the do’s and don’ts of government construction contracts joseph c. kovars, esq. ober|kaler 100...
TRANSCRIPT
The Do’s and Don’ts of Government Construction Contracts
Joseph C. Kovars, Esq.Ober|Kaler
100 Light StreetBaltimore, MD 21202
[email protected] | 410.347.7343
Barbara G. Werther, Esq.Ober|Kaler
1401 H Street, N.W.Washington, DC 2005
[email protected] | 202.326.5015
Or David Letterman’s Top Ten Traps for the Unwary
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Top Ten Traps
1. Authority to bind the Government
2. Funding of contract—Anti-Deficiency Act
3. Recognizing constructive changes
4. Notice requirements
5. Bilateral modification releases
6. Documentation: letter in/letter out
7. Updating schedules
8. Cure notices/show cause
9. Claim certification
10. False claims 2
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Federal Acquisition Regulation (FAR)
Provides uniform policies and procedures for acquisitions by Federal Gov’t agencies
Parts 1-51 are policies and instructions
Part 52 is standard form clauses
Part 53 is forms
FAR clauses apply to the extent they are incorporated into the contract, either full text or by reference.
The Christian Doctrine
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Procurement Methods for Construction
Sealed bidding – FAR Part 14
Only used where price is sole basis for award
Contracting by Negotiation – FAR Part 15
Used when factors other than price are considered
Used for “Best Value” procurements
“Negotiation” is a term of art – its not a real negotiation!
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Sealed Bidding
Invitation for Bid (IFB) is used
Bids are publicly opened
Award goes to lowest price, responsive bid by a responsible bidder
“Responsive” bid means complies in every respect with the requirements of the IFB (FAR 14.404-2)
“Responsible” bidder refers to financial resources, integrity, organization and skills, ability to meet schedule, and past performance (FAR Part 9.1)
Firm, fixed-price contract results.5
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Contracting By Negotiation
Request for Proposals is used (RFP)
Tradeoff between price and other factors (Best Value)
Evaluation factors and significant sub-factors must be clearly stated (Section M of RFP)
Must state whether all other factors are more important, less important or equally important as price
Separate technical and price proposals submitted (separate volumes)
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Contracting By Negotiation - 2
Technical evaluation by technical team
Price evaluation by price team
Technical & price kept separate until final selection decision
Oral presentations can be used
Can typically award on basis of initial proposals without “discussions”
Or can hold “discussions”, followed by BAFO
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Contracting By Negotiation - 3
If discussions are held with one offeror, must hold discussions with all within competitive range
Discussions must indicate deficiencies, significant weaknesses and adverse past performance information
Exceptions may be taken, but are risky
Additional features and enhancements may be offered
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Contracting By Negotiation - 3
Debriefing of unsuccessful offerors available on request
When to protest?
What’s the likelihood of winning a protest?
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Funding – Anti-Deficiency Act
Procurements are funded through appropriations.
The appropriation is listed on the contract form; should be checked.
Anti-Deficiency Act prohibits: Making or authorizing an expenditure or creating or authorizing an obligation in excess of the amount available in the appropriation or fund unless authorized by law. (31 U.S.C. s. 1341(a)(1)(B))
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Funding – Anti-Deficiency Act
Anti-Deficiency Act -- Government’s representatives cannot make any payment or a commitment to make payment for work unless there are sufficient funds “in the bank” (in the appropriation) to cover the cost in full.
What does this mean in terms of the multiyear construction project?
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Funding – Anti-Deficiency Act
Limitation of Funds clause (FAR 52.232-22) - Monitor costs and notify at 75%. Right to stop work.
Availability of Funds clause (FAR 52.232-19) – “Funds are not presently available for performance beyond ______. . .” Implied right to stop work.
What happens when the Government runs out of money and there is no new appropriation?
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Changes
FAR 52.243-4 CHANGES (JUNE 2007)
(a) The Contracting Officer may, at any time, without notice to the sureties, if any, by written order designated or indicated to be a change order, make changes in the work within the general scope of the contract, including changes --
(1) In the specifications (including drawings and designs);
(2) In the method or manner of performance of the work;
(3) In the Government-furnished property or services; or
(4) Directing acceleration in the performance of the work.
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Changes
(b) Any other written or oral order (which, as used in this paragraph (b), includes direction, instruction, interpretation, or determination) from the Contracting Officer that causes a change shall be treated as a change order under this clause; provided, that the Contractor gives the Contracting Officer written notice stating (1) the date, circumstances, and source of the order and (2) that the Contractor regards the order as a change order.
(c) Except as provided in this clause, no order, statement, or conduct of the Contracting Officer shall be treated as a change under this clause or entitle the Contractor to an equitable adjustment.
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Changes
(d) If any change under this clause causes an increase or decrease in the Contractor's cost of, or the time required for, the performance of any part of the work under this contract, whether or not changed by any such order, the Contracting Officer shall make an equitable adjustment and modify the contract in writing. However, except for an adjustment based on defective specifications, no adjustment for any change under paragraph (b) of this clause shall be made for any costs incurred more than 20 days before the Contractor gives written notice as required. In the case of defective specifications for which the Government is responsible, the equitable adjustment shall include any increased cost reasonably incurred by the Contractor in attempting to comply with the defective specifications.
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Changes
(e) The Contractor must assert its right to an adjustment under this clause within 30 days after (1) receipt of a written change order under paragraph (a) of this clause or (2) the furnishing of a written notice under paragraph (b) of this clause, by submitting to the Contracting Officer a written statement describing the general nature and amount of proposal, unless this period is extended by the Government. The statement of proposal for adjustment may be included in the notice under paragraph (b) above.
(f) No proposal by the Contractor for an equitable adjustment shall be allowed if asserted after final payment under this contract.
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Changes
The contractor is required to perform the changed work as directed and make claim under the Disputes Clause if not paid. (Constructive change or dispute over unilateral amount granted). FAR 52.233-1(i)
Permissible scope of changes
Drawings and specifications
Method or manner of performance
GFM/GFP
Directed acceleration
Time of performance (nights, weekends)
Place of performance
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Changes
Types of Changes» Formal» Constructive
Formal/Express Changes
Directed change or CCD – unilateral from Government
Bilateral – supplemental modification to contract Accord and satisfaction Reservation of rights
Who may initiate? Either party
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Changes
Constructive Changes:
Conduct by C.O. or authorized representative which has the effect of causing the Contractor to perform work different from that set forth in the contract,
Even when not described or acknowledged as a change.
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Changes
Elements of a Change
Direction to do something different from existing contract
Within the general scope of the contract
Issued by C.O. (or duly authorized representative)
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Changes
What does “within the general scope” of the contract mean? No exact formula
99.99% of every change you will ever see.
Prohibition on issuing changes outside the general scope because significantly different work should be put out for bid.
Changes beyond general scope are “cardinal changes.”
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Changes
Cardinal change
1965, Wunderlich Constructing Co. v. U.S., Court of Claims says changes beyond the general scope of the contract are “cardinal changes”
The number of changes, in and of itself, is not necessarily a cardinal change
More of the same kind of work (i.e., more asbestos abatement) not a cardinal change
Direction to build an airstrip when the contract was for the terminal probably is a cardinal change
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Changes - Authority
Who has authority to issue changes to the Contract? (FAR 1.603-3(a))
Only the C.O. (or authorized representative) has authority to bind the Government and modify the contract
Who is the C.O. ?
What is authority of COTR?, ROICC?, etc.
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Changes - Authority
The Government is not legally bound by unauthorized acts or acts of unauthorized agents
Apparent Authority is NOT AVAILABLE AGAINST THE GOVERNMENT.
Contractor’s duty to assure authority behind direction.
Don’t be a “Volunteer.”
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Changes - Authority
When is the Government bound by unauthorized actions?
Implied Authority/Course of Conduct
Ratification
Equitable Estoppel
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Changes - Authority
Who does not have authority?
Inspectors
Contract administrators
Getting confirmation:
If you are “directed” by a Government representative, send a letter to the C.O. and ask the C.O. if you are to comply with the directive, i.e., have the C.O. ratify the “directive.”
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Constructive Changes
What is a constructive change?
(Subsection (b) of the changes clause)
(1)A directive to the Contractor
(2)Requiring the Contractor to perform additional or changed work
(3)Contractor relied on the Government direction and incurred increased cost, added time
(4)Notice given
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Changes - Types of Constructive Changes
1. Interpretation of specifications and drawings
Ambiguity in the specifications/drawings Patent vs. latent
The ambiguity is latent
The contractor’s interpretation is reasonable
The Government has a different interpretation and tells the contractor to perform in accordance with the Government’s interpretation
The contractor incurs additional costs by complying with Government’s interpretation
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Changes - Types of Constructive Changes
2. Inconsistencies between drawings and specifications
FAR 52.236-21:
If only in specifications, or only in drawings, treat as if mentioned in both places
In case of difference, specifications govern over drawings
If the discrepancy is patent, duty to inquire pre-bid
If the discrepancy is latent, give notice, segregate costs
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3. Defective Specification
The Government warrants the adequacy of its specifications
Must be a design specification (implied warranty on Government under Spearin)
Specifications contain errors, omissions, inconsistencies
Contractor entitled to costs of attempting to comply and for performing corrective work
Changes - Types of Constructive Changes
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3. Defective Specification
The Government warrants the adequacy of its specifications
Must be a design specification (implied warranty on Government under Spearin)
Specifications contain errors, omissions, inconsistencies
Contractor entitled to costs of attempting to comply and for performing corrective work
Changes - Types of Constructive Changes
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Risk of Specification Problems
Design Specifications – Government owns risk
Performance Specifications – Contractor owns risk
Mixed Specifications – It depends (analyze in detail)
Changes - Types of Constructive Changes
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Changes – Types of Constructive Changes
Risk of Specification Problems (cont’d)
Design-Build Contracting
Building Information Modeling (BIM)
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BIM
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4. Inspection and Testing
Government over-inspection
Improper or incompetent rejection
Government directs a change in testing method or frequency
More stringent testing procedure than that set forth in contract
Interference by Government in unreasonable inspecting during performance
Changes - Types of Constructive Changes
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5. Changes In The Method And Manner Of Performance
Where C.O. insists on a change in the contractor’s method and manner of performance of the work
Contractor can recover the difference in cost between its method and Government’s method
Example – change in planned sequence
Changes - Types of Constructive Changes
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6. Constructive Acceleration
When Government effectively requires the contractor to finish earlier than planned
Changes - Types of Constructive Changes
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7. Duties of Cooperation, Not to Hinder
NTP issued, but contractor not permitted to construct road to worksite
Work on railroad tracks can only be performed with Owner’s flagmen and at night, but no flagmen work at night
C.O. withheld design fix from contractor and charged contractor LDs for not finishing “on time”
Changes - Types of Constructive Changes
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8. Cumulative Impact
Combined impact of a large number of changes
Ripple effect
Note: Low rate of success in cases. Measurement of damages is “amorphous.”
Be careful when signing modifications
Bell BCI v. United States (Fed. Cir. 2009)
Changes - Types of Constructive Changes
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Notice Requirements
Notice must be timely
Notice must be in writing
Notice must be sent to the C.O.
Notice must set forth the nature of the claim
Constructive changes– notice relates back 20 days, as to costs incurred
No time limit for defective specifications
Changes
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Exceptions to Strict Notice Requirements(1) Where the Government knew about the basis of the claim* Actual knowledge can be shown from Government records* Presence of Government personnel on jobsite* Acts of Government in working with contractor to address issue* Meetings
(2) Where the Government considers the claim on the merits without complaining about lack of notice
(3) Where the Government is not prejudiced by the lack of notice
* Government has burden of proving it was prejudiced
* Prejudice occurs if Government cannot mitigate expense or elect any one of available options
Changes
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Contractor Duty to Proceed The Contractor must perform the changed work
– C.O. can terminate contract for default if contractor does not proceed
– Disputes Clause: Contractor can submit its claim Equitable Adjustment
Price:– Bruce Construction v. U.S., 324 F.2d 516 (Ct. Cl. 1963) – “keep [a]
contractor whole when the Government modifies the contract.”– “Actual, reasonable cost” ordinarily incurred because of the change » Actual cost plus reasonable OH + P
– May include costs incurred for affected work areas not changed Time
If the change order implicates work on the critical path, additional time may be required
The Request for Equitable adjustment (REA)
Changes
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Delays & Suspension
Types of delays
Excusable, Compensable, Unexcused
Special Cases: –Sovereign vs. contractual acts;–Subcontractors & suppliers;–Bankruptcy & financial inability (unless
Government caused)
Compensable Special Case:–Differing Site Conditions
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Concurrent delays – burden on claiming party to untangle
Net effect : excusable delay; no damages recoverable by either party
Requires two delays on critical path
Highly fact intensive
The “Hurry Up and Wait” problem
Delays & Acceleration
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Notice requirements:
10 days. Prejudice rule.
Boards believe in contemporaneous records.
Right to early completion – conceptually accepted, but difficult to prove.
Schedule must be realistic and relied upon
Delays & Acceleration
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Proving Delay Claims
Sophistication of Boards and Court of Claims for delay claims
CPM schedule is normal basis of proof
Some cases even say hard to imagine proving claim without CPM analysis
Sophisticated in review/analysis of CPM presentations TIA/Windows Impacted as planned, Collapsed as built,
Delays & Acceleration
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Important to use contemporaneous schedules and updates.
Have solid schedule as early as possible
Update it accurately and honestly.
Will have to live with project schedule for claims purposes
If Government restricts updates, create shadow schedule
Delays & Acceleration
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Acceleration
Well recognized doctrine
Actual and constructive
Constructive – effect of requiring acceleration
Delays & Acceleration
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Terminations for Default – FAR 52.249-10
Draconian – a “forfeiture” - disfavored
High standard of proof
Default termination is discretionary with C.O.
Improper default termination is converted to a T for C
High stakes – a dispute is “winner take all”
Terminations
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Terminations for Default (cont.)
If default sticks, the government recovers its re-procurement costs from the defaulted contractor
And, any other rights available to the Government, such as LDs
Burden of proof is on the Government to show, by a preponderance of the evidence, that the default termination was proper.
Terminations
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Grounds for Default Termination
A. Failure to complete the work within the time for the contract or any extension.
B. “Failure to make progress”
C. Repudiation by the contractor
D. Contractor’s failure to perform its obligations under the contract
E. Failure to provide adequate assurances that performance will proceed
F. Failure to continue performance during a dispute
Terminations
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Cure Notice (or Show Cause) FAR 49.402-3(e)
Required in supply contracts
Not required in construction contracts
But, Government often issues cure notice
Take this very seriously
Provide adequate assurances
Terminations
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Contract Disputes Act
Basic statute governing claims
Established claims process and forums for disputes
Initiation of claim – submitted to CO, request Final Decision
Definition of “claim” written assertion,
matter of right,
payment of sum certain
Claims and Disputes
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Must be Certified if over $100,000
Final Decision is prerequisite to appeal/litigation Final Decision must be provided in 60 days
Unless it isn’t – can specify a longer period (usually 60 more)
May consider claim as deemed denied” if not timely issued
Interest from date of certification
Claims and Disputes
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Certification Requirement
Classic trap for unwary
Made by authorized person who can bind the company
“Claim made in good faith”
“Supporting data are accurate and complete to the best of my knowledge and belief”
“Amount requested accurately reflects the adjustment for which the contractor believes the Government to be liable”
Claims and Disputes
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Under penalty of perjury
False Claims Act liability – criminal and civil, company and personal
Subcontractor issues – want subcontractor to certify to you
Even if the sub does so, need to do due diligence independently,
Can’t rely blindly on sub certification.
Pass thru agreements-- need to remain liable to sub for what sub is claiming.
Claims and Disputes
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Claims and Disputes
Appealing Contractor Performance Evaluation Todd Construction v. U. S., 656 F.3d 1306 (Fed. Cir. 2011)
Pre-Todd Rule: Unsatisfactory performance evaluations not appealable.
Post-Todd contractor may appeal UNSAT because it is a claim “relating to the performance under the contract.”
To obtain judicial review, must comply with CDA claim certification requirements.
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Field overhead
Can recover as percentage adder to direct costs, or as extended, time-related cost.
Not both, and only consistent with general treatment.
This generally means go with percentage markup.
Recovering Costs from the Government
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Unabsorbed home office overhead – Eichleay Formula
So many restrictions that generally not worth the trouble any longer
Among other things, requires essentially complete standby situation, and showing impracticable to take on replacement work
Recovering Costs from the Government
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False Claims
False Statements Act, 18 U.S.C. 1001
False Claims Act, 3729 (a)(1) and (a)(2)
(a)(1) imposes contractor liability for knowingly presenting, or causing to be presented, false claims
(a)(2) imposes contractor liability knowingly using false records or statements to obtain payment for false claims.
Numerous Other Fraud/Falsification Statutes & Penalties
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False Claims
MAIN ELEMENTS:
A claim for payment submitted to the Government
Falsity (claim itself or records supporting)
Knowing conduct
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False Claims
CLAIMS:
Requests for progress payments
Request for final payment
Requests for Equitable Adjustments and Claims
Statements Regarding the Quality of the Work
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False Claims
FALSITY:
Does the Contractor’s Conduct Comport With Its Contractual, Regulatory, and Statutory Obligations Invoice misrepresenting quantity installed
Invoice seeking payment for non-conforming work
False certification of payment of Davis Bacon Act wages– Payment and/or proper classification of workers
REA’s with factual misrepresentations.
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False Claims
Knowing Conduct:
Did Contractor have: actual knowledge of the falsity,
deliberately ignore the truth or falsity of the information, or
act in reckless disregard of the truth or falsity of the information
Did the Government have prior knowledge of the facts allegedly constituting a false claim?
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False Claims
OTHER EXAMPLES:
False certifications of compliance with the contract requirements Representations of timely payment to
subcontractors
Billing amounts not intending to pay subs
Seeking or obtaining payment for work the Contractor knows does not conform to the contract requirements
Inflated quantities in an invoice
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False Claims
Daewoo v. United States
Forfeiture of affirmative claim due to fraud
$65 M claim became $50 M adverse judgment
Affirmed on appeal
Numerous mistakes -- Unclear consequences
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Ethics/Compliance
BASIC ELEMENTS: Written code of business ethics and code of conduct
Internal audit of company policies, procedures and controls
Mechanism for anonymous reporting of violations
Compliance/ethics education program for employees
Enforce disciplinary actions for violations
Cooperation with government investigations
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Mandatory Disclosure Rule (FAR 52.203-13)
• Contractor shall timely disclose in writing to OIG and CO, when credible evidence that the Contractor has:• Committed a violation of Federal criminal law (fraud, bribery,
gratuities, conflict of interest);
• Committed a violation of the civil False Claims Act; or
• Obtained a significant overpayment from the Government.
• Duty continues for 3 years following final payment.
• Failure to make required disclosure is grounds for debarment. FAR 3.1003
Ethics/Compliance
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Ethics and Conduct Requirements
FAR 52.203-13 requires Contractors (except commercial item contracts and small businesses:
Have a written code of ethics and conduct;
Exercise due diligence to prevent and detect criminal conduct
Encourage ethical conduct and promote a culture of ethical compliance
Implement “ongoing business ethics awareness and compliance program”
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Ethics/Compliance
Procurement Integrity Act and FAR 52.203-14 require Contractors to “exercise due diligence” to ensure that no employee gains an unfair competitive advantage by possessing:
Proprietary information obtained from a government official without permission, or
Source selection information that is not available to all competitors.
In the event of an OCI or PCI, Contractor must disclose to the Government.
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Ethics/Compliance
Strategy to Mitigate OCI/PCI Risks: Develop a comprehensive plan that includes detection,
mitigation and removal of conflicts of interest. Screen employees and acquisition targets for OCI and
PCI risks and avoid acquiring/hiring them, if possible. Assign a senior ranking individual as compliance officer
for the firm Assess OCI and PCI risks periodically Prepare OCI and PCI disclosures when necessary.
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Questions?