U.S. General Services Administration Richard P. Levi Counsel to the Inspector General General...

U.S. General Services Administration

Richard P. LeviCounsel to the Inspector GeneralGeneral Services Administration

Richard P. LeviCounsel to the Inspector GeneralGeneral Services Administration

May 6, 2010May 6, 2010

Federal Acquisition Regulation (FAR) Disclosure Requirements and the American

Recovery and Reinvestment Act (ARRA)

Federal Acquisition Regulation (FAR) Disclosure Requirements and the American

Recovery and Reinvestment Act (ARRA)

Office of Inspector General (OIG)

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AGENDA

Value to the Customer

Understanding FAR mandatory disclosure rule

Applicability to Recovery Act

How to Work with the Office of Inspector General

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FAR DISCLOSURE RULE ORIGINS

Mandatory disclosures in other areas

National Reconnaissance Office contract clause

Lack of voluntary disclosures

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NEW SUSPENSION & DEBARMENT (S&D) PROVISIONS

FAR 9.406-2 and 9.407-2; 3.1003

“Knowing failure by a principal, until 3 years after final payment on any Government contract . . .

to timely disclose to the Government,

in connection with the award, performance, or closeout of the contact

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NEW SUSPENSION & DEBARMENT (S&D) PROVISIONS (cont.)

or a subcontract thereunder,

credible evidence of”: Significant overpayments (other than financing

payments) Civil False Claims Act violation Bribery, conflict of interest, gratuities, or fraud under Title

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NEW CONTRACT CLAUSE

FAR 3.1004 – Clause applies if value expected to exceed $5 million and 120 day performance period

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NEW CONTRACT CLAUSE (cont.)

Clause at FAR 52.203-13, Contractor Code of Business Ethics and Conduct

Required to “timely disclose, in writing, to the agency Office of 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, the Contractor has credible evidence that principal, employee, agent, or subcontractor . . . has committed” a violation of:

Civil False Claims Act

Bribery, conflict of interest, gratuities, or fraud under Title 18

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S&D/CONTRACT CLAUSE DIFFERENCES

Disclosure to “the Government” versus to the Inspector General

Obligation falls on “principal” versus the contractor

Significant overpayments reporting requirement

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NEW CONTRACT CLAUSE

Business ethics awareness and compliance program (does not apply to small businesses and acquisition of commercial items) Training for principals, employees and, as

appropriate, agents and subcontractors Internal control system

– Monitoring and auditing to detect criminal conduct

– An internal reporting system such as a hotline

– Timely disclosure

– Full cooperation

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NEW CONTRACT CLAUSE (cont.)

Full cooperation (business ethics and awareness program) Disclosure of information sufficient for law

enforcement to identify the nature and extent of conduct and individuals responsible

Includes providing timely and complete response to Government auditors’ and investigators’ request for documents and access to employees with information

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RECOVERY ACT (ARRA) OVERVIEW

Creates significant opportunities

Accompanied by additional obligations

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RECOVERY ACT OVERVIEW (cont.)

Transparency Contract performance

Job creation and retention

Oversight Whistleblower rights

GAO and IG audit access

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RECOVERY ACT OVERVIEW (cont.) Three immediate goals:

Jobs

Spur economic activity/invest in long-term growth

Foster accountability and transparency

Makes $billions available for federal contracts, grants and loans

Recipients to report quarterly on how using money

All data is posted on Recovery.gov

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ARRA DISCLOSURE REQUIREMENT

OMB Guidance M-09-10 and M-09-15

Requires agencies for grants, loans, and loan guarantees to include requirement similar to FAR mandatory disclosure rule

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ARRA DISCLOSURE REQUIREMENTS (cont.)

Each grantee or sub-grantee awarded ARRA funds shall promptly refer to an appropriate inspector general:

Any credible evidence

That a principal, employee, agent, contractor, sub-grantee, subcontractor, or other person

Has submitted a false claim under the False Claims Act or

Has committed a criminal or civil violation of laws pertaining to fraud, conflict of interest, bribery, gratuity, or similar misconduct involving those funds.

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ARRA V. FAR DISCLOSURE

“Promptly” instead of “timely”

To appropriate Inspector General only

Criminal or civil violation

Not limited to Title 18

Includes “similar misconduct involving those funds”

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IDENTIFYING REPORTABLE CONDUCTPractical considerations for ARRA funds

Have programs to identify any potentially criminal conduct

any potential false claims

any overpayments

Assess whether are reportable conduct as defined by FAR rule or ARRA reporting requirements

Consider erring on side of disclosure

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FAR DISCLOSURE RULE ISSUES

“Sea change”

Articles/discussions/training

Numerous issues raised

Preamble best source of guidance

Applies to ARRA contracts

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Issue 1: What does in connection with the award, performance, or closeout of a contract mean?

In both S&D and contract clause“In connection with” generally broadly interpretedUnsuccessful bidderIndirect costsFixed price contractSupplier with no direct sales to GovernmentRecovery Act contracts

FAR DISCLOSURE RULE - 13 ISSUES

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Issue 2: What types of criminal conduct are covered? “Federal criminal law involving fraud, conflict of interest, bribery, or gratuities violations found in Title 18.”Fraud – false statements, major fraud, theft/conversion/probably over 100 referencesNon-title 18 statutes – consider conspiracy, mail/wire fraudSame statutes apply to Recovery Act projects

FAR DISCLOSURE RULE - 13 ISSUES (cont.)

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Issue 3: What constitutes a reportable violation of the False Claim Act (FCA)?

Consider FCA Amendments - May 20, 2009

Prior – Knowingly cause or present false claim to Government (3729(a)(1))Now – no longer has to be presented to Government; can be made to contractor, grantee or other recipient if money is spent on Government’s behalf or to further Government interest and Government provides any portion of money (3729(a)(1)(A))Consider Recovery Act projects


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Prior - Make, use or cause to be used a false record or statement to get Government to pay a false claim (3729(a)(2)

Now – Make, use or cause to be used a false record or statement material to a false claim (retroactive to all claims pending on June 7, 2008) (3729(a)(1)(B))

Material defined as a natural tendency to influence of being capable of influencing


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Noncompliance with law, rule or regulation

Probably depends on whether is “material” to payment


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Prior – Used a false record to conceal, avoid, or decrease obligation to pay or transmit money or property to the United States (3729(a)(7)

New – Knowing conceal or avoid/decrease obligation to pay or transmit money to Government

“Obligation” – established duty, whether or not fixed, arising from retention of overpayment

May apply broadly to retention of overpayments in Recovery Act contracts


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Prior – conspire to defraud the Government by getting a false claim allowed or paid (3729(a)(3))

New – conspires to commit a violation of the liability provisions of the False Claims Act (3729(a)(1)(C))


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Issue 4: What is a significant overpayment?FAR clauses require reporting/return of

overpayments (FAR 52.212-4(i)(5), 52.232-25(d), 52.232-26(c) & 52.232-27(l))

“Significant overpayment” not defined

Preamble states, “implies more than just dollar value and depends on the circumstances of the overpayment as well as the amount”

Consider relationship to False Claims Act

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Issue 5: What is credible evidence?

Both S&D and contract clause require reporting of “credible evidence”

Other contexts – “credible evidence” means worthy of belief based on circumstances

Allows for some evaluation time

Role of affirmative defenses

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Issue 6: Who is a principal? An “officer, director, owner, partner, or a person

having primary management or supervisory responsibilities within a business entity (e.g., general manager; plant manager; head of a subsidiary, division or business segment; and similar positions.” FAR 2.101(b)(2)

Preamble –interpret broadly; could include compliance officers, directors of internal audit, or other positions of responsibility.

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Why definition of principal matters

Suspension/debarment and look-back apply to knowledge of “principal”

Internal control system includes reasonable efforts not to employ as “principal” those who due diligence would expose as engaged in conduct in conflict with ethics and conduct code


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Issue 7: What are requirements regarding subcontractors? Subcontract – any contract entered into by a subcontractor to furnish supplies or services for performance of a prime contract or subcontract. Under S&D provision, must disclose credible evidence of violation regarding contract or a “subcontract awarded thereunder.”Contract clause - must disclose credible evidence that a “principal, agent, employee, or subcontractor” has committed violation regarding contract or a “subcontract awarded thereunder.”

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For others than small businesses or contracts for acquisition of commercial items, maintain business ethics awareness and compliance program that includes: Training that is provided as appropriate to contractor’s

agents and subcontractors

Internal compliance program that reports credible evidence of violation by subcontractor

Flow down if subcontract over $5 million and 120 days

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Issue 8: What is a “timely” disclosure?

All the disclosure provisions require “timely” disclosure

Reasonable time for internal investigation

No specific definition

Consider early reporting

Do Recovery Act timeframes mean timely needs to be sooner

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Issue 9: What are the “look back” requirements?

S&D provisions apply for 3 years after final payment on any contract

Business ethics and awareness program requires disclosure on any Government contract for 3 years after final payment

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Issue 10: What should be the form and content of disclosures?

In writing

Recommend some immediate reports

Electronic forms available

Consider definition of “full cooperation” – information sufficient to identify nature and extent of offense and individuals responsible

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Issue 11: Who should disclosures be made to?

To respective OIG for crimes and False Claims Act (FCA), with copy to contracting officer (CO)

To CO for only overpayments (CO should notify OIG)

If relates to more than one contract, to OIG with higher contract value

If relates to procurement instrument used by multiple agencies, notify OIGs of ordering agency and agency responsible for basic contract, and agencies’ COs

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Issue 12: Are there still voluntary disclosures? Yes

Reasons for voluntary disclosures include

Belief that will not constitute an admission

More protection from disclosure under FOIA

Caution

Applies to Recovery Act contracts as well

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Issue 13: How to preserve confidential and privileged information?

Government will safeguard disclosures to extent permitted by law and regulation

Label any proprietary information

Disclose facts

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WORKING WITH THE OIG

Statutory role of OIG

Detect and prevent fraud, waste, and abuse

Promote economy and efficiency

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WORKING WITH THE OIG (cont.)

Overpayment notices

To contracting officer

– Should advise OIG

– Many go directly to OIG as well

Credible evidence of violations

To OIG

With copy to contracting officer

All parties need to work together

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Each disclosure evaluated by OIG team

Provide contracting officer a copy

Inform Department of Justice

Generally meet with contractor, invite contracting officer and Department of Justice

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Majority of disclosures to date characterized as overpayments

Contractors identified over $11 million in potential overcharges

Generally try to work with contractor

Advise contractor when matter closed

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CONTRACTOR COOPERATION WITH OIG

ARRA and FAR Rule comparisonFAR disclosure rule – full cooperation

Disclosure of information sufficient for law enforcement to identify the nature and extent of conduct and individuals responsible

Includes providing timely and complete response to Government auditors’ and investigators’ request for documents and access to employees with information

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CONTRACTOR COOPERATION WITH OIG (cont.)

Recovery Act - OIG authorized

To examine any records of the contractor or grantee, any of its subcontractors or subgrantees, or any State or local agency administering such contract, that pertain to, and involve transactions relating to, the contract, subcontract, grant, or subgrant;

To interview any officer or employee of the contractor, grantee, subgrantee, or agency regarding such transactions.

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OIG AND CONTRACTING OFFICERS

Need to work together

Share information

Disclosure is only start of process

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Questions?

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