Brad Reaves, ReavesColey PLLC Beverly Arviso, CPA, CPCM, CFCM THE FAR: Key Federal Acts and Compliance Issues Every Contractor Should Know About Brad Reaves, ReavesColey PLLC brad.reaves@reavescoley.com 757.546.4256 Beverly Arviso, CPA, CPCM, CFCM Arviso, Inc. beverly@arvisoinc.com 757.373.9536

Overview 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

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)

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

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

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.

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)) 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.

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.

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”.

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).

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.

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.

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

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 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”

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)

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)

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)

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)

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 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

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

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

Compliance Best Practices Maintain an adequate Accounting System Timekeeping System Travel and Expense System Billing System Understand the contract terms and conditions and any certifications made

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Brad Reaves, ReavesColey PLLC Beverly Arviso, CPA, CPCM, CFCM Contact Information Brad Reaves, ReavesColey PLLC brad.reaves@reavescoley.com 757.546.4256 Beverly Arviso, CPA, CPCM, CFCM Arviso, Inc. beverly@arvisoinc.com 757.373.9536