presentation

Report
THE FAR: Key Federal Acts and
Compliance Issues Every Contractor
Should Know About
Brad Reaves, ReavesColey PLLC
[email protected]
757.546.4256
Beverly Arviso, CPA, CPCM, CFCM
Arviso, Inc.
[email protected]
757.373.9536
1
Overview
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The Competition in Contracting Act (CICA)
Truth in Negotiations Act (TINA)
False Claims Act (FCA)
Gratuities and Bribery (and False Statements)
Mandatory Disclosure Rule (MDL)
Code of Business Ethics and Compliance
Compliance Best Practices
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The Competition in Contracting Act
• The Competition in Contracting Act (“CICA”) of 1984
(41 U.S.C. 253, FAR Part 6) requires, with certain
specific exceptions, that contracting officers promote
and provide for full and open competition in soliciting
offers and awarding government contracts over the
Simplified Acquisition Threshold (“SAT”), currently
$150,000
• There are basically 3 levels
• Full and Open Competition (FAR 6.1)
• Full and Open Competition after exclusion of
sources; (FAR 6.2) and
• Other than Full and Open competition (FAR 6.3)
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The Competition in Contracting Act
• “Full and Open Competition” means that all
responsible sources are permitted to:
• Submit sealed bids, or
• Offer Competitive Proposals
• “Full and Open Competition after Exclusion of
Sources” is used when the Government excludes
certain potential sources for policy reasons. The
most common examples are “set-aside” acquisitions
for:
• Small Business, 8(a), SDVOSB, WOSB/EDWOSB,
HUBZone
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The Competition in Contracting Act
• “Other than Full and Open Competition” is the least
competitive process. This means that a bid is solicited
from one, or very few, sources. Detailed Justifications and
Approvals (“J&As”) are required from senior government
officials to document this means of acquisition. These are
ONLY permitted when (under FAR 6.3):
• Only one responsible source and no other supplies or
services will satisfy agency requirements
• Unusual and compelling urgency
• Industrial mobilization; engineering, developmental, or
research capability, or expert services
• Authorized or required by statute (ex. 8(a), SDVOSB)
• National Security or Public Interest
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The Truth in Negotiations Act
• The Truth in Negotiation Act (“TINA”) (10 U.S.C. §
2306a, 41 U.S.C. § 254b, FAR 15.403) requires
contractors to submit accurate, complete, and current
certified cost or pricing data when negotiating
contracts with the Government.
• Importantly, it ALSO provides the Government with a
price reduction remedy if a contractor fails to comply.
The price reduction remedy takes effect when the
contractor does not submit accurate, complete, and
current data for a contract and the Government relied
on that defective data in determining the contract
price.
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The Truth in Negotiations Act
• The TINA applies to negotiated prime contracts,
modifications, and subcontracts where the
Government required certified cost or pricing data.
• There are certain exceptions to submitting cost or
pricing data (these are set forth in FAR 15.403-1(b))
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1) the price is based on adequate price competition
2) the price is based on prices set by law or regulation,
3) the item meets the definition of a commercial item, or
4) when a waiver has been granted.
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The Truth in Negotiations Act
• The current TINA threshold applicable to all agencies
is $700,000 for prime contracts awarded on or after
October 1, 2010 and for any subcontracts or
modifications under those prime contracts that are
expected to exceed $700,000.
• Previous thresholds were $550,000 (since October 11,
2000), and $650,000 (Since September 28, 2006)
• FAR 52.215-10 provides for reduction in the contract
price whenever the contracting officer determines that
the contract price increased by a significant amount
because the contractor furnished inaccurate,
incomplete, or non-current cost or pricing data.
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False Claims Act
• The Federal False Claims Act (FCA) is a
major tool used by the Government to
recover billions of dollars from government
contractors
• Generally, the FCA imposes liability on
persons and companies (typically federal
contractors) who defraud governmental
programs by submitting a “false claim”.
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False Claims Act, cont.
• In 1986 Congress changed/lowered the
standard for finding false claims liability (for
intent) to “deliberate ignorance" and/or
"willful blindness"
• Since this change to the FCA in 1986, FCA,
annual recoveries have grown from $86
million to more than $3 billion in 2011 (total
from 2009-2011 is more than $8.7 billion).
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False Claims Act, cont.
• More recently, in 2009, Congress broadened the definition of
"claim" to include any request, whether under a contract or
otherwise for money or property and whether or not the U.S. has
title to the money or property" that is:
• (1) presented directly to the United States, or
• (2) "to a contractor, grantee, or other recipient, if the
money or property is to be spent or used on the
Government's behalf or to advance a Government
program or interest" and the government provides or
reimburses any portion of the requested funds.
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False Claims Act, cont.
• The FCA provides for both civil and criminal liability.
• Criminal penalty of monetary fine plus up to ten
(10) years imprisonment.
• Civil penalty of between $5,000 and $10,00 per
false claim plus TREBLE damages.
• Big $$$$$ for the whistleblower/relator
(potentially)
• While not technically an FCA penalty, suspension
and debarment are not uncommon results.
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Gratuities, and Bribery
• 18 USC § 201 and FAR § 52.203-3 cover gratuity
violations.
• These regulations restrict BOTH contractor AND
government conduct – it is improper to offer/give and
improper to solicit/receive
• A gratuity is essentially an “illegal gift” and includes
giving (or offering to give) anything of value to a
“public official” for or because of any official act
• Public Official includes Members of Congress, an officer,
employee, or person acting on behalf of the US, or any
department, agency or branch of government
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Gratuities and Bribery, cont.
• U.S. v. Hoffman, 556 F.3d 871 (8th Cir. 2009)
• Contractor provided services to Army Corps of Engineers
under a contract and follow-on contract
• Contractor and agency’s point of contact became friends
• Contractor sought a performance evaluation report
• Contractor provided agency official, among other gifts, golf
clubs
• Contractor was convicted and his arguments (in defense)
were all rejected on appeal
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It was immaterial whether contractor thought the clubs would influence
the official to prepare the evaluation or that no evaluation was
prepared
Email mentioning the golf clubs, even if sent 13 months after the clubs
were delivered, was sufficient to prove intent
Use of company, not personal funds, refuted claim that clubs were to
“treat a friend”
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Gratuities and Bribery, cont.
• For gifts, there is an exception for gifts where
value is less than $20 and aggregate value of
all gifts is less than $50 in a year.
• But, in practice, this is very hard to police
because the $50 a year is aggregate from
everyone on the company (very difficult to
track)
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Gratuities, and Bribery
• 18 USC § 201 also deals with Bribery (which is more
serious than a “gratuity”)
• For example, “gratuities” are punished by 2
years/$500,000 fines while “bribery” is punished by
15 years/$500,000 in fines
• Bribery requires a “corrupt intent” and “quid pro quo”
• “The intent to receive a specific benefit in return for
the payment.” US v. Jennings, 160 F.3d 1006 (4th
Cir. 1998)
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False Statements
• Contractor Representations and
Certifications (Reps and Certs)
• Certificate of Independent Price
Determination (FAR 52.203-2)
• False Statements in Bids
(FAR 52.214-4)
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False Statements, cont.
• Small Business Program Representations
(FAR 52.219-1)
• Small Business (Size Standard)
• SDVOSB (Ownership, Control)
• VOSB (Ownership, Control)
• HUBZone (Certification)
• WOSB (Ownership Control)
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The Mandatory Disclosure Rule (MDR)
• FAR 9.406-2 and 9.407-2 include independent
grounds of suspension and debarment, based on:
• Knowing failure by a principal, until 3 years after final
payment on any Government contract, to timely disclosure
to Government in connection with award, performance or
closeout of contract or subcontract, credible evidence of
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Violation of Federal Criminal law involving fraud, bribery, or gratuity
violations in Title 18 of the US Code (over 80 different)
Violation of the Civil False Claims Act
Significant Overpayments on the contract, other than overpayments
from contracting financing payments under FAR 32.001
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The Mandatory Disclosure Rule (MDR)
• FAR 52.203-13(b) likewise requires timely disclosure
in writing, to the agency IG whenever the contractor
has “credible evidence” of:
• A Violation of Federal Criminal law involving fraud,
bribery, or gratuity violations in Title 18 of the US Code
(over 80 different)
• Violation of the Civil False Claims Act
• In connection with the award, performance, or closeout
of THIS CONTRACT (not other government contracts)
or a subcontract to a covered contract
• Committed by a principal, employee, agent, or
subcontractor of the Contractor
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The Mandatory Disclosure Rule
(MDR), cont.
• Under the MDR, the knowing failure to
make such a report is grounds for
suspension and debarment.
• AND, the reporting requirement remains
in effect until three (3) years after final
contract payment.
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The Mandatory Disclosure Rule
(MDR), cont.
• Unfortunately, “credible evidence" is not
defined by the FAR (a change from
“reasonable grounds to believe”), but the term
itself implies that the company has conducted
an internal investigation of the reported illegal
conduct and has found credible evidence to
support the report.
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Suspension and Debarment
• FAR 9.4 covers suspension and debarment
which can result from an agency finding that
the contractor is not "presently responsible."
• Grounds for debarment range from
commission of a criminal offense, violation of
federal law, civil fraud, failure to pay taxes,
willful breach of contract, or a history of poor
contract performance.
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Suspension and Debarment, cont.
• Debarment is usually for a period of three (3)
years but can be for less or for as many as five
(5) years.
• Debarment almost always follows a criminal
conviction and often follows FCA civil liability.
• In addition, as of December of 2008, failure to
timely make a mandatory disclosure (under the
MDR Rule) is grounds for debarment.
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Suspension and Debarment, cont.
• One of the most important factors in the
suspension and debarment decision (or an
assessment of sentencing under the Federal
Sentencing Guidelines) is whether the
company had a Code of Ethics and Conduct as
part of a Compliance Plan that was
implemented and followed.
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Code of Business Ethics
and Compliance
• FAR 52.203-13 "Contractor Code of Business Ethics
and Conduct."
• A contract requirement since 2007 for any contract
with a value of at least $5 million (including all
options) and a performance period of at least 120
days. Commercial Items Contracts and Small
Businesses are excluded, however, all reporting
requirements still apply.
• Must adopt written code of ethics and conduct within
30 days of contract award.
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Code of Business Ethics
and Compliance
• Must establish ethics training for employees
and internal control program within 90 days of
contract award.
• Internal control system must include periodic
reviews of business practices and company
policies and procedures as well as
disciplinary measures for violations.
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Compliance Plan, cont.
• The basic elements of a Compliance Plan are:
• An ongoing business ethics and conduct
awareness training program for employees. This
usually means annual training for all employees
and training for all new hires.
• An internal control and reporting system that
facilitates timely discovery and reporting of
improper conduct and corrective measures.
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Compliance Plan, cont.
• Important Points:
• Compliance Plan should not be too
elaborate such that it cannot reasonably
be implemented and/or managed.
• Compliance Officer has sufficient authority
to require implementation and who can
ensure the plan's continued vitality. Needs
to have ready access to Board/Owners.
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Compliance Plan, cont.
• Compliance Officer should consult with
outside counsel on difficult issues.
• Management must be clear that
retaliation for employee reports of
misconduct absolutely cannot occur.
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Compliance Best Practices
• Maintain an adequate
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Accounting System
Timekeeping System
Travel and Expense System
Billing System
• Understand the contract terms and
conditions and any certifications made
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QUESTIONS???
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Contact Information
Brad Reaves, ReavesColey PLLC
[email protected]
757.546.4256
Beverly Arviso, CPA, CPCM, CFCM
Arviso, Inc.
[email protected]
757.373.9536
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