Tensions brew between government and contractors over intellectual property

Tensions are brewing in the defense contracting business over government efforts to secure rights to manufacturers’ intellectual property. The clash pits military buyers who want to break up suppliers’ monopolies against companies whose livelihood depends on keeping tight control over their designs.

With the Defense Department under pressure to slash costs as budgets shrink, officials are targeting weapons programs for potential savings. They are particularly keen on reducing the cost of weapons maintenance and production by opening up the market to new competitors.

To do that in a market that is dominated by single-source manufacturers, the Defense Department needs what is known as “rights in technical data.” When the Pentagon buys a weapon system, it retains unlimited rights to the data if the item was designed with government funds. But when a product is financed by a private company, the firm keeps full control of the intellectual property and the government is simply a buyer.

Except in limited circumstances, contracting officials cannot disclose a private company’s proprietary data outside the government.

As the Pentagon in recent decades has become more dependent on the private sector for high-tech equipment, it now realizes that many of the existing arrangements restrict the government from seeking competing bids for maintenance or production of that equipment unless the manufacturers grant data rights. For most suppliers, that equates to killing the goose that lays the golden eggs.

Keep reading this article at: http://www.nationaldefensemagazine.org/archive/2014/January/Pages/DoDClashesWithSuppliersOverDataRights.aspx 

Georgia men charged in contracting corruption schemes at Albany Marine Corps base

Three Georgia men have been charged in a 51-count indictment for their alleged participation in fraud and corruption schemes at the Marine Corps Logistics Base (MCLB) in Albany, Ga., resulting in the loss of millions of dollars to the United States government.

Acting Assistant Attorney General Mythili Raman of the Justice Department’s Criminal Division and U.S. Attorney Michael J. Moore for the Middle District of Georgia made the announcement after the indictment was unsealed in the Middle District of Georgia today.

Christopher Whitman, 48, co-owner of United Industrial of Georgia Inc. (also known as ULOC), an Albany-based trucking company and freight transportation broker , was indicted on 43 counts of money, property and honest services wire fraud, five counts of bribery and one count of theft of government property.  Shawn McCarty, 36, of Albany, a former employee at the MCLB-Albany, was charged with 30 counts of money, property and honest services wire fraud and one count of bribery; and Bradford Newell, 43, of Sylvester, Ga., also a former employee at the MCLB-Albany, was charged with 13 counts of money, property and honest services wire fraud, one count of bribery, and one count of theft of government property.

The three men were arrested earlier today and appeared before U.S. Magistrate Judge Thomas Q. Langstaff.   Judge Langstaff ordered the three men detained pending further hearings next week.

According to the indictment, Whitman paid nearly $1 million in bribes to Mitchell Potts, the former traffic office supervisor for the Defense Logistics Agency (DLA) at MCLB-Albany, Jeff Philpot, the former lead transportation assistant in the traffic office, and Shawn McCarty, another transportation assistant in the traffic office, to obtain commercial trucking business from the DLA.   The indictment alleges that Potts, Philpot and McCarty used their official positions to defraud the government and benefit ULOC by helping ULOC obtain transportation contracts loaded with unnecessary premium-priced requirements – including expedited service; removable gooseneck trailers, which do not require a loading dock and are therefore more expensive than standard trailers; and exclusive use, which requires that freight be shipped separately from other equipment – even if that results in a truck not being filled to capacity.  The indictment alleges that Whitman and ULOC brokered these shipments for service without the premium specifications and on fewer trucks than requisitioned by DLA, but they billed the government at rates approved by the corrupt officials.   These actions are alleged to have resulted in ULOC profits grossing more than $20 million over less than four years.

Whitman is accused of orchestrating a scheme to steal and sell surplus equipment from MCLB-Albany worth more than $1 million.   Whitman allegedly paid approximately $200,000 in total bribes to Shelby Janes, the former inventory control manager of the Distribution Management Center (DMC) at MCLB-Albany, and Newell, an assistant to Janes, who used their official positions to help Whitman steal surplus equipment from the base, including bulldozers, cranes and front-end loaders.   The indictment alleges that Whitman improved and painted the stolen equipment.

An indictment is merely a charge and the defendants are presumed innocent unless and until proven guilty beyond a reasonable doubt in a court of law.

If convicted, the defendants face up to 20 years in prison for each wire fraud count and 15 years in prison for each bribery count.   The theft count carries a maximum prison term of 10 years.  Each charged count carries a maximum fine of $250,000 or twice the gross gain.

Prior to this indictment, one former ULOC employee and three DLA officials pleaded guilty in connection with the fraud and corruption schemes alleged in the indictment.   On Oct. 10, 2013, Kelli Durham, ULOC’s former manager, pleaded guilty to conspiracy to commit wire fraud, admitting to intentionally overbilling the United States for services ULOC did not perform, resulting in losses ranging from $7 million to $20 million, and for receiving $905,685 for her role.   She faces a maximum penalty of five years in prison.   In May 2013, Potts and Philpot pleaded guilty to bribery for collectively accepting more than $700,000 in bribes; and in February 2013, Janes pleaded guilty to bribery for receiving nearly $100,000 in bribes.   The three former officials each face up to 15 years in prison.

The case is being investigated by the Naval Criminal Investigative Service, with assistance from the Dougherty County District Attorney’s Office Economic Crime Unit, Defense Criminal Investigative Service, DLA Office of the Inspector General, and the Department of Labor Office of the Inspector General.   The case is being prosecuted by Trial Attorneys Richard B. Evans and J.P. Cooney of the Criminal Division’s Public Integrity Section and Assistant U.S. Attorney K. Alan Dasher of the Middle District of Georgia.

Source: http://www.justice.gov/opa/pr/2014/January/14-crm-066.html 

Procurement reform is one of 3 tech trends predicted for 2014

[Note: This article was written by Steve Towns, executive editor of Governing magazine.]

Nobel Prize-winning physicist Niels Bohr famously said, “Prediction is very difficult, especially if it’s about the future.” I tend to agree with him, but as we enter the New Year there are three interrelated technology issues that we can’t ignore. They’ll demand more attention from state and local leaders in 2014.

1. Data Analytics – Governments are great at collecting information, but they often do a lousy job of using it effectively.

2. Civic Innovation – While governments are struggling to get a handle on analytics, many have done a good job of opening data for public consumption.

3. Procurement Reform – One of the biggest barriers to harnessing the growing momentum around civic technology is government procurement.

Keep reading this article at: http://www.governing.com/columns/tech-talk/gov-government-technology-trends-to-watch-in-2014.html

Two sentenced in largest DBE fraud in history

The U.S. Attorney’s Office for the Middle District of Pennsylvania announced on January 13, 2014 that Dennis F. Campbell, of Orwigsburg, Pennsylvania, and Timothy G. Hubler, of Ashland, Pennsylvania, were sentenced by the Senior U.S. District Judge Sylvia H. Rambo in Harrisburg in connection with their roles in what the U.S. Department of Transportation (USDOT) has called the largest Disadvantaged Business Enterprise (DBE) fraud in the nation’s history.

Campbell, Schuylkill Product’a Inc.’s (SPI) former vice president in charge of Sales and Marketing, was sentenced to 24 months’ imprisonment, $119 million in restitution to the USDOT, and two years’ supervised release. Hubler, SPI’s former vice president in charge of Field Operations, was sentenced to 33 months’ imprisonment, $119 million in restitution to the USDOT, $82,370 in restitution to the Internal Revenue Service, and two years’ supervised release. Both men were ordered to surrender to the Bureau of Prisons by February 17, 2014, to commence service of their sentences.

Campbell pleaded guilty to DBE fraud in 2008, and Hubler pleaded guilty to DBE fraud and tax fraud in 2008. Romeo P. Cruz, of West Haven, Connecticut, the former owner of Marikina Construction Corporation, the DBE firm that operated as a front for SPI to gain lucrative DBE contracts, pleaded guilty to DBE fraud and tax fraud in 2008 and 2009, and is scheduled to be sentenced on Wednesday, January 15, 2014. All three men cooperated with the government’s investigation that led to the conviction of the two former owners of SPI, Ernest G. Fink, of Orwigsburg, Pennsylvania, SPI’s former vice president and chief operating officer; and Joseph W. Nagle, of Deerfield Beach, Florida, SPI’s former president and chief executive officer.

Fink pleaded guilty to DBE fraud in 2010. Nagle was convicted after a four-week jury trial in 2012 of 26 charges relating to the DBE fraud scheme. No sentencing date has been scheduled for Fink and Nagle.

“The sentences handed down today, in what is the largest reported DBE fraud case in USDOT history, serve as clear signals that severe penalties await those who would attempt to subvert USDOT laws and regulations,” said Doug Shoemaker, OIG Regional Special Agent in Charge. “Preventing and detecting DBE fraud are priorities for the Secretary of Transportation and the USDOT Office of Inspector General. Prime contractors and subcontractors are cautioned not to engage in fraudulent DBE activity and are encouraged to report any suspected DBE fraud to the USDOT-OIG. Our agents will continue to work with the Secretary of Transportation; the administrators of the Federal Highway, Transit, and Aviation Administrations; and our law enforcement and prosecutorial colleagues to expose and shut down DBE fraud schemes throughout Pennsylvania and the United States.”

According to U.S. Attorney Peter J. Smith, the DBE fraud lasted for over 15 years and involved over $136 million in government contracts in Pennsylvania alone. SPI, using Marikina as a front, operated in several other states in the Mid-Atlantic and New England regions. Although Marikina received the contracts on paper, all the work was really performed by SPI personnel, and SPI received all the profits. In exchange for letting SPI use its name and DBE status, Marikina was paid a small fixed-fee set by SPI.

The scheme lasted as long as it did because of the numerous fraudulent steps the co-conspirators took to conceal the scheme. SPI personnel routinely pretended to be Marikina personnel by using Marikina business cards, e-mail addresses, stationery, and signature stamps, as well as using magnetic placards and decals bearing the Marikina logo to cover up SPI’s logo on SPI vehicles.

SPI and its wholly owned subsidiary, CDS Engineers, was sold in 2009 and was based in Cressona, Pennsylvania. SPI manufactured concrete bridge beams, as well as other suppliers’ products. CDS was SPI’s erection division and installed SPI’s bridge beams, as well as other suppliers’ products. USDOT provides billions of dollars a year to states and municipalities for the construction and maintenance of highways and mass transit systems on the condition that small businesses owned and operated by disadvantaged individuals receive a fair share of these federal funds. The DBE fraud here involved SPI’s use of Marikina’s name and status to obtain DBE contracts that it was not entitled to receive.

The investigation was conducted by the FBI, the USDOT Inspector General’s Office, U.S. Department of Labor Inspector General’s Office, and the Criminal Investigation Division of the Internal Revenue Service. Senior Litigation Counsel Bruce Brandler handled the prosecution.

Source: http://www.fbi.gov/philadelphia/press-releases/2014/two-former-vice-presidents-of-schuylkill-products-inc.-sentenced-in-largest-disadvantaged-business-enterprise-fraud-in-nations-history

Five provisions in the new defense policy legislation for contractors to watch

[Note: Contractor compensation, the acquisition process, personnel security, cloud computing, and cyber security are five issues recently identified by The Washington Post as especially significant to government contractors.  The following article provides details.]

With the military policy legislation known as the National Defense Authorization Act signed by the president over the holidays, contractors are looking for the changes that matter to them. We’ve singled out five measures that will be of interest to companies that work with the federal government.

Keep reading this article at: http://www.washingtonpost.com/business/capitalbusiness/five-provisions-in-the-new-defense-policy-legislation-for-contractors-to-watch/2014/01/03/f6dd00ec-6c10-11e3-a523-fe73f0ff6b8d_story.html 

GAO releases report on bid protests in FY13

The Government Accountability Office (GAO) recently released its annual report to Congress on bid protests filed and acted upon during fiscal year 2013 (FY13).

The report reveals that during FY13, the GAO received 2,429 cases, including 2,298 protests, 56 cost claims, and 75 requests for reconsideration.   A total of 2,538 cases were closed during the fiscal year.

Notably, the most prevalent reasons for sustaining protests were: 1) failure on the part of federal agencies to follow their stated bid or proposal evaluation criteria; 2) inadequate documentation of the record by agencies; 3) unequal treatment of offerors; and 4) unreasonable price or cost evaluation.

Further details can be seen on the following chart.

FY 13 Bid Protest Stats - GAO

FY 13 Bid Protest Stats - GAO - notes to chart

A copy of the complete GAO report can be accessed here: GAO Bid Protest Annual Report to Congress FY 13 – Jan. 2 2014



Accenture to replace CGI as HealthCare.gov contractor

The Obama administration has decided to jettison from HealthCare.gov the IT contractor,CGI Federal, that has been mainly responsible for building the defect-ridden online health insurance marketplace and has been immersed in the work of repairing it.

Federal health officials are preparing to sign early next week a 12-month contract worth roughly $90 million with a different company, Accenture, after concluding that CGI has not been effective enough in fixing the intricate computer system underpinning the federal Web site, according to a person familiar with the decision who spoke on the condition of anonymity in order to discuss private negotiations.

Accenture, one of the world’s largest consulting firms, has extensive experience with computer systems on the state level and built California’s large new health-insurance exchange. But it has not done substantial work on any Health and Human Services Department program.

The administration’s decision to end the contract with CGI reflects lingering unease over the performance of HealthCare.gov even as officials have touted recent improvements and the rising numbers of Americans who have used the marketplace to sign up for health coverage that took effect Jan. 1.

The government is able to sever its relationship with CGI readily because the company’s contract to work on the exchange is to run out at the end of February. Federal officials had the option of extending it for another year and possibly two more times, or of not renewing it. While rejecting a year’s extension, federal officials are discussing with company executives ways to try to ensure a smooth transition, according to individuals familiar with the conversations.

Keep reading this article at: http://www.washingtonpost.com/politics/obama-administration-to-end-contract-with-cgi-federal-company-behind-healthcaregov/2014/01/10/001eb05a-719e-11e3-8b3f-b1666705ca3b_story.html

Michigan subsidiaries of Georgia company to pay $3.8 million for falsely claiming DBE credits

The Justice Department announced on Jan. 9, 2014 that two related entities, Michigan-based Cadillac Asphalt LLC (Cadillac) and Michigan Paving and Materials Co. (MPM), have agreed to pay $3.8 million to resolve allegations that they falsely claimed Disadvantaged Business Enterprise (DBE) credits on a number of federally funded transportation projects.  Both Cadillac and MPM are subsidiaries of Oldcastle Materials Inc., a construction material and services provider based in Atlanta.

“The Disadvantaged Business Enterprise program helps businesses owned by minorities and women to work on federally funded projects,” said Assistant Attorney General for the Justice Department’s Civil Division Stuart F. Delery.  “Those who falsely claim credits under the program to obtain federal funds victimize both the taxpayers and the businesses that the program is designed to assist.”

“The U.S. Attorney’s Office works with the Civil Division in Washington to use civil enforcement to recover funds for taxpayers,” said U.S. Attorney for the Eastern District of Michigan Barbara L. McQuade.  “In this case, civil attorneys were able to recover more than $3 million that was obtained through false claims.”

The settlement announced today resolves allegations that Cadillac and MPM knowingly and falsely claimed DBE credit for asphalt purportedly supplied by a DBE known as BN&M Trucking Inc.  As a condition of federal funding, contractors, such as Cadillac and MPM, working on a federally funded project must make a good-faith attempt to meet DBE participation goals.  For the contractors to meet their DBE participation goal, a DBE employed by the contractors must be independently responsible for performing a portion of the work with its own employees and equipment.  Allegedly, BN&M Trucking was merely a pass-through company that did not supply any asphalt or perform any other commercially useful function.

“We remain steadfast in our commitment to maintaining the integrity of the U.S. Department of Transportation’s (USDOT) Disadvantaged Business Enterprise program,” said regional Special Agent-in-Charge of USDOT’s Office of Inspector General Michelle T. McVicker.  “Working with the Secretary of Transportation, other DOT leaders and our law enforcement colleagues, we will continue to protect the taxpayers’ investment in our nation’s infrastructure from fraud, waste, abuse and violations of law.”

The allegations resolved by the settlement involved numerous federally funded transportation projects in Michigan between 2006 and 2010, including a project to construct a new runway at Detroit Metropolitan Wayne County Airport in 2008 and 2009.  In November 2010, two other entities, John Carlo Inc. and Angelo Iafrate Construction Co. Inc., paid more than $1 million to resolve similar allegations related to the airport runway project.

This case was handled by the Justice Department’s Civil Division, Commercial Litigation Branch, the U.S. Attorney’s Office for the Eastern District of Michigan and the Department of Transportation Office of Inspector General.  The claims settled in this case are allegations only; there has been no determination of liability.

GSA develops new building maintenance strategy, seeks private industry help

The General Services Administration wants industry feedback to help develop a new governmentwide program to maintain federal buildings.

GSA issued a request for information Dec. 18 tasking the private sector with providing best practices to assist in creating a new comprehensive building maintenance and operations services program that includes HVAC, elevator maintenance, janitorial services, grounds maintenance and utilities, the RFI says.

The federal government holds more than more than double the square footage of the top five commercial real estate companies in the United States combined. Federal Acquisition Service Commissioner Tom Sharpe said in the RFI that the new program “has the opportunity to significantly change the way the government approaches the services used to maintain and operate its buildings and structures, saving money and streamlining processes.”

Keep reading this article at: http://www.fiercegovernment.com/story/gsa-develops-new-building-maintenance-strategy-seeks-private-industry-help/2014-01-07

Defense budget set for 2014-15, but requires reconciliation

President Barack Obama signed on Dec. 26, 2013 two key pieces of legislation that detail the Defense Department’s budget for fiscal year 2014 and the federal government’s budget for fiscal years 2014 and 2015, detailed in a Reuters report.

Ros Krasny writes the signed defense authorization bill gives the Pentagon $526.8 billion in fiscal 2014, but the two-year budget compromise reached by congressional budget committee chairs Sen. Patty Murray and Rep. Paul Ryan allocates $498 million in Pentagon spending.

A final defense budget number will need to be reconciled early in the new year, Krasny reports.

Under the government-wide budget deal, spending will increase by $63 billion over sequester levels in fiscal years 2014 through 2015, Reuters reports.

Keep reading this article at: http://www.executivegov.com/2013/12/defense-2-year-budget-bills-paint-fy-2014-15-spending-picture/