FEDERAL PROCUREMENT POLICY UPDATE - NCMA … · FEDERAL PROCUREMENT POLICY UPDATE Holland & Knight...

FEDERAL PROCUREMENT

POLICY UPDATE

Holland & Knight LLP

March 16, 2016

David S. Black

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Practice Education Bar Admission

Introduction: Who I Am

2

David S. Black

» David Black

» Partner

» 703-720-8680

» david.black@hklaw

.com

» Tysons, VA

• Co-Chair, National Government Contracts Team

• Government contracts counseling and dispute resolution

• Represent contractors in protests and claims and responding to government investigations, audits, False Claims Act investigations and litigations

• Represent subcontractor in negotiating teaming agreements and subcontracts, and in disputes with prime contractors

• Government Contracts

• Litigation and Dispute Resolution

• False Claims Act Defense

• Georgetown

University Law

Center, JD

• University of

Virginia, BA

• District of Columbia

• Virginia

mailto:[email protected]

mailto:[email protected]

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GOV CON LAW

2013

2016

2014

2015

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Today’s Outline

• Labor/Employment Update

• Protest Update

• Claims/Disputes Update

• DCAA Update

• False Claims Act Update

• Information Technology Update

• Other FAR Rules of Note

GO

V C

ON

LA

W

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Labor/Employment

Update

New and Proposed Regulations

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DATE RULE STATUS

30 Jan 15 Discrimination on the Basis of Sex Proposed Rule Issued

2 Mar 15 Ending Trafficking in Persons Final Rule Takes Effect

8 Apr 15 Prohibiting Discrimination Based on Sexual Orientation and Gender Identity

Final Rule Takes Effect

27 May 15 Fair Pay and Safe Workplaces Proposed Rule Issued

4 Dec 15 Establishing a Minimum Wage for Contractors

Final Rule Issued

25 Feb 16 Paid Sick Leave for Federal Contract Proposed Rule Issued

Sexual Identity & Gender Identity (Final Rule)

• Per E.O. 11246, OFCCP’s regs prohibit federal contractors and subcontractors from discriminating based on sexual orientation or gender identity

• No discrimination in hiring or advancement

• Same benefits provided to same-sex spouses or partners

• No segregated facilities based on sexual orientation or gender identity

• No retaliation if an employee files a complaint

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Sexual Identity & Gender Identity (Final Rule)

• Updated FAR Clauses Reflect New Requirements

– 52.222-22 (Apr 2015) – Prohibition on Segregated Facilities

– 52.222-26 (Apr 2015) – Equal Opportunity

– 52.222-27 (Apr 2015) – Affirmative Action for Construction

– 52.222-29 (Apr 2015) – Notification of Visa Denial

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Minimum Wage (Final Rule)

• Basics: For covered contracts awarded after January 1, 2015, contractor must pay applicable E.O. minimum wage to workers covered by SCA, D-BA, and FLSA. Includes workers covered by CBA with lower hourly rate.

• Covers workers performing “in connection with” the contract (i.e., back office, overhead support, etc.).

– Test: Spend more than 20% of hours per workweek on covered contracts

• Price adjustments allowed for annual minimum wage increases

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Minimum Wage (Interim Rule)

• Flowdown Requirement: Must flowdown FAR 52.222-55 to all subcontracts covered by SCA or D-BA.

– Prime contractors are responsible for compliance of first-tier subcontractors

• DOL Debarment of contractors found to have “disregarded” obligations under the minimum wage rule.

• Disputes: DOL Administrative Procedures (29 CFR 10.51) govern disputes relating to minimum wage clause.

• FAR 52.222-55 (Dec 2015)

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Minimum Wage (Final Rule)

• E.O. Minimum Wage for 2016: $10.15 (up from $10.10)

• Prime contractors and subcontractors may request a price adjustment to reflect 2016 increased labor costs

– Wage increase

– Increases Social security and unemployment taxes

– Increases in workers’ compensation insurance

• Prime responsible for subcontractor compliance

– The Prime “may be held liable for unpaid wages due subcontractor workers”

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Human Trafficking (Final Rule)

• Applies to contracts and subcontracts awarded after March 2, 2015

– Clause will be added to existing IDIQ contracts

• Expended list of prohibited conduct: FAR 52.222-50(b)(4)-(9)

– No confiscation of identity or immigration documents

– No misleading or fraudulent recruiting practices

– No recruitment fees

– No substandard housing

–Must provide written work agreement

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Human Trafficking (Final Rule)

• Changes in Reporting Requirements

–Must report “credible information” of violations to CO and IG

–Must cooperate with Gov’t investigations

• Compliance Plan and Annual Certification

–Must implement a trafficking compliance plan

• Applies to non-COTS prime & subcontractors performing contract greater than $500K

• Plan must be “appropriate” to the contract

• Annual certification of compliance

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Fair Pay and Safe Work Places (Proposed Rule – Comments by 7/27/15)

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• Mandatory Reporting of Labor Law Violations

– Publicly Available in FAPIIS

– Includes 15 specific labor laws

– Three-year look back

– Semi-Annual updates

– Detailed information regarding violation

– Administrative determinations, arbitration awards, civil judgments

• Even if subject to appeal or further review


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• Contractor Responsibility Determinations Must Consider Labor Law Compliance

– CO assisted by new “Agency Labor Compliance Advisor”

– ALCA issues written recommendation: (1) responsible; (2) responsible with additional compliance measures; or (3) not responsible with referral for debarment.

– Factors:

• Are the violations serious, repeated, willful, pervasive?

• Has the contractor initiated remedial actions?


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• New Subcontractor Responsibility Determination

– Subcontractors must disclose labor law violations and update information semi-annually

– Prime contractors must evaluate labor violation information of non-COTS subcontractors ($500K threshold)

– Timing: Within 30 days of subcontract award for subcontracts entered into within five days of prime contract execution; prior to award for all other subcontracts

–Mandatory flowdown to higher-tier subs


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• Other Requirements

– Transparent Paychecks

• Applies to contracts valued more than $500K with workers subject to SCA, D-BA, or FLSA or similar state laws

• Paycheck must provide detailed information in language in familiar language (non-English)

– Prohibition on Mandatory Arbitration of Title VII Claims

• Ban on use of pre-dispute arbitration agreements

Sex Discrimination (Proposed Rule)

• First revision in 40 years; bring rules into alignment with recent case law

• Rules are re-organized around prohibited practices, like unequal pay, promotion, or evaluation based on sex.

• Prohibits discrimination based on gender identity and transgender status.

• Eliminates “unreasonable cost” as basis to justify lack of appropriate facilities for both sexes.

• Sexual harassment is now an express violation.

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Paid Sick Leave (Proposed Rule)

• Implements E.O. 13706

• Employees earn 1 hour of paid sick leave for every 30 hours worked up to 7 das per year or any point in time.

– Leave carries from year to year; contractors pay for unused leave

• Applies to any new service contract awarded after Jan. 1, 2017, performed in the U.S. that is:

– Covered by Davis-Bacon Act

– Covered by the Service Contract Act

– Covered by FLSA

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Paid Sick Leave (Proposed Rule)

• Does not cover employees who spend less than 20% of work hours on covered contracts

• Recordkeeping for three years from completion of work

• Failure to comply = grounds for default termination or debarment

• Required Flowdown

– Primes and upper-tier subcontractors are responsible for compliance by all subcontractors.

• Comments Due March 28, 2016

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REVELATIONS FROM

GAO PROTEST STATISTICS

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COMMON PROTEST MYTHS

• Myths About Protests

– “Protests are out of control and hampering the procurement system.”

–“Protests never help.”

–“Protests take too long and are expensive”

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Chart-Title Top Guide 5.35

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GAO PROTEST STATS

23 From - GAO Annual Report to Congress

FY2015 FY2014 FY2013 FY 2012 FY 2011

Cases Filed 2,639

(up 3%)

2,561

(up 5%)

2,429

(down 2%)

2,475

(up 5%)

2,353

(up 2%)

Cases Closed 2647

(335 Task

Order Cases)

2,458

(292 Task

Order Cases)

2,538

(259 Task

Order Cases)

2,495 2,292

Merit (Sustain

+ Deny)

Decisions

587 556 508 570 417

Number of

Sustains

68 72 87 106 67

Sustain Rate 12% 13% 17% 18.6% 16%

Effectiveness

Rate

(Reported)

45% 43% 43% 42% 42%

ADR (cases

used)

103 96 145 106 140

ADR Success

Rate

70% 83% 86% 80% 82%

Hearings 3.10%

(31 cases)

4.7%

(42 cases)

3.36%

(31 cases)

6.17%

(56 cases)

8%

(46 cases)

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PROTESTS ARE RARE

• Prof. Dan Gordon’s Research

–Fewer than 1% of procurements are protested

–Likely no change in frequency of protests despite big increase in the number of protests

–As protests have increased, so have the number of federal procurements, likely maintain the less than 1% occurrence

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PROTESTS ARE SHORT

• GAO’S 100-day statutory deadline to issue a decision

• In FY 2015, only 587 of 2,647 protests (only 22%) went the full 100 days.

• 78% of GAO protests were resolved in under 100 days

• Most agency corrective action occurs in the first 30 days or shortly after a supplemental protest

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PROTESTS CAN HELP

• FY 2015’s Most Prevalent Grounds for Sustained Protests:

–Unreasonable cost or price evaluation

–Unreasonable past performance evaluation

–Failure to follow evaluation criteria

–Inadequate documentation of the record

–Unreasonable technical evaluation

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PROTESTS CAN HELP

• Protests are can be effective to address the following problems:

–Defective solicitation

–Inadequate time to prepare a proposal

–Exclusion from the competitive range

–Close loss of a multiple award IDIQ contract

–Incumbent’s loss of contract

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TASK ORDER JURISDICTION

• GAO’s Task Order protest jurisdiction expires on September 30, 2016

• In 2011, Congress was tardy in extending this jurisdiction

• Congress is considering a permanent extension of GAO’s TO jurisdiction

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Claims Update

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Non-Monetary Relief

• Dispute Resolution Tools

Declaration of Rights

Settlement

Proposal

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Non-Monetary Relief

• The Conundrum

–Agencies sometimes materially breach contracts

–Typical fix is a monetary claim for damages

–But this can take years

–Disputes Clause (FAR 52.233-1) requires to contractor to continue working while the dispute is pending

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Non-Monetary Relief

• Kiewit-Turner v. Veterans Affairs, CBCA No. 3450 (2014)

–Contract to build a medical center campus in Aurora, CO

–Contract: VA “shall ensure” that the design meets estimated cost of $582M

–Contractor informed VA that design will cost more than $1 Billion.

–VA admitted that design will cost at least $781M.

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Non-Monetary Relief


–Contractor requested final decision from CO: 1. VA had a “material” obligation to provide a design

that could be built for $582M.

2. VA breached this material obligation.

3. This “material breach” entitled the contractor to stop work.

–The CO denied the request and directed the contractor to continue working.

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Non-Monetary Relief


–CBCA held it could issue declaratory relief during performance of a contract, including the adjustment or interpretation of contract terms.

–Three criteria: (1) live dispute; (2) declaration will resolve the dispute; and (3) monetary remedies are inadequate to protect the parties’ interests.

–“Special need” for early interpretation of the contract: monetary claim deemed inadequate because $200M claim required contractor “to serve as long-term banker for the Government”

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Non-Monetary Relief

• The Take Away:

–Non-Monetary Relief Continues to Develop

–Possible to get a declaration early in performance that Government is in “material breach.”

–Unheralded tool for contractors to resolve impasse

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DCAA Update

INCURRED COST BACKLOG

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DCAA Backlog Meets the Statute of Limitations

Six-year SoL added to CDA in 1994

• Government claim must be issued “within 6 years after the accrual of the claim.”

• “Accrual” means the date when, all events that fix the alleged liability of either the Government or the contractor and permit assertion of the claim, were known or should have been known.“ FAR 33.201

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DCAA Backlog Meets the Statute of Limitations

• Raytheon Co., ASBCA No. 57576 (2012) (Gov’t claim to recover unallowable incentive compensation partially untimely; other claims were timely)

• Raytheon Missile Systems, ASBCA No. 58011 (2013) (Gov’t claim to recover unallowable subk overhead rate burden untimely)

• Raytheon Co., Space & Airborne Systems, ASBCA No. 57801 (2013) (Gov’t claim to recover unallowable costs arising from change in accounting practices untimely; other claims timely)

• Raytheon Co. v. United States, 104 Fed. Cl. 327 (2012) (Gov’t claim to recover unallowable costs related to retirement plans was untimely).

• Sikorsky Aircraft Corp v. United States, 110 Fed. Cl. 210 (2013) (Gov’t claim to recover costs from noncompliant accounting practice was

timely).

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Congress to DCAA:

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Your backlog is unallowable

Congress Reigns in DCAA

• Sec. 893 of 2016 NDAA

• Ban on Civilian Agency Audit Support

– DCAA “may not provide audit support for non-Defense Agencies unless the Secretary of Defense certifies that the backlog for incurred cost audits is less than 18 months for incurred cost inventory.”

• No More Funding from Civilian Agency Support

– Beginning in FY 2017, DCAA’s appropriations “shall be reduced by an amount equivalent to any reimbursements received by the Agency from non-Defense Agencies for audit support provided.”

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False Claims Act Update



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INTRODUCTION

» The False Claims Act (31 U.S.C. 3729) is one of the Government’s most important anti-fraud weapons.

» Growing tide of FCA litigation: From FY 2010 through FY 2015, approximately 4,700 FCA cases were filed, for a yearly average of 779.

˗ During this period approximately $23 billion has been obtained in judgments and settlements, with more than $3.5 billion obtained in FY 2015 alone. See Appendix.

» Most of the cases involve three industry groups: Health Care/Pharmaceutical; Banking and Financial Services; and Government Contracting and Grants.

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Developments in FCA Law: Implied Certification

» Implied Certification – a judge-made concept used to determine when a contractor violates the FCA when it bills while not in compliance with a contractual, regulatory or statutory provision.

» Current Circuit-Split Regarding “Implied Certification”

˗ Circuits that apply “Implied Certification”:

• D.C. Circuit and Fourth Circuit: “Materiality” approach

• Second and Sixth Circuits: “Express Condition of Payment” approach

˗ Circuits that rejected “Implied Certification”: Fifth & Seventh Circuits

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» Supreme Court is Set to Resolve this Issue

˗ Universal Health Services, Inc. v. Escobar

» By June 2016, The Court will resolve the following two questions:

˗ Whether the “implied certification” theory of legal falsity under the viable.

˗ If the “implied certification” theory is viable, whether a government contractor’s reimbursement claim can be legally “false” under that theory if the provider failed to comply with a statute, regulation, or contractual provision that does not state that it is a condition of payment

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» The Court has squarely teed up for decision the viability of

implied certification and, if so, which of the two different

approaches is to be used.

˗ D.C. Circuit and Fourth Circuit Approach: Implied

certification applies to breach of any provision that was

“material” to the Government’s payment decision.

˗ Second Circuit’s Approach: Focus on the contract and put

the Government in the position of specifying those

provisions where compliance was truly a condition of

payment.

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Yates Memo:

Individual Liability for Corporate Misconduct

» On Sept. 9, 2015, Dept. AG Sally Quillian Yates issued a Memo to all DoJ attorneys

» New initiative to hold individuals accountable for organizational misdeeds – both civil and criminal

» Policy: Deter corporate misconduct by putting individuals at risk of criminal prosecution or civil action

» A response to issues in financial services industry, but not limited to that sector.

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Yates Memo:


» Six Steps for DoJ to Pursue Individuals for Corporate Wrongs:

1. No cooperation credit without full disclosure of individual wrongdoing

2. DoJ investigations should focus on individuals from inception

3. Criminal and Civil Attorneys communicate with each other.

4. No corporate settlement can release individuals from civil or criminal liability

5. No corporate settlement without clear plan to resolve related individual cases before statute of limitations expires

6. Evaluation of civil actions against individuals based on more than individual’s ability to pay

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Yates Memo:


» Yates Memo puts increased pressure on corporations to “give up” individuals responsible for wrongdoing in order to achieve low cost settlement

˗ Fiduciary duty to shareholders trumps loyalty to officers

˗ Except in closely-held corporations . . . .

• Yates Memo raises the stakes for individuals to cooperate with internal investigations

˗ Upjohn and the attorney-client privilege

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Yates Memo:


» Yates Memo incentivizes renewed focus on compliance program

» Best tool to prevent and mitigate corporate and individuals risks

» FAR 52.203-13 – Elements of Internal Control System

˗ Assign responsibility at a sufficiently high level

˗ Establish relevant internal controls

˗ Train relevant employees

˗ Monitor and audit

˗ Internal reporting mechanism

˗ Consistent disciplinary action

˗ Periodic review of the program (at least annually)

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Information Technology

Update

Two Interesting GAO Decisions

• Cloud-Based Technology and Competition

• Offerors Beware: Risks of Deviating from the Data Rights Clause

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Cloud-Based Technology & Competition

• Onix Networking Corp., B-411841 (Nov. 9, 2015)

– Peace Corps modified GSA Schedule order to acquire “email as a service” product from a Microsoft reseller

– A Google reseller protested the task order as an improper, out-of-scope sole source modification

– Existing 2013 task order called for email consisting of Microsoft software installed and maintained in the following environment: hardware, wide-area network, and local area network capabilities

– GAO sustained the protest because a “cloud-based email service” was not a product that was sought during the original acquisition

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Cloud-Based Technology & Competition

• Onix Networking Corp., B-411841 (Nov. 9, 2015)

– CICA prohibits out-of-scope modifications to existing contracts.

– These are “new requirements” subject to CICA’s requirement for competition, absent an authorized sole source award.

– “We agree that the original competition for the delivery order never contemplated the acquisition of a cloud-based EaaS product or service.”

• Takeaway: Could-based IT providers should look for similar improper modifications to older IT contracts

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Offeror Beware: Deviating from Data Rights Clauses

• Deloitte Consulting, LLP, B-411884 (Nov. 16, 2015)

– Protest of Defense Health Agency task order award to PwC for services to transform the Military Health System into a High Reliability Organization.

– PwC took exception to the solicitation’s data rights clause by limiting the governments rights contrary to the solicitation

• RFP: “Unlimited Rights”

• PwC’s Proposal: Contract deliverables “may not be distributed to, or discussed with, or otherwise disclosed to any Third Party.”

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Offeror Beware: Deviating from Data Rights Clauses

• Deloitte Consulting, LLP, B-411884 (Nov. 16, 2015)

– GAO sustained the protest

• Data Rights Clause was a material provision of the RFP

• PwC’s quotation took clear exception to the Data Rights Clause

• “If a vendor takes exception to a material solicitation requirement, the agency may not merely ignore the exception.”

• “A quotation that fails to conform to such material terms is technically unacceptable and may not form the basis for award.”

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Other FAR Rules of Note

Reporting of Affiliates in FAPIIS (Final Rule – March 7, 2016)

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• Contractors must report in FAPIIS the identity of – Immediate owner – Subsidiary – All predecessors that held a Federal contract or grant within the last three years.

Objective: “Provide more comprehensive understanding of performance and integrity of the corporation before awarding a Federal Contract”

• Policy Trend: Increasing use of FAPIIS to consolidate “dirty laundry”


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• Responsibility Determination includes:

– “all information available through FAPIIS with regard to the offeror and any immediate owner, predecessor, or subsidiary identified by the offeror.

– “information that is linked to FAPIIS such as from SAM, and PPIRS, as well as any other relevant past performance information on the offeror.

• Rule notes that “further distance between the entities, the less relevant the information is likely to be for establishing responsibility.”


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• Issues for Contractors

– Information on owners, predecessors, and subsidiaries will be publicly available (except for past performance information).

• Relevant for small business size protests

– Risk of nonresponsibility determination from adverse information regarding an immediate owner, predecessor, or subsidiary – these are difficult to protest.

– Be prepared to offer explanations regarding immediate owners or subsidiaries who have adverse information

Payment of Small Business Subcontractors (Proposed Rule – Jan. 20, 2016)

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• SB SubK Plan: must provide assurance that SB subs will be paid in accordance with terms of subcontracts

• Contractor required to notify the contracting officer if

– SB subcontractor’s payment is reduced

– Payment to SB subcontractor is more than 90 days past due


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• Contractor Performance Assessments: include reduced or untimely payments reported to the contracting officer

• Contracting Officer is required to report in FAPIIS

– Contractors with a “history of late or reduced payments” to SB subcontractors

– Three or more “unjustified” reduced or untimely payments within a 12 month period.

–Will result in an “unsatisfactory” rating under CPAR definitions

• Policy Trend: Increasing use of FAPIIS to consolidate “dirty laundry”


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• Potential Problems

– Contractor compliance with reporting requirement: must have procedure to identify late or reduced SB subcontractor payments

– Contracting Officer has to make determination of whether late or reduced payment was “justified”

• CO has to assess Prime-sub disputes leading to late or reduced payments

• Risk: If CO gets it wrong, a “justified” Prime is stuck with an “Unsatisfactory” CPAR rating

Questions?

www.hklaw.com

David Black Holland & Knight LLP 703-720-8680 [email protected]

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