Foreign Corrupt Practices Act (FCPA)
Please click here to read about the Foreign Corrupt Practices Act: provisions, penalties, compliance programs and trends.
New Recovery Act Rules Implement Provisions Relating To Government Audit Access, Whistleblower Protections, And Buy American Requirements; Much Confusion Remains
On March 31, 2009, the FAR Councils issued several new interim rules (effective March 31, 2009) implementing the American Recovery and Reinvestment Act of 2009 (P.L. 111-5) (also known as ARRA, The Recovery Act, or the Stimulus Act). See Federal Acquisition Circular (FAC) 2005-32, published at 74 Federal Register 14621-14652. The FAC issued new interim rules on a number of areas required under the Stimulus Act, including:
- Reporting Requirements for Recipients of Recovery Funds (see 74 Federal Register 14639)
- Publicizing Contract Actions (see 74 Federal Register 14636)
- GAO and IG Access to Company Employees (see 74 Federal Register 14646)
- Whistleblower Protections (see 74 Federal Register 14633)
- Buy American Requirements for Construction Materials (see 74 Federal Register 14623)
This blog focuses on the final three sets of rules – those relating to Auditor access; Whistleblower protections; and Buy American requirements. The first set of rules is discussed separately here.
FAR Councils Issue Interim Rule For Reporting On Recovery Act Work
Federal contractors that perform work funded, in whole or in part, by the American Recovery and Reinvestment Act of 2009 must report on certain aspects of that work under an interim rule issued by the FAR Councils on March 31, 2009. As currently written, the interim rule provides that recipients of Recovery Act funds must report information including, but not limited to—
a) The dollar amount of contractor invoices;
b) The supplies delivered and services performed;
c) An assessment of the completion status of the work;
d) An estimate of the number of jobs created and the number of jobs retained as a result of the Recovery Act funds;
e) Names and total compensation of each of the five most highly compensated officers for the calendar year in which the contract is awarded if in its preceding fiscal year the contractor received 80 percent or more of its annual gross revenues and $25 million or more in annual gross revenue from federal funds, and such information is not publicly available through SEC filings; and
f) Information on first-tier subcontractors, including the same executive compensation information required from prime contractors.
Proposed False Claims Act Amendments Increase Contractor Liability By Further Empowering Whistleblowers
Currently before Congress are at least two bills that could significantly increase government contractors’ liability and strengthen whistleblowers’ power to sue on behalf of the government. Senators Chuck Grassley (R-Iowa) and Patrick Leahy (D-Vermont) are spearheading a bipartisan effort to revise the False Claims Act (FCA), the government’s primary tool to recover damages for fraud related to government contracts. Under the FCA, the government may recover treble damages for false claims in addition to a $5,500 to $11,000 penalty per claim. The qui tam provisions of the FCA permit whistleblowers (called “relators”) to sue on behalf of the government and receive up to 30 percent of the government’s total recovery. Since 1986, the government has recovered over $22 billion through the FCA.
Both Senate bills would overturn court decisions that the sponsors (and the plaintiffs bar) allege were too friendly to contractors. The first bill, the Fraud Enforcement and Recovery Act of 2009 (FERA), would expand FCA liability, particularly for subcontractors. The second bill, the False Claims Act Clarification Act of 2009 (FCACA), would eliminate the public disclosure defense and give relators new procedural advantages. Interestingly, as we discussed here, the Department of Justice (DOJ) is already on record questioning the need for some of these provisions in earlier proposed legislation.
DOD Conclude That Specialty Metals Are Not Materials Critical To The National Security Interests Of The U.S.
On February 23, 2009, the Office of the Secretary of Defense and the Strategic Materials Protection Board issued an analysis of the national security issues associated with the purchase of specialty metals. See 74 Federal Register 8061. The analysis concluded that, while specialty metals are plainly essential for certain important defense systems, they are not "critical materials," nor do national security considerations require that only U.S.-produced specialty metals be used for DOD applications. This conclusion is very interesting, especially in light of the position taken by Congress for the last 35 years that the domestic specialty metals industry is purportedly critical to our national interests and that extraordinary measures are required to protect that domestic industry.
We have previously expressed the opinion that the Berry Amendment, and the specialty metals restriction in particular, is "a relic of a former age, ill-suited to the realities of our global marketplace and current procurement demands." We hope that this latest analysis from the Strategic Materials Protection Board will provide a foundation for some long overdue Congressional action to simplify, if not eliminate, what has become one the most complex aspects of DOD contracting, with a hodgepodge of different ad hoc rules affecting different contracts being simultaneously performed within a single manufacturing plant.
When "Generosity" Becomes a Vice: Eighth Circuit Affirms Gratuities Conviction Based on Email Correspondence Between Contractor and Government Employee
In United States v. Hoffman, 556 F.3d 871 (2009), the appellate court upheld a gratuities conviction based on an indictment alleging that the defendant had given a Government employee a set of golf clubs for or because of that Government employee’s role in rating the contractor’s performance under a contract with the United States Army Corps of Engineers. The court’s opinion illustrates a number of key points regarding the gratuities statute and the types of conduct that create the risk of a gratuities violation.
DCAA And The Art Of Intimidation
A March 13, 2009 Memorandum for Regional Directors introduces a new level of formality in DCAA’s unceasing quest to intimidate and control contracting officers in the exercise of their discretion.
Contracting Officers have long been reluctant to disregard recommendations made by DCAA with respect to the treatment of costs, notwithstanding the fact that many of DCAA’s recommendations are based on legal conclusions that, by education and experience, auditors are not qualified to make. Indeed, some of these recommendations seem so clearly out of phase with the text and purpose of the applicable regulations that they remind one that, in the 2000 movie “O Brother Where Art Thou?” George Clooney’s character had been imprisoned for the unauthorized practice of law. Nonetheless, DCAA recommendations have a significant chilling effect on the willingness of Contracting Officers to “do the right thing.” Even when the correct decisions are ultimately made, they are often made only after a protracted period of unnecessary angst and aggravation.
But nothing is so bad that it cannot be made worse. Apparently dissatisfied with existing DCAA procedures for elevating “unsatisfactory conditions relating to actions of Government officials” – now, there is a mouthful – which entail the successive elevation of issues and complaints through ascending levels of Government management, DCAA has decided it is time to turn informer and refer these officials to the DODIG for investigation. Now, we are sure that there are a number of instances in which this kind of direct referral makes sense – like bribery and other forms of self-dealing – but, please is it really an IG-worthy event if an auditor believes that a Contracting Officer “awards a contractor unreasonable or excessive costs and/or profit”? That, friends, is the one specific example given by the DCAA MFR of “an action that is grossly inconsistent with procurement law and regulation.”
There are many institutions that, over the years, have used intimidation, threats, and strong arm tactics to arrogate unto themselves a level of de facto power that, de jure, was not theirs to exercise. Many of these have, thankfully, long since passed from the scene. DCAA would be well to remember that it functions as an advisor, not a dictator, and that Contracting Officers are individuals vested with discretionary decision-making powers, not puppets of the audit agency.
Authored by:
John W. Chierichella
(202) 218-6878
jchierichella@sheppardmullin.com
Identifying Viable Post-Award Bid Protest Allegations At The GAO
The Government Accountability Office (“GAO”) denies more than three quarters of all bid protests decided on the merits. Certain categories of protests, however, tend to be more successful than others.
Three of our Government Contracts lawyers – Keith Szeliga, Marko Kipa, and Daniel Marcinak – recently published an article that assists protestors in identifying such allegations. Among other things, the article analyzes the most common categories of successful bid protest grounds and describes the circumstances under which each ground is likely to prevail. With permission of Briefing Papers, the article is reproduced in full in this issue of our blog.
Click here to view a PDF copy of the article.
Authored by:
Keith R. Szeliga
(202) 218-0003
kszeliga@sheppardmullin.com
and
Marko W. Kipa
(202) 772-5302
mkipa@sheppardmullin.com
and
Daniel J. Marcinak
202) 772-5391
dmarcinak@sheppardmullin.com
