presents gsa schedule contracts: opportunities and legal...
TRANSCRIPT
presents
GSA Schedule Contracts: Opportunities and Legal Risks
presents
Complying With Complex Federal Regulations and Avoiding False Claims Act Violations
A Live 90-Minute Teleconference/Webinar with Interactive Q&A
Today's panel features:Michael F. Mason, Partner, Hogan Lovells US, Washington, D.C.
Holly A. Roth, Partner, Manatt Phelps & Phillips, Washington, D.C.J C th i K P t C ll & M i W hi t D C
Q&
J. Catherine Kunz, Partner, Crowell & Moring, Washington, D.C.
Thursday, September 2, 2010
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GSA MAS Contracts: Overview, Pricing Disclosures, and Compliance RequirementsByMichael F. Mason
September 2, 2010Email: [email protected]
AgendaAgenda
• Overview• Option Periods • Pre-Award AuditsPre Award Audits• CSP Disclosures (Requirements and Best
Practices)Practices)• Price Reductions Clause (Requirements and
Best Practices)Best Practices)
© 2010 Hogan Lovells US LLP. All rights reserved. 5
OverviewOverview
• The GSA MAS program is touted as the premier commercial acquisition program within the Federal Governmentacquisition program within the Federal Government
• More than $20 billion dollars of goods and services sold during first half of FY 2010 The program has grown from $10 5 billion in FY 1999 to more• The program has grown from $10.5 billion in FY 1999 to more than $38 billion in FY 2009
• There are more than 18,000 MAS contracts spread across 42 different “schedules”different schedules
• Services have become an increasingly significant portion of MAS sales – today more than half of MAS revenue is derived from servicesservices
• GSA MAS program has preferential status under Federal Acquisition Regulation (FAR) 8.002
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OverviewOverview
• A MAS contract’s base term is five years, followed by three five year optionsfive-year options
• A MAS contractor is guaranteed no sales – nearly half of all contracts in recent years had no recorded salesA MAS t t i ki t “li ” t k t th h t th• A MAS contract is akin to a “license” to market throughout the Federal Government and to other eligible ordering activities
• Also, state and local governments may use the program under t i h d l d f t i d t / icertain schedules and for certain products/services
• Purchasing agencies use streamlined buying procedures that significantly reduce time and effort required under traditional G t t th dGovernment procurement methods
• MAS prices are determined to be “fair and reasonable” –purchasing agencies are not required to conduct further price
l
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analyses
OverviewOverview
• GSA reports it needs anywhere from 30 to 120 days to process a viable offer; however, negotiations often take longer; , g g
• Basic initial requirements:– DUNS number– Register with the Central Contractor Database
Complete representations and certifications in Online Representations and– Complete representations and certifications in Online Representations and Certifications Application (ORCA)
– Open Market Ratings must be obtained using the Dun and Bradstreet system– Develop Subcontracting Plan
• Prior to award, offeror discloses its “commercial sales practices” (CSP), which GSA uses to negotiate pricing
• GSA’s stated objective is “most favored customer” pricing• For purposes of price protection the contract’s GSA pricing is linked to• For purposes of price protection, the contract s GSA pricing is linked to
negotiated “basis of award” customers or category of customers • A negotiated pricing relationship between GSA pricing and basis of
award pricing is maintained during contract performance via a Price R d ti Cl
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Reductions Clause
Option PeriodsOption Periods
• At the end of each five-year period, the contract is up for “renewal”• Prior to GSA determining whether or not to exercise the option to extend• Prior to GSA determining whether or not to exercise the option to extend
the contract, the contractor is required to update its CSP disclosures • The contractor may also be asked to represent whether all required price
reductions under the Price Reductions Clause have been reported to pGSA
• The process may include a pre-award audit and the contract’s pricing may be renegotiated
• A vast majority of pre-award audits occur in connection with the contract extension process – which often is when problems with a contractor’s disclosure and/or administration of the contract are disclosedTh ti t i i i ifi t tt ti d• The option extension process requires significant attention and represents an opportunity to “clean up” a contract
• GSA may extend the existing 5-year period while negotiating pricing for the new period
© 2010 Hogan Lovells US LLP. All rights reserved. 9
the new period
Pre-Award AuditsPre Award Audits
• Prior to award of a new MAS contract or at the time of the option extension
• For option extensions, GSA contracting officer notifies contractor 210 days prior to contract period’s expiration of impending OIG pre-award audit
• OIG’s pre award audit objectives include determining whether:• OIG s pre-award audit objectives include determining whether:– the CSP information submitted by the company is current, accurate and
complete– the company’s sales monitoring and billing systems will ensure proper
administration of the price reduction provisions and billing terms of theadministration of the price reduction provisions and billing terms of the contract
– the company can adequately accumulate and report schedule sales for Industrial Funding Fee (IFF) payment purposesemployees are qualified for the labor position to which they are assigned (for– employees are qualified for the labor position to which they are assigned (for services)
– the company has an adequate accounting system for the segregation and accumulation of labor hours, materials, and other direct costs (ODCs) on time-and-materials task orders (for services)
© 2010 Hogan Lovells US LLP. All rights reserved. 10
time-and-materials task orders (for services)• OIG will present recommended pricing to the GSA contracting officer
Faulty PerceptionsFaulty Perceptions
• Many contractors hold faulty perceptions regarding the t f GSA S h d l t tnature of GSA Schedule contracts:
– MAS contracts include only commercial-like terms and conditions and pose no government-unique risksconditions and pose no government unique risks
– MAS contract pricing impacts only your federal sales efforts
– MAS contractors must offer GSA its lowest prices
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CSP Disclosure RequirementCSP Disclosure Requirement• Contractor is requested to disclose Commercial Sales Practices (CSP) data
as part of its proposal package • The standard CSP form requests that you:
– State total projected annual sales to the Government under the contract for the contract term, excluding options, for each SIN offered.
– State whether the discounts and any concessions you are offering to the Government are equal to or better than the best price offered to any q p ycustomer
– Complete a matrix listing (i) customer categories; and (ii) best discounts per written policy or standard practice (where written policies do not exist) for each customer category that receives a better pricing than GSA g y p g
– State whether any deviations from your disclosed written policies or standard practices ever result in better discounts (lower prices) or concessions
– Explain any deviations from the written policies and standard practices– Explain any deviations from the written policies and standard practices, including the frequency of occurrence
• The information provided is “expected” to be current, accurate, and complete as of 14 calendar days prior to its submissionYou are requested to update the information with any changes prior to close
© 2010 Hogan Lovells US LLP. All rights reserved. 12
• You are requested to update the information with any changes prior to close of negotiations
CSP Disclosure RequirementCSP Disclosure Requirement
Except from standard CSP-1 Form
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CSP Disclosure RequirementCSP Disclosure Requirement
• After contract award, CSP data must be submitted and/or re-ffi d (i) h it dd d t th t t d (ii) taffirmed (i) when items are added to the contract; and (ii) at
the time of contract extension• There is no requirement to “certify” the data, although GSAThere is no requirement to certify the data, although GSA
contracting officers often request, and receive, certified data• For manufacturers: if you are using resellers:
– Typically will be requested to submit CSP data if the reseller has insignificant sales to the general public If the manufacturer submits a CSP form it will also be– If the manufacturer submits a CSP form, it will also be requested to agree to government pre-award audits
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CSP Disclosure – Best PracticesCSP Disclosure Best Practices• Perform sweep and analysis of sales policies and data prior
to proposal submission and contract extensions Id tif ll t itt i i li i– Identify all current written pricing policies
– Pull and analyze commercial sales data and agreements to determine actual sales practices and deviations from policies and standard practicespolicies and standard practices
– Analyze sales data for possible anomalies – ensure data is usable, consider reconciling to G/LI t i l fi d l l l i l d i– Interview sales, finance, and legal personnel involved in commercial sales process to further identify practices and deviations from those practicesD t t iti t i k f “ kl di d”– Document process to mitigate risk of “reckless disregard” allegations
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CSP Disclosure – Best PracticesCSP Disclosure Best Practices• Prepare a narrative to accompany disclosure form
– No one’s data will be perfect -- explain your efforts to il d t d h t i i t f “ d f ith”compile data and characterize in terms of “good faith”
– Include appropriate disclaimers based on limitations or questions concerning the data
– Explain whether disclosed customer categories are categories used in your commercial practice (often they are not)Id tif d l i th d i ti f itt li i– Identify and explain the deviations from written policies or standard practice
– Indicate whether you reserve the right to continue with id tifi d d i ti ith t b i id d t i iidentified deviations without being considered triggering events under the Price Reductions Clause (also include statement in your Final Proposal Revision and the ultimate contract)
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ultimate contract)
CSP Disclosure – Best PracticesCSP Disclosure Best Practices• Potential deviations include, for example:
– Customer satisfactionCustomer satisfaction– Free training– Sales of obsolete/sample goodsp g– Non-standard warranties– Bundling discounts– Spot discounts
• For resellers, ensure that the disclosure of your “cost” basis includes all rebates and other benefits (See 10/10/1997includes all rebates and other benefits (See 10/10/1997 FCA Settlement)
• Conduct CSP sweeps prior to option to extend and consider
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conducting sweeps on an annual basis
CSP Disclosure – Best PracticesCSP Disclosure Best Practices
• For service providers:– Explain basis for your disclosure, including approach to
“mapping” between commercial and GSA labor categoriesConsider incl ding fle ibilit in o r defined labor– Consider including flexibility in your defined labor categories
– Consider disclosing statistical analysis in cases where g ydiscount variance is substantial and otherwise random
– May need to utilize a cost-buildup approach, especially h i l l i i ifi twhere commercial sales are insignificant
– Ensure that narrative had adequate flexibility in terms of how you explain standard practices and deviations
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how you explain standard practices and deviations
Price Reductions ClausePrice Reductions Clause• Clause 552.238-75, entitled “Price Reductions” • Objective is to provide price protection to the Government by
maintaining an agreed upon pricing relationship between your GSA pricing and an agreed upon “Basis of Award” (or “tracking”) set of customers
• Three ways to “trigger” a price reduction– Contractor revises the commercial pricelist or other document upon
which the contract was predicated to reduce prices– Contractor grants more favorable discounts or terms and conditions
than those contained in the commercial pricelist or other document upon which the contract was predicated
– Contractor grants special discounts to the Basis of Award customer or category of customers (if price/discount relationship is disturbed)
© 2010 Hogan Lovells US LLP. All rights reserved. 19
Price Reductions ClausePrice Reductions Clause• No price reduction for:
– Sales to Federal agencies– Firm-fixed price commercial orders for definite quantities in excess of
the Maximum Order Threshold (MOT)– Sales to state and local governments made under the GSA ScheduleSales to state and local governments made under the GSA Schedule
contract – Quotation and billing errorsPrice reduction has same effective date as the triggering event• Price reduction has same effective date as the triggering event
• Compliance issues frequently arise during “pre-award” audits associated with contract extensions
• Recent cases involving alleged PRC violations
© 2010 Hogan Lovells US LLP. All rights reserved. 20
Price Reductions Clause – Best PracticesPrice Reductions Clause Best Practices • Negotiate a Basis of Award set of customers and pricing relationship
that is workable– Negotiate a manageable Basis of Award (e g “all commercialNegotiate a manageable Basis of Award (e.g., all commercial
customers” may be impossible to manage)– Consider negotiating an alternative PRC that meets your systems
capabilities and your business strategy, for example: P i di l l ti f di t id d t ifi d• Periodic calculations of average discounts provided to a specified group of customers
– Considering identifying and exempting certain non-standard practices from the PRCp
– There are several ways to define the price/discount relationship and calculate price reductions – this should be clearly set out in the final proposal revision/contractFor consultants and systems integrators consider exempting firm– For consultants and systems integrators, consider exempting firm-fixed priced transactions, especially if each transaction is unique
© 2010 Hogan Lovells US LLP. All rights reserved. 21
Price Reductions Clause – Best PracticesPrice Reductions Clause Best Practices• Implement automated systems to ensure compliance
– Flags in quoting and order entry systems for basis of award customerscustomers
– Price floors in quoting systems for basis of award customers– High level approvals for overrides of controls with accountability – Automated drop down menus to identify exceptions to PRC (e g– Automated drop down menus to identify exceptions to PRC (e.g.,
MOT exception)• If you are a manufacturer with no direct contract of your own, avoid
making any PRC-like promises• If your Basis of Award includes only Federal customers, consider
clarifying that the PRC is inapplicable – Reference GSA Procurement Information Notice 2006-06
• Be aware that the new FAR disclosure rule might be read to encompass• Be aware that the new FAR disclosure rule might be read to encompass violations of the PRC
• Ensure that “commercial division” leadership buys into your strategy
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About the PresenterAbout the Presenter
Mike Mason is a partner with the law firm of Hogan Lovells US LLP Mike regularly counsels and represents clients on a wide variety ofLLP. Mike regularly counsels and represents clients on a wide variety of procurement law issues, including Multiple Award Schedule compliance requirements and audits; defense against allegations of defective pricing, fraud, kickbacks, violations of procurement integrity laws and other
i d t d ti f d li ith tmisconduct; domestic preferences; and compliance with government-unique ethical conduct and reporting requirements. In addition, Mike has extensive experience litigating before the U.S. Court of Federal Claims, U.S. district courts, the Government Accountability Office, boards of , y ,contract appeals, the U.S. Department of Health and Human Services Departmental Appeals Board, and other administrative tribunals.
Mike may be contacted by phone at (202) 637-5499, or by email at [email protected]. Please visit www.hoganlovells.com for more information regarding our firm.
© 2010 Hogan Lovells US LLP. All rights reserved. 23
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l h kNoncompliance – High Risk AreasTAA, Unapproved Sales, Employee QualificationsHolly RothHolly RothPartnerGovernment & Regulatory PolicyManatt Phelps & Phillips, LLP700 12th Street N W700 12th Street, N.W.Suite 1100Washington, D.C. 20005Phone: (202) 585-6558F (202) 637 1528Fax: (202) [email protected]
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Trade Agreements Act19 U.S.C. 2501, et seq
Trade Agreements Act provides an exception to the U.S. policy that the federal government may only acquire domestic end products for public use in the United St t (B A i A t 41 U S C 10 10d)States (Buy American Act, 41 U.S.C. 10a - 10d).
TAA implements numerous multilateral and bilateral international trade agreements and other trade initiatives.
U.S. Trade Representative (USTR) has the designated authority to waive, and has waived, the Buy American Act for acquisitions covered by: World Trade Organization Government Procurement Agreement (WTP GPA),
Free Trade Agreements (FTA), or
the Israeli Trade Act.
Acquisition value is a determining factor in the applicability of trade agreements.q g pp y g Dollar thresholds are subject to revision by the USTR approximately every 2 years.
The following 2 slides summarize the current dollar thresholds:
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27Trade Agreements Act (cont.)
Trade Agreement
Supply Contract (equal to or exceeding)
Service Contract (equal to or exceeding)
Construction Contract (equal to or
exceeding)Trade Agreement exceeding) exceeding) exceeding)
WTO GPA $203,000 $203,000 $7,804,000
FTAs:
Australia FTA 70,079 70,079 7,804,000
Bahrain FTA 203,000 203,000 9,110,318
CAFTA-DR 70,079 70,079 7,804,000
Chile FTA 70,079 70,079 7,804,000
Morocco FTA 203 000 203 000 7 804 000Morocco FTA 203,000 203,000 7,804,000
Manatt, Phelps & Phillips, LLP
28Trade Agreements Act (cont.)
Trade Agreement
Supply Contract (equal to or exceeding)
Service Contract (equal to or exceeding)
Construction Contract (equal to or
exceeding)Trade Agreement exceeding) exceeding) exceeding)
NAFTA:
Canada $25,000 $70,079 $9,110,318
Mexico 70,079 70,079 9,110,318
Oman FTA 203,000 203,000 9,110,318
Peru FTA 203,000 203,000 7,804,000
Singapore FTA 70,079 70,079 7,804,000
Israeli Trade Act 50 000Israeli Trade Act 50,000
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Trade Agreements ActGSA MAS Contracts
Assumes estimated dollar value of MAS contract exceeds TAA threshold;
Incorporates FAR 52.225-5, Trade Agreements, by reference.Incorporates FAR 52.225 5, Trade Agreements, by reference. Applies to all products (supplies) offered for sale under GSA MAS contracts.
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FAR 52.225-5Trade Agreements Act
U.S. or Designated Country End-product means an article that: is WHOLLY THE GROWTH, PRODUCT, OR MANUFACTURE of the U.S. or an FTA country; ory
in the case of a product that consists in whole or in part of materials from another country, has been SUBSTANTIALLY TRANSFORMED in the U.S. or an FTA country into a new and different article of commerce with
a name– a name,
– a character, or
– a use distinct from that of the article or articles from which it was transformed.
U S or Designated Country End Product refers to a product offered forU.S. or Designated Country End-Product refers to a product offered for purchase under a supply contract, but for purposes of calculating the value of the end product includes services (except transportation services) incidental to the article, provided that the value of those incidental services does not exceed that of the article itself.
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FAR 52.225-5Trade Agreements Act (Aug 2009)
Designated Country means: A WTO GPA countryy
A Free Trade Agreement Country
A least developed country
A Caribbean basin country
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FAR 52.225-5 (Aug 2009)WTO Countries
Aruba, Austria, Belgium, Bulgaria, Canada, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hong Kong, Hungary, Iceland, I l d I l It l J K (R bli f) L t i Li ht t i Lith iIreland, Israel, Italy, Japan, Korea (Republic of), Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Netherlands, Norway, Poland, Portugal, Romania, Singapore, Slovak Republic, Slovenia, Spain, Sweden, Switzerland, Taiwan (known in the World Trade Organization as “the Separate Customs Territory of(known in the World Trade Organization as the Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu (Chinese Taipei))”, or United Kingdom)
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FAR 52.225-5 (Aug 2009)Free Trade Agreement Countries
Australia
Bahrain
Nicaragua
Oman
Canada
Chile
Costa Rica
Peru, or
Singapore
Costa Rica
Dominican Republic
El Salvador, Guatemala
Honduras
Mexico
Morocco
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FAR 52.225-5 (Aug 2009)Least Developed Countries
Afghanistan, Angola, Bangladesh, Benin, Bhutan, Burkina Faso, Burundi, Cambodia, Central African Republic, Chad, Comoros, Democratic Republic of C Djib ti E t Ti E t i l G i E it Ethi i G biCongo, Djibouti, East Timor, Equatorial Guinea, Eritrea, Ethiopia, Gambia, Guinea, Guinea-Bissau, Haiti, Kiribati, Laos, Lesotho, Liberia, Madagascar, Malawi, Maldives, Mali, Mauritania, Mozambique, Nepal, Niger, Rwanda, Samoa, Sao Tome and Principe, Senegal, Sierra Leone, Solomon Islands,Samoa, Sao Tome and Principe, Senegal, Sierra Leone, Solomon Islands, Somalia, Tanzania, Togo, Tuvalu, Uganda, Vanuatu, Yemen, or Zambia
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FAR 52.225-5 (Aug 2009)Caribbean Basin Countries
Antigua and Barbuda, Aruba, Bahamas, Barbados, Belize, British Virgin Islands, Dominica, Grenada, Guyana, Haiti, Jamaica, Montserrat, Netherlands Antilles, St Kitt d N i St L i St Vi t d th G di T i id d dSt. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines, or Trinidad and Tobago
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Trade Agreements Act“Substantially Transformed”
U.S. Customs and Border Control evaluates whether an article is or would be a end-product of a designated country and issues: country of origin advisory rulings and
final determinations
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Trade Agreements Act“Substantially Transformed” (cont.)
Determinative issue of whether an end-product has been substantially transformed is the extent of operations performed and whether the parts lose th i id tit d b i t l t f th ti l B l t Litheir identity and become an integral part of the new article. Belcrest Linens v. United States, 573 F. Supp. 1149 (Ct. Int’l Trade 1983), aff’d, 741 F.2d 1368 (Fed. Cir. 1984).
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Trade Agreements Act“Substantially Transformed” (cont.)
Extent of operations performed: Whether an operation is complex and meaningful depends on the nature of the operation, including p p g p p g
the number of components assembled, number of different operations, time, skill level required, attention to detail, quality control, the value added to the article, and the overall employment generated by the manufacturing process.
– Assembly operations that are minimal or simple, as opposed to complex or meaningful, will generally not result in a substantial transformation.
» Example: Assemble yourself bicycle kit. Box identifies components in box as bicycle.
– Assembly of a large number of fabricated components onto a printed circuit board in a process involving a considerable amount of time and skill resulted in a substantial transformationinvolving a considerable amount of time and skill resulted in a substantial transformation.
» Example: 50 discrete fabricated components (such as resistors, capacitors, diodes, integrated circuits, sockets, and connectors) were assembled.
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Trade Agreements Act“Substantially Transformed” (cont.)
Loss of identity and integration into new material Consideration of the essential character of the imported article:p
– Determined that imported uppers were the essence of a completed shoe, Uniroyal, Inc. v. United States, 542 F. Supp. 1026, 3 CIT 220, 224-225 (1982), and
– Court addressed each of the factors (name, character, and use) in finding that no substantial transformation occurred in the production of retail juice products from manufacturingtransformation occurred in the production of retail juice products from manufacturing concentrate, National Juice Products Association, et al v. United States, 628 F. Supp. 978, 10 CIT 48, 61 (1986).
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Trade Agreements Act“Substantially Transformed” (cont.)
Primary factors considered in totality of the circumstances analysis: country of origin of the item’s components,y g p
extent of the processing that occurs within a country, and whether such processing renders a product with
– new name,
– new character, and
– new use.
Additional factors considered: the resources expended on product design and development,
extent and nature of post-assembly inspection and testing procedures, and
worker skill required during the actual manufacturing process.
No one factor predominant.
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52.225-5(b)Certification Requirement
The Contractor shall deliver under this contract only U.S.-made or designated country end products except to the extent that, in its offer, it specified delivery of
th d d t i th i i titl d “T d A t C tifi t ”other end products in the provision entitled “Trade Agreements Certificate.”
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Trade Agreements CertificateFAR 52.212-3(g)(4)
The offeror certifies that each end product, except those listed in paragraph (g)(4)(ii) of this provision, is a U.S.-made or designated country end product, as defined in the clause of this solicitation entitled “Trade Agreements ”of this solicitation entitled Trade Agreements.
The offeror shall list as other end products those end products that are not U.S.-made or designated country end products. Other End ProductsOther End Products
Line Item No.
Country of Origin
List as necessary
The Government will evaluate offers in accordance with the policies and procedures of FAR Part 25. For line items covered by the WTO GPA, the Government will evaluate offers of U.S.-made or designated country end products without regard to the restrictions of the Buy American Act The Government will consider for award only offers of U S -of the Buy American Act. 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 such products are insufficient to fulfill the requirements of the solicitation.
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Trade Agreements ActGSA Advantage!
Must accurately reflect the country of origin (COO).
GSA Industrial Operations Analysts (IOAs) will conduct sample verification TAAGSA Industrial Operations Analysts (IOAs) will conduct sample verification TAA compliance including accurate identification of COO.
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Trade Agreements ActRisk for Noncompliance?
Material breach of contract;
Possible violation of False Claims Act.Possible violation of False Claims Act.
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Trade Agreements ActProcedures for Compliance
Resellers/Dealers: Require Trade Agreements Act Certification and indemnification from vendors on periodic basis.
Manufacturers: Require advance notice of transfer of manufacturing facilities and monitor country of origin.
Update GSA Schedule contracts with respect to country of origin.Update GSA Schedule contracts with respect to country of origin.
Acquisitions: Verify TAA compliance programs in place and in force.
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Unapproved Item Sales aka“Open Market”, “Noncontract” or “Incidental”
All GSA schedule contractors must publish an “Authorized Federal Supply Schedule Pricelist” that contains: all supplies and services offered; and
the pricing and the terms and conditions pertaining to each Special Item Number that is on schedule.
Federal Supply Schedule Pricelist defines the “scope” of the contractor’s contract.
Supplies and Services not identified in pricelist are outside the scope of the t tcontract.
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Unapproved Item SalesFAR 8.402(f)
For administrative convenience, an ordering activity contracting officer may add items not on the Federal Supply Schedule (also referred to as open market it ) t F d l S l S h d l bl k t h t (BPA)items) to a Federal Supply Schedule blanket purchase agreement (BPA) or an individual task or delivery order only if— All applicable acquisition regulations pertaining to the purchase of the items not on the Federal
Supply Schedule have been followed (e g publicizing (Part 5) competition requirements (Part 6)Supply Schedule have been followed (e.g., publicizing (Part 5), competition requirements (Part 6), acquisition of commercial items (Part 12), contracting methods (Parts 13, 14, and 15), and small business programs (Part 19));
The ordering activity contracting officer has determined the price for the items not on the Federal Supply Schedule is fair and reasonable;Supply Schedule is fair and reasonable;
The items are clearly labeled on the order as items not on the Federal Supply Schedule (e.g.labeled as “open market” in the proposal and invoice); and
All clauses applicable to items not on the Federal Supply Schedule are included in the order.
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Unapproved Item SalesRisks of Noncompliance
GSA Industrial Operations Analysts (IOAs) will conduct sample verification of compliance in accurately identifying open market items.
GSA may terminate contracts where contractors fail to identify open market items and exceed the scope of their GSA Schedule contract.
Imposition of FAR clauses applicable to open market items.Imposition of FAR clauses applicable to open market items.
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Unapproved Item SalesProcedures for Compliance
Internal identification procedures supplies and services on GSA Schedule contract (Pricelist).
Update GSA Schedule contract periodically to add/delete supplies and services.
Maintain uniform procedures for identifying “open market” items in quotations/proposals and invoices.quotations/proposals and invoices.
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Employee QualificationsExample GSA FSS Solicitations
Financial and Business Solutions (FABS)Schedule 520
FCXB-F4-020002-B
Mi i O i t d B i I t t d S i TFTP MC 000874 BMission Oriented Business Integrated Services (MOBIS)Schedule 874
TFTP-MC-000874-B
Professional Engineering Services (PES)Schedule 871
TFTP-MC-990871-BSchedule 871
Language ServicesSchedule 738 II
TFTP-GC-017382-B
Environmental ServicesSchedule 899
TFTP-EW-990899-B Schedule 899
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Employee QualificationGSA FSS Proposal Requirements
For each proposed labor category, contractors required to provide: Detailed position descriptionp p
– Functional responsibilities;
– Minimum years experience;
– Minimum educational/degree requirements;
– Applicable training and/or certification requirements;
Where experience substitutes for education, explain methodology for substitution (e.g. five years experience equates to a BA/BS degree).
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Employee QualificationGSA FSS Contract Requirements (cont.)
Contractor proposed descriptions become part of the GSA Authorized Price List and posted on GSAAdvantage.
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Employee QualificationGSA FSS Contract Requirements (cont.)
Employees billed for CLIN services must meet minimum labor category requirements for the identified CLIN.
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Employee QualificationRisks of Noncompliance
Failure to supply personnel that meet labor category descriptions: Breach of contract
Potential contract termination
Potential False Claims Act litigation
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Employee QualificationProcedures for Compliance
Establish procedure to verify employee meets labor category description.
Verify resumes accurately reflect personnel experience, education andVerify resumes accurately reflect personnel experience, education and qualifications.
Periodic examination and update of resumes.
P i di i ti d difi ti f l b t iPeriodic examination and modification of labor categories.
Manatt, Phelps & Phillips, LLP
56Holly Roth
Holly RothPartner
Ms. Roth is a partner in the Government & Regulatory Policy practice group in the Washington, D.C., office of Manatt, Phelps & Phillips, LLP. Ms. Roth has more than 20 years of government
t t i i l di 10 ith F t 50contracts experience, including 10 years with a Fortune 50 systems integrator as subcontracts manager. As subcontracts manager, Ms. Roth’s experience included bid and proposal efforts as well as drafting, negotiating and administering a broad range of federal government subcontracts. Ms. Roth represents clients on g pa broad range of federal, state, and local government procurement matters.
Manatt, Phelps & Phillips, LLP
57Manatt, Phelps & Phillips, LLP
The Firm Manatt, Phelps & Phillips, LLP, is known for quality, for extraordinary commitment to clients, for integrated, relationship-based services, and for a range of specialized capabilities typically f d l i b ti fi W i dfound only in boutique firms. We are progressive and entrepreneurial compared to other major firms; and we are deeply committed to diversity, to public service, to involvement in the communities we serve and to excellence in all we do.
We represent a sophisticated client base in a range of industriesWe represent a sophisticated client base in a range of industries including healthcare, financial services, entertainment, media and advertising, real estate, technology, energy and natural resources, consumer goods, government contracts and services and transportation. The government contracts lawyers at Manatt are a strategic legal and business resource for individuals and companies that market and provide products and services to international, federal, state and local government units. We provide “cradle to grave” guidance and representation on government contracts and subcontracts We provide guidance togovernment contracts and subcontracts. We provide guidance to our clients whether they sell commercial off the shelf (COTS) products and services or custom designed and built products and solutions to the government and every variation in between.
Manatt, Phelps & Phillips, LLP
Recent Developments in G t A dit dGovernment Audits and
Enforcement Actions
J Catherine KunzJ. Catherine Kunz
September 2, 2010
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© 2010 Crowell & Moring LLP – All Rights Reserved
Audits and Oversight by GSAg y
Pre Award Audits- Pre-Award Audits
- Post-Award Audits
- IFF Audits
- Contractor Assist VisitsContractor Assist Visits
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Pre-Award Audits
Two contract clauses establish GSA’s audit authority:
(1) FAR 52.215-20, Alt. IV (GSA variation), Requirements for Cost or Pricing Data or Information Other Than Cost or Pricing Data
– Applies to renewal proposals as well
– Grants GSA the right to examine the vendor’s books, records, documents, papers, and other di l i d if h i idirectly pertinent records to verify the pricing, sales and other data related to the proposed products/services
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p
Pre-Award Audits
(2) FAR 52.215-21, Alt. IV (GSA variation), Requirements for Cost or Pricing Data or Information Other Than Cost or Pricing Data --Modifications
– Grants similar access to contractor’s books, records, and other documents to verify the pricing sales and other data related to thepricing, sales and other data related to the proposed products/services to be added to the contract via modification
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Pre-Award Audits
Typical findings:– CSP is not accurate, complete and/or current
– Most favored customer pricing not disclosedp g
– A full range of commercial discounts, terms and conditions more favorable than those offered to GSA
t di l dwere not disclosed
– Inadequate controls and procedures to properly monitor the price reduction and billing provisions ofmonitor the price reduction and billing provisions of the contract
– Inadequate controls and procedures to identify and
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report all GSA schedule sales
Pre-Award Audits
Typical findings, cont’d:yp g ,– Inadequate controls and procedures to identify and
report all GSA schedule sales
– For services Employees do not meet the education and work experience p y p
for the labor positions billed
Commercial pricelist used as the basis of award is not used by the vendorby the vendor
GSA labor categories do not map to the vendor’s labor categories used on the non-GSA schedule jobs
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Post-Award Audits
GSA’s audit authority is based on:y
GSAR 552.215-71, Examination of Records by GSA (Multiple Award Schedule)GSA (Multiple Award Schedule)
- Grants GSA the right to examine the contractor’s books, documents, papers, and records involving p p gcontract transactions for purposes of overbillings, billing errors, and compliance with PRC and IFF clauses
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Post-Award Audits
GSA auditors review sales transactions and other data toGSA auditors review sales transactions and other data to determine:
- whether contractor has charged proper prices required b iby its contract
- if contractor has complied with the PRC and passed along all required price reductions to the Governmentalong all required price reductions to the Government
- whether contractor has reported all GSA sales and paid IFF properly y
- whether contractor has complied with TAA and other contractual requirements
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Post-Award Audits
Common audit findingsg- failure to give price reductions to the government- price reduction clause negotiated by GSA provided little or no price reduction protection for the governmentprice reduction protection for the government- overbillings- contractor failed to properly identify all contract sales, so IFF reports and payments were inaccuratereports and payments were inaccurate- contractor did not comply with contract terms and conditions (e.g., warranty or delivery terms, TAA)- contractor used unqualified labor, or billed labor at incorrect rates
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GSA Audit Data
Provided by Theodore Stehney, Assistant Inspector General for Auditing, U.S. GSA OIG, in presentation to ABA Commercial Products and Services Committee, January 2010
MAS Preawards MAS Postawards
No. of Audits $ Audited Cost Avoidance No. of
Audits $ Audited Recommended Recoveries
FY 2007 68 $16.6 B $886 M 9 $463 M $3.9 M
FY 2008 68 $12.3 B $558 M 5 $345 M $2.1 M
FY 2009 66 $11.7 B $552 M 8 $401 M $5.6 M
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Industrial Funding Fee Auditsg
An IFF audit focuses on the contractor’s- An IFF audit focuses on the contractor s quarterly reporting of sales and payment of the Industrial Funding Feeg
- GSA zealously polices the IFF
- IFF payments can be a component of a pre- or post-award audit as well
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Contractor Assistance Visits
- Conducted by Industrial Operations Analysts rather than y p yauditors
- Purpose is to assist contractors in understanding contract requirements and provide evaluation ofcontract requirements and provide evaluation of compliance efforts System or process to monitor tracking customer
M ti i i l it i Meeting minimum sales criteria Including prompt payment terms in invoices Honoring warranties Timely deliveries Using electronic contracting tools Compliance with Trade Agreements Act
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p g
Contractor Assistance Visits
- IOAs willIOAs will - Test sales tracking system and processes
- Review sales data that support 72A reported sales for theReview sales data that support 72A reported sales for the quarters under review
- Issue a “report card” that rates the current level of compliance
- Set form with designated questions/issues against which a contractor is rated
- Frequency: generally two CAVs during each five-yearFrequency: generally two CAVs during each five year contract period
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Contractor Assistance Visits v. Audits
IOAs do not have subpoena power
IG auditors have subpoena powerpower power
Involves a short visit and quick turnaround time
Usually involves lengthy data collection and analysisturnaround time collection and analysis
IOAs review many compliance areas
IG auditors focus on pricing issuesareas issues
IOAs review process and conduct data sampling
IG auditors undertake a complete review of sales p g ptransactions
Conducted near the middle and end of a five-year contract
Conducted pre-award and/or post-award
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y p
Recent Enforcement Actions
The government and whistleblowers have discovered that sizable sums can be recovered in pursuit of GSA Schedule contractors
Th l t GSA S h d l ttl t h d i 2009 f– The largest GSA Schedule settlement was reached in 2009 for $128 million
– Another large settlement, $87.5 million, was reached in the spring of 2010
– The government has recently intervened in a False Claims Act action against a large technology contractor and has includedaction against a large technology contractor and has included creative allegations
– Even competitors are getting in the mix and filing False Claims Act cases
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Act cases
Price Reduction Violations
U.S. ex rel. Kapuscinski v. Network Appliance, Inc. – Former company employee alleged that NetApp
f il d t l ith th i d ti l dfailed to comply with the price reduction clause and give the government appropriate price decreases Discovered while preparing for an IFF audit; brought to p p g ; g
company management’s attention but company did not address identified problems or make any disclosures to GSA
– Government investigated the case and the parties reached a settlement
L t ttl t i GSA’ hi t $128 illi
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– Largest settlement in GSA’s history: $128 million
Pricing Disclosure and Anti-Kickback ViolationsViolations
U.S. ex rel. Rille v. EMC Corporation p– Originally filed as a qui tam action, U.S. intervened
in the case Alleged that EMC misrepresented its commercial pricing
practices to the government
Also alleged that EMC (and the other technology companies with Schedule contracts) paid illegal kickbacks to influence the government’s purchase of IT products
– Settlement reached in May 2010 for $87.5 million Some of the other defendants have also settled out; others
t till liti ti th i t th
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yet still litigating the cases against them
Pricing Disclosure, Price Reduction, and Certification ViolationsCertification Violations
U.S. ex rel. Frascella v. Oracle Corp.p– Started as a qui tam complaint filed by a current
Oracle employee; U.S. government filed its complaint in intervention in July 2010 Alleges that the company’s pricing disclosures were not
current accurate or completecurrent, accurate, or complete
Alleges the company submitted false certifications about its pricing
Interestingly, alleges the company improperly manipulated orders to avoid triggering the Price Reduction Clause
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Trade Agreements Act Violationsg
U.S. ex rel. Folliard v. CDW Technology Svcs.– False Claims Act case filed by an employee of a
competitor, alleging that CDW listed a number of products on its Schedule contract made in Chinaproducts on its Schedule contract made in China and other non-designated countries
U S ex rel Crennen v Dell Marketing L PU.S. ex rel. Crennen v. Dell Marketing L.P.– Also alleged that Schedule contractor was listing
products from non-designated countries for sale on p gits GSA Schedule contract
Both cases were dismissed; no proof that t h d li t d t
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government purchased non-compliant products
Cathy Kunzy
Cathy Kunz is a partner in the Washington office of Crowell & Moring LLP. She is a member of the firm's Government Contracts group Her practiceShe is a member of the firm's Government Contracts group. Her practice involves both counseling and litigating on behalf of clients in a range of government contract law areas, including GSA Schedule contracting, contract claims and disputes, fraud and abuse, cost accounting issues, purchasing g gand subcontracting, and federal health care contracting. Cathy also represents clients in qui tam actions under the False Claims Act and in bid protests, and counsels clients on government audits, procurement ethics, compliance programs and contract administrationcompliance programs, and contract administration.
Cathy can be reached at (202) 624-2957 or [email protected]. Information on Crowell &Moring can be found at www.crowell.com.
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Questions?
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