Friday Flash, 09.20.13

September 20, 2013

FAR and Beyond Blog

This week’s FAR and Beyond is Thought No. Twelve of the Thirteen Thoughts for 2013: ”The $500 billion question: an open or closed federal procurement system?” The answer to this question has profound, long term implications for customer agencies, contractors and the American people

A closed system is one that restricts the number of suppliers to encourage lower prices. An open system encourages streamlined competition by a broad base of commercial contractors to generate fair and reasonable prices. Why an Open Federal Procurement System?

An open system puts “commercial back in commercial item contracting.” An open system eliminates government unique requirements where the costs outweigh the benefits to customer agencies and the American people. An open system maintains and enhances the flexibility and efficiency of the GSA Multiple Award Schedule (MAS) program, the most successful commercial item contracting vehicle in government. An open system leverages acquisition resources by eliminating unnecessary contract duplication which increases costs to government, industry and the American taxpayer. At its core, an open federal procurement system eliminates barriers to entry and embraces competition and technological innovation driven through access to the commercial marketplace.

Consequences of a Closed System

A closed system favors government unique requirements over commercial practices. A closed system favors “mandatory use” contracting programs that, by their very nature, limit access to the commercial marketplace. A closed system fails to address contract duplication which increases costs and depletes bid and proposal funds for government and industry. A closed system favors GSA’s proposed Demand Based Model that would eliminate continuous open seasons under the MAS program thereby limiting access to the commercial marketplace for customer agencies. A closed system focuses solely on price rather than total acquisition cost and best value in measuring success.

The end result of increased barriers and transactional costs in a closed federal procurement system is a much more limited supply chain for customer agencies. A limited supply chain reduces competition for commercial products, services and solutions. A limited supply chain reduces access to commercial innovation and best value solutions that support customer agency missions. There is broad consensus among acquisition professionals that increased access to the commercial marketplace streamlines processes and has saved money for the American taxpayer. For that reason the Federal Acquisition Streamlining Act of 1994 created commercial item contracting as currently implemented at FAR Part 12. Increasingly, however, doing business with the federal government has gotten more difficult for commercial firms. Government unique clauses/requirements, including data collection and reporting requirements, are included in commercial item transactions—rendering the term “commercial item contracting” less and less relevant to the federal acquisition system. These government unique requirements increase transactional costs that are ultimately passed on to the customer through higher prices and/or reduced competition.

Interestingly, some impacts of a closed acquisition system are starting to be reflected in the GSA Office Supply Schedule. For almost 2 years now the schedule has been closed to new offers while at the same time GSA has been implementing FSSI BPAs for office supplies on a government wide basis. Recently, GSA began planning for the next FSSI procurement for office supplies and sought industry feedback through an industry day held last month in New York City. Currently, GSA is contemplating creating an entirely new set of IDIQ contracts, outside the MAS program, for the FSSI office supplies procurement rather utilizing the MAS program as the platform. A key rationale for considering such an approach is that the schedule may no longer offer maximum competition for the next generation of FSSI because it has been closed since 2010. If GSA chooses this path, the closing of the MAS schedule would result in a prolonged, costly open market procurement that duplicates what is already available via the MAS program.

The irony is that the American taxpayer cannot afford this duplication in the Federal space! The Coalition will continue a Myth-buster’s dialogue with others in the acquisition community to ensure that the procurement system remains open and leverages the commercial marketplace to provide cost efficient innovative services and solutions to agencies. We look forward to working with GSA and other stakeholders to keep an open Federal procurement system that maximizes access to the latest innovation and opportunities for both small and large businesses.

Roger Waldron

President

Nominations Open for EIP Awards

DHS Representatives Jose Arrieta and Bob Namejko with The Coalition’s President Roger Waldron

Nominate a deserving acquisition official for an EIP Award today! The Excellence in Partnership (EIP) Awards honor acquisition officials who have made significant strides in promoting and utilizing multiple award contracts, saving taxpayer dollars and contributing to veterans hiring and green initiatives. Awards will be given to individuals, organizations and contractors involved in procurement with GSA, VA, DoD, DHS and other government agencies. EIP Award nominations for 2013 are being accepted in the following categories:

Nominations will be accepted through October 1. Please provide a brief description of why your nominee should be recognized with an EIP award with your nomination. Submit your nomination here. If you have any questions, please contact Aubrey Woolley at awoolley@thecgp.org or (202) 315-1053.

DoD Prepares for Sequestration in FY14

Defense One reports that Department of Defense (DoD) comptroller Robert Hale is preparing for multiple budget scenarios for FY14. Among the FY14 possibilities are the President’s request of $527 billion, the recently proposed continuing resolution’s spending level of $496 billion, and the Budget Control Act’s level of $475 billion. Given that Congress failed to act on sequestration last year, the DoD would like to be prepared for a number of situations. In the interview with Defense One, Hale notes that the DoD should plan for spending at the short-term continuing resolution level, or “maybe even be a little risk averse go below that.” The DoD comptroller also highlighted the unprecedented nature of fiscal planning that DoD finds itself in. Normally at this time, the Department is planning for FY15. The level of budget uncertainty however has delayed fiscal planning as DoD waits for the FY14 numbers to be confirmed.

OMB Prepares Agencies for Shutdown

This week, Director of the Office of Management and Budget (OMB) Sylvia Burwell issued guidance to agencies about how to prepare for a government shutdown. In the memo, the Administration states that they do not want a lapse in appropriations to occur, but that prudent management dictates that they prepare agencies for this possibility. The OMB guidance includes a list of Frequently Asked Questions (FAQs) on contracting and payment processing in the event of a shutdown. The questions covered include:

Whether an agency may incur a new contract obligation (e.g. signing a new contract, extending or renewing existing contracts)
Whether an agency may incur a new contract obligation in emergency circumstances
How continued performance of administrative, supervisory, or support activities in connection with a previously-awarded contract should be handled during a funding lapse
How payments to contractors should proceed
What Information Technology operations should be continued or suspended if appropriations lapse

To access these FAQs, visit www.whitehouse.gov/sites/default/files/omb/memoranda/2013/m-13-22.pdf.

GAO on Duplicative IT Programs

This week the Government Accountability Office (GAO) released a report entitled Information Technology: Key Federal Agencies Need to Address Potentially Duplicative Investments. GAO notes that its prior work has shown that agencies were funding IT investments that unnecessarily perform similar functions. This report was compiled in order to determine whether there are other potentially duplicative IT investments at key federal agencies. The study found that of the 590 IT investments that were reviewed at the Departments of Homeland Security (DHS), Defense (DoD), and Health and Human Services (HHS), 12 were duplicative. These agencies were selected for the study due to their large amounts of planned IT spending. The investments totaled approximately $321 million in reported IT spending from fiscal years 2008-2013. Specifically the GAO found:

Two potentially duplicative investments at DHS that support immigration enforcement booking management, which includes the processing of apprehended illegal aliens suspected of committing criminal violations of immigration law;

Four duplicative investments at DoD, which include two investments that track health care status of warfighters, with one since having been canceled, and two investments that manage dental care.

Six potentially duplicative investments at HHS, which include four investments that support enterprise information security and two for Medicare coverage determination.

The GAO recommends that DoD develop a plan and DHS and HHS conduct analyses to address the potentially duplicative investments identified in this report. DoD and HHS agreed with the findings while DHS did not.

2013 Fall Training Conference—The New Federal Market

October 30, 2013 Fairview Park Marriott

How has the federal market changed in the wake of sequestration? How will you succeed in FY 2014? How will actions from The Hill and changing Agency budget priorities impact your business? Learn the answers to these questions and more from Federal Acquisition Leaders, Agency CFOs, government leaders and industry experts at The Coalition’s 2013 Fall Training Conference – The New Federal Market. Breakout sessions will address new developments in government-wide acquisition programs including Strategic Sourcing, GSA Acquisition Center Initiatives, Veterans Affairs, GSA e-marketing, Professional Services and more.

Confirmed Speakers include

Frank Kendall, Under Secretary of Defense for Acquisition, Technology and Logistics – Department of Defense
Major General Wendy M. Masiello, Director of Contracting—Air Force
New! Peggy Sherry, Chief Financial Officer, Dept. of Homeland Security
Emily Murphy, Senior Counsel, House Committee on Small Business
Norman Dong, Deputy Controller— Office of Management and Budget
Kathleen Turco, Chief Financial Officer—Veterans Health Administration
Anne Rung, Chief Acquisition Officer—General Services Association
Troy Cribb, Chief Counsel for Government Affairs—Senate Homeland Security & Government Affairs Committee

Click here for more information, a full agenda and to register.

GSA Denies OASIS Protest

This week the General Services Administration (GSA) denied a protest on the OASIS contract for complex professional services. The protest, filed by Aljucar, Anvil-Incus Inc., claimed that the requirements placed on joint ventures were unreasonable. According to Federal News Radio, GSA bid protest official Maria Swaby found that GSA “established the reasonableness of the restriction on joint ventures as necessary to meet its legitimate needs.” Swaby also stated that the protestor “failed to show that [GSA’s] explanation for the restriction is clearly unreasonable.” Following GSA’s decision, Aljucar, Anvil-Incus plans to file its protest with the Government Accountability Office (GAO).

Lawmakers: Contractor Security Clearance Review Needed

After Monday’s tragedy at the Washington Navy Yard, Congress is calling for a comprehensive review of the security clearance process for defense and national security contractors. According to Defense News, the emerging consensus is that new rules may be needed. Senators are questioning the role of the private sector in the security clearance process. Senate Armed Service Committee chairman Carl Levin (D-MI) and ranking member John McCain (R-AZ) signaled that oversight hearings on the issue are likely, but suggested that proper enforcement of already existing regulation could be the answer. Some lawmakers also alluded that the budget cuts could be to blame for the lapse in security. For more information members can view the Defense News article here.

Legal Corner

Gratuities – Cautionary Tales for Contractors and Government Employees

By: Tom Barletta, Partner, Steptoe & Johnson LLP; Fred Geldon, Senior Counsel, Steptoe & Johnson LLP; & Mike Navarre, Special Counsel, Steptoe & Johnson LLP

Recent events demonstrate that government investigators and prosecutors are taking more seriously the ethical regulations that govern gratuities. Cases in point:

On April 25, 2013, the U.S. Department of Justice issued a press release announcing that a Bureau of Prisons (BOP) employee had pled guilty to a charge of receiving unlawful gratuities. The BOP employee, a supervisory traffic management specialist in the BOP Relocation Services section, was responsible for giving relocating BOP employees a list of approved movers and then referring their move to agents of the chosen carrier. While performing these duties the employee received spa and salon gift cards in the amount of $1,007 and $790 from one carrier’s agent, as well as free moving services from moving companies. The BOP employee was subsequently assessed a fine of $1,500 and placed on probation for 18 months.
On June 5, 2013, the Washington Post reported that the Internal Revenue Service (IRS) had placed two managers on administrative leave for accepting free food and other gifts in violation of government ethics rules. These violations were discovered during an audit of a years-old conference, at which the managers “allegedly held an after-hours party in their private hotel suites.” It apparently was not clear who gave the managers the food, worth $1,162. Acting Commissioner Danny Werfel said in a statement to the Post that the IRS has started the process of firing the managers.

The basic rules applicable to government employees regarding gratuities are set forth in the Standards of Ethical Conduct for Employees of the Executive Branch (“Standards”), which are codified at 5 C.F.R. § 2635. The Standards generally prohibit federal government employees from accepting gifts[1] from “prohibited sources,” a category that includes, among others, contractors (and employees of contractors) doing business with or seeking to do business with the federal government employee’s agency. 5 C.F.R. §§ 2635.102(k), 2635.203(d).

There are some exceptions, however. For example, under the Standards, federal employees may accept, even from “prohibited sources,” items worth $20 or less, as long as the total value of the gifts from the same source is not more than $50 in a single calendar year (calculated by including a contractor and its employees as a single source). 5 C.F.R. § 2635.204(a). The Standards also include other limited exceptions, such as gifts motivated by family relationships.

The size of the gratuities in the two recent examples discussed above far exceeds these thresholds. In the case prosecuted by the Justice Department, however, the amount at issue was significantly less than amounts usually cited in large corruption cases, and demonstrates that even these (relatively) small violations are attracting the attention of auditors, investigators, and prosecutors.

Although the Standards apply only to government employees who receive gratuities rather than to contractor employees who offer gratuities, contractors can face potential liability in relation to gratuities as well.

The federal criminal gratuities statute, 18 U.S.C. § 201, provides for fines or imprisonment for anyone who, for example,

directly or indirectly gives, offers, or promises anything of value to any public official, former public official, or person selected to be a public official, for or because of any official act performed or to be performed by such public official, former public official or person selected to be a public official.

18 U.S.C. § 201(c)(1)(A).

Unlike a bribe, an illegal gratuity does not require an intent to influence; rather, the illegal gratuity only need be given “for or because of” an official act. An illegal gratuity “may constitute merely a reward for some future act that the public official will take (and may already have determined to take), or for a past act that he has already taken.” United States v. Sun-Diamond Growers of California, 526 U.S. 398, 404-405 (1999). There must, however, be a connection, i.e., the government must prove “a link between a thing of value conferred upon a public official and a specific ‘official act’ for or because of which it was given.”[2] Id. at 414.

The risk to contractors is heightened, however, because the line between an acceptable gift and an illegal gratuity is nuanced. For example, in United States v. Hoffmann, 556 F.3d 871, 877 (8th Cir. 2009), the court rejected the defendant’s contention that the Government had failed to prove that he violated the gratuities statute because he did not reasonably believe that the government employee would take an official action and because the government employee never did so. Rather, the court upheld the conviction finding that a “reasonable juror could conclude” that the contractor gave the government project manager a set of golf clubs “to . . . reward future performance.”

The risk to contractors is demonstrated by yet another recent Justice Department announcement in a whistleblower “qui tam” case that included gratuities allegations. On March 7, 2013, DOJ announced that three CIA contractors (American Systems Corporation, Anixter International Inc., and Corning Cable Systems LLC) had agreed to pay $3 million to settle allegations they violated the False Claims Act and Anti-Kickback Act. The announcement included allegations[3] that in pursuit of a 2009 contract the companies had provided gratuities (meals, entertainment, gifts, and tickets to sporting and other events) to CIA employees.

Prohibitions on gratuities applicable to contractors are also incorporated into various FAR provisions. For example, FAR 52.203-13(b)(3) (Contractor Code of Business Ethics and Conduct) requires that contractors “timely disclose, in writing, to the agency Office of the Inspector General, with a copy to the Contracting Officer, whenever, in connection with the award, performance, or closeout of this contract or any subcontract thereunder, the Contractor has credible evidence that a principal, employee, agent, or subcontractor of the Contractor has committed . . . [a] violation of Federal criminal law involving . . . gratuity violations found in Title 18 U.S.C.” In addition, FAR 52.203-3(a) allows the government to terminate a contract if a contractor or contractor employee “[o]ffered or gave a gratuity (e.g., an entertainment or gift) to an officer, official, or employee of the Government; and [i]ntended, by the gratuity, to obtain a contract or favorable treatment under a contract.” The government also may recover damages and/or suspend or debar a contractor from federal contracting for violations of this clause. See FAR 3.204(c).

Finally, in addition to potential criminal penalties and suspension and debarment, providing gratuities to government employees can also result in other adverse effects for a contractor, such as negative past performance ratings that could affect current and future business.

In sum, to maintain healthy relationships with their government customers and to protect government employees and themselves from potential liability, contractors should understand the laws and regulations applicable to gratuities to government employees, have a clear policy regarding gratuities (which, for many contractors includes a prohibition on giving gratuities) and provide appropriate education and training to their employees.

Of course, contractors should also be aware of laws and prohibitions that apply in related contexts, including anti-kickback laws that prohibit certain improper payments between prime contractors and subcontractors, the Foreign Corrupt Practices Act, which prohibits certain types of payments to foreign officials, and laws and regulations that regulate payments that can be made to members of Congress and staff.

[1] “Gifts” include entertainment, favors, discounts, hospitality, transportation, and other things of value. 5 C.F.R. § 2635.203(b).

[2] The Court in Sun-Diamond also rejected the Government’s contention that the illegal gratuities statute is violated by providing a gift to an official because he is in a position (i) to act favorably at some unknown future time, or (ii) to “build a reservoir of goodwill that might ultimately affect one or more of a multitude of unspecified acts.” Sun-Diamond, at 405.

[3] The Justice Department also alleged that the companies improperly received source selection information from a CIA employee to whom they had provided gratuities.

Assad Guidance on CBAR

Director of Defense Pricing, Shay Assad, released a memorandum on September 12 with clarifications to Defense acquisition officials about the Contract Business Analysis Repository (CBAR). The CBAR database provides contracting officers throughout the Department of Defense (DoD) detailed pricing data on past business deals with the Pentagon. The goal of the new tool is to provide DoD contracting officers with timely and accurate data to better prepare for negotiations.

The September 12 memorandum provides clarifications to the acquisition workforce about information submitted into the CBAR database. The following will be incorporated into the Defense Federal Acquisition Regulation Supplement (DFARS) Procedures, Guidance and Information (PGI) 215.406-3:

The requirement to upload pre and post business clearance documentation into CBAR applies to all sole source negotiated actions exceeding $25M and awarded on or after June 24, 2013, and to all sole source negotiated actions exceeding $100M awarded after October 1, 2012. This includes sole source actions using the procedures at FAR Part 12 and FAR Part 15.
The business clearance documents uploaded to CBAR must be signed by the contracting officer and must include all other signatures required by local policy/procedure.
Business clearance documentation must be uploaded to CBAR no later than 30 days after award of the contract action associated with the negotiation and must include both the pre-negotiation objective and post-negotiation documentation. The comments section of the business clearance record must be completed to summarize the unique features of the negotiation.
In accordance with DoD Manual 5200.01, Volume 4, business clearance documents uploaded to CBAR must be marked “For Official Use Only.”
To the extent task or deliver orders entail a negotiation, a business clearance record for the orders that exceed prescribed dollar thresholds must be uploaded to CBAR. If an initial IDIQ task or delivery order contract contemplates issuance of orders that will invoke negotiated rates or values from the basic contract, then the business clearance record for the basic IDIQ contract shall be uploaded if the estimated value of the contract (e.g. ceiling price) exceeds the prescribed dollar thresholds.

GSA Ends HR Shared Services

GSA has announced that it will be ending its human resources and payroll shared services used by other government agencies. According to Federal News Radio, the decision came as part of the recent review by administrator Dan Tangherlini. “He wants GSA to focus on its core missions: acquisition, real estate and some of the technology services,” said Anne Rung, GSA’s associate administrator in the Office of Governmentwide Policy. Currently, GSA’s HR Services provides payroll and other services to 40 agencies and about 25,000 employees. GSA has not yet finalized the requirements but does intend to phase the service out. A request for information has been released in order to help GSA gain input and develop the requirements, while still in the preliminary phases, said Anne Rung at an industry event in Washington last week.

The Service Contract Act (Webinar) Rescheduled for Thursday, Oct 3, 2013

Join The Coalition and Baker Tilly for a 1-hour webinar about The Service Contract Act and its application to Multiple Award Schedule Contracting. This session will provide an overview of the Service Contract Act and the nuances of the regulation that make it particularly cumbersome for contractors to comply with. We will explore the added complexity that is presented with the inclusion of this regulation in Multiple Award Schedule contracts.

Attendees will hear examples of challenges contractors face when vehicles, such as the GSA Schedule, apply the Act. This course will offer a unique perspective regarding how to best approach these issues in order to mitigate liability during award. Click here for more information and to register.