Georgia Tech Procurement Assistance Center

Waiting for the final government audit may be too late

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In a case of first impression, a Court of Appeals has held that a government subcontractor’s claim for reimbursement of its actual indirect costs was time-barred.

Fluor Fed’l Solns. LLC v. PAE Applied Techs, LLC, No. 17-1468, 2018 WL 1768233 (4th Cir. Apr. 12, 2018) (per curiam) (unpublished).  It is the first case to directly address the interplay between the Allowable Cost and Payment Clause of the Federal Acquisition Regulation (FAR), 48 C.F.R. § 52.216-7, and a statute of limitations.  It highlights the risks government subcontractors face when they choose to wait for a Government audit rather than litigate promptly after a payment dispute arises.

This case involved a long-term subcontract and a long-delayed government audit.  In 2002, Fluor and PAE entered into a federal government subcontract that ultimately spanned a 15-year performance period. The subcontract incorporated, with minor changes, the FAR Allowable Cost and Payment Clause, 48 C.F.R. § 52.216-7, found in most cost-reimbursable federal government contracts and subcontracts. That clause requires the Government (or, in this case, the prime contractor, PAE), to pay Fluor’s “anticipated final” indirect rates in accordance with the contract terms, subject to retroactive adjustments once a government audit establishes the subcontractor’s final indirect rates applicable to the contract. 48 C.F.R. § 52.216-7(e)–7(g).

Keep reading this article at: https://www.insidegovernmentcontracts.com/2018/07/waiting-final-government-audit-may-late/

How construction contractors can use mechanic’s liens to avoid getting ‘burned’

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Mechanic's LienGetting paid in the private construction business — whether it involves a particularly evasive general contractor or an owner who’s in a tight financial spot — can be a challenge. Fortunately, no matter the size of their legal budgets, contractors have an alternative to waiting out a check indefinitely, and it’s called a mechanic’s lien.

Mechanic’s liens, usually the collection tool of last resort, protect a contractor’s interests by creating an encumbrance, or monetary claim, on the project property, be it commercial or residential. The lien is public record, and, much like a loan on a vehicle or a mortgage, it must be satisfied — paid— before the owner can provide clear title to a buyer or another lender in case of a refinance. Unlike a home or auto loan, however, mechanic’s liens exist specifically to ensure that those who provide services and materials to a construction project are paid.  

Steps to filing a lien

In most states, the right for contractors to file a mechanic’s lien is not automatic, as there are some legal hurdles to jump. Usually within a certain timeframe, contractor must let the owner know in writing that they are providing services to the project, and notice has to be given in a way that can be proven down the road — such as certified mail, overnight delivery or hand delivery with a signed receipt.

Keep reading this article at: http://www.constructiondive.com/news/how-contractors-can-use-mechanics-liens-to-avoid-getting-burned/418037/

FAR Council adds new layer to small business subcontracting rules

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On January 20, 2016, the FAR Council published a proposed rule calling for changes to the Federal Acquisition Regulation (FAR) Parts 19 and 52 that address payments to small business subcontractors.

The FARThe proposed changes, which are intended to implement regulations adopted by the Small Business Administration (SBA) in 2013, will expand the range of small business-related obligations imposed on prime contractors.

The proposed rule stems from the Small Business Jobs Act of 2010, which, as noted in a previous post, called for regulations governing prime contractors’ compliance with their small business subcontracting plans. Among the Act’s requirements was that prime contractors notify their contracting officer if they pay a “reduced price” or make an “untimely payment” to a small business subcontractor.  Although the SBA adopted regulations implementing this statutory directive in July 2013, the Far Council is taking on the task for the first time.

Keep reading this article at: http://www.natlawreview.com/article/far-council-adds-new-layer-to-small-business-subcontracting-rules

Comments on the proposed rule must be submitted by March 21, 2016.  Comments should reference “FAR Case 2014-004” and may be submitted by mail, email, or online. 

Augusta man pleads guilty to filing false timesheets on NSA subcontract

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Jesse James Anderson, 34, of Augusta, Georgia pled guilty last week to a charge that he made false statements, in violation of 18 U.S.C. § 1001.  The false statements concerned the number of hours he worked for a National Security Agency (NSA) subcontractor.

NSAAccording to evidence presented during the guilty plea hearing, Anderson worked as a linguist for an NSA subcontractor from February 1, 2012 to January 31, 2014.  During this time, Anderson submitted numerous timesheets falsely stating the number of hours he had worked.  In total, Anderson claimed he worked 736.25 more hours than he actually did, which caused the United States to pay out $69,276.55 more than was actually owed.

United States Attorney Edward J. Tarver said, “False claims submitted to the United States for payments not owed is theft and should be punished to the full extent of the law.  Protecting taxpayer money is a top priority for this United States Attorney’s Office.”

Anderson faces a maximum penalty of 5 years in prison and a $250,000.00 fine.  In addition, the Court can order Anderson to pay restitution in the amount of $69,276.55.

NSA Office of Inspector General Investigator Kristen M. McGrath conducted the investigation which led to the information and plea.  Assistant United States Attorney C. Troy Clark is prosecuting the case on behalf of the United States.

Source: http://www.justice.gov/usao-sdga/pr/former-employee-nsa-subcontractor-pleads-guilty-filing-false-timesheets

Defense agency faulted for wrongful challenge to contractor

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The Defense Contract Audit Agency’s decision to reject $6.6 million in a contractor’s claimed costs in fiscal 2008 did not comply with generally accepted government auditing standards, the Defense Department’s watchdog found.

The probe of a complaint received over the inspector general’s hotline substantiated a challenge to methods used by auditors in DCAA’s Central Region.

Keep reading this article at: http://www.govexec.com/contracting/2014/12/defense-agency-faulted-wrongful-challenge-contractor/102063/

FAR formally amended to provide accelerated payments to small subcontractors

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For two years, it has been the policy of individual agencies of the federal government to encourage prime contractors, upon receipt of progress payments from an agency, to accelerate payments to small business subcontractors.  Now, this policy has been formalized by publication of a rule and contract clause in the Federal Acquisition Regulation (FAR), effective December 28, 2013.

Here is the background.  The Department of Defense (DoD), the General Services Administration (GSA), and the National Aeronautical and Space Administration (NASA) originally published a proposed rule in the Federal Register at 77 FR 75089 on December 19, 2012, to implement OMB Memorandum M–12–16 that would provide for the acceleration of payments to small business subcontractors.  OMB released  Memorandum M–12–16, Providing Prompt Payment to Small Business Subcontractors, on July 11, 2012. This policy memorandum outlined the steps agencies should take to ensure that prime contractors pay their small business subcontractors as promptly as possible.  OMB released Memorandum M–13–15, Extension of Policy to Provide Accelerated Payment to Small Business Subcontractors, on July 11, 2013.  This policy memorandum extended the OMB
Memorandum M–12–16’s expiration date by one year to July 11, 2014.

With the publication of a formal rule in the FAR, the accelerated payment policy is now in effect, government-wide.  Below is the clause that is to be placed in all federal contracts containing subcontracting opportunities:

FAR Part 52.232–40 

Providing Accelerated Payments to
Small Business Subcontractors (Dec. 
2013)

(a) Upon receipt of accelerated payments
from the Government, the Contractor shall
make accelerated payments to its small
business subcontractors under this contract,
to the maximum extent practicable and prior
to when such payment is otherwise required
under the applicable contract or subcontract,
after receipt of a proper invoice and all other
required documentation from the small
business subcontractor.
(b) The acceleration of payments under this
clause does not provide any new rights under
the Prompt Payment Act.
(c) Include the substance of this clause,
including this paragraph (c), in all
subcontracts with small business concerns,
including subcontracts with small business
concerns for the acquisition of commercial
items.

Shutdown begins to affect contractors

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Beyond the financial pinch of stalled contracts and delayed payments, federal IT contractors are beginning to face hiring and regulatory compliance issues as the partial government shutdown wears on.

Shuttered online services at Citizenship and Immigration Services (CIS) and the Commerce Department, for instance, are on TechAmerica’s list of top shutdown-related problems.

E-Verify — the service that allows employers to confirm eligibility to work in the U.S. for new hires via I-9 employment forms — won’t be available until CIS gets its funding restored. E-Verify is the only operation at CIS funded by an appropriation.

Keep reading this article at: http://fcw.com/Articles/2013/10/08/shutdown-affects-contractors.aspx?Page=1 

Obama wants small businesses paid in 15 days

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The government will be paying some small businesses in half the time under a new proposal by President Barack Obama.

Obama announced his new “QuickPay” plan on Sept. 14. It requires agencies to cut checks in 15 days, instead of 30 days, after they receive a valid invoice. The 15-day payments apply only to prime contractors.

“Today I’m ordering all federal agencies to make sure those small-business owners get paid a lot faster than they do now. In many cases, it will be twice as fast. So that puts more money in their pockets quicker, which means they can hire folks quicker,” Obama said Sept. 14 in Raleigh, N.C.

The plan goes into effect immediately.

The administration decided getting cash to companies is necessary in these economic times and moved the payment deadline under the Prompt Payments Act, Jacob Lew, director of the Office of Management and Budget, wrote in a memo released Sept. 14.

“When small contractors get their money in 15 days instead of 30, it results in a permanent infusion of cash flow into their businesses,” Small Business Administration Administrator Karen Mills said in a statement. “Their financial footing gets stronger — permanently.”

Lew is also telling agency officials that by November, they must tell OMB officials when they began paying small businesses in 15 days and the name of the federal official responsible for it.

The government awards nearly $100 billion annually in federal contracts to small firms, and sending money out quickly would help those companies in tough times, officials said.

Rep. Sam Graves (R-Mo.), chairman of the House Small Business Committee, applauded the president’s new plan.

“Small businesses bring more competition and reduced prices to federal contracting, so we should make sure the federal government pays them in a timely manner, especially considering most of them are operating on tight profit margins and trying to do more with less,” he said.

On Sept. 8, Obama said the government could help struggling small-business contractors by sending payments more quickly.

Joe Jordan, associate administrator of government contracting and business development at the SBA, said the 15-day mark benefits small businesses the most while not forcing agencies to change or modify their automated systems or processes.

“It really has a great confidence component,” he said.

“By taking actions that will enable these payments to be made as promptly as possible, we will improve cash flow for small businesses and provide them with a more predictable stream of resources,” Jeffrey Zients, chief performance officer and deputy director for management at OMB, wrote in a new post on OMB’s blog.

 

About the Author: Matthew Weigelt is a senior writer covering acquisition and procurement for Washington Technology.  Published Sept. 14, 2010 at http://washingtontechnology.com/articles/2011/09/14/small-business-15-days-paid.aspx?s=wtdaily_150911

Feds offer peeks at companies’ subcontract relationships

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The federal government is the newest occupant in the peep-show district of the business world.

It has moved in with its business partners peep show, a place where anyone — no matter their age — can get a glimpse of what’s happening between government contractors and their partners.

The place where everything’s transparent — the USAspending.gov website — is giving intimate peeks into business relationships with its new subcontracting award information, which went online in December.

To grab people’s attention, the government can advertise that it’s the only place where people have an opportunity to watch company relationships grow closer and then apart as business changes.

The government’s massive website of contracting data posted its first subcontracting award information in December, wrote Jacob Lew, director of the Office of Management and Budget, on the OMB Blog last month. It’s another step toward the ultimate goal of the Federal Funding Accountability and Transparency Act. For the first time, the public can track a government agency’s payments to a contractor and the contractor’s payments to its subcontractors.

Until now, two companies’ relationship was for the two companies alone. Government officials had regarded the details of relationships between contractors and subcontractors as something they shouldn’t release, said Kevin Plexico, senior vice president for research and analysis services at Input.

That has changed now, though, as officials pull back the curtain on companies’ partnerships.

In early December, Lew wrote that USAspending.gov had roughly 930 subcontracting awards posted, accounting to about $750 million in federal funding.

“We expect this number to increase significantly over time, but it represents a critical milestone in our efforts [to provide] the public with unprecedented transparency into how and where tax dollars are spent,” he wrote.

The show will include some veterans who are used to having their spending figures available for all to see. As prime contractors, they’ve had to do it for years. It comes with being a federal contractor. However, there will be some companies who’ve never shown that much information before.

The transparency requirements “may be uncomfortable for the subcontractors, who, by the way, are not typically exposed to this kind of reporting,” Plexico said.

Nevertheless, the data might be good. The peeks at companies could impress other businesses interested in potential partnerships.

As the amount of subcontractor data increases, “it should be a useful tool for companies and agencies to gain insight into partner relationships and patterns,” Plexico said. The data could also help companies find qualified subcontractors and give more insight into their past performance.

— Posted on Federal Computer Week website, http://fcw.com, by Matthew Weigelt on Jan 03, 2011

Defense takes aim at contractor business systems

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The Defense Department is getting tough on contractors that fail to maintain adequate controls against waste, fraud and abuse.

In a draft rule posted Friday in the Federal Register, Defense proposed allowing contracting officers to withhold payments from companies with certain deficiencies in their business systems.

A clause would be added to contracts requiring firms to certify that they have no major defects in their systems for accounting; purchasing; estimating; and property, earned value and material management. The notice outlined the criteria for a sound business system in the six areas.

Contracting officers would have the authority to withhold payments on cost reimbursement, incentive-type, time-and-materials, and labor-hour pacts, according to the proposed rule. They also could do so on contracts that provide progress payments based on costs or on a percentage or stage of completion.

“Weak control systems increase the risk of unallowable and unreasonable costs on government contracts,” the draft rule stated.

The proposal relies on auditors from the Defense Contract Audit Agency or other “functional specialists” to document any business system deficiencies.

If companies fail to fix documented problems, or do not submit a corrective action plan within 45 days, then contracting officers could immediately begin withholding 10 percent of the payments under the contract, the notice stated. If firms submit an acceptable corrective action plan but do not completely remedy the identified deficiencies, then contracting officers could withhold 5 percent of each payment.

For companies with defects in multiple business systems, generally the cumulative percentage of payments withheld could not exceed 50 percent, the rule said.

Penalties would increase significantly if the problems are not addressed. Withholdings could reach 100 percent for deficiencies deemed “highly likely to lead to improper contract payments being made,” or problems representing “an unacceptable risk of loss to the government.”

The contracting officer and the auditor must approve any corrections to business systems, according to the proposal.

The business systems of Defense contractors, particularly those operating in Iraq and Afghanistan, have come under intense scrutiny recently.

Last year, the congressionally chartered Commission on Wartime Contracting examined a selection of reports on contractor business systems associated with $43 billion of work and found auditors had deemed half the systems for billing and compensation “inadequate” and prone to unallowable costs. Panel staffers uncovered somewhat smaller problems with the systems used for accounting, budget, electronic data processing, indirect and overhead costing, labor and purchasing.

During an August hearing, commission members cited a lack of cooperation between the Defense Contract Management Agency and the Defense Contract Audit Agency as one of the biggest impediments to oversight of contractors’ business systems.

The commission noted in its June 10, 2009, interim report to Congress, that “significant deficiencies in contractor systems increase the likelihood that contractors will provide proposal estimates that include unallowable costs or that they will request reimbursement of contract costs to which they are not entitled or which they cannot support.”

Comments on the proposed rule will be accepted until March 16 and can be e-mailed to dfars@osd.mil with DFARS Case 2009-D038 in the subject line.

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