2010 FederalContracting

Developments

W. Stanfield Johnson

Angela Styles

Richard Arnholt

OOPS 2010 Perspectives

• Principal OOPS themes over 25 yearshave been

– The War Against Procurement Fraud

– Acquisition Reforms

• Today, in OOPS’ 26th year, contractorsmay face their greatest challenges.

Agenda

– Historical Run-Up on Acquisition Reform

– Obama Procurement Initiatives

– Insourcing and Inherently Governmental

– Rise of Investigative and ProsecutorialGovernment

– Transparency/FAPIIS

OOPS 2010 Perspectives

• The acquisition system is currentlyunsettled

– 1980s – CICA

– 1990s – FASA/FARA/etc.

– 2000s – Now re-reform

• The reform of today has its own details,but basically is a rejection of the 1990sreforms and culture.

Key features of the 1990s Reforms

– “Efficient” acquisition

– De-emphasize price competition

– Longer term contracts

– Task order contracting

– Reduce protests

– Commercial-type contracting

– Reduce acquisition workforce

– Outsourcing/service contracting

– Consolidation of the defense industry

Effects of 1990 Reforms

• Outsourcing/growth of service contracting

• Limited contracting/technical expertise ingovernment

• Less competition

• Less transparency

• Perceived increases in fraud, waste andabuse

Key Factors 1990s to 2010

• Enormous increases in federal spending

• Significantly increased technology

• Large numbers of new entrants intofederal marketplace

Reaction

• Increase competition

• Limit cost reimbursement contracting

• Control interagency contracting

• Control commercial item contracting(especially services)

• Control outsourcing and servicecontracting (no LSI)

• Rebuild the acquisition workforce

Obama Contracting Initiatives

• Limit private sector interaction (lobbyists)

• Recovery Act

• Contracting Initiatives

• Labor Initiatives

• Improper payments

New Executive Branch Gift Rules

• Executive Order – Jan. 21, 2009

– Obama political appointees (and parents, siblings,spouse, child or dependent relative) cannot receivegifts from lobbyists or lobbying organizations

– NO exceptions for:• Gifts below $20

• Awards/honorary degrees

• Speeches (free attendance)

• Widely attended gatherings

• Agency interest

New Executive Branch Revolving DoorRules

• Executive Order – Jan. 21, 2009

– Prohibits lobbyists hired by administration fromparticipating in any particular matter in which theylobbied in the previous two years or seeking oraccepting employment with any agency he or shelobbied

• Exceptions for senior positions have been made

– Prohibits Obama appointees leaving government fromlobbying any covered executive branch official or non-career SES appointee for the remainder of theadministration

The Recovery Act

• Signed Feb. 17, 2009

• New compliance and reporting

• GAO audit rights

• IG records/employee access

• Whistleblower protections

• Buy American quandary

Recovery Act – CompensationReporting

• Prime contractors and subcontractors shallreport compensation of five most highlycompensated officers

• Exemptions

– Disclosure already required for top five officers (SECor IRS)

– Less than 80% of annual gross revenue from federalcontracts and subcontracts, loans, grants, subgrants,and cooperative agreements

Recovery Act – Buy American

Restrictions:

• No funds appropriated or made available underthe Stimulus Act can be used for “a project forthe construction, alteration, maintenance, orrepair of a public building or public work unlessall of the iron, steel, and manufactured goodsused in the project are produced in the UnitedStates.” Section 1605(a).

Recovery Act Oversight

• The Players

– GAO

– Agency IGs

– RAT Board

– National Procurement Fraud Task Force

– Congress

– DOJ Antitrust Division

– State and local auditors

– Whistleblowers

– The Public

Presidential Speech/MemorandumMarch 2009

• “There is a fundamental public trust thatwe must uphold. The American people'smoney must be spent to advance theirpriorities, not to line the pockets ofcontractors or to maintain projects thatdon't work. Recently, that public trust hasnot always been kept.”

Labor Initiatives – Exec. Orders

• Economy in government contracting

• Nondisplacement of qualified workersunder service contract

• Notification of employee rights underfederal labor laws

• Use of project labor agreements forfederal construction projects

Other Labor Initiatives

• Franken Amendment

– Limits on arbitration of employment disputes

• High road contracting stalled?

– Would weigh labor standards in sourceselection process

• Livable wage, “quality, affordable healthinsurance,” employer-funded retirement plan, paidsick leave, record of compliance with tax and laborlaws

Improper Payments

• Reducing improper payments. E.O. 13520 (Nov.11, 2009)

– Identify programs in which improper payments occur

– Targets for reducing improper payments for high-priority programs

– Procedures for publicizing entities that receivedimproper payments

• Presidential memo (March 10, 2010)

– Expansion of “Payment Recapture Audits”

OFPP Insourcing Guidance

• Draft policy letter

– What jobs must be performed by federalemployees?

– Management of contractors

• Background

– OFPP memos in early ’90s, FAR provision.

– Now - legislative direction, Presidential memo,OMB memo

FY09 DOD Authorization Act

• Directs OMB to

– Determine if definition is sufficient to ensureonly feds perform IGFs “or other criticalfunctions”

– Develop a uniform definition

– Provide necessary legislativerecommendations

March 2009 Presidential Memo

• “[T]he line between IG activities thatshould not be outsourced and commercialactivities that may be subject to privatesector competition has been blurred andinadequately defined. As a result,contractors may be performing IGfunctions.”

Managing the Multi-Sector Workforce

• Over reliance on contractors encouragedby one-sided management priorities– Publicly rewarded agencies for becoming

experts in identifying functions to outsource

– Ignored the costs stemming from loss ofinstitutional knowledge and capability

– Inadequate management of contractedactivities

OFPP Proposed Policy Letter

• Work that must be reserved for federalemployees

– Does not replace A-76

• Will likely be FAR changes after the letteris finalized

• Long list of questions

• Three categories of functions

Inherently Governmental

• 100% must be done by federal employees

• Uses IG definition in the FAIR Act

• Retains FAR list and creates tests forunlisted functions

– Includes “nature of the function” and“discretion” tests

– Solicits comments on possible “principal-agent” test

Closely Associated with IG Functions

• Incorporates FAR list

• Builds on DOD-specific legislation

• Special consideration must be given toreserving for federal employees

• If contracted out

– Pre-award – ensure not IG, sufficient agencypersonal to administer the work, and no COIs

– Post-award – monitor to prevent becoming IG

Critical Functions

• Necessary for agency to effectivelyperform and maintain control of itsmissions and operations

– Examples include IT and acquisition supportservices

• No proposed list of critical functions –OFPP recognizes these will vary

OOPS 2010 Perspectives

• The War Against Procurement Fraud isnow at its most intense

– Expanded offenses, penalties, and sanctions

– Increased role of DOJ in acquisition system

– Rise of the investigators

– Contractor disclosure and law enforcementobligations

– Government culture of distrust

Empowerment of EnforcementAuthorities

Procuring Agency Contracting Officer/COTR

Suspension and Debarment Official

Agency Office of Inspector General Special agents (“law enforcement”)

Auditors (agency employees & contractors)

U.S. Attorneys delegated authority to issue civil investigativedemands under the FCA

FBI

Department of Justice

Local United States Attorney

Whistleblowers

The Mandatory Disclosure/FullCooperation Rule

• Results?

• The challenge for contractors

– “Government expectations”

– Employee rights

– Regulatory ambiguity

• The challenge for the government

– “State action”

• The challenge for debarring officials

• GAO’s call for oversight (GAO-09-591)

The Rise of the Investigators

• The investigative/prosecutorialgovernment is not an integral part of theacquisition system– Watchdogs

• GAO

• IGs

• DCAA

• CIGIE

• NPFTF

– Reports to Congress

DCAA’s Interesting Year

• GAO: “Widespread Problems” with DCAA“Audit Quality” (GAO-09-1009T)

• Commission on Wartime Contractingquestions CO compliance with DCAArecommendations

– Resulting DPAP memorandum establishesprocedures for resolution (Dec. 4, 2009)

DCAA’s Interesting Year

• DCAA issues guidance for audit of contractorbusiness ethics compliance programs andinternal controls (July 23, 2009), including

– Contractor timely disclosures to IG

– Full cooperation

– Access to internal investigations

• Failures deemed internal control deficienciesreportable to “DCAA Justice Liaison Auditor.”

Federal Awardee Performance andIntegrity Information System (“FAPIIS”)

• Introduced as “Strengthening Transparency andAccountability in Federal Spending Act of 2008”in June 2008 by Sen. Obama

• Enacted Oct. 14, 2008

• Requires certification and reporting of civil,criminal and administrative proceedings andsettlements

FAPIIS - FAR Rule (52.209-7)

• Scope– “Whether the offeror, and/or any of its principals, has

or has not, within the last five years, in connectionwith the award to or performance by the offeror of aFederal contract or grant, been the subject of aproceeding, at the Federal or State level that resultedin any of the following dispositions . . . .”

• Four categories– Criminal proceeding

– Civil proceeding

– Administrative proceeding

– Settlements with acknowledgement of fault

FAPIIS - FAR Rule (52.209-7)

• Project on Government Oversight FiledFOIA Request for data

• No clear FOIA Exemption

• OMB has expanded CCR reporting toinclude parent and all affiliates