Defense bill asks if contractors are gaming bid protests

Lawmakers want to know if Defense Department contractors are gaming the bid protest process, according to language included in the National Defense Authorization Act.

The NDAA, which passed out of House Armed Services Committee on a 60 to 2 vote April 30, instructs DoD to commission a study regarding how Defense Department contractors use – and possibly manipulate – the bid protest process.

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FY 13 Bid Protest Stats - GAO

Cloud contractor to pay U.S. $9M to settle false claims charges

Global Computer Enterprises, a now-defunct federal contractor, and its owner Ray Muslimani, agreed to pay $9 million to the federal government to settle charges that GCE hid its use of prohibited employees on federal contracts with the Department of Labor and the U.S. Equal Employment Opportunity Commission.

GCE supplied a cloud-based financial management service. GCE allegedly concealed is use of engineers and other employees who could not work on federal contracts due to their citizenship or U.S. immigration status.

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Former head of engineering firm fined $4.5 million for 20 years of contract fraud

The former president, chief executive officer, and chairman of the board of a New Jersey-based international USAIDengineering consulting company was sentenced today to 12 months of home confinement and fined $4.5 million for conspiring to defraud the U.S. Agency for International Development (USAID) with respect to billions of dollars in contracts over a nearly 20-year period, U.S. Attorney Paul J. Fishman announced.

Derish Wolff, 79, of Bernardsville, New Jersey, previously pleaded guilty before U.S. District Judge Anne E. Thompson to a superseding information charging conspiracy to defraud the government with respect to claims. Judge Thompson imposed the sentence on May 8, 2015 in Trenton federal court.

According to documents filed in this case and statements made in court:

  • Wolff, the former president and CEO of Morristown, New Jersey-based Louis Berger Group Inc. (LBG), and the former chairman of LBG’s parent company, Berger Group Holdings Inc. (BGH), led a conspiracy to defraud USAID by billing the agency on so-called “cost-reimbursable” contracts – including hundreds of millions of dollars of contracts for reconstructive work in Iraq and Afghanistan – for LBG’s overhead and other indirect costs at falsely inflated rates.
  • USAID, an independent federal government agency that advances U.S. foreign policy by supporting economic growth, agriculture, trade, global health, democracy, and humanitarian assistance in developing countries, including countries destabilized by violent conflict, awarded LBG hundreds of millions of dollars in reconstruction contracts in Iraq and Afghanistan as well as in other nations. LBG calculated certain overhead rates and charged USAID and other federal agencies these rates on cost-reimbursable contracts, which enabled LBG to pass on their overhead costs to the agency in general proportion to how much labor LBG devoted to the government contracts.
  • From at least 1990 through July 2009, LBG, through Wolff and other former executives, intentionally overbilled USAID in connection with these cost-reimbursable contracts. The scheme to defraud the government was carried out by numerous LBG employees at the direction of Wolff.
  • Wolff targeted a particular overhead rate, irrespective of what the actual rate was, and ordered his subordinates to achieve that target rate through a variety of fraudulent means. From at least as early as 1990 through 2000, Wolff ordered LBG’s assistant controller to instruct the accounting department to pad its time sheets with hours ostensibly devoted to federal government projects when it had not actually worked on such projects.
  • At an LBG annual meeting in September 2001, Salvatore Pepe, who was then the controller and eventually became chief financial officer (CFO), presented a USAID overhead rate that was significantly below Wolff’s target. In response, Wolff denounced Pepe, called him an “assassin” of the overhead rate and ordered him to target a rate above 140 percent, meaning that for every dollar of labor devoted to a USAID contract, LBG would receive an additional $1.40 in overhead expenses supposedly incurred by LBG.
  • In response, Pepe and former controller Precy Pellettieri, with Wolff’s supervision, hatched a fraudulent scheme from 2003 through 2007 to systematically reclassify the work hours of LBG’s corporate employees, including high-ranking executives and employees in the general accounting division, to make it appear as if those employees worked on federal projects when they did not. At his plea hearing on Dec. 12, 2014, Wolff admitted that Pepe and Pellettieri, at Wolff’s direction, reclassified these hours without the employees’ knowledge and without investigating whether the employees had correctly accounted for their time, and at times did so over an employee’s objection.
  • In addition to padding employees’ work hours with fake hours supposedly devoted to USAID work, Wolff instructed his subordinates to charge all commonly shared overhead expenses, such as rent, at LBG’s Washington, D.C., office to an account created to capture USAID-related expenses, even though the D.C. office supported many projects unrelated to USAID or other federal government agencies.

On Nov. 5, 2010, Pepe and Pellettieri both pleaded guilty before then-U.S. Magistrate Judge Patty Shwartz to separate informations charging them with conspiring to defraud the government with respect to claims. Also on that date, LBG resolved criminal and civil fraud charges related to Wolff’s and others’ conduct. The components of the settlement included:

  • A Deferred Prosecution Agreement (DPA), pursuant to which the U.S. Attorney’s Office in New Jersey suspended prosecution of a criminal complaint charging LBG with a violation of the Major Fraud Statute; in exchange, LBG agreed, among other things, to pay $18.7 million in related criminal penalties; make full restitution to USAID; adopt effective standards of conduct, internal controls systems, and ethics training programs for employees; and employ an independent monitor who would evaluate and oversee the company’s compliance with the DPA for a two‑year period;
  • A civil settlement that required the company to pay the government $50.6 million to resolve allegations that LBG violated the False Claims Act by charging inflated overhead rates that were used for invoicing on government contracts; and
  • An administrative agreement between LBG and USAID, which was the primary victim of the fraudulent scheme.

In the settlement, the government took into consideration LBG’s cooperation with the investigation and the fact that those responsible for the wrongdoing were no longer associated with the company.

U.S. Attorney Fishman credited special agents of USAID-Office of Inspector General, under the direction of Special Agent in Charge Daniel Altman; the FBI, under the direction of Special Agent in Richard M. Frankel; the U.S. Department of Defense, Defense Criminal Investigative Service, under the direction of Special Agent in Charge Craig W. Rupert; and the former Office of the Special Inspector General for Iraq Reconstruction, under the direction of former Special Inspector General Stuart W. Bowen Jr., for the investigation leading to today’s sentencing. He also thanked the U.S. Attorney’s Office, District of Maryland, and the U.S. Department of Justice Civil Division for their roles in the case.


GAO investigation into small business contracting fraud called for

This article was written by Lloyd Chapman, president of the American Small Business League. 

California Rep. Janice Hahn (D) has drafted an amendment to H.R. 1481 that would call for a new GAO investigation into fraud and abuses in federal small business contracting programs. In a March 25 hearing, Hahn Fraud Waste Abusequestioned whether the 23 percent of all federal contracts the SBA claimed were awarded to small businesses actually went to legitimate small businesses based on research done by my staff at the American Small Business League. She referenced firms such as Disney, Apple, Chevron, and Bank of America have been the actual recipients of federal contracts in FY2011 and FY2012 that the SBA claimed had been awarded to small businesses.

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SBA urges GSA to delay implementation of proposed transactional data reporting requirement

On May 4, 2015, the Office of Advocacy of the U.S. Small Business Administration wrote the General Services Administration (GSA) regarding a proposed rulemaking for the collection of transactional data on Federal Schedule and non-Federal Schedule contracts.

GSA’s proposed rule involves the creation of a Common Acquisition Platform (CAP), an online marketplace to identify best-in-class contracts issued by GSA or other agencies.  The proposed rule would impose a Contractor Access Fee (80 Federal Register 11620, March 4, 2015).  The regulation proposed by GSA would create an immediate government-wide transactional data reporting requirement for non-Federal Supply Schedule (FSS) contracts. The requirement would be phased-in for FSS contracts.

The Office of Advocacy wrote GSA on May 4, 2015, regarding the proposed regulation and recommended postponing the rulemaking to conduct a formal stakeholder outreach process throughout the country.  Specifically, SBA’s Advocacy Office:

  • Urged GSA to conduct a more detailed impact assessment of this proposed rule on small businesses and take into consideration the rate of small business participation in the acquisition process and not just focus on the percentage of dollars being awarded to small businesses.
  • Would like GSA to examine the potential unintended consequences of this rule on small business resellers.  Most small businesses that are on a GSA schedule are value added resellers to the same original equipment makers who are also on GSA schedules.  Because of the lack of data in the Initial Regulatory Flexibility Analysis (IRFA), it is unclear how GSA will balance the potential conflict between these two business entities.

See Advocacy’s complete comments at

For more information, contact SBA’s Major Clark at 202-205-7150 or

Software vendors be warned: The old rules may no longer apply to government

Software vendors take notice: The General Services Administration (GSA) is proposing a new rule regarding something arcane but important.

GSA logoGSA has identified 15 terms and conditions common in commercial supplier agreements that it considers incompatible with existing federal law. And where there is a conflict, government’s own commercial terms rule. It’s designed to save everyone time. Vendors won’t have to comb their contracts for offending clauses — they just can’t be enforced.

For now it applies to any GSA contract that includes software. But don’t rule out the possibility of the rule going governmentwide.

For example, GSA is forcing an end to automatic renewals of period-limited software licenses or maintenance agreements. Instead, ordering agencies will award one-year with renewal options to be negotiated and re-awarded in subsequent years. The legal basis for this is that a contracting officer may not obligate funds that have not been appropriated, lest he or she be found in violation of the Anti-Deficiency Act.

Keep reading this article for a complete description of all the nullified terms and conditions:

FBI readies multimillion dollar contract for cyber expertise

Finding the right workforce talent is never easy, but it’s a particularly challenging feat for the Federal Bureau of Investigation, which frequently requires subject matter experts with high clearances and diverse skill sets.

FBI SealTo fill its growing list of unique openings — especially in the cybersecurity arena — the FBI plans to contract out professional, management and support services for up to $100 million, according to a request for proposal synopsis posted last week.

The upcoming RFP, expected to be released by May 6, seeks a contractor with “the ability to recruit, retain and replace” operational subject matter experts.

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Contractors oppose plan to centralize Pentagon commercial purchasing

The largest contractors trade organization has asked the House Armed Services Committee to rethink several components of its bill to reform the Pentagon’s acquisition process, opposing in particular a plan to centralize decision-making on whether to buy products on the existing commercial market.

pentagon-sealThe 400-company Professional Services Council on April 17 sent a letter to committee Chairman Rep. Mac Thornberry, R-Texas, and top Democrat Rep. Adam Smith, D-Wash., calling their bill (H.R. 1597) a step in the right direction, but raising several objections over provisions they said might place contractors at a disadvantage while complicating acquisition management.

Thornberry’s Agile Acquisition to Retain Technological Edge Act is designed to streamline the acquisition process, modernize military technology and enhance workforce training.

But the bill’s plan to have the Defense secretary designate an individual to make determinations on whether an item sought by a Pentagon unit is commercially available “would likely result in actions contrary to Congress’ desire to foster greater reliance on commercial items and, at the same time, reduce competition,” said the letter from council President and CEO Stan Soloway, who served as an undersecretary of Defense during the Clinton administration.

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Contractor alert: Suspensions and debarments keep climbing

The 2014 numbers are in – and they confirm that Federal marketplace remains volatile for government contractors.

Suspensions - FY 2010-2014

Debarments - FY2010-2014

According to the Interagency Suspension and Debarment Committee (ISDC), Federal agencies saw an uptick of about 14% in suspension and debarment proceedings.  Such exclusion proceedings remain among the chief tactics for combating alleged instances of fraud and misconduct in government contracting.  Overall, the ISDC reports that debarment actions rose from 1,696 in 2013 to 1,929 debarment actions in 2014.

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GAO doubles down on FedBid ruling

The GAO has sustained a second protest based upon FedBid’s suspension of a contractor from its system.

For the second time in less than one week, the GAO held that the contractor’s suspension from FedBid–and resulting inability to bid on a contract–was improper because the matter was not referred to the SBA under the SBA’s Certificate of Competency procedures.

GAO-GovernmentAccountabilityOffice-SealThe GAO’s decision in Latvian Connection, LLC, B-410981 (April 6, 2015) involved a Department of the Interior RFQ for the fabrication and installation of mobile shelving system components.  The procurement was conducted through FedBid’s electronic reverse auction system.

Latvian Connection, LLC, wished to compete for the award.  However, in July 2014, FedBid suspended Latvian Connection’s FedBid user account.  The FedBid suspension notice stated, in part: “System and Business Integrity: Latvian Connection has taken actions to repeatedly and purposely interfere with FedBid’s business relationships.”

Since Latvian Connection’s FedBid account was suspended, it was unable to compete for the procurement.  Latvian Connection filed a GAO protest.  It argued, in part, that its exclusion from the competition was a negative responsibility determination, which should have been referred to the SBA.

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