Compliance (and Avoiding the False Claims
Act) under GSA and VA Schedules
Breakout Session # B05
Jack Horan
McKenna, Long & Aldridge, LLP
Bill Bressette
Baker Tilly
Date July 28, 2014
Time 2:30-3:45 pm
AGENDA
GSA and VA Risk Areas
Commercial Sales Practices Disclosures
Price Reductions Clause Compliance
Trade Agreements Act Compliance
Labor Qualifications
The False Claims Act
Trends in Fraud Cases, Audits, and Mandatory Disclosures
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GSA and VA Risk Areas
Four
Primary
Risk
Areas
• Commercial Sales
Practices disclosures
• Price Reductions
Clause compliance
• Trade Agreements Act
compliance
• Labor Qualifications
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Commercial Sales Practices
Disclosures
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Commercial Sales Practices Disclosure
Intended to place US
Government in “equal”
bargaining position
with Contractor
Allows for price
reduction for defective
pricing
Effectively requires
disclosure of any pricing by
Contractor to commercial
customers that is more
favorable than the pricing
offered to the US
Government
Disclose every potential
pricing practice somewhere
on the CSP forms to avoid
subsequent demand for
price reduction
Pricing includes any terms
that could affect the overall
bargain – e.g., price
concessions, discounts,
rebates, favorable delivery
or payment terms, extended
warranties or other benefits
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CSP-1 COMMERCIAL SALES PRACTICES
FORMAT
Question 3 -- Key Question on CSP-1:
•
Based on your written discounting policies (standard commercial sales practices in the event you
do not have written discounting policies), are the discounts and any concessions which you offer
the Government equal to or better than your best price (discount and concessions in any
combination) offered to any customer acquiring the same items regardless of quantity or terms
and conditions? YES NO . (See definition of “concession” and “discount” in 552.212-70.)
NOTE: If you answer NO to this question, on an attachment provide an explanation of why the net
prices, terms and conditions offered to the Government are not equal to or better than those
offered to any commercial customer acquiring the same items. Please provide copies of your
current commercial agreements or extract of your salient terms and conditions if not offering MFC
pricing to the Government.
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CSP-1 COMMERCIAL SALES PRACTICES
FORMAT
Question 4 -- commercial pricing
information to be disclosed:
•
(a) Based on your written discounting policies (standard commercial sales practices in the
event you do not have written discounting policies), provide information as requested for each
SIN (or group of SINs for which the information is the same) in accordance with the instructions
at Figure 515.4-2, which is provided in this solicitation for your convenience. The information
should be provided in the chart below or in an equivalent format developed by the offeror.
Rows should be added to accommodate as many customers as required.
Column 1—
Customer
Column 2—
Discount
Column 3—
Quantity/Volume
Column 4—
FOB Term
Column 5—
Concessions
NOTE: The above chart (Figure 515.4-2) may be completed in Exhibit 06 – Proposal Price List
Preparation in an Excel spreadsheet format.
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CSP-1 COMMERCIAL SALES PRACTICES
FORMAT
Question 4 -- commercial pricing information to be disclosed:
•
(a) Based on your written discounting policies (standard commercial sales practices in the
event you do not have written discounting policies), provide information as requested for each
SIN (or group of SINs for which the information is the same) in accordance with the instructions
at Figure 515.4-2, which is provided in this solicitation for your convenience. The information
should be provided in the chart below or in an equivalent format developed by the offeror.
Rows should be added to accommodate as many customers as required.
Column 1—
Customer
Column 2—
Discount
Column 3—
Quantity/Volume
Column 4—
FOB Term
Column 5—
Concessions
NOTE: The above chart (Figure 515.4-2) may be completed in Exhibit 06 – Proposal Price List
Preparation in an Excel spreadsheet format.
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CSP-1 COMMERCIAL SALES PRACTICES
FORMAT
Which customers?
“If you responded “YES” to
question (3), on the
COMMERCIAL SALES
PRACTICES FORMAT,
complete the chart in question
(4)(a) for the customer(s) who
receive your best discount”
regardless of the customer’s
market channel.
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“If you responded “NO”
complete the chart in question
(4)(a) showing your written
policies or standard sales
practices for all customers or
customer categories to whom
you sell at a price (discounts
and concessions in
combination) that is equal to or
better than the price(s) offered
to the Government.”
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CSP-1 COMMERCIAL SALES PRACTICES
FORMAT
Instructions:
Column 2—Identify the discount. The term “discount” is
defined in solicitation clause 552.212-70, Preparation of
Offer (Multiple Award Schedule):
“Indicate the best discount (based on your written
discounting policies or standard commercial discounting
practices if you do not have written discounting policies) at
which you sell to the customer or category of customer
identified in column 1, without regard to quantity; terms
and conditions of the agreements under which the
discounts are given; and whether the agreements are
written or oral.” (emphasis added)
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CSP-1 COMMERCIAL SALES PRACTICES
FORMAT
Discount means “a reduction to catalog prices
(published or unpublished). Discounts include, but
are not limited to, rebates, quantity discounts,
purchase option credits, and any other terms or
conditions other than concessions) which reduce
the amount of money a customer ultimately
pays for goods or services ordered or
received.Any net price lower than the list price is
considered a “discount” by the percentage
difference from the list price to the net price.”
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CSP-1 COMMERCIAL SALES PRACTICES
FORMAT
Concession means a benefit, enhancement or
privilege (other than a Discount), which either
reduces the overall cost of a customer's
acquisition or encourages a customer to
make a purchase.Concessions include, but are
not limited to, freight allowance, extended
warranty, extended price guarantees, return
credits, free installation and bonus goods
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Price Reductions Clause Compliance
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The Structure of the PRC
Establishing the BOA:
(a)
Before award of a contract, the Contracting Officer and the Offeror
will agree upon (1) the customer (or category of customers) which will be
the basis of award, and (2) the US Government's price or discount
relationship to the identified customer (or category of customers)
This relationship shall be maintained throughout the contract period.
Any change in the Contractor's commercial pricing or discount
arrangement applicable to the identified customer (or category of
customers) which disturbs this relationship shall constitute a price
reduction
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The Structure of the PRC
Reporting price reductions to the BOA:
(b) During the contract period, the Contractor
shall report to the Contracting Officer all price
reductions to the customer (or category of
customers) that was the basis of award. The
Contractor's report shall include an explanation
of the conditions under which the reductions
were made
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The Structure of the PRC
Triggers for and duration of a price reduction:
(c) (1) A price reduction shall apply to purchases under this contract if, after
the date negotiations conclude, the Contractor -• (i) Revises the commercial catalog, pricelist, schedule or other document upon which contract
award was predicated to reduce prices;
• (ii) Grants more favorable discounts or terms and conditions than those contained in the
commercial catalog, pricelist, schedule or other documents upon which contract award was
predicated; or
• (iii) Grants special discounts to the customer (or category of customers) that formed the basis
of award, and the change disturbs the price/discount relationship of the US Government to the
customer (or category of customers) that was the basis of award
(2) The Contractor shall offer the price reduction to the eligible ordering
activities with the same effective date, and for the same time period, as
extended to the commercial customer (or category of customers)
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The Structure of the PRC
Exceptions
(d) There shall be no price reduction for sales -• (1) To commercial customers under firm, fixed-price definite
quantity contracts with specified delivery in excess of the
maximum order threshold specified in this contract;
• (2) To eligible ordering activities under this contract;
• (3) Made to State and local government entities when the order
is placed under this contract (and the State and local
government entity is the agreed upon customer or category of
customer that is the basis of award); or
• (4) Caused by an error in quotation or billing, provided
adequate documentation is furnished by the Contractor to the
Contracting Officer
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The Structure of the PRC
Notification requirements:
(f) The Contractor shall notify the
Contracting Officer of any price reduction
subject to this clause as soon as possible,
but not later than 15 calendar days after its
effective date
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Trade Agreements Act Compliance
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Trade Agreements Act Compliance
Background
• The Buy American Act (BAA), 41 U.S.C.
§§ 8301-8305
• Enacted during Great Depression of the 1930s.
• Generally, requires government to purchase U.S.-made
end products.
• The TAA, 19 U.S.C. § 2501 et seq.
• Enacted in the 1970s to implement various trade
agreements with foreign countries.
• TAA waives BAA preference for end products from
“designated countries” that are parties to trade
agreements.
• So, TAA allows government to purchase U.S.-made and
designated country end products.
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Trade Agreements Act Compliance
“Designated
country end
product”
means:
• an article that is wholly the growth, product, or
manufacture of the designated country; or
• “substantially transformed” in a designated country into a
new and different article of commerce with a name,
character, or use distinct from that of the article from which
it was transformed. (FAR 52.225-5.)
TAA Dollar
Threshold
• Contracts valued at $203,000 or more.
• Government’s stated position is that all VA and GSA
Schedule Contracts are subject to the TAA, meaning that
all products listed for sale must be manufactured or
“substantially transformed” in a “designated country. (FAR
25.1101(c)(1); GSA website, last visited Mar. 7, 2013.)
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Procedure for TAA Compliance
Determine
which
sourcing
requirements
apply
Determine
country of
origin (CoO)
for the
applicable
items
Determine
whether the
CoO is a
designated
country
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List items
from nondesignated
CoOs on the
Certificate
Remove
items if CoO
changes from
designated to
non
designated
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No Fraud Where There Is “Reasonable
Reliance”
“Reasonable reliance” on vendor certifications defeats
FCA allegations of non-compliance with the Trade
Agreements Act (U.S. ex rel. Folliard v. Gov’t
Acquisitions, Inc., 930 F. Supp. 2d 123 (D.D.C. 2013))
On appeal at the D.C. Circuit
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Labor Qualifications
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Understand Your Obligations When
Staffing a Project
Contractors must ensure that resources staffed to GSA task orders meet or exceed the
minimum requirements set forth in the labor category descriptions to avoid the risk of
overcharges or False Claims Act (FCA) violations.
• Prime contractors are also responsible for ensuring that subcontracted resources meet these requirements.
• Without adequate internal controls, maintaining and documenting compliance with regards to labor mapping can
be extremely difficult.
Firm fixed-price contracts present additional challenges for services contractors:
• Effective project/resource management to ensure profitability.
• Maintain adequate documentation of the basis of estimate to support rates and mappings in the event of an
audit.
Resources mapped to Service Contract Act (SCA) eligible labor categories must be
compensated in accordance with appropriate wage determinations.
• Based on the location in which the work is performed.
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Best Practices
Ensure that internal labor categories (job titles) are relevant and well defined.
Ensure that each employee is assigned an internal category.
• If the system has the functionality to do so, GSA or commercial labor categories may also be specified in the
system for each employee.
Centralize resume/qualification data and establish a mandatory update cycle
• At least annually.
Develop written policies and procedures to ensure consistent mapping of resources on all
contract opportunities.
• Each resource’s qualifications should be verified prior to being staffed to a project or included in a bid/proposal.
• May be accomplished with a centralized pricing function or opportunity approval process.
Always maintain documentation supporting resource / internal labor category mappings to
project-specific or GSA labor categories.
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The False Claims Act
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Potential Consequences of
Non-Compliance
False
Claims
Act
(FCA)
Overview
• The FCA is the government’s primary tool to
combat fraud
• Pursued either by a whistleblower or the DOJ
• FCA imposes liability on anyone who
• Knowingly submits, or causes another to
submit, a false claim for payment to the
government
• Knowingly makes a false statement in support
of a false claim
• Knowingly avoids or decreases an obligation
to pay the government, or retains an
overpayment
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False Claims Act
• Claim
Elements • Falsity
of FCA
•
Knowledge
Case
• Materiality
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False Claims Act
Qui Tam
Provisions
• Qui Tam plaintiff = “Relator” who
brings a FCA action on behalf of the
United States
• Encourages members of the public
to report fraud in exchange for a
portion of the recovery
• Anti-retaliation provisions prevent
discharge, demotion, suspension of
whistleblowers
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Potential Consequences of
Non-Compliance
What is
at
stake in
an FCA
case
• Treble damages; i.e., 3 times the amount of damages
actually sustained by the government
• Potential double damages if voluntarily disclosed
• Qui tam relator gets up to 30%
• Trend for government to pursue entire contract value
• Penalty of up to $11,000 per claim
• Every invoice can be a separate claim
• Government or relator attorneys’ fees and costs
• Debarment
• Reputation and Goodwill
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The Statute of Limitations Is Suspended
In United States ex rel. Carter v. Halliburton Co., 710 F.3d 171
(4th Cir. 2013), the Fourth Circuit found:
• The Wartime Suspension of Limitations Act (“WSLA”) applies to both
criminal and civil FCA actions, regardless of whether the claim is warrelated; and
• The WSLA tolls the FCA’s six-year statute of limitations for claims brought
during a time of war for up to five years after the termination of hostilities
Petition for certiorari is pending
• Supreme Court invited Solicitor General to file a brief expressing the views
of the United States
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Enforcement
FAR Mandatory Disclosure Rule -- FAR 52.203-13
• Contractors shall timely disclose to the OIG (with a copy to the CO)
whenever it has credible evidence that, in connection with the award,
performance, or closeout of a contract or subcontract, a principal, employee,
agent, or subcontractor committed:
• Certain enumerated violations of Title 18 of the
U.S. Code
• A civil False Claim Act violation
• A significant overpayment
• “Credible evidence”
• Not defined in the Rules
• Standard is higher than “reasonable grounds to believe”
• Generally will require some collection of factual information and legal
analysis; FAR Councils anticipate “reasonable steps”
• Credible evidence may exist prior to conclusion of internal investigation
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Mandatory Disclosure Process
Internal
Investigation
Disclosure
Letter/Presentation
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Validation Audit
Types of Exposure Analyses
Defective Pricing
• Occurs When:
• The company did not provide current, accurate and
complete disclosures at the time of contract award,
extension or modification.
• Analysis Overview:
• Review the 6-12 months of transactional sales data
prior to contract award, extension or modification.
• Re-price the contract and quantify exposure based on
that review of sales preceding award, extension or
modification.
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Types of Exposure Analyses
Defective Pricing (cont.)
• Analysis Overview (cont.)
• Review is not limited to the Basis of Award (BOA), but all
commercial customers.
• Some exclusions may be warranted (i.e., resellers).
• Determine the discount for each line item or item
category that “would have” been negotiated.
• Apply the discount(s) to GSA sales during the period of
review to arrive at a “should-be price”.
• Calculate exposure by taking the difference between the
“should-be price” and the price sold.
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Types of Exposure Analyses
Price Reductions Clause
• Occurs When:
• Price reductions are not reported during the contract
performance, including:
• Reductions in the commercial price list.
• Sale to a BOA customer that disrupts the established
price or discount relationship.
• Other concessions
• Analysis Overview:
• Review transactional sales data for all BOA customers
during the contract performance period.
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Types of Exposure Analyses
Price Reductions Clause (cont.)
• Analysis Overview (cont.):
• Determine, on a item by item basis, when price
reduction triggers occur.
• Create a trigger history of price reductions for the
period of review.
• Permanent vs. Temporary Triggers.
• Apply the trigger history to GSA sales during the
period of review to arrive at a “should-be price”.
• Calculate exposure by taking the difference between
the “should-be price” and the price sold.
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Trends in Fraud Cases, Audits, and
Mandatory Disclosures
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FCA Cases Brought by U.S. or
Relators (First 14 years)
600
547
493
500
468
400
343
365
280 269
300
Government
Relator
234
285
224
233
243
200
210
138
87
100
218
84
185
140
185
120
114
30
0
341
304
95
72
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FCA Cases Brought by U.S. or
Relators (Last 13 years)
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Total FCA Recoveries (Millions)
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FCA Recoveries: Relator vs. U.S.
(Millions)
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Procurement Fraud Recoveries in 2013
(Millions)
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GSA Mandatory Disclosures
(As of May 31, 2012)
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Challenge to Attorney Client Privilege
Interviews conducted by counsel or explicitly at the direction of counsel
Advise Interviewee of legal purpose
Advise that “Privileged” – Not just Confidential
Document threat of litigation
Include mental impressions
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Questions?
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Contact Information
Jack Horan, Partner, McKenna Long & Aldridge LLP
• (202) 496-7215
• [email protected]
Bill Bressette, Principal, Baker Tilly
• (703) 923-8624
• [email protected]
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