Reggie Jones Fox Rothschild LLP Washington DC 7th Joint InHouse EPCCLE May 12 2016 The Federal Compliance Requirements Are Piling Up amp They Are Onerous On August 3 2015 four contractor advocacy groups wrote to President Obamas Chief of Staff Denis McDonough and Seni ID: 540207
Download Presentation The PPT/PDF document "Federal Government Contracting 2016 Comp..." is the property of its rightful owner. Permission is granted to download and print the materials on this web site for personal, non-commercial use only, and to display it on your personal computer provided you do not modify the materials and that you retain all copyright notices contained in the materials. By downloading content from our website, you accept the terms of this agreement.
Slide1
Federal Government Contracting 2016 Compliance Update
Reggie Jones
Fox Rothschild, LLP (Washington, DC)
7th Joint In-House
EPC-CLE · May
12, 2016Slide2
The Federal Compliance Requirements Are Piling Up & They Are Onerous!
On
August 3, 2015
, four contractor advocacy groups wrote to President Obama’s Chief of Staff, Denis McDonough and Senior Advisor, Valerie Jarrett to say stop it –
Enough is enough
!
National Defense Industrial Association (
NDIA
), Aerospace Industries Association (
AIA
), Professional Services Counsel (
PSC
), and the
Information
Technology Industry (
ITI
). Slide3
The August 3, 2015 LetterSlide4
Not Only Have the Compliance Requirements Increased, Enforcement is at an All Time High!
The number of suspension and debarments has increased from
1,836 in FY 2009
to
5,179 in FY 2015
– an nearly 300% increase!Sequestration
is one of the driving forces – suspension and debarment cases are one way for the government to save money on contractsSlide5
DOJ recovered $3.5
billion
in
civil False Claims Act settlements
and judgments for FY
2015Fourth Consecutive Year of at least $3.5 Billion in recoveriesFY 2014 was Largest Ever at $5.7 Billion
In the last
7
years, the U.S. has recovered more money from private contractors based on alleged fraud against the Government than it had in the previous 153 years.Total recoveries since FY 2009 is $26.4 Billion Slide6
Why is This Happening?
The
Fraud Enforcement and Recovery Act of 2009 (FERA)
lowered the legal standard to prove
fraud.
The American Reinvestment and Recovery Act (ARRA) increased funding for staffing at the various Offices of the Inspector
General; Subsequent National Defense
Authorization
Acts have maintained that spending.Slide7
Why is This Happening?
In 2011, the GAO investigated six federal agencies’ suspension
and debarment
procedures and found that they weren’t enforcing the rules. According to a 2014 GAO follow-up report,
the number of suspensions and debarments nearly tripled between 2011 and 2014
.
On September
9, 2015, Deputy Attorney General, Sally Quillian Yates issued a memorandum (
The Yates Memo
) that directed Department of Justice attorneys to focus on individuals and not just their employers. According to the Yates Memo, “[o]ne of the most effective ways to combat corporate misconduct is by seeking accountability from the individuals who perpetrated the wrongdoing.”Slide8
What Areas Are the Most Susceptible to Investigation and Enforcement?
In the
building construction industry
, the government’s focus has been on pursuing alleged violations of the Small Business Administration (SBA) regulations (including the U.S. Department of Transportation’s Disadvantaged Business Enterprise (DBE) program), Buy American Act, Davis-Bacon Act, and Certified Cost or Pricing Data issues
.
Why?Unlike large defense contractors, construction contractors often don’t have large compliance staffs.
There is often a disconnect between the bidding and proposal process and the ultimate design and construction of the project.
Slide9
What is the False Claims Act?
The
Civil False Claims Act
(31 USC 3729-3733) and liability to the U.S. Government
Primary and most effective tool used by the Government to combat
fraud
on Federal contracts
Enacted during the
Civil War
(1863) to combat wartime profiteeringCivil War Profiteer: “You can sell anything to
the government at almost any price, if you’ve got the guts to ask” Slide10
Today’s False Claims Act Reality
The Construction Industry is an
Easy Target
for Civil False Claims Act Allegations.
Risk
of Unintentional
False
Claims is High.
Regular
Ethics & Compliance Training is the Best Protection. Slide11
FCA Realities Continued
Presumption of Loss Rule
Small Business Jobs Act (2010 / 2013)
Presumption of loss based on the total amount expended on the contract/subcontract whenever it is established that a business concern other than a small business concern “willfully” sought and received the award by
misrepresentation (13
CFR 121.108)
Currently under Scrutiny
U.S. v. Harris (5
th
Cir.) – Deduction of value of services provided to the governmentSlide12
Most Commonly Litigated
False
Claims Act
Provisions
Direct False Claim
Knowingly
presenting, or causing to be presented, a false claim
False Statement or False Certification
Knowingly
making, using or causing to be made or used a false record/statement material to a false or fraudulent claimReverse False Claim Knowingly concealing or decreasing an obligation to pay money to government
Conspiracy to Commit a False ClaimFrequently used in multi-defendant actionsSlide13
The Elements of a False Claim
Claim
– Means any
request
for
money or property
Multiple requests = multiple false claims
Knowingly
– Means a Contractor:
1. Has actual knowledge of falsity;2. Acts in deliberate ignorance of truth/falsity; or3. Acts in reckless disregard of truth/falsity.* A specific intent to defraud is not required *Slide14
Recent Amendments to the False Claims Act
Actual Intent
to Defraud is
Irrelevant
Fraud Enforcement & Recovery Act of 2009 (“FERA”) lowered the threshold for the government to prove intent (
scienter
)
Knowingly submitting a false claim is enough, and now “knowingly” does not mean actual knowledge
Reversal of
Allison Engine Co. v. United States, 553 U.S. 662 (2008)Presentment Directly to Government is IrrelevantIt is enough that a claim that should not be submitted reaches the governmentJust $1 of federal money is enough to subject the entire claim amount to False Claims Act litigationUnited States v. Custer Battles, 562 F.3d 295 (4th
Cir. 2009)Slide15
Who Can Bring a
False Claims Action?
Contracting Officer
What must CO do if false contract claim is suspected?
FAR 33.209 – If contractor is unable to support any part of a claim, assumed to be false and must be reported to agency’s fraud unit
Qui Tam
Relator (Private Citizen Plaintiff)
Whistleblower Action
Competitor
EmployeeIncentive = up to 30% of the government’s damagesSlide16
False Claims Act:
What Can’t You Do?
Submit false invoices or false contract claims
Conceal rebate or credit
Illegitimately front load invoices
Misrepresent Davis-Bacon wages
Submit inflated material/personnel/equipment costs
Substitute non-conforming materials
Conceal defective/non-conforming work
Submit false certifications – SBA certifications Collude on bid/proposal pricesSubmit a false federal Small Business Subcontracting PlanSlide17
FCA: What Can’t You Do
Implied Certifications
C
laim
for payment can be false
because the contractor has not complied with an applicable statute, regulation, or contractual provisionSCOTUS -
Universal
Health Servs., Inc. v. United States ex rel. Escobar
, No. 15-7
.Circuit Split for Implied Certification TheoryCondition of Payment Carve Out?Slide18
What Happens if You Do?
Up to
$11,000 civil penalty
for each false claim
Automatic Treble damages
– Three times the amount of damages sustained by the government (e.g
., 3 times the amount of the false
invoices)
Federal Regulations are pending to increase the mandatory penalties to account for inflation
e.g., $11,000 increased to $21,563 Forfeit legitimate claimsMorse Diesel Int’l v. U.S., 79 Fed. Cl. 116 (2007) $467,000 claim led to $7 million in penaltiesSlide19
How to Protect Your Business
Implement an Ethics and Compliance Program!
FAR 52.203-13 requires contractors to:
Implement a Contractor Code of Business Ethics and Conduct.
Establish a Business Ethics Awareness and Compliance Program.
Establish an Internal Control System.Inform the Office of Inspector General and Contracting Officer of “credible evidence” of any violation.Slide20
Most Commonly
Targeted IssuesSlide21
SBA Regulation and Legislation Update
New Mentor-Protégé Proposed Rule
Proposed Rule 80 FR 6618
(February 5, 2015), comment period closed May 6, 2015
Proposed expansion of the mentor-protégé
program to include all small business concern
“Shall
be identical” to 8(a) mentor protégé program, to the extent possible
Pilot Program in 2016?
Implications for Large and Small BusinessesSlide22
SBA Regulation and Legislation Update
Credit for Lower Tier
Subcontracting
Proposed Rule 80 FR 60300
(10/06/15), Comment period closed 12/07/2015
Allows large prime contractors to receive credit for lower-tier subcontractors on small business subcontracting plans Implements Section 1614 of NDAA of 2014, 15 USC 637(d)(16)Slide23
Case Studies:
False Claims Act & Davis Bacon
From 2012 to 2015, at least
8
False Claims Act cases based on alleged violations of the Davis Bacon Act
Key Distinction: Misrepresentation and False Certification of Wages vs. Misclassification of EmployeesJurisdiction of the Federal Courts or Dep’t of Labor
U.S. ex rel Sheet Metal Workers Int’l Assn. Local Union No. 20 v. Horning Investments, LLC
(S.D. Ind. 2013)Slide24
False Claims Act Case Studies:
Small Business Cases
Lusk Mechanical - $6.25M Settlement
Alleged False Statements by
mechanical contractor
to the SBA concerning HUBZone Program Participation and False Claims to the U.S. Army
Okland Construction – $1M Settlement
Alleged False Statements and False Claims by a Large Construction Company to the SBA concerning 8(a) Mentor-Protégé Program Participation
Gilbane Building Company - $1.1M Settlement
Alleged False Claims related to a corporate merger creating a purported front (Veterans Constructors Incorporated) to obtain a Coast Guard contract designated for SDVOSBs in violation of rules against affiliation Granite Construction - $367,500 Settlement Alleged Fraud relating to Inflated Invoices submitted by an infrastructure contractor to the DOT and USACESlide25
EEO & Affirmative ActionSlide26
The Basics
Nondiscrimination + affirmative action + recordkeeping
Federal contractors may not discriminate in employment or applications for employment.
Federal
c
ontractors must take affirmative action to ensure that equal opportunity is provided.Contractors with 50+ employees and $50k+ in Federal contracts must have a written affirmative action plan and make reports.
Federal contractors must keep records for 1-3 years.Slide27
What is Required?
Compliance with:
Executive Order (“EO”) 11246, as amended
EO 13665 (Non-retaliation for disclosure of pay)
EO 13672 (Extending EO to Gender Identity)
EO 13673 (Fair Pay & Safe Workplaces)
Titles VI, VII, IX of the Civil Rights Act of 1964
Section 503 of the Rehabilitation Act of 1973, as amended
The Vietnam Era Veterans’ Readjustment Act of 1974 (VEVRAA), as amended
The Age Discrimination in Employment Act of 196729 CFR 1604-1606 (EEOC Regulations)29 CFR 1625-1626, 1630 (OFCCP Regulations) 41 CFR Chapter 6041 CFR Part 61-250Slide28
What is Required?
Red
= Recent Amendments
FAR requirements implementing VEVRAA and Rehabilitation Act amended as recently as May 7, 2015
FAR 52.222-35 (Equal Opportunity for Veterans)
FAR 52.222-36 (EO for Workers with Disabilities)Slide29
EO 13673 (Fair Pay & Safe Workplaces)
Federal Contractor Blacklisting
Issued on July 31, 2014.
Proposed implementing regulation issued on May 28, 2015.
Requires contractors seeking government contracts to disclose their employment and labor law violations for the past three years.
Requires initial disclosures with bid, upon award, and every six months after award.
Mandates that agencies consider violations as a disqualifying factor in awarding federal contracts.Slide30
To Whom Do All of these Requirements Apply?
All contractors and subcontractors who hold a Federal or federally-assisted contract in excess of
$10,000
will be subject to regulatory requirements under one or more of the laws enforced by OFCCP depending upon the $ of the contract and # of employees.
Once you are covered, it applies to all of your employees, including those working on non-federal projects. Slide31
Case Studies:
False Claims Act & Davis Bacon
U.S. v.
Watry
Homes, LLC (E.D. Wisc. 2015)
Qui tam settlement involving construction contractor accused of understating hours on certified payroll reports and underpaying workers on a federally funded housing project in Milwaukee
Smith v. Clark/Smoot/Russell
, (4
th Cir. 2015)Construction JV allegedly falsely certifying compliance with the Davis Bacon on D.C. projects by refusing to pay locally prevailing wages.U.S. ex rel. Lambert v. Elliot Contracting, (S.D. W.V. 2015)False Claims Act case alleging Davis Bacon violations on a federal prison construction project. Stayed pending resolution of employee misclassification issue by the DOL.Slide32
Reggie Jones
202-461-3111
rjones@foxrothschild.com