GAO Bid Protest Case Illustrates Epic Levels of Incompetence As DCAA Ignores GAGAS and Accepts Customer-Imposed Scope and Procedural Limitations
 Frankly, we’ve been sitting on this one for a while, thinking about how to best approach this case of what today’s youngsters might call “epic failure” on the parts of both DCAA and agency contracting officials. There’s just so much to say, and so many ways to say it, that we were stumped for a few weeks. Then we thought, “Screw it! Let’s just mash it all up and see how it reads.” So here we are. Get ready for a roller-coaster ride, folks.
We first discussed the strange bid protest case of PMO Partnership Joint Venture in one of our more popular articles—“Government Accounting Issues Associated with Joint Ventures”—link here. In that article, we reported that PMO’s JV indirect rate structure was found unacceptable and, by the way, noncompliant with CAS 401. The GAO rejected the Federal Transit Administration’s (FTA’s) rejection of PMO’s proposal on several grounds, not the least of which was that, as a small business, PMO was exempt from the Cost Accounting Standards.
We first mentioned DCAA’s bizarre interpretation of the requirements of FAR 15.408 in this article. Here’s what we said—
The [DCAA] audit guidance opined that the ‘overarching principal of FAR Part 15’ [sic] is that ‘the contracting officer must purchase supplies and services at fair and reasonable prices.’ That’s more or less correct, but then the audit guidance states, ‘Contractors are generally required to follow the Table 15-2 instructions for submitting proposals as contained within FAR 15.408.’ Well, that’s not true at all. Contractors are only required to follow the proposal format instructions found in FAR Table 15-2 when they are submitting cost or pricing data. (Or, if you will, ‘certified’ cost or pricing data, based on the recently revised FAR definition(s).) If the contractor is not submitting cost or pricing data, it is not required to follow the format of Table 15-2.
(We also noted some ambiguity in the revised FAR definitions of “certified cost or pricing data” and “cost or pricing data”. The link embedded in the quoted paragraph above discusses those definitional issues in more detail.)
It’s become clear to us that DCAA believes that every proposal needs to follow the format and instructions found in Table 15-2. If a proposal doesn’t follow the prescribed format, DCAA considers it to be inadequate. We think DCAA is crazy respectfully disagree with DCAA’s audit guidance on this issue. And so, apparently, do the administrative judges at GAO, based on their comments in a recent bid protest—link here.
The GAO bid protest in question concerns PMO Partnership JV, covering the exact same 2008 FTA competition on which GAO previously opined. In the previous protest ruling, GAO recommended that FTA “reevaluate” the PMO proposal based on GAO’s findings. In the more recent protest (link above), PMO was again back at the GAO, this time protesting FTA’s reevaluation.
In the first, flawed, evaluation, FTA contracted the pre-award audit to Booth Management Consulting, LLC (BMC). In the reevaluation, FTA asked DCAA to conduct a review of PMO’s proposal. According to the GAO, FTA “requested that the DCAA ‘conduct an adequacy review of PMO-JV’s proposal using the applicable regulatory criteria contained within FAR [§] 15.408, Table 15-2—Instructions for Submitting Cost/Price Proposals When Cost or Pricing Data Are Required.’”
The problem with FTA’s direction to DCAA was that the original 2008 solicitation specified that offerors were not submitting cost or pricing data. The GAO decision provided the original proposal instructions, which were—
(1) Adequate price competition is expected to exist, and this action is therefore exempt from the requirement for submission of cost or pricing data. However, all Offerors (prime and subContractors) shall submit a budget summary for the entire contract period of performance. … This information is necessary to determine the adequacy of the Offeror’s proposal, e.g., information adequate to validate that the proposed costs are consistent with the technical proposal, or cost breakdowns to help identify unrealistically priced proposals.
(2) Any information submitted must support the price proposed. Include sufficient detail or cross-reference to clearly establish the relationship of the information provided to the price proposed. Support any information provided by explanations or supporting rationale as needed to permit the Government to evaluate the documentation . . . Such information is not considered cost or pricing data, and will not require certification in accordance with FAR [§] 15.406-2.
[(3)] If, after receipt of offer, the Contracting Officer concludes there is insufficient information available to determine price reasonableness and none of the exceptions described in FAR [§] 15.403-1 applies, then cost or pricing data shall be obtained. As a minimum, a budget summary shall be submitted for each year of the contract period (reference paragraph 1 above.)
As we’ve previously written, offerors are only required to comply with FAR Table 15-2 when they are submitting cost or pricing data. Though the recent regulatory changes may blur the distinction between “cost and pricing data” and “information other than cost or pricing data” to the point where it no longer matters for purposes of formatting one’s cost proposal, back in 2008 when PMO submitted its original bid, the distinction was bright-line clear. Clearly, PMO was not required to follow the requirements of FAR Table 15-2, and FTA should not have referenced those requirements in its direction to DCAA.
For its part, DCAA accepted FTA’s direction in its entirety, even when that direction was in conflict with its normal audit procedures. The GAO quoted DCAA’s audit report as follows—
The DCAA noted that its ‘effort does not constitute an audit or attestation engagement under generally accepted government auditing standards (GAGAS).’ Thus, the DCAA did not ‘express an opinion on the adequacy of the proposal for price negotiation.’ The DCAA also stated that its analysis was not conducted in accordance with its normal procedure … Instead, in accordance with FTA’s request, the DCAA did ‘not execute this additional coordination with the contractor as it is generally conducted to obtain a revised proposal that meets the adequacy requirements stipulated by the FAR.’ The DCAA further clarified that its ‘proposal adequacy assessment was limited to reviewing, to the extent possible, the cost data contained in the compact disk [FTA] provided on January 22, 2010, without requesting additional data from PMO.’
Wow. There’s a whole lotta fail in that paragraph.
Adding to the level of incompetence is the GAO’s notation that, in its original bid protest decision addressed FTA’s contention that (among other things), PMO’s accounting system was inadequate. In the original decision, GAO said—
… if the agency has problems with PMO-JV’s accounting system, it may open a dialogue to resolve these issues without such dialogue necessarily being considered discussions, given that this is a matter relating to PMO-JV’s responsibility, so long as PMO-JV does not change its proposed cost or otherwise materially modify its proposal. If PMO-JV’s accounting system is found adequate, the agency should determine whether PMO-JV’s proposal is otherwise acceptable and in line for award, and if so award should be made to that firm. If PMO-JV’s accounting system is found inadequate and its proposal rejected for this reason, the matter, which involves the responsibility of a small business concern, must be referred to the Small Business Administration for a Certificate of Competency (COC) determination.
In the current decision, GAO reported that—
On the record provided to us, it appears that the agency did not request a reevaluation of the adequacy of PMO-JV’s accounting system, which was why the agency previously rejected PMO/JV’s proposal. Instead, this new request was focused on evaluating the adequacy of PMO-JV’s cost/price proposal using FAR § 15.408, Table 15-2–Instructions for Submitting Cost/Price Proposals When Cost or Pricing Data Are Required.
To recap the story so far, FTA requested that DCAA “review” PMO’s cost proposal instead of its accounting system, using the wrong criteria, in violation of both GAGAS and DCAA’s normal procedures, and without interacting with the contractor to resolve any issues (in violation of the recently issued DCAA “Rules of Engagement”). And DCAA accepted the direction, possibly because the assignment was being reimbursed under inter-agency procedures. (I.e., DCAA was billing FTA for its time and expenses.) But let’s be clear, gentle readers: DCAA exhibited a startling lack of independence and good judgment in accepting the scope and procedural limitations imposed by its customer. DCAA’s audit report was issued in June 2010—well after the controversies over audit quality and well after DCAA had recommitted to following GAGAS and maintaining its independence at all costs.
Although FTA was ridiculously inept in every aspect of its handling of PMO’s proposal, DCAA displayed a similar level of incompetence. And we’re sure no reader of this article is surprised that DCAA’s flawed procedures resulted in a flawed audit report.
As the GAO reported—
The DCAA found various inadequacies relating to PMO-JV’s proposed subcontract (subconsultant) costs. For example, the DCAA reported that PMO-JV failed to provide adequate cost or pricing data, or a cost or price analysis, for any of the [deleted] subcontract consultant services included in the Contract Pricing Summary Sheet (Attachment J-6), and concluded that this failure violated the requirements contained in FAR § 15.408, Table 15-2…. The DCAA additionally reported six more ‘cost or pricing data’ inadequacies, based on its comparison of PMO-JV’s cost proposal to FAR § 15.408, Table 15-2, that related to its and its subcontractor’s proposed direct labor rates and indirect expense rates.
The FTA used DCAA’s review findings to reject PMO’s proposal for a second time. The FTA told PMO that its cost proposal “was inadequate” because it did not comply with “the documentation requirements of FAR [§] 15.408, Table 15-2, Instructions for Submitting Cost/Price Proposals When Cost or Pricing Data are required.” Because PMO’s cost proposal did not comply with the requirements of FAR Table 15-2, FTA found that the cost proposal “did not provide for an acceptable basis for negotiating a fair and reasonable price.” Thus, PMO was eliminated—once again—from the competition.
By now, readers will be unsurprised that GAO had a problem with both the reevaluation of PMO’s proposal and FTA’s second rejection. PMO’s second bid protest was sustained and GAO recommended that FTA reimburse PMO’s “reasonable costs of filing and pursuing the protest, including reasonable attorneys’ fees.” The GAO judges used language that was rather more restrained than ours, but we want to quote a lot of it as a reference for you, our loyal readers. (Because we’re nice like that.)
In accordance with the terms of the solicitation, PMO-JV did not submit cost or pricing data with its cost proposal, nor did it submit data in the format specified at FAR § 15.408, Table 15-2. PMO-JV instead submitted other than cost or pricing data on Attachment J-6, Contract Pricing Summary, with supporting back-up material, and a budget summary as requested by the RFP.
However, the FTA contracting officer limited DCAA’s review of PMO’s cost proposal to verifying whether the data was presented as required by FAR § 15.408, Table 15-2. This was improper because the use of these requirements are [sic] only appropriate where cost or pricing data is required by the solicitation. We also note that this table was neither referenced nor incorporated into the RFP, and there is nothing in the RFP to put offerors on notice that the agency would evaluate cost proposals against FAR 15.408, Table 15-2; to the contrary, the solicitation expressly stated that cost or pricing data was not required.
As indicated, DCAA’s constrained adequacy review found various inadequacies in PMO’s cost proposal because supporting data required by FAR § 15.408, Table 15-2 was not included. For example, DCAA reported that PMO-JV’s Contract Pricing Summary Sheet (Attachment J-6) failed to include a price analyses of all subcontractor proposals and a cost analyses for subcontract proposals exceeding the threshold for cost or pricing data ($650,000), as required by FAR 15.408, Table 15-2, II.A.(2). However, the RFP’s cost proposal instructions did not indicate that PMO-JV had to conduct and submit such analyses.
An agency may not induce offerors to prepare and submit proposals based on one premise, then make source selection decisions based on another. [Legal citations omitted.] The problems found by DCAA were based upon FAR requirements that are only applicable when cost or pricing data is required. Because the RFP expressly provided that cost or pricing data was not required, and because the RFP did not otherwise indicate that the data should be presented in this format, the agency’s evaluation of PMO-JV’s cost proposal was unreasonable.
Moreover, the record, which includes numerous audits of the cost proposals of the other offerors (including the 18 awardees), shows that none of these cost proposals were evaluated for adequacy based on the instructions contained in FAR § 15.408, Table 15-2. It is fundamental that the contracting agency must treat all offerors equally, and therefore it must evaluate offers evenhandedly against common requirements. [Legal citation omitted.]
Furthermore, the agency’s prohibition on DCAA communications with PMO-JV concerning the adequacy of its submitted cost data appears inconsistent not only with DCAA practice, but with FAR § 15.404-2(d), which states:
The [administrative contracting officer] or the auditor, as appropriate, shall notify the contracting officer immediately if the data provided for review is so deficient as to preclude review or audit. . . . The contracting officer immediately shall take appropriate action to obtain the required data. Should the offeror/contractor again refuse to provide adequate data, or provide access to necessary data, the contracting officer shall withhold the award . . .
In this case, we think that questions about the adequacy of the submitted cost data should have been a subject of dialogue between the agency (or DCAA) and PMO-JV before that firm’s proposal was rejected for this reason, particularly given that the previous awards under this solicitation were made over a year ago
Well, that about ends the saga of PMO Partnership JV and its two bid protests. But before we go, there are some remaining loose ends to identify (since we can’t tie them up). Ponder these questions, if you will.
-
Why did FTA expressly direct DCAA to evaluate PMO’s cost proposal based on the requirements of FAR Table 15-2, when it was well aware that its own solicitation had clearly identified that cost or pricing data was not to be submitted?
-
Why did FTA violate the mandatory requirements of FAR 15.404-2(d)?
-
Why did FTA tell PMO that its proposal did not form an adequate basis for negotiations when DCAA’s audit report clearly stated that it did not express an opinion on the adequacy of the proposal for price negotiations? What caused the FTA contracting officer to reach this conclusion, if not the DCAA audit report?
-
Where is the evidence of independent judgment and discretion on the part of the FTA contracting officer? Did the contracting officer use the two audit reports (first BMC and then DCAA) as a pretext for rejecting PMO’s otherwise acceptable proposal from the competition?
-
Why did DCAA accept customer direction that compromised its independence and conflicted with its own audit guidance?
-
Why did DCAA permit its auditors to violate GAGAS, after being subjected to such harsh criticism for doing so in the past?
We have no answers for the questions above, gentle readers. But we fervently believe that answering them would be a big step on the road to getting the Federal acquisition environment back to the level at which it needs to be.
Fraud: Domestic and International
Ho-hum. Another week; another spate of stories of corruption and fraud coming out of the Department of Justice. Let’s look at what transpired in the past 10 days.
HUBZone Contract Fraudulently Obtained
Hard to get more domestic than Northern Virginia.
On November 10, 2010, the DOJ reported that “CFP Group, located in McLean, Va., and its president, Roberto Clark, have agreed to pay the United States $150,000 to settle claims that they used false statements to obtain a contract from the Department of Veterans Affairs.”
“But wait!” we hear you cry. “Didn’t we just see a similar story on this website?” Yes. Yes you did. And it’s right here. Only that was a Maryland contractor, and this is a Virginia contractor.
Much like the Maryland contractor, CFP Group allegedly “made false statements to the Small Business Administration (SBA) to obtain certification as a Historically Underutilized Business Zone (HUBZone) company”. CFP Group then allegedly “ used this certification to wrongfully obtain a Veterans Affairs contract for fire alarm installation.”
According to the DOJ—
On the application, Clark represented that CFP Group’s principal office was located in a designated HUBZone in Maryland. In fact, the United States alleged, no company employees worked at that location and Clark’s office was actually in Vienna, Va., which is not a designated HUBZone location. Based on the false application, the SBA certified CFP Group as a HUBZone small business company. CFP Group then used this certification to obtain a fire alarms systems contract from the Department of Veterans Affairs, which had been set aside for a qualified HUBZone company. The company is no longer participating in the HUBZone program and has relocated to McLean, Va.
Yes, we approve of that corporate move from Vienna to McLean. Moving 3 miles down the Beltway will definitely help with rebranding the company’s image. (Note: Sarcasm.)
USAID Loses $2 Million to International Fraudsters
Monrovia, Liberia is in Africa, far from the Washington, D.C. Beltway. It is hard to imagine a more stark contrast between the two locations. And yet the DOJ managed to link them for us, by reporting on November 16, 2010, that “Two former humanitarian aid workers were convicted today for defrauding the U.S. Agency for International Development (USAID) of $1.9 million”. This is serious stuff, according to the DOJ—
Morris B. Fahnbulleh, 40, and Joe O. Bondo, 39, … were each convicted on one count of conspiracy to defraud the United States, four counts of mail fraud, two counts of wire fraud and four false claims counts. Fahnbulleh was also convicted of one count of conspiracy to commit mail and wire fraud. Bondo was also convicted of two counts of witness tampering. Fahnbulleh and Bondo have been in custody since their arrests in 2009. … At sentencing, the defendants face up to 20 years in prison.
What’s the story? The DOJ reported—
After Liberia’s 14-year civil war, USAID awarded a grant in 2005, through Catholic Relief Services, to World Vision, an international non-profit Christian humanitarian foundation. The grant was a two-year humanitarian project in Liberia for community reconstruction projects. Under the agreement, Fahnbulleh and Bondo were assigned to supervise World Vision employees as they assisted Liberian communities with infrastructure projects, including road, latrine and water well construction. In return for their labor, USAID, through World Vision, was supposed to then distribute food to the residents of these communities.
However, in 2008, an internal audit conducted by World Vision revealed that up to 91 percent of the food never reached its intended beneficiaries. According to the trial evidence, the defendants sold the food and pocketed the proceeds; they then instructed World Vision employees to falsify the documents used to track food distributions. The defendants also directed USAID-salaried employees to perform work on their personal compounds and further concealed these activities from World Vision headquarters, Catholic Relief Services and USAID by intimidating the World Vision employees with threats of job loss and by paying some subordinates ‘hush money’ to cement their silence and cooperation.
The good news in the foregoing is that World Vision, the subrecipient of the USAID grant, had an internal audit function that actually discovered the corrupt actions. The bad news is that it took them three years to do so, and that less than 10 percent of the grant funds were spent as intended.
Student Loan Fraud
Moving back to domestic acts of fraud and corruption, the DOJ announced that, on November 17, 2010, “Four student aid lenders have paid the United States a total of $57.75 million to resolve allegations that they improperly inflated their entitlement to certain interest rate subsidies from the U.S. Department of Education in violation of the False Claims Act.”
As the DOJ reported—
Nelnet Inc. and Nelnet Educational Loan Funding Inc. have paid $47 million to the United States. Southwest Student Services Corp. has paid $5 million. Brazos Higher Education Authority and Brazos Higher Education Service Corp. have paid $4 million. Panhandle Plains Higher Education Authority and Panhandle Plains Management and Servicing Corp. have paid $1.75 million. Dr. Oberg will receive a total of $16.65 million from these settlements.
The settlements resolve allegations … that several lenders participating in the federal student financial aid programs created billing systems that allowed them to receive improperly inflated interest rate subsidies from the Department of Education. The United States did not intervene in this action, which was litigated by the whistleblower, but it provided assistance at many stages of the case, including during the settlement process.
Interestingly, although this False Claim Act suit was initiated by a whistleblower, the United States did not intervene in the suit (meaning that the DOJ did not take over the suit and prosecute on behalf of the U.S.). Instead, the qui tam relator and his attorneys led the case all the way—which we take to mean that their share of the settlement will be that much higher. Nice.
More Socioeconomic Fraud
We’re not done yet. Here’s another DOJ story (from Friday, November 19, 2010) about two Michigan construction firms that have agreed to pay the U.S. Government $1.4 million to resolve allegations that that they submitted False Claims related to their work at Detroit’s Wayne County Metropolitan Airport (which was funded by the Federal government).
The DOJ reported the allegations as follows—
John Carlo Inc. and Angelo Iafrate Construction Company, falsely claimed that they had used Disadvantaged Business Enterprises (DBEs) for part of the work on the project when they had not. The DBE program provides assistance to businesses owned by minorities, women, and other socially and economically disadvantaged individuals to enter federally-funded construction and design industries.
Under their contracts, the two firms were required to comply with the Department of Transportation’s (DOT) DBE regulations and accurately report their DBE contracting to obtain and maintain the construction contracts. The companies claimed BN &M Trucking, a DBE, performed substantial work on the contracts when, in fact, the trucking firm did not and was merely a pass-through used to obtain the appearance of DBE participation.
It’s Not a Commercial Company When It Receives Federal Funds
No, we’re still not done yet. We have a final story about bribery and fraud that took place in a seemingly commercial environment. Unfortunately for James Woodason, New York Consolidated Edison (Con Ed) receives approximately $10,000 of federal funds each year, so that made his actions Federal felonies. Oops!
As the DOJ reported on November 19, 2010, Woodason pleaded guilty to accepting approximately $807,000 in bribes from industrial pipe suppliers and then giving them supply contracts. DOJ announced—
According to a four-count felony charge, Woodason, a former department manager of purchasing at Con Edison, accepted bribe payments from two industrial pipe supply vendors, in exchange for steering contracts to each of those vendors. The department said that Woodason was responsible for purchasing and awarding contracts for millions of dollars in goods and services and managing inventory on behalf of Con Edison. …
Woodason is charged with two counts of conspiracy, each of which carries a maximum penalty of five years in prison and a $250,000 fine. Woodason is also charged with income tax evasion, which carries a maximum penalty of five years in prison and a $250,000 fine. The bribery count carries a maximum penalty of 10 years in prison and a $250,000 fine. The maximum fine on each count may be increased to twice the gain derived from the crime or twice the loss suffered by the victims of the crime, if either of those amounts is greater than the statutory maximum fine.
These charges arose from an ongoing federal antitrust investigation of bid rigging, bribery, fraud and tax-related offenses in the power generation industry
Well, that about wraps it up, gentle readers. Ten days worth of domestic and international fraud and corruption. And we’re not even going to count the problems of Senior U.S. District Court Judge Jack T. Camp, Jr., who learned the hard way about attempting to purchase drugs from an FBI agent posing as a drug dealer. Because we’re nice that way.
|
Technology Fraud
Ask any government contract accounting or compliance practitioner about the riskiest compliance environments, and we bet you’ll hear about those companies that are mostly commercial, but which have a small percentage of sales to the Federal government. In those environments, we frequently hear complaints about burdensome rules and regulations—“the tail wagging the dog”—and how the government refuses to accept the efficiencies of commercial practices and instead imposes bureaucratic and non-value-added controls. (We also hear complaints about intrusive and inept auditors, but those complaints are universal.)
It’s difficult to invest in appropriate internal controls at such companies, because management believes that the costs of such controls will erode their competitive position in the commercial marketplace. We have a term to describe such companies. We call them “penny-wise and pound-foolish”.
Such companies see little need to “turn square corners” in their dealings with the Federal government and they think corner-cutting is smart business. Such companies would rather pay fines and penalties instead of investing in controls. After all, nobody gets a bonus for adding more bureaucracy; yet a crisis successfully managed can make one a hero. (Ignore the fact that the crisis should have been avoided in the first place.)
Why are so many of these companies located in the technology marketspace? Here are a couple of recent examples but—believe us—we could have Googled quite a few more if we’d had the mind to. Also note that we have reported similar stories on certain technology companies here on this site. Here is some new news on the topic of technology fraud, courtesy of the Society of Corporate Compliance and Ethics (SCCE).
Hewlett-Packard Settles
Here’s a link to a story at the Houston Chronicle, reporting that “Hewlett-Packard will pay more than $16 million to settle a lawsuit alleging they violated competitive bidding rules with the Houston and Dallas school districts to win technology contracts.” As the result of an investigation into local business practices, a False Claim Act qui tam lawsuit was filed. The Chronicle reported—
The investigation accused Houston businessman Frankie Wong of setting up a group of companies, including Hewlett-Packard, that came to be known as ‘The Consortium.’ They applied for technology contracts with both HISD and the Dallas Independent School District.
Because of their close connection with district officials, thanks to the suspect gratuities, the bid requirements were worded in such a way that only they could satisfy them, officials said.
Wong — who was also involved in the DISD deal - was found guilty of bribery in July 2008 and sentenced to more than 10 years in prison.
HISD officials announced in March they had signed an $850,000 settlement with the federal government for their role in the case. It allowed them to receive nearly $90 million in technology funding that they had lost because of the investigation.
They also agreed to hire a compliance officer to monitor the money HISD receives through the E-rate program.
Oracle Dances with Dept. of Justice
This link takes you to a June, 2010, story at ComputerWorld.com discussing the U.S. Government’s False Claims Act suit against Oracle Corporation for violations of pricing and discount practices. As the article reported that the whistleblower alleged that—
Oracle was finding ways around the GSA restrictions in order to give commercial customers even deeper discounts, according to the complaints. One alleged practice saw Oracle ‘selling to a reseller at a deep discount ... and having the reseller sell the product to the end user at a price below the written maximum allowable discounts,’ [the complaint] states.
This more recent article discusses Oracle’s attempts to get the suit dismissed. The article reported—
In a strongly worded motion filed in late September, Oracle argued the government's allegations should be dismissed partly on grounds they are too old and exceed the statute of limitations.
The government's case is ‘a hodgepodge of inadequately pled, inconsistent, and, in many cases, untimely theories of liability that no set of facts can rescue,’ Oracle's filing reads in part. Its ‘most obvious problem is timeliness,’ the motion adds. ‘One of its primary allegations is that Oracle made false disclosures relating to discounting practices to the General Services Administration ... during 1997 contract negotiations. But this allegation ignores a 1998 pre-award audit of Oracle's discounting practices, which was distributed to a host of responsible Government officials.’
‘Rather than taking action then, the Government sat on its hands, and in the subsequent thirteen years, witnesses have died, memories have faded and documents have disappeared -- the very reasons that statutes of limitations exist,’ the motion states.
Motions for summary judgment are de rigueur in such litigation. Motions and counter-motions and replies and sur replies are the Kabuki dance of modern jurisprudence. In the ritual dance, Oracle appears to have scored a few points with the judge, who dismissed—
… any claims based upon the 1997 disclosures; (2) any claims alleging common law fraud occurring before May 29, 2004; and (3) any claims alleging False Claims Act violations, breach of contract, or quasi-contract violations occurring before May 29, 2001.
The ComputerWorld article reported that—
… by Nov. 16 the government must file an amended complaint ‘stating only common law fraud claims based upon conduct occurring on or after May 29, 2004, along with any False Claims Act and breach of contract or quasi-contract claims based upon conduct occurring on or after May 29, 2001.’
Okay, we don’t want to belabor the point—but notice that the one thing these two very large technology companies have in common is that they are not known for being government contractors. They are known for their commercial sales and, indeed, sales to the Federal government do not comprise a large percentage of either company’s sales.
Ask any government contract accounting or compliance practitioner about the riskiest compliance environments, and we bet you’ll hear about large commercial technology companies. You know: the entities that prize employee intelligence and practice sharp business dealings. Like Hewlett-Packard and Oracle.
Procurement Problems of NARA Illustrate What’s Wrong with the System
Yes, we know: What’s NARA? Of course yourecognize the acronym of the National Archives and Records Administration, but for the other readers, let us provide a link to its website. As you can see, NARA is “the nation’s record keeper”. And, as we will learn today from this story at FierceGovernmentIT.com---
About a third of all National Archives and Records Administration personnel have lost regular access to email [and] personnel within NARA's office of general counsel have lost email service for at least a full day and senior management, including officials in the office of the archivist, have had diminished access,
We think NARA’s story is illustrative of the problems faced by many Executive Branch agencies, and show the unintended consequences of protectionist legislation, such as the Trade Agreements Act. The TAA was enacted in 1979, and was aimed at implementing trade agreements with other countries. Implemented in § 25.4 of the FAR, it permits a waiver of the Buy American Act in certain circumstances. The Buy American Act (BAA) restricts purchases of supplies to end products made in the United States. We note that there is a two-part test for determining whether a product qualifies as a domestic end product; and we further note that several exceptions to the Buy American Act are available to a contracting officer (as enumerated at FAR § 25.103).
Regarding the TAA, Wikipedia reports—
- In general, a product is ‘TAA compliant’ if it's made in the United States or a ‘Designated Country.’ Designated Countries include
- those with a free trade agreement with the US (e.g., Canada, Mexico, Australia, Singapore, etc.) countries that participate in the World Trade Organization Government Procurement Agreement (WTO GPA), including Japan and many countries in Europe; a least developed country (e.g., Afghanistan, Bangladesh, Laos, Ethiopia, and many others);
- Caribbean Basin countries (Aruba, Costa Rica, Haiti and others).
Notably absent from the list is the People’s Republic of China. A full list of Designated Countries is in FAR 25.003
We haven’t had much to say about the TAA before this, though we’ve tangled with it in the past. It’s a bit complicated, but is implemented in contracts through (among other clauses) the solicitation provision 52.225-6 (“Trade Agreements Certificate”). That provision requires offerors to identify the country of origin for all products that are not made in the United States or designated countries. As noted above, sometimes this can work in a company’s favor, since certain countries are exempted from the restrictions of the Buy American Act. But many times it can hurt the chances of a contract award, since—
The Government will consider for award only offers of U.S.-made or designated country end products unless the Contracting Officer determines that there are no offers for such products or that the offers for those products are insufficient to fulfill the requirements of this solicitation.
Okay, back to the story of NARA, as told by our friends at FierceGovernmentIT.com.
Early in the summer of 2010, NARA “discovered a need for … HP network equipment—a host bus adapter card and a fiber channel pass through module”. The estimated cost of the necessary equipment was about $121,000. According to the story—
They first tried buying the equipment through a General Services Administration schedule, but learned that they couldn't, since the adapter card doesn't comply with the Trade Agreements Act, which is embodied in Part 25 of the Federal Acquisition Regulation. The TAA mandates that when federal agencies buy equipment worth more than $203,000, the gear should originate either domestically or from a long list of countries party to certain kinds of trade relationships with the United States. … Although the NARA equipment value clearly is below the TAA threshold, GSA has made it a condition of granting a schedule to private sector companies that allequipment, irrespective of size order, sold through a schedule must be TAA compliant. Other government-wide purchasing vehicles, such as NASA's SEWP program, don't require that.
Let’s stop right there for some critical examination. Look at the end of the paragraph above—the part where the writer reports that GSA requires that “allequipment, irrespective of size order … must be TAA compliant.” We checked and, yes indeed, GSA has interpreted the TAA to apply to every Multiple Award Schedule contract. Moreover, GSA websites states, “In accordance with the TAA, only U.S.-made or designated country end products shall be offered and sold under Schedule contracts.”
GSA’s interpretation strikes us as plain stupidoverly simplistic. For example, it ignores the exceptions to the BAA provided by the FAR. And as a result of its position, GSA has self-limited the number of companies that might be willing to offer the Federal government goods at prices significantly discounted by the insanely high volume that would be generated. In fact, if memory serves, Sun Microsystems (“one of the government’s top technology providers”) cancelledits GSA schedule in 2007 because of issues with its pricing practices.
But let’s move on and finish the NARA story. Finding it could not purchase the necessary IT equipment from the GSA, what did the archivists do? FierceGovernmentIT.com reported—
NARA officials then tried buying the equipment by issuing a stand-alone solicitation. But, when they awarded a contract, the equipment they received turned out to a likely counterfeit, the J&A states. ‘At the very least the equipment was 'grey market' such that HP would not honor the warranty,’ it adds. NARA's inability to procure the necessary HP equipment has resulted in an ever expanding deterioration of email service to approximately 1,400 NARA users,’ the J&A says.
So what did NARA do next? Six months after noting its need, it decided to enter into a sole source contract with Hewlett-Packard, the maker of the equipment, to procure what it needed.
Now, an inexperienced observer might say “what a waste of time and effort!” NARA knew it needed HP equipment, and it knew how much it should cost. What could be more obvious? Why waste six months trying to go through the GSA and then running a competition for such a trivial (in terms of Federal government procurements) sum of money? Didn’t the NARA procurement people have better things to do? Well, no, they didn’t.
Remember that the U.S. Government very much prefers to buy its goods and services via competition, in order to get the “best value”. In fact, the Obama Administration has made it a priority to reduce sole source acquisitions—as we’ve reportedin the past. So it takes quite a bit of bureaucratic effort to get a sole source justification approved, even for something as obvious as these items.
And notice that the competition did result in an apparent “low bidder” or “best value” contract … but for parts so suspicious that HP wouldn’t warranty network performance with them installed. Consider, if you will, whether national security networks ought to rely on similar competitions—or if they should simply go directly to the appropriate sources on a sole-source basis (as we would assert is obviously the right move).
It strikes us that this is a good “poster child” story for much that is wrong with the current Federal acquisition environment. Many people would tell the NARA procurement folks to go do what they needed to do and quit fooling around for such a trivial amount of money. Other people would tell GSA to get over its TAA-phobia and get with the commercial practices of the global marketplace. But in fact the current system is set up to frustrate “common sense” acquisition approaches, and to emphasize compliance with overly restrictive rules and regulations that act to limit true competition while, at the same time, mandating it.
And woe to the contracting officer who risks his or her career by taking the common-sense approach, especially when doing so might run afoul of a Presidential (and Congressional) hyper-sensitivity to single and sole-source awards. The fact is that sometimes you can’t get competition, and sometimes trying to obtain competition is just plain silly. We think this story of NARA’s half-year search for $121,000 worth of HP-compatible parts is illustrative of that point. And we think it ought to spark some discussions in Washington, D.C., about fixing the system so that the procurement folks can get their jobs done with a minimum of fuss.
Or maybe the status quois just fine as is? After all, the more complex the rules and regulations are, the more the need for consultants who understand them and can advise contractors (and their attorneys) on how to comply with them.
Hmmm …
Forget we said anything. Carry on.
|
