Government Contracts

Albo & Oblon, L.L.P. helps companies get, keep, administer, and get paid for their government contracts.

We deal most often with bid protests, claims, and proposed suspensions/ debarments, but are experienced litigators.  Our knowledge applies to all types of government contracts, including supply and service contracts , construction contracts, federal grants, and GSA multiple-award contract vehicles.

Our lawyers are remarkable — one of our attorneys is a former government contracts law judge.

The following links contain answers by Albo & Oblon lawyers to common questions related to government contract law.  Skim through the questions and click on those that interest you.  Or, look at our “Government Contracts News” blog on your right.  There, a bid protest attorney regularly posts digests, in plain English, opinions from the Court of Federal Claims of cases that may be similar to yours.

Government Contracts Overview

What are some of the major regulations government contractors need to know?

Various procurement statutes and regulations govern the process the federal governments must follow in its business dealings with private industry. They cover critical matters, such as how the federal government selects, monitors, and pays its contractors. Major procurement regulations include the following:

General Statutes and Rules:

The Federal Acquisition Regulations (FAR) is found at Title 48 C.F.R. Chapter 1. The FAR provides most of the rules for government contracts and these rules often surprise those who have previously only dealt with the private sector. For example, the FAR permits the government to make certain unilateral changes to the contract. And, the FAR permits the government to audit the books of the private company.

The United Services Procurement Act of 1947 governs procurements made by the following agencies: The U.S. Department of Defense, The Department of the Army, The Department of the Navy, The Department of the Air Force, The Coast Guard, and The National Aeronautics and Space Administration.

The Competition in Contracting Act (CICA) is intended to increase full and fair competition in Government procurements. This law serves to restrict the Federal Government’s ability, except in limited circumstances, to procure goods and services by non-competitive means such as “sole source” or “set-aside” procurement awards.

Contracts Disputes Act (CDA) — The CDA creates a legal framework for resolving disputes between a contractor and a procuring agency relating to the performance of most government contacts. A dispute arising during the performance of a government contract between the contractor and the procuring agency often results in the contractor filing a claim against the agency. The procedure for such disputes requires the contractor to a request a final decision from the agency Contracting Officer. If the decision is not favorable to the contractor, the contractor may appeal the CO’s decision to the agency’s Board of Contract Appeals or to the U.S. Court of Federal Claims. 41 U.S.C. § 605(a).

The Procurement Integrity Act. The PIA prohibits the release of source selection and contractor bid or proposal information. Also, a former employee who served in certain positions on a procurement action or contract in excess of $10 million is barred for one year from receiving compensation as an employee or consultant from that contractor. 48 C.F.R. § 3.104-1-11.

False Statements Act—18 U.S.C. 1001 prohibits contractors and individuals from “knowingly and willfully” making false statements which might support a fraudulent claim or which might “pervert or corrupt the authorized functions of Government agency to which the statement was made.” The Act covers oral and written statements, whether sworn or unsworn. Interestingly, the Act applies to matters that involve a Government agency’s activity even if the false statement was not made to the Government. (ex.: False Statements Act violation found where subcontractor submitted false invoices to prime contractor under federal price redeterminable contract).

Truth in Negotiations Act of 1962 (TINA) requires that, before contractors engage in price negotiations for negotiated contracts at over $500,000.00, they must disclose and certify their underlying cost and pricing data. Subcontractors are also subject to TINA if the prime contract is covered under the statute.

The False Claims Act (FCA), 31 U.S.C. §§ 3729-33, provides for civil actions by the government to recover damages and civil penalties against contractors who submit false claims for payment. The FCA covers fraud involving any federally-funded contract or program, with the exception of tax fraud. Penalties for violations of the FCA are severe—the government may recover three times the amount of its loss, plus an additional penalty of between $5,000 and $10,000 for each false document used or each false claim submitted. The FCA allows any person who knows that an individual or company has financially defrauded the federal government to file a “qui tam” lawsuit to recover damages on the government’s behalf.

Qui Tam Actions- 31 U.S.C. § 3730(b)(1) allows a private citizen to bring an action under the False Claims Act on behalf of the United States. The citizen, called a “relator” files the complaint with the government. The government then investigates the complaint and determines whether it will litigate the case or not. Should the government proceed with litigation, the relator is entitled to between 15 and 30 percent of all damages recovered by the government, whether through a judgment or through settlement.

The Anti-Kickback Act prohibits contractors and subcontractors from soliciting, accepting, or attempting to solicit or accept any kickbacks from their subcontractors. This statute is intended to prevent a contractor or subcontractor to receive money in exchange for the award of a subcontract without going through a full and fair competitive process. The Act provides for both civil and criminal sanctions, depending on the nature of the violation.

Labor Statutes

The Davis-Bacon Act, 40 U.S.C. § 276a-2(a), establishes minimum wages for contractor laborers and mechanics working on government construction projects. The U.S. Department of Labor issues wage determinations reflecting current established wages and fringe benefits for various classes of laborers and mechanics. These wage determinations cannot be contracted around, so even if a government contract sets wages for such employees below the applicable wage determinations, a contractor, not the procuring agency, is ultimately responsible for compliance with the Act.

The Walsh-Healy Act, 41 U.S.C. § 351-58, requires contractors to pay their employees no less than the minimum wage prevailing in the locality on government service contracts. The Act prohibits contractors from assigning employees to hazardous or unsanitary working conditions and requires the contractor to post notices of the prevailing minimum wage where employees may see such notices. Penalties for noncompliance with the Act include withholding of contract funds, contract termination, and in extreme cases, debarment.

Bid Protests

What is a bid protest?

A bid protest is a challenge to the award or proposed award of a contract for procurement of goods and services or a challenge to the terms of a solicitation for such a contract. If a contractor who bids on an open government contract believes that it lost unlawfully, or if the award of a government contract was procedurally or substantively defective, a contractor may protest its elimination from the competitive process, or ask to have the contract award set aside and the competition reopened. If a potential protest issues cannot be resolved at the agency level, a protest may be filed with the General Accounting Office (“GAO”) or the Court of Federal Claims (“CFC”).

Who may file a bid protest?

A party has standing to file a protest if it is an “interested party,” meaning an actual or prospective bidder on a government contract with a direct economic interest in the outcome of the bidding process. Generally speaking, in order to be an interested party, a protester must have potentially been in line to be awarded the contract in question if the protest were sustained.

What’s the first thing I should do?

One of the best things you can do is ask the government for a “debriefing” – an explanation of why you lost. You must act very fast – ask the government for a debriefing AS SOON AS you find out you lost – ideally by return mail or fax. Debriefings can save you time, money, and perhaps most importantly, your reputation. The company needs to notify the government of the request to conduct any required debriefings within three days. An attorney need not be present at a debriefing, but the company should strongly consider consulting with a lawyer beforehand.

What if the debriefing proves to me that I should have won?

You can sue the government. It’s called a bid protest – a lawsuit that can be as informal as an aggressive letter directly to the agency, an e-mail or letter to the Government Accountability Office (GAO), or a formal lawsuit to the United States Court of Federal Claims. The Court of Federal Claims should always be considered first, but protests to GAO is often used, and agency level protests may be advisable depending on the circumstances.

Do I have to travel to Washington, DC to file a protest?

No. Protests routinely are done through the mail or electronically (fax or e-mail) although you might need to attend a hearing in Washington.

If I want to file a protest, what’s the most important concern?

Time. The deadline for filing a protest can be short – generally 10 days after learning why you lost depending on the situation. Certain rights, such as an automatic stay, could be lost after just 3 days. Some issues, like the contents or terms of the solicitation, have to be protested by the due date of offers/quotes/bids. Unfortunately, some companies wait a few days before contacting counsel, which may not be a good idea given how short this important deadline is.

What are my odds of winning?

Overall, not that bad (depending naturally on the facts of the case). For example, GAO statistics show that, of all protests that GAO hears, about 45% end up with the protester winning something – another chance to compete in a re-solicitation, for example.

Should I protest to the GAO or the Court of Federal Claims?

The forum to use will depend upon the facts and circumstances of the case. Albo & Oblon prefers to file in the Court of Federal Claims whenever possible.

Why does Albo & Oblon prefer to file in the Court of Federal Claims?

The Court of Federal Claims has many important advantages over the GAO. First the Court of Federal Claims considers violations of law or regulations and arbitrary and capricious agency action; the GAO can only consider violations of law or regulations. Second, the GAO process permits the agency to “fix” its problems on the fly through the Agency Report prepared after the protest is filed, effectively moving the goal posts during the protest itself by permitting it to add facts to the case. The Court of Federal Claims locks the agency into its pre-filing position for a decision on the merits. Finally, federal judges can simply be more independent than GAO hearing examiners, who are federal lawyers. Click here for a white paper on the chief advantage of the Court of Federal Claims over the GAO.

Is it cheaper to file a bid protest in the GAO than the Court of Federal Claims?

No. If you are going to hire an Albo & Oblon lawyer to prosecute your bid protest, the fees are comparable no matter the forum.

Do I need a lawyer for a GAO protest?

No, business people at times do their own protests to GAO. Having an experienced lawyer, though, gives a company several not-so-obvious advantages. For example, a protest using a lawyer makes the agency open up for closer examination more of the agency’s files and thus increases the protester’s chances of finding government mistakes.

Do I need a lawyer for a Court of Federal Claims lawsuit?

Yes. In a federal lawsuit a company usually cannot represent itself. In addition, an outside attorney can obtain and use confidential information that not even a company’s “in-house” lawyers can see.

If I use a lawyer and win, can I get the government to pay my legal fees?

Winning protesters CAN get a portion of their attorney fees back, although there is no guarantee of that. Sometimes winning can involve other helpful direct benefits such as being provided an additional procurement opportunity.

Equitable Adjustments, Claims and Other Performance Disputes

Claims: I Have A Government Contract But The Contracting Officer Is Not Treating Me Fairly, Or The Government Refuses To Pay Us!

What is a government contracts claim?

A claim is a written demand or assertion by one of the contracting parties seeking the payment of money, the adjustment or interpretation of contract terms, or other relief arising under or relating to the contract. A claim can be made by either the government or a contractor. If the government makes a claim, usually it is because it has overpaid a contractor due to some contract change or defective pricing issue on the part of the contractor. A claim is normally resolved under the contract clause that provides for relief to government contractors during contract performance.

Our company is not being paid, and the government owes us lots of money. We can’t afford to wait forever. What can we do?

If the government owes you money, there are laws that force the government to timely pay for correct invoices and also provide for interest if such payment is late. If the government incorrectly asserts your company is not owed money, you can file a claim for payment initially with the contracting officer, and you can then appeal his decision if you believe it’s wrong. Such a claim depending on the amount may have to be “certified,” and counsel can help you understand how that’s done to protect your rights.

How do I make a formal complaint about how I am being treated by the contracting officer?

An ordinary letter to a contracting officer or COTR/COR typically does not have teeth, visibility, or urgency. But a letter that is a “claim” has all three. A claim gets the contracting officer’s attention as well as the attention of the lawyers in the agency. It also opens up the possibility that you can go over the head of the contracting officer and bring your complaint to a court if necessary (the U.S. Court of Federal Claims in Washington, DC) or to an independent board of contract appeals, also in Washington.

Do I have to travel to Washington, DC if I file a claim?

No. The court and Appeal Boards may travel outside of Washington to where the contract is being performed or where the witnesses are located. Regardless, if you retain an experienced law firm in the Washington metropolitan area, the firm can help cover the procedural requirements that are involved.

What is the downside of filing a claim?

One possible downside is that some contracting officers would consider you a trouble-maker or rate your performance on the contract lower because you filed a claim. Filing a claim can be a difficult decision, so it’s important to consult with counsel to gauge the strength and merits of the claim.

What if the contracting officer refuses to answer my claim?

Answer or no answer, you can bring your complaint to the Court or Board of Contract appeals. If the contracting officer does not promptly answer your claim, usually within 90 days, you can ignore the contracting officer’s failure to answer and can then bring the claim directly to the court or a Board of Contract Appeals. The contracting officer cannot ultimately prevent your ability to have the claim resolved by being silent or unresponsive.

What kind of issues can I bring to the contracting officer and court/board of contract appeals?

The most common issue is the government not paying you money that is owed for work performed. The government, for example, may read the contract differently than you do and is making you do work that is not part of the contract. If contracting officer is incorrectly reading the contract or making you do free work, you can take these issues over the contracting officer’s head and get an independent opinion from the court or a board to protect your rights.

Do I have to keep working while I fight it out with the contracting officer?

Yes, you must keep working absent extraordinary circumstances. You cannot stop while you and the contracting officer or court/Board decides who is right. You have a “duty to proceed” with the work and making sure the work gets done.

What happens if the government wants to change the scope of a government contract during performance?

Most government contracts contain a Changes clause, which gives the government unilateral authority to order changes in the scope of work during a contractor’s performance of a government contract. While changes to a government contract can often benefit the contractor by resulting in additional work, they can also create disputes between the government and the contractor. If the government orders a “change” that is within the scope of the original contract, most likely the government will not increase the price of the contract to account for the change. Most disputes here involve a contractor’s claim that the “change” requires work beyond the scope of the original contract, and thus the contractor is entitled to additional payment to cover such a change. The government’s position is often that the “change” is not really a change at all, and since the work being requested of the contractor is within the scope of the original contract, the contractor is not entitled to an upward adjustment of the contract price. A change falls under the general scope of the contract if total work performed is essentially the same work or end product as called for in the original contract.

What is an “Equitable Adjustment”?

If the government agrees that the change is outside the scope of the contract, when these changes impact the cost of performing the contract or its schedule, an equitable adjustment may be used to ensure that a contractor is fairly compensated for additional unanticipated work. However, if the government orders a change in the contract that reduces the amount of work called for in the contract, the government may use and equitable adjustments to lower the overall contract price to account for the change.

Do I need a lawyer to file a claim, or to go over the contracting officer’s head to the court or a board of contract appeals?

You do not need a lawyer to get the contracting officer to consider your claim. If you do not like the contracting officer’s decision and decide to appeal to a Board of Contract Appeals, you do not need a lawyer. However, some claims need to be “certified” with various legal requirements, and if the company does not have counsel it may not preserve its rights. Also, legal counsel can help with various procedural steps to help you protect the rights of the company, such as by pursuing certain discovery and by prosecuting claims before the Court of Federal Claims.,/wptabcontent]

Can I get the government to pay my legal fees?

As with protests, it is possible to get the government to pay a portion of your legal fees. Legal counsel would assist the company to preserve such rights. Keep in mind that the Board or Court of Federal Claims has alternative dispute resolution procedures that may be available to help negotiate cases and perhaps include reimbursement of legal fees to resolve a particular matter.

Small Business Issues

Small, Disadvantaged, and Woman-Owned Business Issues

What is a “Small Business” in government contracting?

Small business size can be determined only by reference to the Standard Industrial Classification (SIC) Code applicable to a procurement or government program. SIC Codes, which can be found at 13 C.F.R. Subpart 121, define business size either in terms of the number of employees or on average annual revenue over a three-year period.

To determine whether a company is a small business, the company first must determine what SIC Code applies to a particular procurement or program. If the company meets the SIC Code requirements, it can then self-certify to the agency that it is a small business, and avail itself of the benefits afforded small business. The Small Business Administration (SBA) works closely with other federal agencies and federal contractors to ensure that small business obtain a fair share of government contracts and subcontracts.

What is a “Woman-Owned Small Business”?

A woman-owned, small business is a small business that is a least 51 percent owned by a woman or a group of women. In addition, a woman-owned business must be operated by a woman. It is not enough if a woman simply owns the majority of the business, but has no real day-to-day involvement in the operation of the business. The management and daily business operations must be controlled by one or more women. If a company meets the definition of a woman-owned business, it can self-certify to the procuring agency. Procuring agencies often have mandates requiring them to award a certain amount of government contracts business to small, disadvantaged or woman-owned businesses.

What is a “Small Disadvantaged Business”?

A small disadvantaged business is small and at least 51 percent owned and controlled by an economically and socially disadvantaged individual(s). SDBs can receive preferences in federal procurement once they are certified under SBA’s SDB certification program. While in the past a business could qualify for these advantages by self-certifying as an SDB in its offer, self-certification is no longer acceptable today. Under SBA’s current regulations, SBA itself must formally certify the business as an SDB Program. Certification is accomplished by obtaining and completing an application for the SDB Program, and having that application approved by SBA. Applications may be obtained on SBA’s Web site at www.sba.gov/sdb/section06h.htm. 8(a) firms automatically qualify for the SDB Program and do not have to apply for certification.

What is the SBA 8(a) Program?

The SBA’s 8(a) Program, named for a section of the Small Business Act, is a business development program created to help small disadvantaged business compete in the American economy and access the federal government contracts market. To qualify as an 8(a) business, a company must (1) be a small business as determined by the applicable SIC Code; (2) be owned and operated by one or more socially and economically disadvantaged individuals or groups of individuals; and (3) be able to demonstrate the potential for success. 8(a) businesses can benefit from teaming arrangements and federal procurement set-aside programs intended to bolster the ability of small disadvantaged businesses to compete and succeed in the government contracts market.

Wage and Hour Compliance

As a condition of doing business with the federal government, contractors are required to comply with special regulations concerning the wages certain employees are to be paid, and the number of hours certain contractor employees can work per week. These regulations are in addition to those wage and hour regulations imposed on all employers. The major wage and hour regulations for government contractors are as follows:

What is the McNamara—O’Hara Service Contract Act (SCA)?

The McNamara-O’Hara Service Contract Act requires government contractors to pay their employees working on federal government contracts the prevailing wage rates and fringe benefits. The Service Contract Act applies to every contract entered into by the United States in excess of $2,500.00. Contractors and subcontractors performing on such federal contracts must observe minimum wage and safety and health standards, and must maintain certain records of compliance with the SCA, unless a specific exemption applies.

Every service employee performing any of the government contract work under a service contract in excess of $2,500.00 must be paid not less than the monetary wages, and must be furnished fringe benefits, which the Secretary of Labor has determined to be prevailing in the locality for the classification in which the employee is working or the wage rates and fringe benefits (including any accrued or prospective wage rates and fringe benefits) contained in a predecessor contractor’s collective bargaining agreement. The wage rates and fringe benefits required are specified in the SCA wage determination included in the contract. If no wage determination has been made applicable to the contract must be paid not less than the minimum wage provided in section 6(a)(1) of the Fair Labor Standards Act, currently $5.15 an hour.

Service contracts which do not exceed $2,500.00 are not subject to wage and fringe benefit determinations or to the safety and health requirements of the SCA.

What is the Davis-Bacon and Related Acts (DBRA)?

The Davis-Bacon Act, as amended, requires that each contract over $2,000.00 to which the United States or the District of Columbia is a party for the construction, alteration, or repair of public buildings or public works shall contain a clause setting forth the minimum wages to be paid to various classes or laborers and mechanics employed under the contract. Under the provisions of the DBRA, government contractors or their subcontractors are to pay workers working on the government construction contract no less than the locally prevailing waged and fringe benefits paid on similar. The Secretary of Labor determines such local prevailing wage rates and publishes the wage rate in “wage determinations.”

A “wage determination” is the listing of wage rates and fringe benefit rates for each classification of laborers and mechanics which the Administrator of the Wage and Hour Division of the U.S. Department of Labor has determined to be prevailing in a given area for a particular type of construction (e.g., building, heavy, highway, or residential).

The Wage and Hour Division issues two types of wage determinations: general determinations, also known as area determinations, and project determinations. Regardless what labor rates are set in a contractor’s government contract, the contractor, not the government, is ultimately responsible for ensuring that employees working on a government contract are being paid in accordance with the prevailing wage rate for that job.

What is the Walsh-Healy Public Contracts Act?

The Walsh-Healy Public Contracts Act applies to contracts which exceed or may exceed $10,000.00 entered into by any agency or instrumentally of the United States for the manufacture or furnishing of materials, supplies, articles, or equipment. The act requires the contractor to be qualified as a manufacturer or regular dealer, establishes minimum wage, maximum hours, and safety and health standards for work on such contracts, and prohibits the employment on contract work of convict labor (unless certain conditions are met) and children under 16 years of age. The employment of home workers on a covered contract is generally not permitted, although there are exceptions for some handicapped employees. The Act also requires the keeping of certain records concerning compliance.

Socio-Economic Program Compliance

Government contracts typically include requirements that contractors comply with various regulations that promote social policy goals. These socio-economic regulations flow down to any subcontractor working under a prime government contract.

What are some of the main socio-economic regulations imposed on government contractors?

A. Major socio-economic regulations government contractors must observe in the performance of their contractors must observe in the performance of their contracts include:

  • Executive Order 11246 and its implementing regulations;
  • Section 503 of the Rehabilitation Act of 1973;
  • The Drug-Free Workplace Act of 1998;
  • The Vietnam-Era Veteran’s Readjustment Assistance Act of 1974.
  • Executive Order 11246 – Affirmative Action Plan
  • All non-construction government contractors with 50+ employees and one or more contracts aggregating $50,000.00 or more per year must develop and maintain a written affirmative action program for each of its establishments. The regulations implementing the Executive Order establish different affirmative action requirements for non-construction (i.e., supply and service) contractors than for construction contractors.
  • Each contracting agency in the Executive Branch of government must include the equal opportunity clause in each of its nonexempt government contracts. The equal opportunity clause further requires that the contractor will take affirmative action to ensure that applicants are employed, and that employees are treated during employment, without regard to their race, color, religion, sex or national origin. American Indian or Alaskan Native, Asian or Pacific Islander, Black, and Hispanic individuals are considered minorities for purposes of the Executive Order. This clause makes equal employment opportunity and affirmative action integral elements of a contractor’s agreement with the government. Failure to comply with the non-discrimination or affirmative action provisions is a violation of the contract.

The U.S. Department of Labor’s Office of Federal Contract Compliance Programs (OFCCP) enforces the Executive Order 11246 and regularly conducts EEO audits and complaint investigations of government contractors. A contractor in violation of E.O. 11246 often must pay the alleged affected “victims” substantial amounts of back pay, front pay and interest to resolved alleged violations of the Executive Order. Further, a contractor in violation may have its contracts canceled, terminated, or suspended in whole or in part, and the contractor may in extreme cases be debarred. OFCCP has established a separate set of regulations to enforce affirmative action within the construction government contracts industry, but penalties for non-compliance are the same.

The Drug-Free Workplace Act of 1998

The Drug Free Workplace Act of 1998 was passed in a national effort to control illegal drug use through the regulation of government contractors. It requires all government contractors to certify that they provide a drug-free workplace, and to publish a statement at each facility listing prohibited drug related behaviors and the actions that will be taken against violators. Contractors are further required to establish an ongoing drug-free awareness program that educates and notifies employees of the availability of counseling programs and the penalties of abuse in the workplace. As a condition of employment, employees of government contractors must notify the contractor of any criminal drug convictions occurring in the workplace, and the contractor in turn must impose a penalty for an employee convicted of a drug violation in the workplace. All violations of the above requirements must be immediately disclosed to the procuring agency. Contractors who fail to comply with the Drug-Free Workplace Act of 1998 are subject to sanction.

The Rehabilitation Act of 1973

Section 503 of the Rehabilitation Act of 1973 predates the Americans with Disabilities Act f 1990. The Act requires affirmative action and prohibits employment discrimination by federal government contractors and subcontractors with contracts of more than $10,000.00 per year. The OFCCP enforces the Rehabilitation Act and conducts periodic audits and complaint investigations of government contractors to ensure compliance. Penalties for a contractor’s noncompliance are similar to those assessed for the violation of other EEO statutes.

The Vietnam-Era Veterans Readjustment Assistance Act of 1974

The law requires that employees with federal contracts or subcontracts of $25,000.00 or more provide equal opportunity and affirmative action for Vietnam-era veterans, special disabled veterans, and veterans who served on active duty during a war or in a campaign or expedition for which a campaign badge has been authorized.

A Vietnam era veteran is a person who (1) served on active duty for a period or more than 180 days, any part of which occurred between August 5, 1964 and May 7, 1975, and was discharged or released with other than a dishonorable discharge; (2) was discharged or released from active duty for a service connected disability if any part of such active duty was performed between August 5, 1964 and May 7, 1975; or (3) served on active duty for more than 180 days and served in the Republic of Vietnam between February 28, 1961 and May 7, 1975.

A special disabled veteran is a person who is entitled to compensation under laws administered by the Department of Veterans Affairs for a disability rated at 30 percent or more; or, rated 10 or 20 percent, if it has been determined that the individual has a serious employment disability; or, a person who was discharged or released from active duty because of a service-connected disability.

Defective Pricing

What is defective pricing?

Defective pricing, under the Truth in Negotiations Act (TINA), occurs where a successful bidder’s contract price is significantly increased because the contractor or subcontractor submitted to the government or to a prime contractor pricing data that was not complete, accurate and current as specified in the contractor’s Certificate of Current Cost or Pricing Data. See FAR 52.215-10(a). All contracts of $500,000.00 or more require bidding contractors to submit a Certificate of Current Cost or Pricing Data with their bid or proposal.

What are the penalties for engaging ion defective pricing on a government contract?

If a contractor has engaged, whether knowingly or not, in defective pricing, the government is generally entitled to a price reduction to remedy any overcharging caused by the submission of defective pricing data. In addition to any adjustment in price, the government is often entitled to interest on any overpayments made by the government based on defective pricing data, and penalties in an amount again equal to the overpayments. Such penalties are assessed by the government against contractors who knowingly submit cost or pricing data that is not accurate, complete and current.

Contractors must be aware of the potential for inadvertently submitting incomplete or inaccurate cost and pricing data to the government. The government takes overpayments based on defective pricing seriously, and will aggressively pursue contractors found to have engaged in defective pricing practices. A contractor’s liability can in some cases extend beyond the repayment of any overcharges, and can include fraud claims against the contractor.

Terminations of Government Contracts

Does the government have the right to terminate a contractor’s government contract?

In some cases, yes. There are two general types of termination actions in government contracts: termination for convenience, and termination for default.

What is a termination for convenience?

A termination for convenience allows the government to terminate all or part of a contract for its convenience and not for the fault of the contractor performing on the contract. Often, the government will terminate for convenience if the products or services covered by the contract are no longer needed or become obsolete.

If the federal government terminates a government contract for its convenience, the contractor or contractors working on the contract must stop work immediately after receiving written notice of the termination. If there are portions of the contract that were not terminated by the government, the contractor or contractors must continue to perform those parts of the contract. With respect to the portions of the contract that have been terminated, the contractor or contractors must close out its work and quickly begin to settle any and all termination claims, including any outstanding claims between the prime contractor and its subcontractors, if any.

After termination, the government is required to settle all claims related to the termination. The government must compensate the terminated contractor for the work already performed, and for any efforts expended in the preparation of future work under the contract. The government must also compensate the terminated contractor some reasonable amount for the contractor’s anticipated profits lost as a result of the termination. In addition, contractors may recover some of their costs associated with the preparation and presentation of claims, costs associated with the termination of the contractor’s subcontracts, if any, and costs associated with the disposal of materials procured by the contractor to be used in the performance of the contract.

What is a termination for default?

A termination for default is the government’s cancellation of part or all of a government contractor on grounds that the contractor has failed to perform its contractual obligations under the contract, or it is anticipated that the contractor will be unable to perform. A termination for default is serious, as it can very well prevent the contractor from being able to successfully compete for future government contracts, and can also result in the contractor being liable to the government for the cost of its replacement on the contract.

In the event of a potential termination for default, the contractor will receive a written notice from the contracting officer that its contract is in danger of being terminated, the reasons therefore, and the notice will often given the contractor a specific period of time to satisfy its performance obligations or risk being terminated. If the government terminates a contractor’s contract for default, the contractor has the opportunity to appeal the decision to the contracting officer of the procuring agency. If the appeal is successful usually the termination for default will be converted into a termination for convenience, a much better outcome for the contractor.

If the contractor is unable to get the termination converted to a termination for convenience, the contractor may be responsible for the payment to the government for the government’s costs, which can often be substantial. Costs can include re-procurement costs, and in some cases, where the termination was a result of intentional contractor wrongdoing, such as fraud, the contractor may be responsible for returning all profits made by the contractor under the government contractor.

Audits and Investigations

Does the government have the right to audit its government contractors?

Yes. The federal government often has the right to audit, inspect and investigate its contractors, and that authority is provided both by statue and by the terms and conditions of a government contract. Many audits conducted during contract performance typically concern financial matters including defective pricing, overcharges, accounting methods, and various compliance issues such as compliance with required socio-economic programs. Government contractors are generally required to maintain records pertaining to contract performance for three (3) years following the contract’s completion.

Occasionally, contractors are the subject of criminal investigations conducted by the various offices of Inspector General, U.S. Department of Justice and the Federal Bureau of Investigations, usually for fraud, disclosure of classified information, or other violations of the laws governing government contractors.

How an audit or investigation is handled from beginning to end can often make the difference between a favorable outcome and one not so favorable. Having legal representation from the very beginning can facilitate the investigative process, and can greatly minimize a contractor’s or individual’s exposure to penalties, both criminal and civil.

Ethics and Compliance issues

The New Business Ethics And Compliance Rules For Contractors

There has been much discussion lately about the recent changes in the Federal Acquisition Regulation (the “FAR”) which require contractors to implement a code of conduct and compliance training. This addresses commonly asked questions about what these changes are, how they impact companies doing business with the government, and how to comply. As discussed below, government contractors should view this change as a unique opportunity to ultimately decrease costs and increase revenues.

What are the recent changes to the FAR?

The changes to the FAR, effective December 24, 2007, were enacted to promote the requirement in the wake of recent procurement scandals that contractors conduct themselves with the highest degree of integrity and honesty. In sum, the new rules require establishing (1) a written Code of Business Ethics and Conduct, and (2) an Employee Business Ethics and Compliance Training Program and internal control system, for companies having a contract with a value exceeding $5 million and performance period of 120 days or more. This applies to primes as well as subs.

Are there any exceptions recognized for government contractors?

Although these rules do not presently cover contracts solely for commercial items, or for work performed entirely outside of the United States, these limited exclusions are probably going to be eliminated later this year under proposed additional changes to the FAR which are likely to come into effect in a few months. Creating a code and training program is not as difficult or expensive one might think, and can be effectively implemented with the help of a law firm that can also perform a risk assessment in a manner that can have the results of that review protected by attorney-client privilege. This aspect of implementation is further discussed below.

How do these changes help me?

There are several reasons why embracing these changes is good for business. It of course helps your company comply with the new requirements, which in turn can help avoid sanctions down the road and demonstrate to the government that the company should be provided leniency on infractions, due to a culture of compliance. Under the so-called “McNulty Factors,” companies undergoing scrutiny by the government for a potential infraction may receive a more favorable conclusion to the problem since the government can view such programs as demonstrating a good-faith culture of compliance if done properly. Improved internal controls on reporting will also help the company drive notice of problems to management to enable effective responses rather than driving complaints outside to IG’s and other officials. Given such examples, it should become apparent that compliance is ultimately more cost-effective than non-compliance. Additionally, implementing these changes can bolster your competitive advantage by staying ahead of the competition and demonstrating to the government as well as your teaming partners that you are fully compliant with the new changes in the law. Demonstrating compliance and a polished approach to your internal controls can also help augment your marketability to your teaming partners to obtain more work and grow revenues. The resultant improvement in risk management procedures will also help to decrease violations and reduce operational costs. Polishing your internal controls and adopting a strong code and program can also help to enhance the valuation of your company.

What happens if I don’t do it?

There are significant risks associated with not following these changes as they apply to your business. You face not be compliant with federal law, and would therefore not be the beneficiary of the more lenient treatment your company would otherwise be positioned to request if it adopted these rules to demonstrate a culture of compliance to the government. The disciplinary impact from such problems could result in increased risk of suspension or debarment for the company as well as individual employees. You also risk losing out on lucrative contract opportunities due to noncompliance since you need to follow these rules on contracts with a value exceeding $5 million and performance period of 120 days or more. Also, your competitors in the marketplace which are compliant with these changes in the FAR will have a competitive leg up on you if you don’t have the program in place.

How do I implement these changes?

A basic two step plan with the assistance of counsel, which involves an initial risk assessment and compliance review, and an implementation and training program, will get you well on your way to achieving compliance. In the first step, the firm assisting with compliance would for example assess your current baseline by reviewing existing policies and procedures; interviewing management and assess current issues; confirming pending contracts and invoicing procedures; determine how problems come to the company’s attention and how they are handled when they arise; and confirm reporting and human resource procedures. The initial assessment and discussion with management leads to the preparation of the Code of Business Ethics and Conduct. In the second step, the firm helps set up and implement the new training program, which the FAR views as necessary to “promote compliance.” As part of that process, it is important to set up a reliable and updated internal control system, to include important elements such as an ethics hotline and fraud hotline poster. Training of staff should be completed on site with a comprehensive training manual covering all pertinent topics. The manual and training should be updated bi-annually. Management needs to be involved in this process from start to finish.

What are the potential benefits of using a law firm to implement this?

The initial risk assessment and compliance review can be conducted by legal counsel, which could be very useful since certain communications may be protected by attorney-client privilege if sensitive issues or problems arise during the initial process and review. Taking steps to preserve the attorney-client privilege may provide an increased degree of comfort to companies undergoing this process. Also, the firm through its compliance counsel can help represent the company with the government and assist on negotiation and related issues as they arise. The company should consider retaining counsel to help implement this program.

False Claims Act and Qui Tam Issues

What is the False Claims Act?

The False Claims Act, 31 U.S.C. §§ 3729-3733, imposes civil liability on any person or entity who submits a false or fraudulent claim for payment to the United States government. In general, the False Claims Act covers fraud involving any federally funded contact or program, with the exception of tax fraud.

The primary activities that constitute violations under the False Claims Act are (1) knowingly presenting (or causing to be presented) to the federal government a false or fraudulent claim for payment; (2) knowingly using (or causing to be used) a false record or statement to get a claim paid by the federal government; (3) conspiring with others to get a false or fraudulent claim paid by the federal government; and (4) knowingly using (or causing to be used) a false record or statement to conceal, avoid, or decrease an obligation to pay money or transmit property to the federal government.

It is also improper to cause someone else to submit a false claim. For example, if a subcontractor provides false information to a contractor, who in turn bills the government based on that false information, the subcontractor is liable for causing the submission of a false claim.

Under the False Claims Act, an action must be filed within the later of the following two time periods: (1) six years from the date of the violation of the Act; or (2) three years after the Government knows or should have known about the violation, but in no event longer than ten years after the violation of the Act.

What is a contractor’s potential liability for violations of the False Claims Act?

Penalties under the False Claims Act can be severe. A person or entity who violates the act must repay three times the amount of damages suffered by the government plus a mandatory civil penalty of at least $5,500.00 per false claim, for all claims made after September 29, 1999.

What is a qui tam action?

Qui tam is a legal principal found in the False Act that allows any person, including corporations, known as whistleblowers, to bring a lawsuit on behalf of the government against anyone who uses government funds in a fraudulent way. Qui tam also allows the whistleblowers who filed the suit to receive a portion of any funds that are recovered by the qui tam lawsuit.

How does an individual recover money in a qui tam action?

To be eligible to recover money under the Act, one must file a qui tam lawsuit. A relator (i.e., qui tam plaintiff) receives an award only if, and after, the government recovers money from the defendant as a result of the lawsuit. A relator can receive between 15 and 30 percent of the total recovery from the defendant, whether through a favorable judgment or settlement. If the government intervenes and joins an action brought by a relator, the relator generally is eligible to receive at least 15 percent, but not more than 25 percent, of the recovery, depending upon the relator’s contribution to the prosecution of the action. If the government chooses not to intervene and the relator proceeds with the action on his own, the relator can receive between 25 and 30 percent of the recovery.

Is it illegal to retaliate against an employee for filing a qui tam action?

Yes. Under Section 3730(h) of the False Claims Act, any employee who is discharged, demoted, harassed, or otherwise discriminated against because of lawful acts by the employee in furtherance of an action under the Act is entitled to all relief necessary to make the employee whole. Such relief may include reinstatement, double back pay, and compensation for any special damages, including litigation costs and reasonable attorneys’ fees.

Suspension and Debarment

What does it mean to be suspended or debarred from working on a government contract?

Suspension is the temporary disqualification of a company or individuals from contracting with the government for up to 18 months. Debarment is the exclusion from contracting for a fixed period of time, up to three years. The government will suspend or debar a contractor usually for one of the following reasons: (1) if the contractor violates a civil or criminal statute, and the violation is severe: or (2) if the contractor seriously violates the terms of its government contract(s) constituting a willful failure to perform such contract(s). The determination as to whether suspension or debarment is warranted is left to the discretion of the procuring agency under F.A.R. 9.402.

What is the effect of being suspended or debarred from competing for government contracts?

A contractor’s suspension or debarment by one government agency usually precludes it from competing for or soliciting any government contracts with any federal agency. GSA compiles a list of contractors who are suspended or debarred, and agencies are thus notified that they may not solicit or award to companies appearing on the list. Contractors who are debarred or suspended are likewise prohibited from competing for or soliciting work as subcontractors under a government prime contact vehicle. A contractor’s suspension or debarment often may not however prevent the contractor from continuing to perform on its existing government prime or subcontracts.

Suspensions and debarments are serious actions, and a contractor faced with either suspension or debarment must have legal representation to respond quickly and effectively to minimize the damage of such proposed actions. Depending on the circumstances behind the suspension or debarment, a contractor may have the opportunity to appeal an agency’s decision to suspend or debar.

Criminal Issues Arising From Government Contracts

Do government contract laws and regulations provide for any potential criminal liability in the procurement or performance of government contracts?

Yes. Major laws and regulations providing criminal sanctions for actions taken in the procurement or performance of government contracts include:

The Anti-Kickback Act, 41 U.S.C.

§§ 51-54, makes it a criminal offense for any subcontractor under a prime government contract to knowingly influence the award of a subcontract by making payments to any higher-level subcontractor or prime contractor.

Under the False Statements Act, Title 19 U.S.C. § 1001, it is a criminal offense for a contractor to make false statements to the government. If a contractor submits a bid or proposal, invoice, certified pricing document or any other submission, written or oral, to the government containing false information, the contractor may be criminally liable for such false statements under the False Statements Act. This Act also provides for criminal penalties against individuals for submitting false statements to the government.

There are both criminal and civil penalties for violations of the False Claims Act, and the government frequently pursues both against contractors who knowingly submit false claims for payment. Contractors may also be criminally liable under the False Claims Act if they improperly and intentionally substitute specific products or services required under a contract with other products or services, without the government’s knowledge or consent.

The Sherman Antitrust Act provides for both criminal and civil penalties against contractors who engage in bid rigging and collusive pricing.

Corporate officers and directors may be held personally liable under many of the above statutes, if they are aware of serious contract compliance violations and consciously fail to resolve such violations.

Does our company face possible criminal exposure in its government contracts business? What if any recent developments have there been in this area, and what can we do to address the issue?

There have been significant developments in Washington directly impacting government contractors. Government contractors need to stay abreast of recent regulatory changes and how they can protect themselves.

In 2006, the Department of Justice announced the formation of the National Procurement Fraud Task Force. This new initiative is aimed at detecting and criminally prosecuting allegedly fraudulent business activities within the rapidly expanding world government contracts. Such focus includes among other things scrutiny of invoices and billing practices.

Dealings with the government are under greater scrutiny than ever before. Increasingly, authorities are relying on criminal prosecution or parallel civil and criminal actions to address alleged wrongdoing. Your company may be facing a wide rage of complicated obstacles. Among the tools at the disposal of regulators are grand jury investigations, subpoenas, and even search warrants. Debarments and Suspensions can block your company from dealing with the government – temporarily or even indefinitely.

Our government contracts practice in conjunction with our criminal defense practice is uniquely qualified to handle the most sensitive of matters. Albo & Oblon attorneys provide a depth of experience arising from both defense and prosecutorial backgrounds. The firm deploys this background to assist government contractors with such white collar issues as they arise. The Firm has an established record of success in dealing with a wide range of white collar defense issues in both Federal and local state courts.

Albo & Oblon represents individuals as well as companies and their executives alike. We provide our clients counseling and representation throughout all stages of a criminal case – from investigation to grand jury, indictment and trial. In certain cases, we are able to resolve disputes through negotiation with regulatory authorities or law enforcement without charges being filed. The Firm counsels companies on how to conduct business to prevent issues from arising, and how to comply with procurement integrity requirements. When prevention is not enough, Albo & Oblon attorneys have extensive litigation and trial experience and are ready to defend our clients aggressively.

Homeland Security

As a condition of doing business with the federal government, contractors are required to comply with special regulations concerning the wages certain employees are to be paid, and the number of hours certain contractor employees can work per week. These regulations are in addition to those wage and hour regulations imposed on all employers. The major wage and hour regulations for government contractors are as follows:

What is the McNamara—O’Hara Service Contract Act (SCA)?

The McNamara-O’Hara Service Contract Act requires government contractors to pay their employees working on federal government contracts the prevailing wage rates and fringe benefits. The Service Contract Act applies to every contract entered into by the United States in excess of $2,500.00. Contractors and subcontractors performing on such federal contracts must observe minimum wage and safety and health standards, and must maintain certain records of compliance with the SCA, unless a specific exemption applies.

Every service employee performing any of the government contract work under a service contract in excess of $2,500.00 must be paid not less than the monetary wages, and must be furnished fringe benefits, which the Secretary of Labor has determined to be prevailing in the locality for the classification in which the employee is working or the wage rates and fringe benefits (including any accrued or prospective wage rates and fringe benefits) contained in a predecessor contractor’s collective bargaining agreement. The wage rates and fringe benefits required are specified in the SCA wage determination included in the contract. If no wage determination has been made applicable to the contract must be paid not less than the minimum wage provided in section 6(a)(1) of the Fair Labor Standards Act, currently $5.15 an hour.

Service contracts which do not exceed $2,500.00 are not subject to wage and fringe benefit determinations or to the safety and health requirements of the SCA.

What is the Davis-Bacon and Related Acts (DBRA)?

The Davis-Bacon Act, as amended, requires that each contract over $2,000.00 to which the United States or the District of Columbia is a party for the construction, alteration, or repair of public buildings or public works shall contain a clause setting forth the minimum wages to be paid to various classes or laborers and mechanics employed under the contract. Under the provisions of the DBRA, government contractors or their subcontractors are to pay workers working on the government construction contract no less than the locally prevailing waged and fringe benefits paid on similar. The Secretary of Labor determines such local prevailing wage rates and publishes the wage rate in “wage determinations.”

A “wage determination” is the listing of wage rates and fringe benefit rates for each classification of laborers and mechanics which the Administrator of the Wage and Hour Division of the U.S. Department of Labor has determined to be prevailing in a given area for a particular type of construction (e.g., building, heavy, highway, or residential).

The Wage and Hour Division issues two types of wage determinations: general determinations, also known as area determinations, and project determinations. Regardless what labor rates are set in a contractor’s government contract, the contractor, not the government, is ultimately responsible for ensuring that employees working on a government contract are being paid in accordance with the prevailing wage rate for that job.

What is the Walsh-Healy Public Contracts Act?

The Walsh-Healy Public Contracts Act applies to contracts which exceed or may exceed $10,000.00 entered into by any agency or instrumentally of the United States for the manufacture or furnishing of materials, supplies, articles, or equipment. The act requires the contractor to be qualified as a manufacturer or regular dealer, establishes minimum wage, maximum hours, and safety and health standards for work on such contracts, and prohibits the employment on contract work of convict labor (unless certain conditions are met) and children under 16 years of age. The employment of home workers on a covered contract is generally not permitted, although there are exceptions for some handicapped employees. The Act also requires the keeping of certain records concerning compliance.