still have input on security.

DoD IG on Cost-Reimbursement Contracts

The Department of Defense Inspector General issued a report assessing the Department’s compliance with the interim FAR revisions on the use of cost-reimbursement contracts. The interim rule discourages the use of cost-reimbursement contracts due to concerns that the contracts increase contracting risk. The report was mandated by the FY 2009 National Defense Authorization Act.

The report reviews 604 contracts valued at $82.7 billion and found that 411 contracts (68% of the reviewed contracts) valued at $31.7 billion (38% of the reviewed contracts’ value) were not in compliance with the interim rule. The report determined that the rule was not being followed because contracting personnel were unaware of or did not understand the rule.

The report issued six recommendations to ensure that the interim rule is followed within the Department. The recommendations include:

reinforcing the current guidelines about cost-reimbursement contracts
encouraging the transition from cost-reimbursement to firm-fixed price contracts
identifying best practices of contractor accounting systems
clarifying the FAR revisions
discussing in what situations cost-reimbursement contracts are applicable
and clarifying the extent that initial decisions for a basic contract can be relied on for analysis on the subsequent orders.

Letter to Secretary of Labor on EO 13673

The Coalition for Government Procurement joined forces with a number of associations in a letter to Secretary of Labor Thomas Perez expressing the contractor community’s concerns with Executive Order (E.O.) 13673 on “Fair Pay and Safe Workplaces”. The letter, signed by twenty associations, raises concerns about the Executive Order including the vagueness of the language and the burdens associated with the reporting requirements. Further, minor violations of the law may discourage future business. According to the letter, there is a possibility that, “a noticeably risk-averse federal contracting officer community will simply avoid doing business with federal contractors with even minor violations, effectively blacklisting them. Though the E.O. ostensibly targets a small number of companies, the requirements and processes it establishes will likely have a much broader impact.” The letter asks that the E.O. be withdrawn or that the Administration conduct a thorough and comprehensive analysis of its impacts on the contracting community.

Proposed Rule on Government Contract Reporting Requirements

The Federal Contract Compliance Program Office proposed changes that will amend a regulation in Executive Order 11246 Equal Employment Opportunity. The amendment will require certain contractors and subcontractors to include, “summary information on compensation paid to employees, as contained in the W-2 forms, by sex, race, ethnicity, and specified job categories, as well as other relevant data points such as hours worked, and the number of employees,” in their Employer Information Report (EEO-1). The comment period on this NPRM has been extended until January 5, 2015. Please contact Aubrey Woolley to submit input on the proposed rule for the Coalition’s comments.

Information Collection on Cost and Pricing Data

On November 7th, the Department of Defense, GSA, and NASA proposed a continuation of the information collection requirements related to cost and pricing data. The information collection requirement includes, “Cost or Pricing Data Requirements and Information Other Than Cost or Pricing Data.” The purpose of the notice is to collect feedback from the public on the burdens associated with the data collection requirement and to get approval from the Office of Management and Budget (OMB) to continue collecting this information. The comment period is open until December 8, 2014. Comments may be submitted here.

Steve Schooner on Real Procurement Reform

Recently on Off the Shelf, Steve Schooner, Nash & Cibinic professor of Government Procurement Law and co-director of the Government Procurement Law Program at The George Washington University Law School, provides his insights regarding potential procurement reform, the current state of the acquisition workforce, Better Buying Power 3.0, and culture and the role of oversight in the procurement system. Schooner also provides his current book recommendations for the procurement professional. To listen to the program online visit Off the Shelf.

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.

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 awoolley@thecgp.org or (202) 315-1053.

DoD Proposed Rules

This week the Department of Defense (DoD) released the following two proposed rules:

Small Business Growth

The DoD is proposing to amend the DFARS to implement policy to ensure a small business contractor is made aware that entering into a covered contract may cause it to eventually exceed the small business size standard of the NAICS code identified in the solicitation and contract. This clarification is required by section 1611 of the National Defense Authorization Act for Fiscal Year 2014, Pub. L. 113-66, (10 U.S.C. 2419). Comments are due on or before January 5, 2015.

Threshold Adjustments

Additionally, the Department is proposing to amend the DFARS to further implement 41 U.S.C. 1908, entitled “Inflation adjustment of acquisition-related dollar thresholds.” This statute requires an adjustment for inflation every five years of acquisition-related thresholds using the Consumer Price Index for all urban consumers, except for the Construction Wage Rate Requirements statute (Davis-Bacon Act), Service Contract Labor Standards statute, and trade agreements thresholds. Comments are due on or before January 5, 2015.

IAE Transparency Industry Day

GSA has announced the Integrated Award Environment’s next virtual industry outreach event on December 9, 2014 from 1:30 p.m. to 2:30 p.m. EST.

Focused on The IAE Transparency Initiative, this webcast meeting is intended for audiences interested in learning how IAE is using open and transparent Agile development to transform the current 10 disparate IAE systems into a unified, dynamic environment.

Attendees will learn about the forthcoming IAE GitHub site and GSA’s objectives for an external, encompassing working group comprised of users who are willing to help GSA create the best environment possible.

IAE Transparency Champion Pam Miller will be leading the discussion with introductions by Judith Zawatsky, Director of IAE Outreach and Stakeholder Management.

There will be ample time for question-and-answer.

Interested parties can register online for this informative and interactive event.