supply chain: government contracts / procurement...
TRANSCRIPT
I N S T I T U T E F O R S U P P L Y M A N A G E M E N T N A T I O N A L C A P I T A L R E G I O N
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Supply Chain: Government Contracts / Procurement Concerns
The Intersection of Supply Management and Government Procurement Policies
“Supply Management” The identification, acquisition, access, positioning,
and management of resources and related capabilities the organization needs or potentially needs in the attainment of its strategic objectives.
- ISM Glossary of Key Supply Management Terms, Fifth
Edition, Institute for Supply Management, 2009
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Components Under the Supply Management Umbrella
Purchasing/Procurement Strategic Sourcing Logistics Quality Inventory Control Materials Management Warehousing Transportation/Traffic/
Shipping
Disposition/Investment Recovery
Distribution Receiving Packaging Product/Service
Development Manufacturing Supervision
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The Intersection of Supply Management and Government Procurement Policies
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The Intersection of Supply Management and Government Procurement Policies
Fundamentals of Government Procurement
Key Public Policies Fairness Competition Integrity Transparency Socio-Economic Responsibility
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Subcontract Terms and Conditions Special Supply Concerns
Scope of Work Deliverables
and Time Frame Billing Rates Personnel and
Performance Payment Right of Audit Term Indemnify,
Defend and
Hold Harmless Communication
with Agency Proprietary
Information Termination Insurance Assignment and
Lower-tier Subcontracting
Berry Amendment Buy American Act Trade Agreement Act Rules of Origin Export Restrictions Cost and Pricing Data Most Favored Customer Rated Orders Size and Socio-Economic
Representations
Contract Formation: Controlling Risks 5
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Contract Formation: Controlling Risks
Flow Down Provisions Objectives Your organization should be able to enforce against lower-
tier suppliers those provisions, changes and adjustments that apply to the you.
Your organization should gather, review, maintain and be
able to locate, from contract start through post-close out audit, all data, representations, certifications and warranties it may require.
Review prime contract and incorporate all relevant
clauses and delivery schedules.
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The Intersection of Supply Management and Government Procurement Policies
Fundamentals of Government Procurement Compliance with Key Legal Concepts
Waiver of Sovereign Immunity Interacting with Government Officials Gifts and Gratuities Anti-Kickback Act Conflicts of Interest – Organizational and Personal Procurement Integrity / Disclosure
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Why Compliance is Important ?
State and local contracts and international /cross-border contracts bring with them the same compliance obligations – and equally severe compliance risks – as U.S. Federal counterparts
Combination of an ever-growing plaintiff’s bar, statutes
offering whistleblower protection and a share in recoveries, and aggressive government enforcement has created a dangerous environment
Compliance requirements permeate an organization’s operations and extend to all levels of its supply chain
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CONTRACTOR ALLEGATION SETTLEMENT DATE
Lifescan Failure to notify VA of price reductions in commercial contracts to prices below those paid by the Government (this matter was a voluntary disclosure under the VA's Voluntary Disclosure Program). (Disclosure made by Lifescan's parent corporation, Johnson & Johnson).
$15 million 11.14.01
Office Max, Inc. Sold products that were not Trade Agreements Act compliant. $9.8 million 5.19.05
Humanscale Corporation
Failed to disclose current, accurate, and complete discount and pricing information to the General Services Administration contract negotiators and failed to comply with the price reduction clauses for three of its GSA Multiple Award Schedule contracts.
$9 million 6.30.05
McKesson Corp. Fraudulently charging DOD more for pharmaceuticals than under its prime vendor contracts.
$3 million 2.16.06
Oracle Peoplesoft, Inc., purchased by Oracle, understated discounts to commercial customers, resulting in the misrepresentation of its commercial sales practices.
$98.5 million 10.10.06
ITT Corporation ITT sent classified night vision equipment overseas. ITT will also be the first major defense contractor convicted of a criminal violation of the Arms Export Control Act.
$100 million 3.27.07
Oracle Oracle Corporation agreed to settle a lawsuit that it failed to meet their contractual obligations under a contract to provide software licenses and technical support with the General Services Administration.
$199.5 million 10.06.11
Sample False Claims Act Settlements
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The Intersection of Supply Management and Government Procurement Policies
Compliance Spans the Entire Procurement Lifecycle
Pre-Solicitation / Contract Formation Capture / Competition Stage Bids/Proposals and Certifications Protests and Litigation
Performance Invoicing Claims
Post-Performance Audits
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The Intersection of Supply Management and Government Procurement Policies
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• Engage/Involve Management
• Commit Resources
• Identify All Internal Players
Support Organization-Wide Culture of
Compliance
• Establish Internal and External Compliance Protocols
• Integrate Programs at Organizational and Supplier Level
Integrate Supply Chain Compliance
• Conduct “Lessons Learned” Reviews at Milestones
• Encourage Sharing Of Strategies, Policies, Procedures and Best Practices
Support Internal and External Improvement
Leadership Opportunities
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Pre-Solicitation/Contract Formation and Capture /Competing for Work
Assessing/Mitigating Risk in the Supply Chain
Interacting with Government Officials Gifts and Gratuities Anti-Kickback Act Conflicts of Interest Procurement Integrity
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Contract Formation: Developing Business, Identifying Opportunities, Limiting Risk
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Contract Formation: Developing Business, Identifying Opportunities, Limiting Risk
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FAR 52.203-3: Gratuities (APR 1984) (a) The right of the Contractor to proceed may be terminated by written
notice if, after notice and hearing, the agency head or a designee determines that the Contractor, its agent, or another representative—
(1) Offered or gave a gratuity (e.g., an entertainment or gift) to an
officer, official, or employee of the Government; and (2) Intended, by the gratuity, to obtain a contract or favorable treatment
under a contract. (b) The facts supporting this determination may be reviewed by any court
having lawful jurisdiction.
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Contract Formation: Developing Business, Identifying Opportunities, Limiting Risk
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FAR 52.203-3: Gratuities (APR 1984) (cont’d.) (c) If this contract is terminated under paragraph (a) above, the Government
is entitled— (1) To pursue the same remedies as in a breach of the contract; and (2) In addition to any other damages provided by law, to exemplary
damages of not less than 3 nor more than 10 times the cost incurred by the Contractor in giving gratuities to the person concerned, as determined by the agency head or a designee. (This subparagraph (c)(2) is applicable only if this contract uses money appropriated to the Department of Defense.)
(d) The rights and remedies of the Government provided in this clause shall
not be exclusive and are in addition to any other rights and remedies provided by law or under this contract.
(End of clause)
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Contract Formation: Developing Business, Identifying Opportunities, Limiting Risk
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Influencing Federal Transactions
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Contract Formation: Developing Business, Identifying Opportunities, Limiting Risk
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FAR 52.203-12: Limitation on Payments to Influence Certain Federal Transactions With certain exceptions, the clause prohibits a Contractor’s of use of appropriated funds to pay any person for influencing or attempting to influence, in connection with the award of this contractor the extension, continuation, renewal, amendment, or modification of this contract: An officer or employee of any agency, A Member of Congress, An officer or employee of Congress, or An employee of a Member of Congress
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Contract Formation: Developing Business and Identifying Opportunities
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FAR 52.203-12: Limitation on Payments to Influence Certain Federal Transactions: The term appropriated funds does NOT include profit
or fee from a covered Federal action.
To the extent the Contractor can demonstrate that the Contractor has sufficient monies, other than Federal appropriated funds, the Government will assume that these other monies were spent for any influencing activities that would be unallowable if paid for with Federal appropriated funds.
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Contract Formation: Developing Business, Identifying Opportunities, Limiting Risk
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FAR 52.203-12: Limitation on Payments to Influence Certain Federal Transactions: Exceptions For - Reasonable compensation for agency and legislative liaison
by contractor employees, and for participating in capability presentations and other pre-solicitation informational sessions.
Payment for professional or technical services rendered directly in the preparation, submission, or negotiation of any bid, proposal, or application for that Federal action or for meeting requirements imposed by or pursuant to law as a condition for receiving that Federal action.
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Contract Formation: Developing Business, Identifying Opportunities, Limiting Risk
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FAR 52.203-12: Limitation on Payments to Influence Certain Federal Transactions: Disclosure Requirements and Penalties
Requires, at time of bid as well as at any time when there is a
change in the chain, submission or updating of OMB Standard Form LLL to provide the name of the lobbying registrants, including the individuals performing the services.
Any person who makes a prohibited expenditure or who fails to file or amend the disclosure shall be subject to civil penalties.
Government may also seek administrative penalties (debarment, suspension) and criminal penalties.
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Contract Formation: Developing Business, Identifying Opportunities, Limiting Risk
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FAR 52.203-12: Limitation on Payments to Influence Certain Federal Transactions: Flow Down, Records, and Reliance
Requires each contractor to obtain a declaration, including the certification and disclosure from each person requesting or receiving a subcontract exceeding $150,000 under this contract; and to flow the clause downstream.
Requires each contractor or subcontractor that awards the subcontract to retain the declaration (including the certification) in its subcontracting file.
Authorizes upstream contractors to rely on downstream certifications.
Requires all disclosure forms to be forwarded, tier to tier, to the prime contractor. Requires the prime contractor to submit a copy of ALL disclosure forms in the chain within 30 days of the end of the calendar quarter in which the disclosure form is submitted by the subcontractor(s).
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Contract Formation: Developing Business, Identifying Opportunities, Limiting Risk
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Covenant Against Contingent Fees
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Contract Formation: Developing Business, Identifying Opportunities, Limiting Risk
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FAR 52.203-5: Covenant Against Contingent Fees Covenant Against Contingent Fees (APR 1984)
Requires the Contractor to warrant that it has not caused anyone to solicit or obtain the contract upon an agreement or understanding for a contingent fee.
Penalty for breach or violation of this warranty: the Government may annul the contract without liability or, in its discretion, may deduct from the contract price or consideration, or otherwise recover, the full amount of the contingent fee.
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Contract Formation: Developing Business, Identifying Opportunities, Limiting Risk
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FAR 52.203-5: Covenant Against Contingent Fees Covenant Against Contingent Fees (APR 1984)
Exceptions exist for bona fide agents or employees who serve as capture management/business development professionals
The exception only applies to bona fide agents or employees who do not exert, propose, or suggest that that they are able to exert improper influence.
So: What documentation of training programs, policies and internal review/reporting exist?
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Contract Formation: Developing Business, Identifying Opportunities, Limiting Risk
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Anti-Kickback Act
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Contract Formation: Developing Business, Identifying Opportunities, Limiting Risk
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FAR 52.203-7: Anti-Kickback Act Procedures
Prohibits: Providing or attempting to provide or offering to provide
any kickback
Soliciting, accepting, or attempting to accept any kickback, or
Including, directly or indirectly, the amount of any kickback in the contract price charged by a prime Contractor to the United States or in the contract price charged by a subcontractor to a prime Contractor or higher tier subcontractor.
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Contract Formation: Developing Business and Identifying Opportunities
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FAR 52.203-7: Anti-Kickback Act Procedures Requires establishment and adherence to reasonable procedures
designed to prevent and detect possible violations in its own operations and direct business relationships.
Requires any contractor that reasonably believes that a violation may have occurred to promptly make a written report of the possible violation to the inspector general of the contracting agency, the head of the contracting agency if the agency does not have an inspector general, or the Department of Justice.
Requires the contractor to cooperate fully with any Federal agency investigating a possible violation described in paragraph (b) of this clause. Copyright 2014 O'Riordan Bethel Law FIrm, LLP
Contract Formation: Developing Business, Identifying Opportunities, Limiting Risk
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FAR 52.203-7: Anti-Kickback Act Procedures In the event of a violation, the Contracting Officer may Offset the amount of the kickback against any monies owed by
the United States under the prime contract and/or
Direct that the Prime Contractor to withhold, from sums owed a subcontractor under the prime contract, the amount of any kickback.
Order the monies withheld to be paid over to the Government
The Government may also pursue any other civil, administrative and criminal remedies, including debarment and suspension.
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Conflicts of Interest: Organizational vs. Personal
Organizational conflicts of interest (OCI): Contractor’s ability to provide impartial advice to the
Government is impaired by other business interests of the organization
Or the contractor has obtained an unfair competitive advantage via prior contracting activities
Personal conflicts of interest (PCI): Contractor employee’s ability to provide impartial advice
to the Government is impaired by personal financial interests or personal activity or relationships
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Organizational Conflicts of Interest 31
OCI generally arise in three situations: Impaired Objectivity
• Company’s other business interests impair objectivity in rendering advice or services to the Government
Biased Ground Rules • Company helped shape terms of procurement for which it later
competes (e.g., SOW or specifications preparation) Unequal Access to Information
• Company obtains non-public info during contract performance that gives it an unfair advantage in a future procurement
An “undisclosed or unmitigated” OCI: can disqualify potential offeror or lead to post-award liability (Termination, FCA, S+D)
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Contract Formation: Developing Business and Identifying Opportunities
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FAR 52.203-13: Contractor Code of Business Ethics
Clause is required in solicitations and contracts if the value of the contract is expected to exceed $5,000,000 and the performance period is 120 days or more.
Broadly defines contractor and subcontractor to include the furnishing of supplies or services for performance of a prime contract or subcontract.
Broadly defines principal to include persons with primary management or supervisory authority within an entity, such as a general manager, plant manager, or division head.
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Contract Formation: Developing Business and Identifying Opportunities
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FAR 52.203-13: Contractor Code of Business Ethics
Requires covered contractors, within 30 days after contract award, to have in place a written code of business ethics and conduct and make a copy to each employee engaged in performance of the contract.
Requires covered contractors to exercise due diligence to prevent and detect criminal conduct; and “otherwise promote an organizational culture” that encourages ethical conduct and a commitment to compliance with the law.
Requires covered contractors to make timely, written disclosure to the agency Office of the Inspector General (OIG), with a copy to the Contracting Officer, whenever, in connection with the award, performance, or closeout of this contract or any subcontract thereunder, credible evidence indicates that a principal, employee, agent, or subcontractor has committed criminal fraud, conflict of interest, bribery, or gratuity; or Civil False Claims Act violations.
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Contract Formation: Developing Business and Identifying Opportunities
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FAR 52.203-13: Contractor Code of Business Ethics
Should address all regulations discussed above, and others.
Should establish internal avenues for reporting concerns
Should establish internal avenues for capturing data and complying with reporting obligations.
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Performing Work – FAR Mandatory Disclosure Rule
A contractor must “timely” disclose “credible evidence” of a violation of federal criminal law involving Fraud Conflict of Interest, Bribery, or Gratuity
Or a violation of the civil False Claims Act
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Performing Work – FAR Mandatory Disclosure Rule
“Knowing failure” to disclose can be a cause for Termination Suspension or debarment until three years after
final payment on a contract
Information is “known,” or a failure to disclose is “knowing,” when a “principal” is aware of the information – including plant managers, division heads, and others with primary supervisory or managerial responsibility.
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Before the Solicitation US Data Request and Sovereignty Obligations
Commercial Item Contracting – FAR Part 12 Simpler Forms, Same Compliance Duties
Government is required to buy “commercial items” (products and services) generally under commercial terms and conditions.
No cost or pricing data
Terms Conflict
with Federal
Law?
IP created with private
$
Before the Solicitation
Get Your Terms “Government Ready”
Determined through competition or market pricing Most Favored Customer pricing information - prime contractors
Generally no contractual right to audit commercial item vendors.
Government is required to use only commercial terms (to the extent consistent with Federal law and satisfies the Government’s needs). See, generally, FAR Part 12.
Mark documents with proprietary or confidential information as such in order to help protect information from being disclosed pursuant to the Freedom of Information Act (FOIA), 5 U.S.C. 552, as amended.
Performing Work . . . Documentation
Time Reporting
Cost
Price Adjustments Disputes
Government Furnished Equipment
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Context of Challenges Sample Sources
Bid Protest: eligibility, responsiveness and responsibility
Performance Cost Recovery
Challenges
Performance: deliverables, scheduling, and
IP Ownership/Licensing
Teaming agreements, due diligence records, CPARS, socio-economic and size status, DCA audit trails
Purchase records, incentive
program records
Communications, logs, approvals, RFI/Responses
NDAs, Licensing/sub-licensing agreements
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Prove It: Some Examples
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Performing Work - Documentation Adverse Presumption Missing or Unclear Records . . .
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CA ROL L. O’RIORDAN MA NA GING PARTNER O’RIORDA N BETHEL
2 02 -822-1720
C O R I O R D A N @ O R I O R D A N - L A W . C O M
Questions? 43
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