supply chain: government contracts / procurement...

I N S T I T U T E F O R S U P P L Y M A N A G E M E N T N A T I O N A L C A P I T A L R E G I O N

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Supply Chain: Government Contracts / Procurement Concerns

The Intersection of Supply Management and Government Procurement Policies

“Supply Management” The identification, acquisition, access, positioning,

and management of resources and related capabilities the organization needs or potentially needs in the attainment of its strategic objectives.

- ISM Glossary of Key Supply Management Terms, Fifth

Edition, Institute for Supply Management, 2009

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Copyright 2014 O'Riordan Bethel Law FIrm, LLP

Components Under the Supply Management Umbrella

Purchasing/Procurement Strategic Sourcing Logistics Quality Inventory Control Materials Management Warehousing Transportation/Traffic/

Shipping

Disposition/Investment Recovery

Distribution Receiving Packaging Product/Service

Development Manufacturing Supervision

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Fundamentals of Government Procurement

Key Public Policies Fairness Competition Integrity Transparency Socio-Economic Responsibility

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Subcontract Terms and Conditions Special Supply Concerns

Scope of Work Deliverables

and Time Frame Billing Rates Personnel and

Performance Payment Right of Audit Term Indemnify,

Defend and

Hold Harmless Communication

with Agency Proprietary

Information Termination Insurance Assignment and

Lower-tier Subcontracting

Berry Amendment Buy American Act Trade Agreement Act Rules of Origin Export Restrictions Cost and Pricing Data Most Favored Customer Rated Orders Size and Socio-Economic

Representations

Contract Formation: Controlling Risks 5


Contract Formation: Controlling Risks

Flow Down Provisions Objectives Your organization should be able to enforce against lower-

tier suppliers those provisions, changes and adjustments that apply to the you.

Your organization should gather, review, maintain and be

able to locate, from contract start through post-close out audit, all data, representations, certifications and warranties it may require.

Review prime contract and incorporate all relevant

clauses and delivery schedules.

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Fundamentals of Government Procurement Compliance with Key Legal Concepts

Waiver of Sovereign Immunity Interacting with Government Officials Gifts and Gratuities Anti-Kickback Act Conflicts of Interest – Organizational and Personal Procurement Integrity / Disclosure

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Why Compliance is Important ?

State and local contracts and international /cross-border contracts bring with them the same compliance obligations – and equally severe compliance risks – as U.S. Federal counterparts

Combination of an ever-growing plaintiff’s bar, statutes

offering whistleblower protection and a share in recoveries, and aggressive government enforcement has created a dangerous environment

Compliance requirements permeate an organization’s operations and extend to all levels of its supply chain

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CONTRACTOR ALLEGATION SETTLEMENT DATE

Lifescan Failure to notify VA of price reductions in commercial contracts to prices below those paid by the Government (this matter was a voluntary disclosure under the VA's Voluntary Disclosure Program). (Disclosure made by Lifescan's parent corporation, Johnson & Johnson).

$15 million 11.14.01

Office Max, Inc. Sold products that were not Trade Agreements Act compliant. $9.8 million 5.19.05

Humanscale Corporation

Failed to disclose current, accurate, and complete discount and pricing information to the General Services Administration contract negotiators and failed to comply with the price reduction clauses for three of its GSA Multiple Award Schedule contracts.

$9 million 6.30.05

McKesson Corp. Fraudulently charging DOD more for pharmaceuticals than under its prime vendor contracts.

$3 million 2.16.06

Oracle Peoplesoft, Inc., purchased by Oracle, understated discounts to commercial customers, resulting in the misrepresentation of its commercial sales practices.

$98.5 million 10.10.06

ITT Corporation ITT sent classified night vision equipment overseas. ITT will also be the first major defense contractor convicted of a criminal violation of the Arms Export Control Act.

$100 million 3.27.07

Oracle Oracle Corporation agreed to settle a lawsuit that it failed to meet their contractual obligations under a contract to provide software licenses and technical support with the General Services Administration.

$199.5 million 10.06.11

Sample False Claims Act Settlements

9 Copyright 2014 O'Riordan Bethel Law FIrm, LLP


Compliance Spans the Entire Procurement Lifecycle

Pre-Solicitation / Contract Formation Capture / Competition Stage Bids/Proposals and Certifications Protests and Litigation

Performance Invoicing Claims

Post-Performance Audits

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• Engage/Involve Management

• Commit Resources

• Identify All Internal Players

Support Organization-Wide Culture of

Compliance

• Establish Internal and External Compliance Protocols

• Integrate Programs at Organizational and Supplier Level

Integrate Supply Chain Compliance

• Conduct “Lessons Learned” Reviews at Milestones

• Encourage Sharing Of Strategies, Policies, Procedures and Best Practices

Support Internal and External Improvement

Leadership Opportunities


Pre-Solicitation/Contract Formation and Capture /Competing for Work

Assessing/Mitigating Risk in the Supply Chain

Interacting with Government Officials Gifts and Gratuities Anti-Kickback Act Conflicts of Interest Procurement Integrity

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Contract Formation: Developing Business, Identifying Opportunities, Limiting Risk

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FAR 52.203-3: Gratuities (APR 1984) (a) The right of the Contractor to proceed may be terminated by written

notice if, after notice and hearing, the agency head or a designee determines that the Contractor, its agent, or another representative—

(1) Offered or gave a gratuity (e.g., an entertainment or gift) to an

officer, official, or employee of the Government; and (2) Intended, by the gratuity, to obtain a contract or favorable treatment

under a contract. (b) The facts supporting this determination may be reviewed by any court

having lawful jurisdiction.



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FAR 52.203-3: Gratuities (APR 1984) (cont’d.) (c) If this contract is terminated under paragraph (a) above, the Government

is entitled— (1) To pursue the same remedies as in a breach of the contract; and (2) In addition to any other damages provided by law, to exemplary

damages of not less than 3 nor more than 10 times the cost incurred by the Contractor in giving gratuities to the person concerned, as determined by the agency head or a designee. (This subparagraph (c)(2) is applicable only if this contract uses money appropriated to the Department of Defense.)

(d) The rights and remedies of the Government provided in this clause shall

not be exclusive and are in addition to any other rights and remedies provided by law or under this contract.

(End of clause)



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Influencing Federal Transactions



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FAR 52.203-12: Limitation on Payments to Influence Certain Federal Transactions With certain exceptions, the clause prohibits a Contractor’s of use of appropriated funds to pay any person for influencing or attempting to influence, in connection with the award of this contractor the extension, continuation, renewal, amendment, or modification of this contract: An officer or employee of any agency, A Member of Congress, An officer or employee of Congress, or An employee of a Member of Congress


Contract Formation: Developing Business and Identifying Opportunities

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FAR 52.203-12: Limitation on Payments to Influence Certain Federal Transactions: The term appropriated funds does NOT include profit

or fee from a covered Federal action.

To the extent the Contractor can demonstrate that the Contractor has sufficient monies, other than Federal appropriated funds, the Government will assume that these other monies were spent for any influencing activities that would be unallowable if paid for with Federal appropriated funds.



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FAR 52.203-12: Limitation on Payments to Influence Certain Federal Transactions: Exceptions For - Reasonable compensation for agency and legislative liaison

by contractor employees, and for participating in capability presentations and other pre-solicitation informational sessions.

Payment for professional or technical services rendered directly in the preparation, submission, or negotiation of any bid, proposal, or application for that Federal action or for meeting requirements imposed by or pursuant to law as a condition for receiving that Federal action.


Presenter

Presentation Notes

So: What kind of capability presentations are being conducted? Who is attending? Are there funds being expended in preparation of a specific, ongoing procurement? Can we establish – easily ad quickly – that the effort is related to a requirement of the solicitation, or a legal requirement to ensure eligibility for receiving the action? Example: Notes to the file.


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FAR 52.203-12: Limitation on Payments to Influence Certain Federal Transactions: Disclosure Requirements and Penalties

Requires, at time of bid as well as at any time when there is a

change in the chain, submission or updating of OMB Standard Form LLL to provide the name of the lobbying registrants, including the individuals performing the services.

Any person who makes a prohibited expenditure or who fails to file or amend the disclosure shall be subject to civil penalties.

Government may also seek administrative penalties (debarment, suspension) and criminal penalties.


Presenter

Presentation Notes



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FAR 52.203-12: Limitation on Payments to Influence Certain Federal Transactions: Flow Down, Records, and Reliance

Requires each contractor to obtain a declaration, including the certification and disclosure from each person requesting or receiving a subcontract exceeding $150,000 under this contract; and to flow the clause downstream.

Requires each contractor or subcontractor that awards the subcontract to retain the declaration (including the certification) in its subcontracting file.

Authorizes upstream contractors to rely on downstream certifications.

Requires all disclosure forms to be forwarded, tier to tier, to the prime contractor. Requires the prime contractor to submit a copy of ALL disclosure forms in the chain within 30 days of the end of the calendar quarter in which the disclosure form is submitted by the subcontractor(s).


Presenter

Presentation Notes



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Covenant Against Contingent Fees



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FAR 52.203-5: Covenant Against Contingent Fees Covenant Against Contingent Fees (APR 1984)

Requires the Contractor to warrant that it has not caused anyone to solicit or obtain the contract upon an agreement or understanding for a contingent fee.

Penalty for breach or violation of this warranty: the Government may annul the contract without liability or, in its discretion, may deduct from the contract price or consideration, or otherwise recover, the full amount of the contingent fee.



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FAR 52.203-5: Covenant Against Contingent Fees Covenant Against Contingent Fees (APR 1984)

Exceptions exist for bona fide agents or employees who serve as capture management/business development professionals

The exception only applies to bona fide agents or employees who do not exert, propose, or suggest that that they are able to exert improper influence.

So: What documentation of training programs, policies and internal review/reporting exist?



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Anti-Kickback Act



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FAR 52.203-7: Anti-Kickback Act Procedures

Prohibits: Providing or attempting to provide or offering to provide

any kickback

Soliciting, accepting, or attempting to accept any kickback, or

Including, directly or indirectly, the amount of any kickback in the contract price charged by a prime Contractor to the United States or in the contract price charged by a subcontractor to a prime Contractor or higher tier subcontractor.



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FAR 52.203-7: Anti-Kickback Act Procedures Requires establishment and adherence to reasonable procedures

designed to prevent and detect possible violations in its own operations and direct business relationships.

Requires any contractor that reasonably believes that a violation may have occurred to promptly make a written report of the possible violation to the inspector general of the contracting agency, the head of the contracting agency if the agency does not have an inspector general, or the Department of Justice.

Requires the contractor to cooperate fully with any Federal agency investigating a possible violation described in paragraph (b) of this clause. Copyright 2014 O'Riordan Bethel Law FIrm, LLP


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FAR 52.203-7: Anti-Kickback Act Procedures In the event of a violation, the Contracting Officer may Offset the amount of the kickback against any monies owed by

the United States under the prime contract and/or

Direct that the Prime Contractor to withhold, from sums owed a subcontractor under the prime contract, the amount of any kickback.

Order the monies withheld to be paid over to the Government

The Government may also pursue any other civil, administrative and criminal remedies, including debarment and suspension.


Conflicts of Interest: Supply Chain Risks 29


Conflicts of Interest: Organizational vs. Personal

Organizational conflicts of interest (OCI): Contractor’s ability to provide impartial advice to the

Government is impaired by other business interests of the organization

Or the contractor has obtained an unfair competitive advantage via prior contracting activities

Personal conflicts of interest (PCI): Contractor employee’s ability to provide impartial advice

to the Government is impaired by personal financial interests or personal activity or relationships

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Organizational Conflicts of Interest 31

OCI generally arise in three situations: Impaired Objectivity

• Company’s other business interests impair objectivity in rendering advice or services to the Government

Biased Ground Rules • Company helped shape terms of procurement for which it later

competes (e.g., SOW or specifications preparation) Unequal Access to Information

• Company obtains non-public info during contract performance that gives it an unfair advantage in a future procurement

An “undisclosed or unmitigated” OCI: can disqualify potential offeror or lead to post-award liability (Termination, FCA, S+D)


Code of Business Ethics

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FAR 52.203-13: Contractor Code of Business Ethics

Clause is required in solicitations and contracts if the value of the contract is expected to exceed $5,000,000 and the performance period is 120 days or more.

Broadly defines contractor and subcontractor to include the furnishing of supplies or services for performance of a prime contract or subcontract.

Broadly defines principal to include persons with primary management or supervisory authority within an entity, such as a general manager, plant manager, or division head.



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Requires covered contractors, within 30 days after contract award, to have in place a written code of business ethics and conduct and make a copy to each employee engaged in performance of the contract.

Requires covered contractors to exercise due diligence to prevent and detect criminal conduct; and “otherwise promote an organizational culture” that encourages ethical conduct and a commitment to compliance with the law.

Requires covered contractors to make timely, written disclosure to the agency Office of the Inspector General (OIG), with a copy to the Contracting Officer, whenever, in connection with the award, performance, or closeout of this contract or any subcontract thereunder, credible evidence indicates that a principal, employee, agent, or subcontractor has committed criminal fraud, conflict of interest, bribery, or gratuity; or Civil False Claims Act violations.



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Should address all regulations discussed above, and others.

Should establish internal avenues for reporting concerns

Should establish internal avenues for capturing data and complying with reporting obligations.


Performing Work – FAR Mandatory Disclosure Rule

A contractor must “timely” disclose “credible evidence” of a violation of federal criminal law involving Fraud Conflict of Interest, Bribery, or Gratuity

Or a violation of the civil False Claims Act

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Performing Work – FAR Mandatory Disclosure Rule

“Knowing failure” to disclose can be a cause for Termination Suspension or debarment until three years after

final payment on a contract

Information is “known,” or a failure to disclose is “knowing,” when a “principal” is aware of the information – including plant managers, division heads, and others with primary supervisory or managerial responsibility.

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Before the Solicitation US Data Request and Sovereignty Obligations

Commercial Item Contracting – FAR Part 12 Simpler Forms, Same Compliance Duties

Government is required to buy “commercial items” (products and services) generally under commercial terms and conditions.

No cost or pricing data

Terms Conflict

with Federal

Law?

IP created with private

$

Presenter

Presentation Notes

Government may not obtain certified cost or pricing data for commercial items – cost buildup for product or service Government should rely on terms that do not conflict with federal law Government should respect intellectual property developed exclusively with private funds

Before the Solicitation

Get Your Terms “Government Ready”

Determined through competition or market pricing Most Favored Customer pricing information - prime contractors

Generally no contractual right to audit commercial item vendors.

Government is required to use only commercial terms (to the extent consistent with Federal law and satisfies the Government’s needs). See, generally, FAR Part 12.

Mark documents with proprietary or confidential information as such in order to help protect information from being disclosed pursuant to the Freedom of Information Act (FOIA), 5 U.S.C. 552, as amended.

Presenter

Presentation Notes

Pricing: Determined through competition or market pricing Most Favored Customer pricing information prime contractors Audits: Generally no contractual right to audit commercial item vendors. Unique Licensing Terms: Government is required to use only commercial licensing terms. See, generally, FAR Part 12. However in some instances companies have been ‘encouraged’ to modify terms in order to sell to government. Marking of Confidential Information: Mark documents with proprietary or confidential information as such in order to help protect information from being disclosed pursuant to the Freedom of Information Act (FOIA), 5 U.S.C. 552, as amended.

Performing Work . . . Documentation

Time Reporting

Cost

Price Adjustments Disputes

Government Furnished Equipment

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Context of Challenges Sample Sources

Bid Protest: eligibility, responsiveness and responsibility

Performance Cost Recovery

Challenges

Performance: deliverables, scheduling, and

IP Ownership/Licensing

Teaming agreements, due diligence records, CPARS, socio-economic and size status, DCA audit trails

Purchase records, incentive

program records

Communications, logs, approvals, RFI/Responses

NDAs, Licensing/sub-licensing agreements

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Prove It: Some Examples


Performing Work - Documentation Adverse Presumption Missing or Unclear Records . . .

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