Federal Procurement UpdatesPresented by Frank Kenniasty

VP of Contracts/General CounselJune 30, 2010

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Agenda

• Mandatory Disclosure Rule• Disputes• Statutes and Regulations• Bid Protests• Organizational Conflicts of Interest

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Mandatory Disclosure Rule

• Rule took effect December 12, 2008.• Two sources of authority:

– Clause 52.203-13 to be inserted in all “covered” contracts and subcontracts pursuant to FAR 3.1004.

• > $5M and 120 days

– Present responsibility provisions in FAR 9.406-2 and 9.407-2 pursuant to FAR 1.003.

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Mandatory Disclosure Rule

• Contractors not actually required to make disclosures. – However, must implement provisions to make

disclosures if contractor does not want to forfeit rights to perform and receive government contracts.

• Must timely disclose when there is credible evidence of violation of Federal criminal law:– Involving fraud, conflict of interest, bribery, or gratuity

violations found in Title 18 U.S. Code or violation of Civil False Claims Act.

• Also requires disclosure when there is evidence of significant overpayments by government.

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Mandatory Disclosure Rule

• Rule applies to a violation in connection with the award, performance, or closeout of a government contract performed by the contractor or subcontractor.– Failure to disclose remains a cause for

suspension and/or debarment until three years after final payment on a contract (see 9.406-2(b)(1)(vi) and 9.407-2(a)(8)).

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Mandatory Disclosure Rule

• Requirements of FAR 52.203-13– Written code of ethics and conduct made

available to each employee.– Exercise due diligence to prevent and detect

criminal conduct.– Disclose in writing to agency OIG with a copy

to contracting officer.

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Mandatory Disclosure Rule

• Other requirements not applicable to commercial items or small business contractors:– Monitoring and auditing to detect criminal conduct.– Periodic assessment of risk of criminal conduct.– Disciplinary action for improper conduct or failure to

take steps to prevent and detect.– Full cooperation with any Government agencies

responsible for audits, investigations, or corrective actions.

• Best Practices: Government contractors should implement these provisions.

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Mandatory Disclosure Rule

• Issues to consider:– Timely disclosure not defined. Pros and cons

of disclosing before investigation. On balance, probably should disclose early.

– Preserving confidentiality and privilege. Tension with full cooperation requirement.

– Internal control systems, audit, detection, and investigation program. Most difficult requirement – what is sufficient?

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Mandatory Disclosure Rule

• Initial Reports (DOD IG):– Labor Mischarging – 41%– Other – 16%– False Claims – 12%– Nonconforming materials/parts – 10%– Procurement Integrity – 8%– Anti-Kickback – 7%– Theft of Government Property – 4%– Bribery – 2%

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Disputes

• Jurisdiction– Libby Physical Med. Ctr. & Host Springs

Health Spa v. U.S. Dep’t of Interior, CBCA No. 13-05, 09-1 BCA ¶ 34,080

• Board held it had jurisdiction over concessions contract and was in scope of the CDA.

• Rejected DOI argument contract was outside scope of CDA because contract called for procurement of construction and maintenance of real property to which Gov’t had title.

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Disputes

• Claims– BLR Group of Am. v. U.S., 84 Fed. Cl. 634

(2008)• COFC held contractor’s written response to

contracting agency requesting correction of inaccuracies in a contractor’s CPAR was a claim under the CDA.

– United Constructors, LLC v. U.S., Case No. 08-cv-757C, 2009 WL 875358 (Fed. Cl. Mar.. 27 2009)

• Previously undisclosed amount in reservation of claims was not a sum certain under the CDA.

• Contractor could not later claim as “other relief,” and COFC dismissed those claims.

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Disputes

• Claims– Public Warehousing Co., K.S.C., ASBCA No. 56888,

09-1 BCA ¶ 265.• When appellant submitted claim in April 2009, CO

replied within 60 days stating she would issue a decision by December 3, 2009.

• ASBCA found this was not a “deemed denial” because of size and complexity of claim.

– DynCorp Int’l, ASBCA No. 56078 (ASBCA Oct. 2009).• Board ruled a claim for mistake in bid accrued when

contractor became aware of the mistake, even though this was several months after contract award.

• Board rejected argument contractor should have known. Also found claim was subject to “continuing claim doctrine” under option year contracts which are distinct events and evaluated separately.

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Disputes

• Other Contract Disputes– Saleh v. Titan Corp., 580 F.3d 1 (D.C. Cir. 2009).

• Court granted summary judgment in favor of one contractor regarding tort claim pertaining to Abu Ghraib prison,

• Held state tort claims were preempted because contractor’s acts were under direct command and exclusive control of the U.S. military.

• Other contractor summary judgment motion was denied because contractor had dual reporting chain to both military and corporate officers.

• On appeal, D.C. Circuit agreed, but found exclusive control was not required – only where contractor is integrated into combatant activity and military retains command authority over contractors.

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Disputes

• Other Contract Disputes– U.S. v. Hoffman, 556 F3d. 871 (8th Cir. 2009)

• Affirmed conviction of defendant vice president who supplied aerial photography services to government.

• Gave golf clubs to Government official with the intent to influence favorable rating, even though there was 13 months between gift and alleged request.

• Lesson learned: gratuities can create big problems, even if distant in time.

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Disputes

• Other Contract Disputes– Boeing v. U.S. Department of the Air Force,

616 F. Supp. 2d 40 (D.D.C. 2009).• Plaintiff contractor filed suit to enjoin Air Force from

disclosing unit pricing information pursuant to FOIA request.

• Court held pricing information would not cause competitive harm because labor rates fluctuated annually in non-linear fashion – competitor could not predict future labor rates.

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Statutes and Regulations

• American Recovery and Reinvestment Act, P.L. 111-5, 123 Stat. 115 (Feb. 17, 2009)– $60B for federal contracts and $300B for

federal assistance to state and local governments.

– Extensive reporting requirements.– Buy American provision for construction,

repair, and maintenance of public buildings or public works.

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Statutes and Regulations

• Omnibus Appropriations Act, P.L. 111-8, 123 Stat. 524 (March 11, 2009).– Prohibits use of an appropriated funds for

contracts or grants in excess of $5M unless contractor or grantee certifies it has the following:

• Filed all federal tax returns during last three years,• Has not been convicted of a criminal offense under

IRS code, and• Has not been notified of any unpaid federal tax in

last 90 days.

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Statutes and Regulations

• Fraud Enforcement and Recovery Act, P.L. 111-21, 123 Stat. 1617 (May 20, 2009).– No present requirement under False Claims

Act – now only requires a demand for payment.

– A false record or statement is now included as “material to an obligation to pay or transmit money or property to the Government.”

– More risk to government contractors.

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Statutes and Regulations

• National Defense Authorization Act, P.L. 111-84.– SETA contractors now required to enter into

NDA’s with owners of data.– DOD now has subpoena authority in

performance of its functions.– A-76 suspended until DOD performs review

of policy for public-private competitions. Also, authorizes filing of bid protests by agency tender officials.

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Statutes and Regulations

• FAR – Subpart 12.5: lists requirements which are

not required for COTS items.– Subpart 42.1502: Contractor past

performance information must be prepared and submitted to the Past Performance Information Retrieval System (PPIRS) (www.ppirs.gov) for all contracts exceeding $550,000.

– Award fee rollovers no longer allowed.

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Bid ProtestsFY2009 FY2008 FY2007 FY2006 FY2005

Cases Filed 1989 1582 1411 1275 1341

Decisions on the Merit

315 291 335 251 306

Sustains 57 60 91 72 71

Sustain Rate 18% 21% 27% 29% 23%

Effectiveness Rate*

45% 42% 38% 39% 37%

*Based on protestor obtaining some form of relief from the agency as reported by GAO.

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Bid Protests

• Report to Congress on Bid Protests Involving Defense Procurements– H.R. Rep. No. 110-652, at 394-95, May 16,

2008).– Reviewed protest last five years.– Findings:

• Number increased, but percentage closed within 30 days remained same (59.2%).

• Remaining closed within 100 days.• Process significantly reduces potential disruption.

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Bid Protests

• Failure to follow Evaluation Criteria– Most common problem according to Michael

Gordon, GAO Managing Associate General Counsel.

– Ashbury Int’l Group, Inc., B-401123, June 1, 2009 ¶ 140.

• Solicitation stated agency would conduct testing on submitted products, but agency failed to test awardee’s product.

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Bid Protests

• Unequal Treatment– Atna Support and Training Servs., LLC, B-

400947.2, May 15, 2009, 2009 CPD ¶ 119.• Protest sustained where agency evaluated

awardee and protestor unequally.• Credited awardee with experience of

subcontractor, but not protestor.• Agency viewed both firms’ subcontractors as

having relevant experience.

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Bid Protests

• Unsupported Evaluation and Selection Criteria.– T-C Transcription, Inc., B-401470, Sept. 16,

2009, 2009 CPD ¶ 172.• Evaluation of protestor’s proposal for transcription

services at multiple locations was inconsistent regarding the most important technical factor.

• Agency relied on overall adjectival rating which failed to capture differences between relative ratings or reasonably explain conclusions.

• Tradeoff included only the two awardees and did not consider protestor even though protestor’s proposal at certain locations was higher.

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Bid Protests

• Meaningful Cost Evaluations– ACCESS Sys. Inc. B-400623.3, Mar. 4, 2009,

2009 CPD ¶ 154.• Protest sustained where record did not explain

selection of higher-priced quotation and superior capabilities of awardee.

– Health Net Fed. Servs., LLC, B-401652.2, B-401652.5, Nov. 4, 2009, 2009 CPD ¶ 220.

• Price realism evaluation was flawed where proposed staffing did not consider agency technical requirements or risk.

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Bid Protests

• Organizational Conflict of Interests– L-3 Servs., Inc., B-400134.11; B-400134.12,

Sep. 3, 2009, 2009 CPD ¶ 171.• Agency unreasonably determined awardee did not

have a “biased ground rule” OCI.• Record showed awardee’s subcontractor provided

procurement development services that could affect subsequent competition.

• Mitigation plan was not furnished to agency until after the conclusion of the performance of work covered by the plans.

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Bid Protests

• Tyler Construction Group, Inc. v. U.S., 570 F.3d 1329 (Fed. Cir. June 25, 2009).– Federal Circuit affirmed Court of Federal

Claims ruling that agency had reasonable basis for using IDIQ task order contracting for housing construction.

– No statute or regulation precluded such use.– Bottom line: difficult to challenge agency’s

method of contracting.

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Bid Protests

• Digital Technologies, Inc., v. U.S., No. 08-604C (Fed. Cl. Dec. 9, 2009).– Court did not have jurisdiction to hear a bid

protest challenging task order award due to restrictions under FASA , 41 U.S.C. § 253j(d).

• Tasks order >$10M can be protested at GAO.

– Plaintiff could pursue breach of contract claim for alleged violation of “Fair Opportunity” clause in IDIQ contract.

– Courts want to see competition and fair opportunity.

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Bid Protests

• Software Engineering Services Corp. v. U.S., 85 Fed. Cl. 547 (Feb. 5, 2009).– Plaintiff filed post award protest regarding six

IDIQ contracts supporting USSTRATCOM.– Court held protest was mere disagreement in

Air Force’s technical evaluation.– Plaintiff could not rely solely on its incumbent

status of performing prior contract – must explain capabilities in detail.

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Organizational Conflict of Interest (OCI)

• New rules promulgated April 22, 2010.– Provide uniform guidance and “tighten

existing requirements.”– Now under new subpart 203.12 dealing with

improper business practices and personal conflicts of interest.

– Expands coverage to unique issues associated with task orders and delivery orders under IDIQ contracts.

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OCI’s

• New coverage includes:– Entire contractor organization is included to

protect against OCI’s, including firms and affiliates.

– Firewalls as technique to mitigate OCI’s.– Applies to acquisition under FAR Part 12,

commercial items.

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OCI’s

• Identification of OCI’s:– Contracting officers should obtain assistance

from program office, technical specialists, and legal counsel to identify potential conflicts.

– Communications regarding OCI’s do not constitute discussions under source selection rules.

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OCI’s

• Resolution of OCI’s:– Avoidance.– Limitation on future contracting.– Mitigation (preferred is possible).– Waivers cannot be used in a competitive

source selection unless solicitation explicitly reserves the right to waiver.

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OCI’s

• Exceptions to OCI’s:– Design and development work.– Highly qualified contractor with domain

experience and expertise, and OCI can be adequately resolved.

– SETA contractors not excepted.

• New rule does not have certification requirement.

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OCI

• TASC, formerly a unit of Northrop Grumman Corporation, is a premier, non-conflicted provider of advanced system engineering, integration and decision-support services across the intelligence community, Department of Defense and civilian agencies of the federal government.

• Lockheed recently divested two business units– Enterprise Integration Group and Pacific

Architects and Engineers.