Long-Term Travel
We’ve noticed that, for a while now, the Department of Energy (DOE) has been moving forward on clarifying and streamlining existing acquisition rules and regulations. Good for them! We believe that DoD might learn a thing or two from following the lead of DOE.
Thus, we were interested to see DOE issue Acquisition Letter 2018-08 on May 3, 2018. The Acquisition Letter addresses a topic in which we have long been interested – “long-term travel” (or, as DOE terms it “domestic extended personnel assignments").
Most contractors’ travel policies address the costs of normal business travel, which is sometimes called “TDY travel.” The policies tell employees what costs will be reimbursable and at what amounts. The policies are (usually) aligned somewhat with the FAR cost principle at 31.205-46. Most contractors understand that there are also government travel rules, which apply to government travelers—and some (but not all!) of those government travel rules are incorporated into the FAR travel cost principle. As the DOE Acquisition Letter explains, “the travel cost principle does not incorporate the entirety of the FTR, JTR or SR. Absent specific contract language to the contrary, only the maximum per diem rates, the definitions of lodging, meals, and incidental expenses, and the regulatory coverage dealing with special or unusual situations are incorporated.”
Even though most contractors understand the interplay between the FAR travel cost principle, the Federal Travel Regulations, the Joint Travel Regulations, and the Standardized Regulations, many of those same contractors have not extended their travel policies to address long-term travel. Long-term travel is the situation where an employee is assigned to a single location for an extended period of time. The employee’s permanent work location has not changed, but they are going to be somewhere else for 60 or 90 days, or perhaps as much as a year. (You don’t want to go over a year in duration unless you want to deal with some complicated tax issues.)
When an employee is on long-term travel (or, as DOE calls it “a domestic extended personnel assignment”), it’s not reasonable to have them keep incurring the same amounts of travel costs they would incur on normal business travel. For example, if they are going to be at a single location for six months, why can’t they lease an apartment, or (at least) start renting their hotel room by the month instead of by the day? Why can’t they buy food and cook it in their own kitchen, instead of going out to eat three meals a day?
In other words, reasonable people would expect the employee’s daily travel costs to drop significantly while on long-term travel. Lodging costs should drop. The Meals & Incidentals allowance should drop. Too many contractors’ travel policies don’t take this into account.
The DOE Acquisition Letter addresses this issue and establishes DOE policy on cost allowability associated with long-term assignments. The AL starts with a clear, concise definition: “Contractor domestic extended personnel assignments are defined as any assignment of contractor personnel to a domestic location different than (and more than 50 miles from) their normal duty station for a period expected to exceed 30 consecutive calendar days.” In other words, you can be on TDY travel for the first 30 days, but on day 31 the employee’s travel costs are supposed to come down. That sounds very reasonable to us.
The DOE AL lists a number of allowability rules. We won’t recap them all here (we provided a link to the AL in the 2nd paragraph). Here are some significant policy positions:
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For the first 60 days and last 30 days of the assignment, DOE/NNSA will reimburse costs associated with lodging at the lesser of actual cost or 100% of the Federal per diem rate at the assignment location. The intervening days will be reimbursed at the lesser of actual cost or 55% of Federal per diem.
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For the first 30 days and last 30 days of the assignment, DOE/NNSA will reimburse costs associated with meals and incidental expenses (M&IE) at a rate not to exceed 100% of the Federal per diem rate at the assignment location. The intervening days will be reimbursed at a reduced rate, not to exceed 55% of Federal per diem.
Contractors whose travel policies do not currently address long-term travel would do well to review this DOE Acquisition Letter in some detail and consider adopting the DOE cost allowability standards as the company’s reimbursement policy positions when their employees are on an extended assignment that does not involve a permanent change in work location. In particular, we advise paying attention to the portion of the AL that discusses the cost analysis that should be performed when considering putting an employee into a long-term travel situation. The AL recommends that a full-up relocation be considered and costed. If the relocation is less expensive than the costs of the extended assignment, it would seem reasonable and prudent to relocate the employee—and that’s what the DOE AL suggests.
In other words, there is more to this particular topic than simply complying with applicable regulations. There is a certain level of analysis expected. We agree. And we recommend that contractors structure their travel policies accordingly.
Defective Pricing: So This Happened
On May 4, 2018 the Defense Federal Regulation Supplement (DFARS) was revised via issuance of a final rule “to state that, in the interest of promoting voluntary contractor disclosures of defective pricing identified by the contractor after contract award, DoD contracting officers have discretion to request a limited-scope or full-scope audit, as appropriate for the circumstances.”
According to the background section of the final rule, this regulatory revision came about because contractors requested it. Contractors requested it because DoD asked about opportunities to reduce or eliminate regulatory burdens “where costs [of compliance\ outweigh benefits [to the government.” DoD asked contractors for input as part of “Better Buying Power 3.0,” which we discussed here. We offered opinions regarding BBP 3.0 in this article. In our typically understated, diplomatic style, we concluded that “BBP 3.0 is much the same as its predecessors: More bureaucratic management and more bureaucratic processes. Processes designed and implemented by bureaucrats for bureaucrats in order to achieve bureaucratic ends.”
But this article isn’t about BBP 3.0. Nor is it about BBP 2.0 (which is where the notion of regulatory roll-backs started). Nope. This article is about the regulatory revision that allegedly spawned from BBP 3.0, a claimed regulatory roll-back intended to reduce a burden on contractors so that the associated reduced costs could be passed back to taxpayers.
Yeah, that’s a lie.
We documented the true story on this blog site.
As we documented, after five years of intensive study, after five years of focusing on reducing regulatory burdens where the costs to contractors outweighed the benefits to the government, after admittedly spending $600,000 of taxpayer funds, the DoD issued this report entitled “Eliminating Requirements Imposed on Industry Where Costs Exceed Benefits.” (Catchy title, right?) We documented how almost every single input received from contractors was dismissed by the study’s authors. We documented how the authors promised to continue to study regulatory roll-back in “Phase II,” and we opined that we would expect much of the same, in terms of results. I.e., nothing.
One of the few contractor recommendations that was accepted by the authors was to reduce the number of certified cost or pricing (CoP) data submissions. We discussed that recommendation, in some detail, in this article. We quoted from the DoD report and we repeat that same quote here so that readers can see the exact language of the recommended regulatory roll-back:
We concur with contractors’ recommendation in the first category: DoD should clarify policy guidance to reduce repeated submissions of CoP data. Multiple submissions are an unintended, and generally unsought, consequence of the FAR requirement that certified CoP data be ‘current.’ Frequent resubmissions appear to be the result of contractors’ fears that out of date CoP data that becomes inaccurate will lead to defective pricing claims by DoD post-award. However, lack of clarity on what is considered ‘current’ motivates some contractors to provide excessively frequent CoP data updates during negotiations (weekly or monthly), which creates unnecessary work not only for contractors, but also for the Procuring Contracting Officer (PCO). We recommend amending DFARS (and/or the FAR) to remove uncertainty about the appropriate frequency of providing certifiable CoP data to ensure it remains ‘current’ and/or to clarify pricing changes that warrant resubmission of CoP data. … Reducing unnecessary resubmissions of certifiable CoP data would lower contractor proposal costs and reduce procurement administrative lead time. Making this change also weakens the argument for making additional changes to the TINA statute, such as increasing thresholds or relaxing waiver criteria.
(Emphasis added to show exactly what the authors were recommending.)
So then this happened.
As we documented in the article (link above), the report’s recommendation was changed. The recommendation provided to the Director of Defense Pricing became ““Consider revising the FAR to eliminate the requirement that a defective pricing claim and associated audit must be initiated if a contractor voluntarily discloses defective pricing post-award …”
You see the disconnect, don’t you?
Further (and as we documented), even though the recommendation was to revise FAR 15.407-1(c), the Director of Defense Pricing initiated a DFARS Case (215-D030) that would only revise DFARS 215.407-1. Because the FAR was not being revised (as recommended), there would be no associated cost reductions with the regulatory revision.
So here we are today, more than two years after the DFARS Case was opened, with a final rule that does nothing. It reduces no regulatory burden and it reduces no contractor costs. What it does do is clarify the rights of the parties.
Thus, if you determine that you may have defectively priced your cost proposal, in that you failed to disclose accurate, complete, and current certified cost or pricing information (as that term is defined at FAR 2.101), then you may make a voluntary disclosure to your contracting officer. Who will discuss the situation with DCAA. The contracting officer and DCAA will determine how best to proceed in evaluating the contractor disclosure. Regardless of the voluntary nature of the contractor’s disclosure, that disclosure may lead to further demands for repayment, as the solicitation provisions and contract clauses provide. In some extreme cases, the government (or qui tam relator) may pursue a lawsuit under the civil False Claims Act, based on the theory that any invoice submitted under a defectively priced contract is a false claim.
The only silver lining in this situation is that Congress recently raised the threshold at which contractors must certify their cost or pricing data from $750,000 to $2 million. DoD recently issued a Class Deviation to implement that statutory change ahead of formal rule-making. Consequently, the number of proposals subject to this rule—especially at smaller contractors—should decrease significantly.
Otherwise, this story is the poster child for how the DoD “fourth estate” sabotages attempts to improve the defense acquisition environment. As we have documented here for our readership to consider.
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TINA Threshold Can Be Raised Across All Agencies
The story continues.
It started with the 2018 National Defense Authorization Act (NDAA), a piece of legislation focused on the Department of Defense and NASA. The 2018 NDAA directed DoD (and NASA) to make a number of changes to the acquisition regulations. We told you about many of those changes. Notably, the 2018 NDAA changed the threshold at which contracting officers (and contractors) must obtain certified cost or pricing data—commonly known as “the TINA threshold” (referring to the Truth-in-Negotiations Act). The 2018 NDAA raised the TINA threshold from $750,000 to $2 million.
Again, the NDAA language was focused on DoD and NASA, but that focus created a problem. The problem is that the TINA language—e.g., FAR 15.403-4(a)(1)—applies to all Federal agencies, not just to DoD and NASA. Essentially, then, Congress was telling the DAR Council (one of the two FAR Councils who writes the acquisition regulations) to make special language in the Defense Federal Acquisition Regulation Supplement (DFARS). That would be an enormous undertaking, since the DAR Council would not only have to create regulatory language that paralleled the existing FAR language, but would also have to create new solicitation provisions and contract clauses that paralleled existing FAR provisions and clauses. That would be hard and take a long time, a duration perhaps measured in years. In the meantime, DCMA contracting officers would be stuck, forced to choose between complying with statute and complying with the existing FAR regulatory language. We wrote about that challenge in this article.
We followed-up that article with another one, one that discussed how the Civilian Agency Acquisition Council (CAAC)—the sister entity to the DAR Council—had issued a Class Deviation that authorized civilian agencies to adopt some of the 2018 NDAA acquisition thresholds. This was a significant step because it was a strong indication that the 2018 NDAA changes were going to be adopted across the entire FAR, and not just adopted within the DFARS. However, we noted that the CAAC Class Deviation was silent with respect to the TINA threshold. We speculated that it might be the subject of a future CAAC communication.
In yet another article on the topic, we discussed in some detail the quandary faced by both DCMA contracting officers and contractors, because the existing FAR language and associated solicitation provisions and contract clauses all referenced a specific dollar value ($750,000) as the TINA threshold, rather than the value in the statute. Thus, if the statute changed but the regulatory language did not, then there was going to be a conflict between the two. Further, the CAS threshold (which is the contract value at which CAS is applied, unless an exemption is available) is tied to the TINA statute rather than to the regulation. That created yet another compliance quandary for people. We wrote—
By ‘slow-rolling’ the implementation of the 2018 NDAA threshold changes into the acquisition regulations, the FAR Councils have created a problem for contractors. If the contractors wait for the regulatory implementation, then they must disconnect CAS coverage from TINA coverage. They will end up requesting certified cost or pricing data from subcontractors that are, by statute, exempt from CAS. This helps nobody and may well lead to increased procurement costs.
In our view, the only rational approach is to apply the statutory threshold changes now. The FAR Councils should immediately issue a Class Deviation to FAR 15.403-4(a)(1) to implement the new TINA threshold, even if formal rule-making takes a bit longer. If you are a contractor, you should discuss this quandary with your cognizant contracting officer and try to get some relief.
Then, in two other (brief) articles, we noted that the DoD had issued Class Deviations to implement the 2018 NDAA acquisition threshold changes in advance of formal rulemaking. (See here.)
Just to recap, by this point the CAAC had issued a Class Deviation to permit civilian agencies to implement some of the 2018 NDAA threshold changes—in particular, those associated with the Simplified Acquisition Threshold (SAT) and the Micro-Purchase threshold—but they had not addressed changes to the TINA threshold. The Department of Energy (DOE) had jumped on that permission and had issued its own Class Deviation. But of course DOE could not address the TINA threshold, because the CAAC had not addressed it in its Class Deviation. The DoD had issued two Class Deviations addressing the SAT, the Micro-Purchase threshold, and the TINA threshold.
Now we are all up to date.
And you should not be surprised to learn that on May 3, 2018, the CAAC issued a Class Deviation via CAAC Letter 18-003, that addressed the TINA threshold. The CAAC Class Deviation authorizes civilian agencies to “raise[ ] the threshold for requiring Certified Cost or Pricing Data from $750,000 to $2,000,000.” So there you go.
Importantly, the CAAC Letter also addressed how the threshold increase is to be implemented on existing contracts. The CAAC Letter stated “contracts entered into on or before June 30, 2018 are excluded from this threshold increase.” That sounds like another problem, doesn’t it? Contractors are supposed to have one Purchasing System, with a single set of requirements and thresholds, and not two separate ones (one for old contracts and another for new contracts).
Fortunately, the CAAC Letter also offered a way out of the problem. It stated “contractors for those [old] contracts can request to modify such contracts, without consideration, to use the new threshold.” Note the key phrase – “without consideration.”
At this point, contractors should be moving briskly to revise their Purchasing/Subcontracting procedures to implement the new 2018 NDAA thresholds. They should also be preparing letters to their procuring contracting officers to have their existing contracts modified to adopt the new acquisition thresholds. Contractors with DoD and/or NASA contracts should have already sent those requests, and contractors with civilian agency contracts should be looking to do the same.
Subcontractor Cost Allowability Problems
It’s called “privity of contract” and what it means is that a contract cannot confer rights nor impose obligations on entities who are not a party to the contract. In the world of government contracting, the concept means that (with extremely rare and narrow exceptions) subcontractors may not directly pursue a protest or a claim against the government. Since they are not a party to the prime contract, they do not possess privity. Because subcontractors do not hold the contract with the government, they are not entitled to enforce any of its obligations. (See this brief legal article from the firm of Weitz Morgan, from whence we borrowed the prior two sentences.)
Because the government only has privity of contract with the prime contractor, it enforces requirements on the prime and (generally) relies on the prime to enforce the requirements on its subcontractors, who then enforce requirements on their subcontractors. As the Weitz Morgan article explains, “subcontracts are governed by common law and written agreements between the prime and sub.” Thus, if there is a problem at any level in the prime’s supply chain, it is the prime’s problem as well. If there is an assertion of defective pricing by a subcontractor, it is the prime who must pay. If there is an assertion of somebody billing hours on a T&M contract when they did not meet the qualifications of that hourly billing rate, the remedy is enforced against the prime contractor. If there is an assertion (in a cost-reimbursement contract) that a lower-tier subcontractor invoiced for unallowable costs, then it is the prime contractor who must credit those costs and pay any assessed penalties and interest. The only recourse available to the prime is to require the subcontractor to pay it back. (This assumes that the subcontractor agrees with the government’s assertions. If the subcontractor disagrees then it is likely that a dispute between the prime and sub is going to materialize.)
Because the prime is responsible for its billings to its government customer, it is fairly clear that the prime has to perform some due diligence on its subcontractor cost assertions. We discussed that responsibility in several articles, including this one.
More recently, Senator Claire McCaskill (D-MO) had some choice words about how the DoD was managing certain Afghanistan contracts. On April 26, 2018, her office released a House Subcommittee on Governmental Affairs report on the subject. The report included some juicy quotes, such as —
The Legacy Program was executed by a contractor named Jorge Scientific Corporation, later known as Imperatis Corporation (Imperatis), which has since become insolvent. This company first attracted the attention of Senator McCaskill in 2012, when allegations arose of drug and alcohol abuse and other misconduct at its compound in Kabul. Last year, Ranking Member McCaskill learned that at the same time Imperatis personnel were reportedly getting drunk and high in Afghanistan, its subcontractor [New Century Consulting, or NCC] was billing taxpayers for Bentleys, Porsches, and other luxury cars under the contract.
The report stated that DCAA audited the contractors and “identified $51 million in egregious costs under the Legacy Program contracts,” but there is a problem. Privity of contract may prevent the government from recapturing those questioned costs. As the report explained—
DCAA’s audit only investigated costs between 2008 and 2013, and was not completed until 2016—nearly three years after that period ended and almost eight years after the first costs were incurred. Its audit of the remainder of NCC’s costs will not be complete until later this year. DCAA’s audit backlog, a longstanding concern of Ranking Member McCaskill, has resulted in an audit inventory whose average age is 14 months. Prior to DCAA’s audit, Imperatis filed for bankruptcy, meaning that the government may never recover its claim submitted after DCAA completed its work.
DCAA’s audit report was obtained by Senator McCaskill, who reported that “DCAA examined NCC’s incurred costs between 2008 and 2013 and revealed that NCC improperly incurred costs over $50 million, including exorbitant salaries, unallowable travel expenses, and Bentleys, Porsches and other ‘luxury’ cars that were used by NCC executives and their assistants.”
Because the prime contractor is now bankrupt, the government lacks the legal means to go after the subcontractor. In addition, late DCAA audit findings raise the issue of whether any government claim would be considered timely under the Contract Disputes Act’s Statute of Limitations. This is an unfortunate situation—and it's one that Secretary of Defense Mattis promised to address.
This article by Jared Serbu at Federal News Radio includes video of McCaskill’s questioning of SECDEF Mattis, who told her that “it’s probable that federal officials will file criminal charges” as part of an ongoing investigation into the situation.
For its part, NCC posted a letter on its website in response to Sen. McCaskill’s comments that stated (in part) “A number of the points of concern made in your letter are factually inaccurate and incorrect, albeit this partly stems from the inaccuracies within the DCAA audit report itself.” The letter also stated that the company had made a lengthy and detailed reply to the draft DCAA audit report but to no avail. The company wrote: “Disappointingly, but in what we understand is common practice, the final version of the audit report was little changed from the draft, despite these detailed explanations.”
Meanwhile, Sen. McCaskill urged the DoD to use its suspension and debarment process to “at least temporarily prohibit the firm from receiving any new government work.”
Prime contractors should think about this situation. The risk assessment for subcontractor oversight should include some exploration of what happens if the first (or lower) tier subcontractor has audit findings. Certainly, the prime is going to want to understand those findings in some detail, because it is very likely going to be held responsible for them by its government customer.
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