FAPIIS Goes Live—Or Does It?
We called it “past
performance on steroids” and we see no reason to back away from that
description. As we originally posted,
FAPIIS was to be used for evaluating contractor past performance or
making a determination of contractor responsibility when making a new
contract award decision.
As we told you, the final rule (published
in March 2010) summarized FAPIIS as follows—
FAPIIS is intended to significantly
enhance the scope of information available to contracting officers as
they evaluate the integrity and performance of prospective contractors.
…FAPIIS will also include contracting officers' non-responsibility
determinations (i.e., agency assessments that prospective contractors do
not meet requisite responsibility standards to perform for the
Government), contract terminations for default or cause, agency
defective pricing determinations, administrative agreements entered into
by suspension and debarment officials to resolve a suspension or
debarment, and contractor self-reporting of criminal convictions, civil
liability, and adverse administrative actions. The system will collect
this information … from existing systems … contracting officers …
suspension and debarment officials … and contractors ….
FAPIIS
went “live” on April 22, 2010—as this
story on TheHill.com reports. In the words of the article—
The Federal Awardee Performance and
Integrity Information System aims to prevent less-than-ethical
contractors from taking overlapping jobs, covering up past poor
performances, or not being upfront about conflicts of interests. Federal
procurement officers are supposed to use the information in the
database when certifying a vendor.
The article quotes
Senator Claire McCaskill (D-MO)—who should be known to our readers as
the Senator who spearheaded the inquiries into audit quality problems at
DCAA—as saying—
If
we’re going to get the best bang for our buck, we need to make sure the
people who are awarding contracts have access to all the information
they need to make smart decisions. Because we didn’t have a centralized
place for the information, bad actors were being awarded new contracts
despite countless dollars lost to waste, fraud and abuse.
Though
FAPIIS has been implemented, it hasn’t been fully
implemented.
As part of implementing FAPIIS, FAR
9.406-3 was revised to require that Suspension/Debarment Officials
(SDOs) enter data about administrative agreements (which are
alternatives to suspension or debarment) into the FAPIIS database. It
was judged to be critical that contracting officers learn which
contractors have avoided suspension or debarment through executing
administrative agreements. Such contractors may have avoided dire
consequences, but the creators of FAPIIS still thought contracting
officers ought to know—and to take into account—how close the
contractors came to the “death penalty” of government contracting. But
the Department of Defense (DOD) won’t be submitting its data into the
system.
On April 15, 2010, Mr. Shay Assad (Director,
Defense Procurement and Acquisition Policy) issued a Class Deviation to
military services, DOD agencies, and DOD field activities, directing
that DOD SDOs not to enter information regarding administrative
agreements into FAPIIS. The Class Deviation can be found here. The language is unclear
regarding the rationale for not submitting the data, though it hints at
the lack of a “template for storage” of the data. The Class Deviation
states that the template is anticipated to be “incorporated into FAPIIS
by the fall of 2010.”
How serious is this
gap in the FAPIIS inputs? It’s difficult to state with any certainty.
But it seems strange that FAPIIS should be ready in all respects—except
for this one. One wonders which contractors have administrative
agreements, and might be put at a competitive disadvantage were those
agreements to be brought to the attention of the contracting officer
overseeing a source evaluation? We’ll have to wait until October or
November to learn the answer to that question. In the meantime, take a
stroll through the Federal Contractor
Misconduct Database.
US At Mercy of Chinese for Rare Earth Metals
The U.S. Government
has recently become aware that it has a supply chain in addition to an
industrial base, and has grown vaguely concerned that its supply chain
may be vulnerable to interruption, which may lead to disruptions in
goods and services needed for warfighters. We reported on this new
focus in this article, but at that time the
Pentagon’s Industrial Policy Directorate seemed to be worried more
about loss of critical skills than anything else. Meanwhile, § 843 of the FY National Defense
Authorization Act (P.L. 111-84) required
the Government Accountability Office (GAO) to investigate and report
back to Congress on the state of “rare earth materials in the defense
supply chain”. The report was transmitted to
Congress on April 1, 2010, but published on the internet on April 14,
2010. The full report can be found at the
GAO site.
For those of us lacking a scientific background, GAO provided a
helpful definition of “rare earth materials” and explained why they are
important to defense programs such as radars, precision-guided
munitions, as well as to more mundane items such as cell phones and
computer hard-drives. GAO stated that—
Rare earth elements are used in many applications for
their magnetic and other unique properties.
These include the 17 chemical elements
beginning with lanthanum, element number 57 in
the periodic table, up to and including lutetium, element number 71, as well as yttrium and scandium…. Rare earth
materials—rare earth ores, oxides, metals, alloys, semifinished rare earth
products, and components containing rare earth
materials—are used in a variety of commercial and military applications, such as cell phones, computer hard
drives, andDepartment of Defense (DOD)
precision-guided munitions. Some of these
applications rely on permanent rare earth magnets that have unique properties, such as the ability to withstand
demagnetization at very high temperatures.
As GAO
noted, producing rare earth materials requires a number of steps,
including mining, separating, refining, forming, and (finally)
manufacturing. (This background will be helpful later.)
GAO
reported several rather alarming findings, including—
- While rare earth ore deposits are geographically
diverse, current capabilities to process rare earth metals into finished
materials are limited mostly to Chinese sources.
- The United States previously performed all stages
of the rare earth material supply chain, but now most rare earth
materials processing is performed in China, giving it a dominant
position that could affect worldwide supply and prices.
- Based on industry estimates, rebuilding a U.S. rare
earth supply chain may take up to 15 years and is dependent on several
factors, including securing capital investments in processing
infrastructure, developing new technologies, and acquiring patents,
which are currently held by international companies.
- Government and industry officials have identified
a wide variety of defense systems and components that are dependent on
rare earth materials for functionality and are provided by lower-tier
subcontractors in the supply chain.
- Defense systems will likely continue to depend on rare
earth materials, based on their life cycles and lack of effective
substitutes.
- We [GAO] found examples of components
in defense systems that use Chinese sources for rare earth materials
and are provided by lower-tier subcontractors.
- DOD has
not yet identified national security risks or taken department-wide
action to address rare earth material dependency, but expects to
consider these issues in its ongoing study expected to be completed by
the end of September 2010.
GAO reported that, prior to 1985,
the U.S. performed all rare earth material supply chain and production
steps, from mining to manufacturing. However, with the closure of the Mountain
Pass (CA) production facility, the relocation
of Magnequench’s plant to
China, and the closure of Hitachi Magnetics Corporation’s Edmore, MI
production facility, the U.S. has been essentially 100% out of the rare
earth material production business since 2005.
Although the Mountain Pass facility resumed operations in 2007, return to the pre-1985 state could take as many as
15 years (i.e., not until 2025). In the
meantime (according to GAO)—
China has
adopted domestic production quotas on rare earth
materials and decreased its export quotas, which increases prices in the Chinese and world rare earth materials markets. China increased export taxes
on all rare earth materials to a range of
15 to 25 percent, which increases the price of inputs for non-Chinese competitors.
We
don’t want to be overly alarmist here—but this is a potentially very
serious problem that could affect a number of major defense acquisition
programs, from the DDG-51’s Hybrid Electric Drive Ship Program to the
M1A2 Abrams Tank’s reference and navigation system. We encourage DOD’s
Industrial Policy Directorate to get moving on this potential supply
chain “interruption”.
In unrelated news, this is our 200th blog article posted on the website.
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Two More Illustrative Cases of Wrongdoing
On April 15, 2010, the
Department of Justice (DOJ) announced that Thomas A. Drake had received
a 10-count indictment from a Federal Grand Jury, accusing him of (among
other things) willfully retaining classified information, obstruction
of justice, and making false statements. According to the DOJ press release, Drake (age 52) was a
high-ranking senior executive with the National
Security Agency (NSA, often called “No Such Agency” because
of the highly classified nature of its work) from 2001 through 2008.
During the later years of his tenure with the NSA, “newspaper reporter published a
series of articles about the NSA. The indictment alleges that Drake
served as a source for many of those articles, including articles that
contained classified information.”
According to the DOJ release—
The
indictment alleges that in approximately November 2005, a former
congressional staffer asked Drake to speak with a reporter. Between
November 2005 and February 2006, according to the indictment, Drake
signed up for a free account and then paid for a premium account with an
e-mail service that enabled its users to exchange secure e-mails
without disclosing the sender or recipient’s identity. Using an alias,
Drake allegedly then contacted the reporter and volunteered to disclose
information about the NSA. The indictment alleges that Drake directed
the reporter to create the reporter’s own secure e-mail account. After
the reporter created such an account, Drake also allegedly required the
reporter to agree to certain conditions, including never revealing
Drake’s identity; attributing information gathered from Drake to a
"senior intelligence official"; never using Drake as a single source for
information; never telling Drake who the reporter’s other sources were;
and not commenting on what people, to whom Drake recommended the
reporter speak, said to the reporter.
Drake
allegedly attempted to conceal his relationship with the reporter and
prevent the discovery of evidence linking Drake to his retention of
classified documents after the FBI began a criminal investigation into
the disclosure of classified information. Specifically, Drake allegedly
shredded classified and unclassified documents, including his
handwritten notes that he had removed from the NSA; deleted classified
and unclassified information on his home computer; and made false
statements to FBI agents.
The indictment also alleges
that Drake took a series of steps to facilitate the provision of this
information to the reporter, including:
- exchanging hundreds of
e-mails with and meeting with the reporter;
- researching
stories for the reporter to write in the future by e-mailing unwitting
NSA employees and accessing classified and unclassified documents on
classified NSA networks;
- copying and pasting
classified and unclassified information from NSA documents into untitled
word processing documents which, when printed, had the classification
markings removed;
- printing both classified and
unclassified documents, bringing them to his home, and retaining them
there without authority;
- scanning and emailing
electronic copies of classified and unclassified documents to the
reporter from his home computer; and
- reviewing, commenting on, and editing
drafts of the reporter’s articles.
The announcement
ends with a reminder that, “Willful retention of classified documents carries a
maximum penalty of 10 years in prison. Obstruction of justice carries a
maximum penalty of 20 years in prison. The charge of making a false
statement carries a maximum penalty of five years in prison. Each of the
charged counts carries a maximum fine of $250,000.”
In a second story, DOJ
announced on April 19, 2010, that Charles Jumet, a Virginia resident,
had received the longest prison sentence for violations of the Foreign Corrupt Practices Act (FCPA)
ever handed out to an individual. The DOJ announcement
stated that Jumet was sentenced to 87 months in prison “for paying
bribes to “former
Panamanian government officials to secure maritime contracts, in
violation of the Foreign Corrupt Practices Act (FCPA), and for making a
false statement to federal agents.” In addition to receiving the long
prison term, Jumet was ordered to pay a $15,000 fine plus serve three
years of supervised release.
The DOJ press released provided the following details
of Jumet’s wrongdoing—
According
to court documents, from approximately 1997 through July 2003, Jumet and
others conspired to pay money secretly to Panamanian government
officials in exchange for awarding contracts to Ports Engineering
Consultants Corporation (PECC) to maintain lighthouses and buoys along
Panama’s waterway. In December 1997, the Panamanian government awarded
PECC a no-bid 20-year concession. Upon receipt of the concession, Jumet
admitted that he and others authorized corrupt payments to be made to
the Panamanian government officials. In total, Jumet and others caused
corrupt payments of more than $200,000 to be paid to the former
administrator and the former deputy administrator of the Panama Maritime
Authority and to a former high-ranking elected executive official of
the Republic of Panama.
Jumet also
made a false statement to federal agents about a ‘dividend’ check
payable to the bearer in the amount of $18,000 that was endorsed and
deposited into an account belonging to the high-ranking elected
Panamanian government official. Jumet falsely claimed that this
‘dividend’ check was a donation for the high-ranking elected official’s
re-election campaign, when, in fact, Jumet admitted it was given to the
elected Panamanian government official as a corrupt payment for allowing
PECC to receive the contract.
In a
related case, John Warwick pleaded guilty on Feb. 13, 2010, for his role
in the same conspiracy to violate the FCPA. He is scheduled to be
sentenced by Judge Hudson on May 14, 2010.
Marshall J. Doke, Jr.
(a noted legal practitioner) testified
before the Senate Committee on Homeland Security and Governmental
Affairs in February, 2010. He testified—
Competition is required not only
to obtain lower prices but also to prevent unjust favoritism, collusion,
or fraud. I emphasize this last purpose because of what one federal
judge called a growing culture of corruption in Washington. I personally
believe we have had more reported fraud in government contracting in
the last 10 years (including fraud by high level government officials)
than the combined amount in the previous 40 years. I believe the
deficiencies in our competition process have given such enormous
discretion to contracting officials that, together with a lack of
transparency, they have created an environment and circumstances that
have contributed significantly to this increase in fraud.
Stories
such as these two tend to confirm Doke’s impression.
UPDATES: Agility Replaced, F-35 Ramp-Up Flattened
A couple of quick updates to stories we have been
following.
Agility Replaced
First,
we recently posted an article on Kuwait-based Agility (formerly Public Warehousing
Corporation), the Mid-East’s largest logistics firm—supplier of food
services to U.S. troops based in Jordan, Kuwait, and Iraq. We told you
about allegations of fraud and violations of the False Statements Act
and False Claims Act—among other allegations. Although charges were
originally unsealed in November, 2009, reports had surfaced of “delays”
in the case, as the parties apparently attempted to settle charges out
of court. That effort did not appear to be progressing well, as we
reported that the Department of Justice prosecutors had “expanded their
case” by filing charges against two of Agility’s subsidiaries.
Agility
published a release upon learning of the
expanded charges, calling them “regrettable”. Yes
indeed. Agility would indeed regret its inability to settle the
charges—because just three days later, on April
15, 2010, news agencies reported that Agility was being “replaced” by
the Defense Logistics Agency (DLA) as its food service provider. For
example, Reuters reported that Agility had
announced it was being replaced, but that DLA had decided to have
Agility continue to provide services for another six months “to
guarantee continuity of supplies.”
The new food service provider was
not disclosed by either Reuters or Agility.
However, we subsequently learned that DLA
has awarded the $2.2 billion follow-on contract to Dubai-based ANHAM
FZCO. The new contractor published a press
release, in which it said “It is with great
gratitude and a compelling sense of duty that all at ANHAM welcome the
award to expand our support for those serving in the Middle East.”
F-35 Ramp-Up Flattened
Second,
we have been following the “rough ride” of
the F-35 Lightning II Joint Strike Fighter (JSF) for some time. Our original
F-35 article was the most popular article on
this site (until recently overtaken by our article on Senate hearings regarding DCAA audit quality failures). In that original
F-35 article, we explored whether Lockheed Martin, the aircraft’s prime
contractor, could ramp-up production to 20 aircraft per month or 240 planes per year (i.e., one per working day), producing three
variants on one production line. We were dubious, but willing to give LockMart the benefit of the doubt. We
concluded—
To sum up, the JSF program team has set for itself
an incredibly ambitious goal of producing a finished aircraft every
single working day. It’s set the goal despite early design and supply
chain problems, and despite almost universal history among other
aircraft programs that says it can’t be done. But at least the team has
identified some worthy companies to benchmark against and learn lessons
from. The question remains, however, whether the program team can forget
the defense industry’s historical program management practices – that
don’t work well in the 21st century –
and deploy a truly innovative approach that breaks new ground. If they
can, then they may have a chance.
We would note that the F-35
continues to receive press. In fact, it’s a rare week that doesn’t have
some story—either positive or negative—about the JSF program. Several
reports have focused on even more program cost growth. For example,
this BusinessWeek/Bloomberg article reports
that an additional $51 billion in cost growth—over and above the $328
billion price just reported to Congress on April 1, 2010—may soon be
reported, once the Pentagon has completed its in-process JET II
analysis. Of course, LockMart disputes the “worst-case scenario” program value.
On the
other hand, this DODBuzz.com article
reports on Senate hearings in which testimony asserted that the JSF
production has “turned the corner” and “that the most recent
restructuring of the JSF program will deliver an aircraft without
further cost increases or delays in delivery.” We note this statement buried in the middle of the article—
‘We’ve turned the corner on production line delays,’ said Air Force Lt. Gen. Mark
Shackelford, the service’s top buyer, who expects to take delivery of
the first test aircraft this year. The jump in the JSF’s price tag and
the delays were due primarily to small design changes, which while
minor, rippled through the production line causing excessive ‘churn and stress.’ That production line is now well on the way to ‘maturing,’ he said. He declared the F-35 airframe itself as solid;
although the plane’s software package has proven a bit more problematic.
We could
devote an entire article to that one paragraph, discussing risk
management, supply chain management, change management, software
management, and program management. But we’ll refrain and simply note
that there’s a Masters’ thesis to be mined in that motherlode.
Finally, on April 16, 2010, InsideDefense.com reported
to its subscribers that the Air Force had halted plans to increase JSF
production to 110 aircraft per year, and has decided to “top-out” its
purchases at 80 planes per year, starting in GFY 2016. The article
quotes Air Force Chief of Staff General Norton Schwartz as saying, “As
the program continues to progress, we will analyze production capacity
and available funding for potential production rate adjustment beyond
the 80 aircraft per year rate reflected in the current program.”
The
article further notes that Lockheed Martin stated “that once its …
assembly line reaches its optimal production rate in 2016, it could
build as many as 230 jets per year”—so LockMart is ready “to build more jets if
requested.”
It may not matter what Lockheed Martin’s throughput
is, or will be, if its No.1 customer (the USAF) doesn’t have the
funding to purchase any more than 80 aircraft per year. It will be an
interesting exercise to calculate how much F-35 program cost growth will
be driven—or how much LockMart will claim was driven—by lost economies of scale if production
peaks at 80 jets per year versus 240 (or 230, depending on the
article). This situation may degenerate into a “he said/she said”
finger-pointing exercise, where the Air Force says that LockMart could only produce 80 aircraft
per year and any lost volume savings stemmed from its own inadequacies,
while LockMart accuses the
Air Force of delay and/or disruption because its lack of available
funding kept LockMart from
reaching available production efficiencies.
We predict a continued
rough-ride for the JSF program—as well as smooth seas and fair winds
for the attorneys involved in the nearly inevitable litigation.
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