Federal Government Contracting 2016 Compliance Update - PowerPoint Presentation

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