With every new administration, there is both great uncertainty and opportunity in federal government contracting. To help you navigate the rough seas of doing business with the federal government in the Trump administration, Oles Morrison is partnering with the AGC of Alaska and Alaska PTAC to host a half-day seminar/webinar on August 15, 2018, with nationally recognized practitioners who will cover topics relevant to government contractors large and small.

Session topics include:

  • A Primer on Subcontract Disputes and Pass-Through Claims on Federal Projects
    Howard Roth, Of Counsel, Oles Morrison Rinker & Baker LLP
  • Keys to Succeeding in SBA’s Mentor-Protégé Joint Venture Programs
    Adam Lasky, Partner, Oles Morrison Rinker & Baker LLP
  • Pricing Change Orders, REAs and Claims
    Aaron Raddock, CPA, CFE, CFCM, Managing Director, Industry Specialty Services – Government Contracts, BDO USA LLP
  • Complying with the Mandatory and Voluntary Disclosure Rules in Federal Contracting
    David Yang, Partner, Oles Morrison Rinker & Baker LLP

Three Ways to Attend:

  • In-person, AGC Anchorage (8005 Schoon Street, Anchorage, AK 99518)
  • In-person live stream, AGC Fairbanks (3750 Bonita Street, Fairbanks, AK 99701)
  • On-line live stream

When:

  • August 15, 2018
  • 8:00 a.m. – 12:00 p.m. Alaska Daylight Time (9:00 a.m. – 1:00 p.m. PDT / 12:00 p.m. – 4:00 p.m. EDT)

Click HERE for the program flyer and complete details.

Click HERE to Register.

Questions? Contact Kimberley Gray at 907.561.5354 or kimberley@agcak.org.

It is no secret that the False Claims Act (“FCA”) is the government’s primary anti-fraud tool and that recoveries under the statute have hit record highs in recent years.  For example, since 1987, FCA recoveries have totaled $56 billion with no single year since 2010 falling below $3 billion.  Moreover, most of these cases have been brought by qui tam relators and where the Department of Justice (“DOJ”) did not intervene.  Accordingly, DOJ’s remarks during the American Bar Association’s June 14, 2018, 12th National Institute on the Civil False Claims Act and Qui Tam Enforcement, were certainly welcome for industry.

During this session, top DOJ leadership addressed a number of “reform” projects of significant interest.  First, DOJ emphasized that the greater the degree of cooperation that DOJ receives from a defendant or potential defendant the more leniency the company may receive when it comes time for settlement.  In this regard, the FCA allows for penalties ranging between $11,181 and $22,363 per false claim and treble damages, which allows damages to rack up quickly.  DOJ confirmed that companies which fully cooperate with the Department can expect to receive “tremendous enforcement discretion with respect to structuring settlements while also providing a discount.”  DOJ stated that cooperation can come in many forms, but that the government is usually looking for voluntary disclosures (which DOJ considers to be most valuable), sharing information during an internal investigation, making individuals available for interviews, and identifying culpable individuals (in accordance with the Department’s focus in the Yates Memorandum on individual, and not just on corporate, responsibility).

DOJ also acknowledged that even the best compliance systems fail from time-to-time and assured that “when fraud occurs, the DOJ will give the greatest consideration” to companies that live by a robust compliance culture that is deeply engrained in the organization.  These comments reinforce the fact that having a compliance program is only the first step because it is even more critical that companies continuously update, monitor and stress those principles to its stakeholders, while still making compliance both practical and effective to apply from a business standpoint.

DOJ did not specify the types of leniency that companies can expect, but if lessons can be taken from parallel criminal fraud cases, the incentives for cooperation may result in a below double damages multiplier (or perhaps even no multiplier), a reduction of penalties from even the low end of the range, and no requirement for a corporate integrity agreement and monitor.

Finally, DOJ spoke about two other pressing issues—DOJ’s authority to dismiss frivolous qui tam cases and cases which rely on informal agency guidance, as opposed to an actual regulation or statute, to allege a legal violation in support of a false claim.  As for its dismissal authority, DOJ acknowledged that its policy of dismissing frivolous cases, as set forth in the Granston Memorandum, remains an important objective for DOJ but acknowledged that such dismissals by DOJ, to date, have been rare.  That said, DOJ is “now instruct[ing] [its] attorneys” to give a hard look at cases where DOJ has declined to intervene to determine whether dismissal is warranted.  While results remain to be seen, this and similar recent statements by senior DOJ leadership signal that the Department is trending down this appropriate path.

And, with regard to reliance (often by qui tam relators) on internal and informal agency policies or practices to fashion the basis for a legal violation, DOJ’s remarks, which are consistent with statements in the Brand Memorandum, are especially welcomed because those informal policies lack the force and effect of law and should not serve as the basis for alleging an actual legal violation that could cost a company millions of dollars, especially when such policies and practices are both subjective and inconsistent in their application.

In sum, DOJ continues to send a positive message that companies which act as good corporate citizens by conducting their businesses ethically and in good faith, pursuant to established compliance systems, and which promptly disclose any potential issues to the government will enjoy the benefits of those practices, and that meritless cases should not be used to extract millions of dollars from responsible contractors.

The National Defense Authorization Act for Fiscal Year 2018 amended the Truth in Negotiations Act’s cost or pricing data report threshold, effective July 1, 2018, for all Department of Defense (DoD) procurement contracts, if no exceptions apply.  The TINA amendment raises the threshold for submitting certified cost or pricing data (i.e., that the data are current, accurate and complete) from negotiated contracts valued at $750,000 or more to negotiated contracts valued at $2 million or more. The amendment applies to both prime contractors and subcontractors for a prime contract or subcontract entered into or modified after June 30, 2018. The threshold for submitting certified cost or pricing data threshold on preexisting contracts remains at the $750,000 level.

Congress’ purpose in raising the TINA threshold is to incentivize more and smaller companies to participate in DoD programs by alleviating some of the burden of complying with the often complex and difficult job of preparing and submitting certified cost or pricing data.  Some observers have viewed these considerations as a potential chilling factor in a contractor’s decision to enter negotiated procurements where certified cost or pricing data may be required. The DoD budget for this year is already immense and its budget proposal for 2019 is also significantly more robust than in prior years.  With DoD now doing more than ever, a pattern which we can expect to continue for the foreseeable future, the government will need more contractors to support its missions around the world.

However, with opportunity comes risk and it is no different here.  Compliance with certified cost or pricing data requirements can be difficult for contractors, given the burden of not only preparing them initially but also monitoring the data to ensure that they remain current, accurate and complete over time if there are modifications or other changes during contract performance that are valued at or more than $2 million that may also require the submission of certified cost or pricing data.  This burden also translates into risk for contractors because an erroneous certification of cost or pricing data can result in government deductions/payment withholding and breach of contract claims or even raise the specter of administrative sanctions and False Claims Act liability.  These issues can present a potential minefield for contractors that have not traditionally worked on negotiated procurements, which require the submission of certified cost or pricing data and may, therefore, warrant some diligence to scope out any potential issues before deciding to submit such bids.  It is also noteworthy that although the TINA threshold has been raised to $2 million, many applicable contracts will exceed that amount and even a contract that initially was below $2 million may, over time, be increased (through modifications or other means) to or above $2 million, thus potentially triggering certified cost or pricing data requirements that did not originally exist.  Given these issues, contractors new to certified cost or pricing data requirements should carefully weigh these considerations before engaging in such procurements.

Liquidated damages are useful tools for parties to allocate risk at the beginning of a contract.  A liquidated damages clause allocates the risk of a contract being completed late.  For a liquidated damages clause to apply, the damages must be approximately the damages likely to be incurred by the assessing party and the damages must be reasonably uncertain at the time of contracting.  While a liquidated damages clause could be used on any type of contract with a deliverable, it is most commonly seen in construction contracts.  In that case, for every day the contractor is late in finishing the project, the owner can assess liquidated damages rather than calculating the actual damages on a day-by-day basis.

While the concept seems straightforward (1 day late = $X in damages), assessing liquidated damages can escalate in complexity.  In the recent case of American International Contractors, assessing liquidated damages required not one but three project aspects that would impact the project’s completion date.  ASBCA Nos. 60948, 61166.  In this case, the Army Corps of Engineers contracted with American International Contractors, Inc. (“AICI”) to contract for the “United Kingdom Maritime Component Command (UKMCC) Development, Mina Salman Port, NSA II, Kingdom of Bahrain.”  The project provided for the construction of two facilities among other items.  The two facilities had to be completed by Mar 7, 2015 and April 6, 2015.  Both facilities were completed late with eight days and 28 days of liquidated damages assessed, respectively.  After AICI had demobilized from the site, the Army Corps requested a proposal from AICI to perform various work in one of the new facilities.  Rather than issuing a new contract, the contracting officer issued a unilateral modification to the construction contract line item for the new facility whereby AICI would perform the new scope in the new facility.  In the modification, the contract stated “[t]he Period of Performance has increased … for a period of two-hundred-thirty-two (232) days from the effective date of this modification of March 11, 2016. … This Period of Performance covers work under this modification only, not for the overall contract.”  Continue Reading Assessment of Liquidated Damages: Careful What You Bargain For

While FAR 52.242-14 (the “Suspension of Work Clause”) and FAR 52.242-15 (the “Stop-Work Order Clause”) both allow a contracting officer to require a contractor to stop all, or any part, of the work at the Government’s convenience, they contain some key differences that prudent contractors should know to protect their interests when contracting with the Government.  The two clauses contain differences in relation to allowable damages, when claims must be presented, the time of suspension or work interruption, and what must be proved to recover damages.

A contractor not aware of which of these clauses is in play could unknowingly submit an untimely or invalid claim.

The Suspension of Work Clause:

The FAR requires that the Suspension of Work Clause be inserted in fixed-price construction and architect-engineer contracts.  The Suspension of Work Clause allows the Contracting Officer to order the Contractor “to suspend, delay, or interrupt all of any part of the work…for the period of time that the Contracting Officer determines appropriate for the convenience of the Government.”  Even if a Suspension Order is not given, if the conduct of the government forces the Contractor to interrupt or cease its work, that conduct may be treated as a “constructive suspension,” affording the Contractor the same rights under the Clause.  The four-part test for recovery under the Suspension of Work Clause is as follows: (1) the resulting delay was for an unreasonable period of time, (2) the delay was proximately caused by the Government’s actions, (3) the delay resulted in some injury to the Contractor, and (4) there is no delay concurrent with the suspension that is the fault of the Contractor.

For directed suspensions, a claim, in an amount stated, must be asserted in writing as soon as practicable after the suspension, delay, or interruption, but not later than the date of final payment under the Contract.  In the case of a constructive suspension under the Suspension of Work Clause, the Contractor may submit a written claim for added costs, exclusive of profit, incurred within 20 days of notice that the work is suspended, delayed, or interrupted for an unreasonable period of time by (1) an act of the Contracting Officer, or (2) by the Contracting Officer’s failure to act within the time specified in the contract.  However, courts have indicated that this notice requirements may be liberally construed.  See Hoel-Steffen Const. Co. v. U.S., 197 Ct.Cl. 561, 570-571 (1972); K-Con Bldg. Sys., Inc. v. U.S., 115 Fed. Cl. 558, 573 (2014). In addition, no allowance for delay is permitted to the extent performance would have been delayed by any other cause.  Continue Reading FAR Suspension of Work v. Stop-Work Order: What Contractors Need to Know

Despite recent political shifts away from globalization, international trade – particularly U.S. exports – will remain a substantial component of the U.S. economy. Companies doing business in the U.S. and overseas must be up to date on U.S. export control regulations. An important component of these regulations are the Export Administration Regulations (“EAR”), which are administered by the Department of Commerce, Bureau of Industry and Security (“BIS”). The EAR covers the export of commercial products that have the potential for dual use—meaning the item has both a commercial and military use—and as such, covers a broad range of products, hardware, software, technical information, and data.

Among the EAR requirements is the Unverified List (“UVL”).  An entity listed on the UVL indicates a “red flag” for U.S. companies because the “bona fides” of these foreign recipients cannot be confirmed by the BIS.  Specifically, entities end up on the UVL when BIS cannot verify the “legitimacy and reliability relating to the end use and end user of items subject to the EAR,” 15 CFR § 744.16(c), and, as such, BIS cannot confirm the location of the foreign entity or the stated use of a controlled item by that entity.  (The UVL does not require any active intent to prevent “end use” verification. Foreign entities that have actively failed to cooperate with BIS end-use check risk ending up on the Entity List which imposes specific licensing requirements in addition to the other provisions of EAR.)

The UVL creates additional responsibilities for any exporter who intends to conduct business with an entity on the UVL. While the UVL does not preclude export activity involving UVL entities, U.S. exporters must comply with heightened requirements, including obtaining an end-use statement whereby the U.S. company verifies the proposed end use of the item to be transferred, and agrees to cooperate with any government requested end-use checks and post-shipment verification.  Notably, in such cases, exporters cannot rely on any license exceptions. Continue Reading Contractors Take Note – Substantially Expanded List of Unverified Entities For Exporting Under EAR

It seems like a yearly ritual.  The U.S. Senate Armed Services Committee (“SASC”) drafts and passes a version of the annual National Defense Authorization Act (“NDAA”) that includes reforms aimed at curtailing bid protests, while the House Armed Services Committee (“HASC”) drafts and passes a version of the NDAA that omits these bid protest reforms.  Every year, the majority of the reforms in Senate are eliminated during the conference committee process.  However, the FY2019 NDAA appears to be headed towards a break in this yearly ritual.

On June 5, 2018, the SASC introduced its version of the FY2019 NDAA to the Senate.  For the first time in several years, the SASC’s proposed version of the FY2019 NDAA does not contain any major reforms to limit bid protests.  The SASC’s proposed FY2019 NDAA (Section 811) contains only a few provisions aimed at bid protests, neither of which would limit bid protests.  Both provisions appear to be related to findings in RAND’s 2018 report of DoD bid protests:

Continue Reading Senate’s Proposed FY2019 NDAA Includes No Major Bid Protests Reforms (Despite DoD’s Request for Legislation to Curtail Second-Bite Protests)

In its annual report to Congress, the Defense Contract Audit Agency (“DCAA”) released impressive metrics about its progress during the 2017 fiscal year. For many years, DCAA has struggled to manage a substantial number of backlogged incurred cost audits—most of which extended back several years, including some which extended back almost a decade. However, according to DCAA’s March 31, 2018 report to Congress (which was recently made available to the public), DCAA examined $281 billion in contract costs, identified $7.1 billion in audit exceptions, and reported $3.5 billion in net savings, all of which produced a return on taxpayer investment of approximately $5.20 to $1. Notably, DCAA advised that it had only 2,860 incurred cost audits in backlog at the close of 2017 and that DCAA expected to clear this inventory in 2018. While DCAA does not consider an audit to be backlogged until the submission has been pending for two or more years, the reported statistics mark a significant milestone for the agency. Indeed, going forward, DCAA advised that it expects to be fully compliant with Congress’s mandate in the 2018 National Defense Authorization Act (“NDAA”) that DCAA’s audit backlog inventory must not exceed one year.

DCAA’s 2018 annual report paints a far different landscape than those in DCAA’s prior reports to Congress. For example, in 2011, at the height of the audit backlog, DCAA had over 21,000 open audits in incurred cost submissions alone and immediate, subsequent years did not meaningfully reduce that caseload. Accordingly, just a short time ago, DCAA had nearly 10 times the number of open incurred cost audits that it had pending as of the close of 2017. This represents only 14.3 months of outstanding inventory, which is a substantial improvement over the 17.6-month average in 2016, many times the average in 2011, and just shy of the one-year backlog requirement newly imposed by Congress for 2018. Continue Reading 2017 Was a Banner Year for DCAA – What Does this Mean for You?

Back when Congress passed the FY2017 NDAA, they included a provision (Section 1822) requiring SBA to create a pilot program to provide opportunities for qualified subcontractors to obtain past performance ratings. Specifically, Congress mandated that SBA create a 3-year pilot program whereby small business concerns without a past performance rating as a prime contractor in the Past Performance Information Retrieval System (PPIRS) (i.e., without a CPAR) may request a past performance rating in the Contractor Performance Assessment Reporting System (CPARS), if the small business is a first tier subcontractor under a “covered contract.”  This pilot program has been codified at 15 U.S.C. 637(d)(17).

Recently, SBA published notice indicating that it will soon – possibly as early as late June 2018 – be commencing this pilot program. This exciting program could give both small business subcontractors and large business primes an additional tool to improve their chances of winning future contract awards. SBA has called for comments on the pilot program by June 19, specifically on the process outlined in SBA’s notice and SBA’s proposed application form for the pilot program (proposed SBA Form 2465).

Who is Eligible to Participate in the Pilot Program

In order to be eligible for the pilot program, a subcontractor must meet all of the following criteria:

  1. Be a Small Business Concern;
  2. Be without a Past Performance Rating as a prime contractor in CPARS;
  3. The application must be made in connection with the Small Business Concern’s performance of a first-tier subcontract under a contract that requires a subcontracting plan;
  4. Completed an application and submitted within 270 days after the Small Business Concern completed the work for which it seeks a past performance rating OR 180 days after the prime contractor completes work on the contract, whichever is earlier.
  5. Subcontract value meets the mandatory CPARS level: exceed the simplified acquisition threshold (as defined in FAR 2.101) or subcontracts for architect-engineer services valued at $35,000 or more as provided in FAR 42.1502; and
  6. Subcontractor is registered and active in the System for Award Management (SAM) located at www.sam.gov.

As seen above, the biggest restriction to this program is that to qualify the small business subcontractor cannot already have any past performance rating “as a prime” in CPARS. However, the pilot program does not necessarily limit a subcontractor to a single past performance review. Nothing prevents a subcontractor from receiving multiple past performance reviews as a subcontractor in CPARS under the pilot program. Small business concerns who only do work as subcontractors may be able to use this program multiple times, which could make them both a significantly more attractive teaming partner for large business primes and increase their own chances of winning prime contracts in the future.

How do Subcontractors Request a Past Performance Rating Under the Pilot Program?

  1. An eligible small business subcontractor completes a SBA Form 2465, which includes, amongst other things, the subcontractor’s suggested performance ratings for each past performance element (i.e. self-ratings) and “justification and written evidence supporting [each] suggested rating.”  The small business subcontractor then certifies the form and sends it to SBA’s Commercial Market Representative (the “Appropriate Official”) at SPPP@sba.gov.
  2. The Appropriate Official forwards the SBA Form 2465 to the Prime Contractor and the Office of Small Disadvantaged Business Utilization (“OSDBU”). The OSDBU and Prime Contractor have 30 calendar days to concur with the small business subcontractor’s suggested ratings, or to contest the suggested ratings and provide justifications for disagreement.
  3. If the OSDBU and the Prime Contractor both agree on a rating, or if either the OSDBU or Prime Contractor fail to respond and the responding person agrees with the small business subcontractor’s suggested ratings, the Appropriate Official shall enter the agreed-upon past performance rating in CPARS.
  4. Alternatively, if the OSDBU and the Prime Contractor both fail to respond to the submitted SBA Form 2465 within 30 days, or if they disagree about the rating, or if either the OSDBU or Prime Contractor fail to respond and the responding person disagrees with the small business subcontractor’s suggested rating, the disagreeing persons (OSDBU and/or Prime Contractor) shall submit a notice contesting the application to the Appropriate Official. The small business subcontractor then has an opportunity to submit comments, rebuttals, or additional information relating to its past performance. The Appropriate Official shall enter into CPARS “a rating that is neither favorable nor unfavorable” along with the initial application from the small business subcontractor, any responses of the OSDBU, the prime contractor, and any additional information provided by the small business subcontractor.

How a Part Performance Review Issued Under the Pilot Program Can be Used

Congress included the following broad language in the legislation concerning the use of past performance reviewed issued under the pilot program: “A small business subcontractor may use a past performance rating given under [this pilot program] to establish its past performance for a prime contract.”

Why Large and Small Businesses Should be Interested in this Pilot Program

Past performance reviews are the life blood of source selection in federal procurement. Nearly every federal procurement will have a past performance evaluation criteria of some kind, and generally past performance is the second most important evaluation criteria (after price). While the law (FAR 15.305(a)(2)) requires that in “the case of an offeror without a record of relevant past performance or for whom information on past performance is not available, the offeror may not be evaluated favorably or unfavorably on past performance,” the reality is that contractors that receive neutral evaluations on the past performance factor rarely win a contract award, absent a major price advantage. Given the importance of the past performance reviews to the source selection process, especially those past performance reviews that reside in CPARS/PPIRS, the SBA’s Pilot Program for Small Business Subcontractor Past Performance Reviews can provide significant advantages for both large business primes and small business subcontractors.

For small business subcontractors the advantages are clear. The pilot program will allow small business subcontractors to get one (or potentially multiple) past performance reviews in CPARS if they do not already have a past performance review as a prime in CPARS. Moreover, because of the process for program, small business subcontractors will be able to receive a past performance review on their own terms, a distinct advantage from the circumstances a prime contractor encounters. The small business subcontractor will be able to propose ratings (which become the ratings default if not countered by the reviewers), they get to cherry-pick which projects/periods of performance to request past performance review for (which allows the small business to only request a past performance review when it knows its performance has been excellent), and the risk of a negative review is mitigated by the requirement that if their is disagreement on a rating the past performance review will be entered into CPARS with “a rating that is neither favorable nor unfavorable.”  Given all these advantages, small business subcontractors without a review in CPARS as a prime should be able to use the pilot program to build a record of past performance, which will better enable them to compete for procurements as a prime contractor in the future, and which will make them a more attractive teaming partner to large business primes (as many source selections allow or require consideration of the past performance records of both the prime and major subcontractors).

This pilot program could also provide major benefits to large business primes that encourage their small business subcontractors to apply for past performance reviews. As already noted, many source selections allow or require consideration of the past performance records of both the prime and major subcontractors. Thus, large business primes often have an increased chance of receiving award if their subcontractors have a strong record of relevant past performance. Under the pilot program, the large business prime actually has influence on the past performance rating that its subcontractor receives, which essentially gives large business primes a role in improving their own team’s past performance record for use on future procurement. Large business primes should encourage the small business subcontractors that they frequently team with to take advantage of this pilot program, thereby allowing the large business prime to present a stronger record of past performance for its team in future procurements.

The Department of Defense (“DoD”) recently issued a final rule regarding contractor disclosures of defective pricing issues on DoD contracts, which can arise where the contractor’s certified cost or pricing data is inaccurate, incomplete or is not current.  In such cases, these errors and omissions can result in significant contract overpayments by the government.  While the new rule incentivizes contractors to voluntarily disclose defective pricing matters, the rule’s impact may be somewhat muted by contractors’ existing mandatory disclosure obligations under the Federal Acquisition Regulation (‘FAR”).

On May 4, 2018, DoD issued Defense Federal Acquisition Regulation Supplement (“DFARS”) 215.407-1(c)(i), Defective certified cost or pricing data.  The new rule, which can be found here, provides that, when in receipt of a contractor’s voluntary disclosure of a defective pricing matter, the contracting officer will discuss the level of involvement needed from the Defense Contract Audit Agency (“DCAA”) in reviewing the disclosure, which can range from a technical review of discrete cost elements, to a limited scope audit, or the requirement for a full scope audit of the contractor.  The contracting officer is, at a minimum required to discuss with DCAA:

  • The completeness of the contractor’s voluntary disclosure on the affected contract;
  • The accuracy of the contractor’s cost impact calculation for the affected contract; and
  • The potential impact on existing contracts, task or deliver orders, or other proposals the contractor has submitted to the government.

Continue Reading New Rule, Same Requirements? – The Department of Defense’s New Rule on Voluntary Disclosures of Defective Pricing Matters