1. U.S. General Services Administration Richard P. Levi Counsel to the Inspector General General Services Administration May 6, 2010 Federal Acquisition Regulation (FAR) Disclosure Requirements and the American Recovery and Reinvestment Act (ARRA) Office of Inspector General (OIG)

2. 2 AGENDA Value to the Customer  Understanding FAR mandatory disclosure rule  Applicability to Recovery Act  How to Work with the Office of Inspector General

3. 3 FAR DISCLOSURE RULE ORIGINS  Mandatory disclosures in other areas  National Reconnaissance Office contract clause  Lack of voluntary disclosures

4. 4 NEW SUSPENSION & DEBARMENT (S&D) PROVISIONS  FAR 9.406-2 and 9.407-2; 3.1003  “Knowing failure by a principal, until 3 years after final payment on any Government contract...  to timely disclose to the Government,  in connection with the award, performance, or closeout of the contact

5. 5 NEW SUSPENSION & DEBARMENT (S&D) PROVISIONS (cont.)  or a subcontract thereunder,  credible evidence of”:  Significant overpayments (other than financing payments)  Civil False Claims Act violation  Bribery, conflict of interest, gratuities, or fraud under Title 18

6. 6 NEW CONTRACT CLAUSE  FAR 3.1004 – Clause applies  if value expected to exceed $5 million and  120 day performance period

7. 7 NEW CONTRACT CLAUSE (cont.)  Clause at FAR 52.203-13, Contractor Code of Business Ethics and Conduct  Required to “timely disclose, in writing, to the agency Office of 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, the Contractor has credible evidence that principal, employee, agent, or subcontractor... has committed” a violation of:  Civil False Claims Act  Bribery, conflict of interest, gratuities, or fraud under Title 18

8. 8 S&D/CONTRACT CLAUSE DIFFERENCES  Disclosure to “the Government” versus to the Inspector General  Obligation falls on “principal” versus the contractor  Significant overpayments reporting requirement

9. 9 NEW CONTRACT CLAUSE  Business ethics awareness and compliance program (does not apply to small businesses and acquisition of commercial items)  Training for principals, employees and, as appropriate, agents and subcontractors  Internal control system –Monitoring and auditing to detect criminal conduct –An internal reporting system such as a hotline –Timely disclosure –Full cooperation

10. 10 NEW CONTRACT CLAUSE (cont.)  Full cooperation (business ethics and awareness program)  Disclosure of information sufficient for law enforcement to identify the nature and extent of conduct and individuals responsible  Includes providing timely and complete response to Government auditors’ and investigators’ request for documents and access to employees with information

11. 11 RECOVERY ACT (ARRA) OVERVIEW  Creates significant opportunities  Accompanied by additional obligations

12. 12 RECOVERY ACT OVERVIEW (cont.)  Transparency  Contract performance  Job creation and retention  Oversight  Whistleblower rights  GAO and IG audit access

13. 13 RECOVERY ACT OVERVIEW (cont.)  Three immediate goals:  Jobs  Spur economic activity/invest in long-term growth  Foster accountability and transparency  Makes $billions available for federal contracts, grants and loans  Recipients to report quarterly on how using money  All data is posted on Recovery.gov

14. 14 ARRA DISCLOSURE REQUIREMENT  OMB Guidance M-09-10 and M-09-15  Requires agencies for grants, loans, and loan guarantees to include requirement similar to FAR mandatory disclosure rule

15. 15 ARRA DISCLOSURE REQUIREMENTS (cont.)  Each grantee or sub-grantee awarded ARRA funds shall promptly refer to an appropriate inspector general:  Any credible evidence  That a principal, employee, agent, contractor, sub-grantee, subcontractor, or other person  Has submitted a false claim under the False Claims Act or  Has committed a criminal or civil violation of laws pertaining to fraud, conflict of interest, bribery, gratuity, or similar misconduct involving those funds.

16. 16 ARRA V. FAR DISCLOSURE  “Promptly” instead of “timely”  To appropriate Inspector General only  Criminal or civil violation  Not limited to Title 18  Includes “similar misconduct involving those funds”

17. 17 IDENTIFYING REPORTABLE CONDUCT  Practical considerations for ARRA funds  Have programs to identify  any potentially criminal conduct  any potential false claims  any overpayments  Assess whether are reportable conduct as defined by FAR rule or ARRA reporting requirements  Consider erring on side of disclosure

18. 18 FAR DISCLOSURE RULE ISSUES  “Sea change”  Articles/discussions/training  Numerous issues raised  Preamble best source of guidance  Applies to ARRA contracts

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20. 20 Issue 1: What does in connection with the award, performance, or closeout of a contract mean?  In both S&D and contract clause  “In connection with” generally broadly interpreted  Unsuccessful bidder  Indirect costs  Fixed price contract  Supplier with no direct sales to Government  Recovery Act contracts FAR DISCLOSURE RULE - 13 ISSUES

21. 21 Issue 2: What types of criminal conduct are covered?  “Federal criminal law involving fraud, conflict of interest, bribery, or gratuities violations found in Title 18.”  Fraud – false statements, major fraud, theft/conversion/probably over 100 references  Non-title 18 statutes – consider conspiracy, mail/wire fraud  Same statutes apply to Recovery Act projects FAR DISCLOSURE RULE - 13 ISSUES (cont.)

22. 22 Issue 3: What constitutes a reportable violation of the False Claim Act (FCA)? Consider FCA Amendments - May 20, 2009  Prior – Knowingly cause or present false claim to Government (3729(a)(1))  Now – no longer has to be presented to Government; can be made to contractor, grantee or other recipient if money is spent on Government’s behalf or to further Government interest and Government provides any portion of money (3729(a)(1)(A))  Consider Recovery Act projects FAR DISCLOSURE RULE - 13 ISSUES (cont.)

23. 23  Prior - Make, use or cause to be used a false record or statement to get Government to pay a false claim (3729(a)(2)  Now – Make, use or cause to be used a false record or statement material to a false claim (retroactive to all claims pending on June 7, 2008) (3729(a)(1)(B))  Material defined as a natural tendency to influence of being capable of influencing FAR DISCLOSURE RULE - 13 ISSUES (cont.)

24. 24  Noncompliance with law, rule or regulation  Probably depends on whether is “material” to payment FAR DISCLOSURE RULE - 13 ISSUES (cont.)

25. 25  Prior – Used a false record to conceal, avoid, or decrease obligation to pay or transmit money or property to the United States (3729(a)(7)  New – Knowing conceal or avoid/decrease obligation to pay or transmit money to Government  “Obligation” – established duty, whether or not fixed, arising from retention of overpayment  May apply broadly to retention of overpayments in Recovery Act contracts FAR DISCLOSURE RULE - 13 ISSUES (cont.)

26. 26  Prior – conspire to defraud the Government by getting a false claim allowed or paid (3729(a)(3))  New – conspires to commit a violation of the liability provisions of the False Claims Act (3729(a)(1)(C)) FAR DISCLOSURE RULE - 13 ISSUES (cont.)

27. 27 FAR DISCLOSURE RULE - 13 ISSUES (cont.) Issue 4: What is a significant overpayment?  FAR clauses require reporting/return of overpayments (FAR 52.212-4(i)(5), 52.232-25(d), 52.232-26(c) & 52.232-27(l))  “Significant overpayment” not defined  Preamble states, “implies more than just dollar value and depends on the circumstances of the overpayment as well as the amount”  Consider relationship to False Claims Act

28. 28 FAR DISCLOSURE RULE - 13 ISSUES (cont.) Issue 5: What is credible evidence?  Both S&D and contract clause require reporting of “credible evidence”  Other contexts – “credible evidence” means worthy of belief based on circumstances  Allows for some evaluation time  Role of affirmative defenses

29. 29 FAR DISCLOSURE RULE - 13 ISSUES (cont.) Issue 6: Who is a principal?  An “officer, director, owner, partner, or a person having primary management or supervisory responsibilities within a business entity (e.g., general manager; plant manager; head of a subsidiary, division or business segment; and similar positions.” FAR 2.101(b)(2)  Preamble –interpret broadly; could include compliance officers, directors of internal audit, or other positions of responsibility.

30. 30 Why definition of principal matters  Suspension/debarment and look-back apply to knowledge of “principal”  Internal control system includes reasonable efforts not to employ as “principal” those who due diligence would expose as engaged in conduct in conflict with ethics and conduct code FAR DISCLOSURE RULE - 13 ISSUES (cont.)

31. 31 FAR DISCLOSURE RULE - 13 ISSUES (cont.) Issue 7: What are requirements regarding subcontractors?  Subcontract – any contract entered into by a subcontractor to furnish supplies or services for performance of a prime contract or subcontract.  Under S&D provision, must disclose credible evidence of violation regarding contract or a “subcontract awarded thereunder.”  Contract clause - must disclose credible evidence that a “principal, agent, employee, or subcontractor” has committed violation regarding contract or a “subcontract awarded thereunder.”

32. 32 FAR DISCLOSURE RULE - 13 ISSUES (cont.)  For others than small businesses or contracts for acquisition of commercial items, maintain business ethics awareness and compliance program that includes:  Training that is provided as appropriate to contractor’s agents and subcontractors  Internal compliance program that reports credible evidence of violation by subcontractor  Flow down if subcontract over $5 million and 120 days

33. 33 FAR DISCLOSURE RULE - 13 ISSUES (cont.) Issue 8: What is a “timely” disclosure?  All the disclosure provisions require “timely” disclosure  Reasonable time for internal investigation  No specific definition  Consider early reporting  Do Recovery Act timeframes mean timely needs to be sooner

34. 34 FAR DISCLOSURE RULE - 13 ISSUES (cont.) Issue 9: What are the “look back” requirements?  S&D provisions apply for 3 years after final payment on any contract  Business ethics and awareness program requires disclosure on any Government contract for 3 years after final payment

35. 35 FAR DISCLOSURE RULE - 13 ISSUES (cont.) Issue 10: What should be the form and content of disclosures?  In writing  Recommend some immediate reports  Electronic forms available  Consider definition of “full cooperation” – information sufficient to identify nature and extent of offense and individuals responsible

36. 36 FAR DISCLOSURE RULE - 13 ISSUES (cont.) Issue 11: Who should disclosures be made to?  To respective OIG for crimes and False Claims Act (FCA), with copy to contracting officer (CO)  To CO for only overpayments (CO should notify OIG)  If relates to more than one contract, to OIG with higher contract value  If relates to procurement instrument used by multiple agencies, notify OIGs of ordering agency and agency responsible for basic contract, and agencies’ COs

37. 37 FAR DISCLOSURE RULE - 13 ISSUES (cont.) Issue 12: Are there still voluntary disclosures?  Yes  Reasons for voluntary disclosures include  Belief that will not constitute an admission  More protection from disclosure under FOIA  Caution  Applies to Recovery Act contracts as well

38. 38 FAR DISCLOSURE RULE - 13 ISSUES (cont.) Issue 13: How to preserve confidential and privileged information?  Government will safeguard disclosures to extent permitted by law and regulation  Label any proprietary information  Disclose facts

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40. 40 WORKING WITH THE OIG  Statutory role of OIG  Detect and prevent fraud, waste, and abuse  Promote economy and efficiency

41. 41 WORKING WITH THE OIG (cont.)  Overpayment notices  To contracting officer –Should advise OIG –Many go directly to OIG as well  Credible evidence of violations  To OIG  With copy to contracting officer  All parties need to work together

42. 42 WORKING WITH THE OIG (cont.)  Each disclosure evaluated by OIG team  Provide contracting officer a copy  Inform Department of Justice  Generally meet with contractor, invite contracting officer and Department of Justice

43. 43 WORKING WITH THE OIG (cont.)  Majority of disclosures to date characterized as overpayments  Contractors identified over $11 million in potential overcharges  Generally try to work with contractor  Advise contractor when matter closed

44. 44 CONTRACTOR COOPERATION WITH OIG ARRA and FAR Rule comparison  FAR disclosure rule – full cooperation  Disclosure of information sufficient for law enforcement to identify the nature and extent of conduct and individuals responsible  Includes providing timely and complete response to Government auditors’ and investigators’ request for documents and access to employees with information

45. 45 CONTRACTOR COOPERATION WITH OIG (cont.)  Recovery Act - OIG authorized  To examine any records of the contractor or grantee, any of its subcontractors or subgrantees, or any State or local agency administering such contract, that pertain to, and involve transactions relating to, the contract, subcontract, grant, or subgrant;  To interview any officer or employee of the contractor, grantee, subgrantee, or agency regarding such transactions.

46. 46 OIG AND CONTRACTING OFFICERS  Need to work together  Share information  Disclosure is only start of process

47. 47 Questions? Contact information: Richard Levi Counsel to the Inspector General 1800 F. St. NW Washington, DC 20405-0001 (202) 501-1362 richard.levi@gsa.gov