Spring 2010 Regulatory Updates | Argy, Wiltse & Robinson, P.C.

Presidential Memorandum: Payment Recapture Audits
President Obama expanded the use of “Payment Recapture Audits” (to the extent permitted by law and where cost-effective) in a memorandum dated March 10, 2010. These audits are expected to be effective mechanisms for detecting and recapturing payment errors. Highly skilled accounting specialists and fraud examiners using state-of-the-art tools and technology examine payment records to uncover such problems as duplicate payments, payments for services not rendered, overpayments, and fictitious vendors. The President approved the use of professional and specialized auditors on a contingency basis, with their compensation tied to the identification of misspent funds. He has directed the Director of the Office of Management and Budget (OMB) to develop guidance within 90 days on actions executive departments and agencies must take to carry out the requirements of his memorandum.

GAO Decisions - Organizational Conflicts of Interest
New rules require contracting officials to avoid, neutralize or mitigate OCI’s to prevent unfair competitive advantage or the existence of conflicting roles that might impair a contractor’s objectivity, were recently tested in two February 2010 bid protest decisions at GAO, McCarthy/Hunt, JV and B.L Harbert-Brasfield & Gorrie, JV. In both protests the awardees that had performed procurement development services were found to have had unfair access to competitively useful information beyond that which was disclosed, thus skewing competition. GAO recommended that the Army Corps of Engineers eliminate the awardees from the competition. The first of the three types of OCI addressed were the “unequal access to information”. This concern is limited to the risk of a firm gaining a competitive advantage. The second type of OCI consists of “biased ground rules”, in which a firm skews the competition in favor of itself. The third type of OCI involves “impaired objectivity”, where a firm’s ability to render impartial advice to the government could appear to be influenced by its relationship with the entity whose work product is being evaluated.

Final Report: IG Report on DHS Use of Suspension and Debarment
In February 2010 the IG issued a report stating that the Department of Homeland Security (“DHS”) has not fully utilized existing procedures against poorly performing contractors, and has recommended that DHS develop policies regarding suspension and debarment referrals when a contractor is terminated for default or is being considered for default. Debarment procurement officials have said that the suspension and debarment process is too resource intensive, punitive, and is negatively impacting the size of the contractor pool. Procurement officials prefer to use other administrative remedies to address poor contractor performance. On the other hand, reluctance to pursue suspension and debarment could put the government at risk of continuing to conduct business with poorly performing contractors and may result in decreased productivity and increased cost. DHS management will now require that contracting officers provide any determination of irresponsibility to the suspension and debarment official when the determination is based in whole or part on the contractors’ lack of satisfactory performance record under DHS contracts; lack of satisfactory record of integrity and business ethics; or inability to qualify or ineligibility under applicable laws and regulations.

Final Decision: False Claims Rule Weakens Protection from Qui Tam Actions
Two recent developments have significantly weakened the False Claims Act’s protections against qui tam actions making it harder to defend such suits. By a Final Rule published on March 24, 2010, all U.S. Attorneys were delegated the authority to issue Civil Investigative Demands (“CIDs”) allowing information obtained through CIDs to be shared with "any qui tam relator if the Attorney General or designee determines it is necessary as part of any false claims act investigation." 31 U.S.C. § 3733(a)(1)(D) (as amended by FERA). By using a CID, rather than a grand jury subpoena, criminal prosecutors may be able to freely share information with civil side government attorneys without being subject to grand jury secrecy rules.

Final Decision: “Nonprocurement” Protest Disputes
On March 1, 2010, the Federal Circuit found in the case Resource Conservation Group, LLC v. United States that the Court of Federal Claims (“CFC”) had authority to arbitrate a protest involving a Navy solicitation to lease its own real property to another party. Because the Navy’s attempt to lease its own property was not a government procurement, there was no jurisdiction under the Administrative Dispute Resolution Act (“ADRA”) bid protest provision. Despite the fact that both the GAO and CFC had each dismissed the protest, the Federal Circuit held that the Tucker Act’s implied-in-fact contract jurisdiction for nonprocurement protests survived because ADRA did not otherwise provide a solution for such disputes.

Final Decision: U.S. Court of Appeals for the Federal Circuit - IR&D Definition
ATK Thiokol Inc., a manufacturer of rocket motors to government and commercial buyers, filed an action in the Court of Federal Claims, Thiokol Inc. v. U.S., on the basis of disagreement with the DACO’s notice of intent to disallow the cost of the Development Effort associated with performance of a contract with Mitsubishi. The DACO went on to cite the definition of IR&D in the FAR, which excludes development efforts “required in the performance of a contract” and was implied in the contract with Mitsubishi. ATK Thiokol’s argument rests on the fact that the development efforts were implicitly required or necessary in order to perform the contract, which by regulation is considered allowable IR&D cost. The court agreed with ATK Thiokol Inc., ruling in their favor that Development Effort costs were allowable indirect costs because the terms of the contract did not explicitly require these efforts in the performance of the contract. Additionally, CAS 402 allows for treatment of IR&D as indirect, so long as the costs were not specifically required by the contract. ATK Thiokol disclosed their cost accounting practice regarding IR&D as indirect costs and maintained consistency with its disclosure. ATK Thiokol claimed that the IR&D efforts had a reasonably foreseeable benefit to more than one contract, thus warranting an indirect catergorization. The U.S appealed the lower court’s decision, the final ruling was affirmed.

Final Rule: Implementation of Executive Order for Use of Project Labor Agreements
The Federal Acquisition Regulation has been amended by this final rule to implement Executive Order (E.O) 13502, regarding the use of Project Labor Agreements for all Federal construction projects that exceed $25 million. The motive behind this rule is intended to encourage contractors performing large construction projects to achieve economy and efficiency in Federal procurement. A project labor agreement is defined as a pre-hire collective bargaining agreement with one or more labor organizations that establishes the terms and conditions of employment for a specific construction project. Considering that large construction projects pose challenges to the government in efficiency and timely procurement, this final rule should alleviate some of these challenges. The rule becomes effective May 13, 2010.